Q2 2022 Coupa Software Inc Earnings Call

September 7, 2021

Yeah.

[music].

We will conduct a question did answer session. If you would like to ask a question you May press star one on your Touchtone pad at any time, if anyone should require assistance. During the conference. Please press star zero on your Touchtone pad at any time as a reminder, this call is being recorded I would now like to introduce your host.

For today's conference call Mr. Steven Horwitz of V. P of Investor Relations. Mr. Horowitz you may begin your conference.

Thank you.

Afternoon, and welcome to <unk> Software's second quarter Conference call. Joining me today are Rob Bernstein, Cooper, CEO and Tony to Scania.

Chief Financial Officer.

Our remarks today include forward looking statements about guidance and future results of operations strategies market size products competitive position and potential growth opportunities. Our actual results may be materially different forward looking statements involve risks and uncertainties and assumptions that are described in our most frequently most recently filed 10-Q.

These forward looking statements are based on our beliefs and assumptions today and we disclaim any obligation to update any forward looking statements. If this call is replayed. After today. The information presented may not contain current or accurate information. We also present, both GAAP and non-GAAP financial measures a reconciliation of certain of these measures is included in today's earnings release, which.

You can find on our Investor Relations website, a replay of this call will also be available unless otherwise stated growth comparisons are against the same period of the prior year with that I will now turn the call over to Rob Rob.

Thanks, Steve I hope, everyone had an enjoyable and safe Labor day weekend.

Let me start with a few highlights from this quarter, our 15th quarter of execution as a business.

49% growth from calculated billings of $179 million in revenue.

Now more than three years of consecutive quarterly non-GAAP profitability and roughly $2 eight trillion in cumulative spend under management.

This strong financial performance is highlighted by the following indicators of a steadily improving business environment.

We're seeing sales cycles continue to move towards normalizing, even if there is still a bit longer than where they were before the pandemic.

We're seeing enterprise customers companies become more engaged as evidenced by the increased number of seven figure deals we closed this quarter.

We're seeing global scale and improved predictability in our mid market business.

We continue to welcome new Cooper pay customers with another quarter of achieving 30% plus attach rates on new deals we're rapidly deploying our supply chain design and planning solutions and helping customers save millions in sourcing production raw materials and transportation costs.

We're realizing early dividends from our Japanese joint venture in the form of both pipeline and early wins.

And these are just some of the recent highlights.

But with all this encouraging news about Cooper and our business. It's clear that we are still very much living through a time when companies are operating with a heightened level of uncertainty.

While we are witnessing as the companies are doing their best to adapt to this uncertainty.

Now our Cooper business spend index report that was released last week illustrates that our customers are doing just that they're adapting to this uncertainty.

While the BSI data shows that global order per customer activity has returned to pre pandemic levels. The increased supplier to buy a ratio illustrates our companies are diversifying diversifying their supply base to de risk supply chain disruptions.

The BSI data also shows an increasing lack of correlation between Covid case spikes and order patterns, which would imply that companies have taken the need to become more adept regarding continuity of operations.

As the leader in our industry, we see our customers approaching this need for agility head on and proudly. The Cooper platform is a critical element of their strategy.

Let me share an example.

Our distribution heavy customers are running into unprecedented bottlenecks with transportation.

In many cases trucking companies haven't been able to increase their personnel quickly enough to meet increasing demand.

This forces them to figure out not only how to source the transportation, but also how to do so without paying exorbitant fees.

Our supply chain design and planning solutions are helping identify where these shortages will impact the customer ahead of time at which point a dynamic sourcing event could be kicked off to engage multiple suppliers, while maintaining fair prices and high quality of service.

This is just one example of how continuous design and redesign is leading to significant improvements in agility.

By enabling our customers to create rapid digital twins of their supply chain, we're taking technology, that's already revolutionized health care and the auto industry and bringing it to all DSM customers.

Lowering them to thrive in this time of uncertainty.

In my view this is the future of modern back office operations and at Cooper The futures arrive.

And speaking of the future of this quarter also marked the launch of the Cooper application market.

Cooper App marketplace.

The Cooper App marketplace gives customers, an easier and smarter way to extend the power of our platform without marketplace. We're enabling quick access to solutions, such as supply chain insights supplier risk analysis, it management and much more.

Many of the solutions included a ready to use right off the virtual shelf.

This is also the very first marketplace in the business spend management space that empowers users to customize their experience, making it a more powerful tool to share information automate workflows and conduct key tasks.

We proudly have more than 70 applications on boarded already with over 20 more in the pipeline.

The more customers participate more powerful our platform will become and helping them comprehensively address their spend.

Now as you've heard me say the third wave of our strategy is powered by community Dot AI as you'll recall the first wave is focused on capturing all spend comprehensively. The seconds is focused on optimizing every dollar spent with sweet synergy and the third is amplifying community value with our platform.

For those of you new to this wave of our strategy. Let me illustrate a few examples of how this third wave is already delivering for our customers.

The most straightforward is via Cooper advantage.

With Cooper advantage, we pool customer spending to provide more value through prenegotiated contracts, giving customers access to better pricing from trusted suppliers like UBS national rent a car zoom Staples home Depot office depot and many many more.

Then there's the intelligence component of Cooper of community Dot AI, where we pull customer data.

When I say data I'm, not just referring to transactions, but the combination of transactions configurations and outcomes.

This is more than just information its intelligence and it helps customers and a host of ways.

One of those ways is risk mitigation.

To illustrate one of our customers recently leveraged this intelligence to discover that a particular supplier had a high error rate, which led to a more in depth investigation and as a result, the risky supplier was removed from a clinical drug trial.

The third component is collaboration a pooling not of spend our data, but a brainpower as I've said many times, we're not a products company, where our value as a service company and that values amplified because of our growing community that is getting smarter together every single day.

To that end Cooper is quickly becoming the place for spend management professionals to share insights and best practices and because of the platform Embeds. These opportunities for collaboration within the process of conducting transactions. This collective wisdom is at their fingertips, when theyre, making key decisions.

For example, say you're beginning a sourcing event on the platform one you've never tried before a context aware suggestion may come up referring you to other community members, who opted into sharing their experiences with launching similar events at their companies.

This is of course, just the tip of the iceberg. These solutions will only continue to become more and more valuable as we develop the third wave of our strategy and there are community Dot AI vision becomes realized.

Now, let's talk about ESG.

We published our inaugural environmental social and governance report.

It talks about our focus on achieving carbon neutrality the employee resource groups, we've launched to support our diverse employee base and the hundreds of thousands of dollars, we've donated toward scholarships and charities.

But we're just one company and as proud as we are of the work. We're doing we're equally proud of how we're enabling others to do so as well.

A lot of companies have made sincere commitment to ESG initiatives, but it's not as simple as free in your mind and the rest will follow we believe we have a role to play by helping companies shortened the distance between intention and impact.

With thousands of customers millions of suppliers and trillions of dollars of business spend we're leveraging our scale and the power of our community to enable companies to do just that.

A great example of this is chip a brambles company.

<unk> relies upon our supply chain design and planning software to reduce waste engage in strategic planning save cost and create circularity.

Kept that aims to eliminate waste and minimize the consumption of resources through continual reuse.

The key to supporting this has been the use of flow optimization strategies that are there to implement and assess the most efficient and environmentally friendly transportation modes and routes.

The Cooper chip is significantly reducing waste while simultaneously optimizing their logistics.

Another area of ESG impact is meeting sustainability and diversity benchmarks. This is another area, where we and our community Dot AI focus are making a big difference for many of our customers.

Cooper dynamically highlight suppliers that meet sustainability and diversity benchmarks and does so at the point of potential transaction.

Provides real time prescriptions, so that our customers are more easily able to support their desire to engage with more minority owned businesses and work with suppliers that are diverse and focused on sustainability.

Now switching to our core values my colleagues and I are proud of the impact we are making.

So let me share this quarter's most valuable player awards at Cooper.

Let me start with Constance Caillat, who was recognized for our first core value of ensuring customer success.

Constance is adept at building positive trusting relationships with customers. She has been particularly instrumental and helping our European customers deploy our spend analysis solutions driving visibility and value for their organizations.

Next sell all laughter was recognized for its <unk>, our second core value focusing on results.

<unk> has an incredible work ethic and cares deeply about getting the right result, no matter, how large or small to test for.

Catching potential errors and a credit posting to keeping our business moving fast with complex order approvals.

<unk> is uniquely driven.

Leads by example, and inspires a modem.

Around him.

And finally, Kyle Dowling was recognized for demonstrating our third core value striving for excellence.

That's just one example, Cal take the initiative to organize a cross training series between our core source to contract and our contract lifecycle management teams to strengthen the knowledge within the overall.

Recently, a customer asked if they could steal callaway.

Thankfully cultures to stay on our continued journey together.

Ultimately for US everything comes back to executing on our strategic vision area is spelled out in the letters of our company name C. O U P. A to bring the most comprehensive open user centric prescriptive and accelerated approach to the market as we partner.

With our community of customers to deliver them unprecedented value as a service.

With that let me now hand, the call over to our CFO Tony <unk>.

Thanks, Rob and good afternoon, everyone Q2 was a great result across the board for all key financial metrics.

We delivered strong topline growth driven by rich levels of engagement with customers and partners strong momentum in the area of back office optimization and outstanding execution by our teams in both the enterprise and mid market.

We also delivered strong bottom line results in terms of gross margin operating margin and cash flows as.

As we enter the back half of the year, we continue to be excited about our business and our focus on continuing to drive growth by unlocking incredible value for our customers employees and partners.

With that let's dive right into the details of our second quarter results.

Calculated billings for Q2 were $195 million.

Up 49% year over year.

For the second quarter in a row and on the back of stellar sales execution, we more than doubled new business compared to the prior period.

We also have seasonally strong calculated billings contribution.

From supply chain design and planning, formerly lomonosov coming in at $25 million.

Total revenue for the quarter was $179 million.

Up 42% year over year subscription revenue was $156 million up 40% year over year.

Strong new bookings and favorable linearity and the timing of deal closure contributed to our Q2 subscription revenue performance.

We also delivered solid results in terms of gross margin operating margin cash flow and other financial metrics.

Our Q2 non-GAAP gross margin was approximately 71, 5%.

While non-GAAP operating income was $27 million or 15% of total revenue.

Non-GAAP net income was $20 million or 26 per share on approximately 77 million diluted shares.

These results were significantly ahead of our Q2 expectations.

This can be primarily attributed to strong outperformance on the top line.

Faster than expected realization of synergies from the supply chain design and planning integration.

Q2, operating cash flows were a record $41 million and adjusted free cash flows were $37 million.

Cash at quarter end was $634 million up from $600 million a quarter ago.

In terms of complementing growth with profitability.

We continued to deliver strong results from our rule of 40 perspective, where the current and trailing 12 months calculation of approximately 59%.

As a reminder, we define the rule of 40 as the trailing 12 month revenue growth rate.

The trailing 12 months adjusted free cash flow margin.

Before moving onto guidance.

Sure some additional color on calculated billings.

As you know, we typically don't provide a detailed breakdown of organic versus inorganic because thats not aligned with how we run our business.

Our focus is to quickly integrate our acquisitions and the go to market as a business spend management platform rather than a menu of distinct products.

We also don't monitor distinct product separately from our financial statements or P&L perspective, when making decisions about our business.

Whether we leveraged one set of financial and operating results.

With that said this quarter I'd like to provide some additional data points.

We estimate that the Q2 calculated billings contribution from supply chain design and planning was approximately $25 million.

This included approximately approximately $10.0 million from professional services and about one $5 million from term licenses.

Overall, we are pleased with the migration of our supply chain customers from term license to subscription as evidenced by a reduced license revenue now.

Net.

Last quarter marked the one year anniversary of the Cooper Treasury acquisition, formerly balance, which means no inorganic contribution should be considered going forward only a nominal contribution should be considered for Q2 as the anniversary date was in the first half of the quarter in early June.

Finally, as a reminder.

The acquired deferred revenue from Berlin in Q2 of last year was $6.0 million.

This was a onetime benefit that should be backed out from last year's calculation.

When when calculating the compare figure for calculated billings.

Based on these figures year over year organic Q2 calculated billings was in excess of 30%.

With that let's now turn to guidance.

I'll begin by laying out some of the background.

As evidenced by our financial results our business has been re accelerating as a pandemic wins, however, similar to last quarter.

I'd be remiss, if I didn't mentioned that customers and prospects continue to operate with some level of caution and that the delta variant and other variance have some feeling uncertain about the potential impact on their business.

So while we are excited about our prospects for the back half of the year. We continue to incorporate a heightened level of caution in our outlook with that said I'll now share our expectations for the third quarter and full fiscal year.

We expect total Q3 revenue of 178% to 177% to $178 million.

This includes subscription revenue of $158 million to $159 million.

Professional services and other revenue of approximately $19 million as we continue to execute on our strategy of migrating legacy Lama soft term license arrangements to subscription and shifting professional services to partners the trend for professional services and other revenue will continue to decline and this is by design.

The transition will also be a headwind in Q4 on a year over year compare basis as last year professional services from Lama upper at their height and there were still significant term licenses being recognized in our professional services and other line items as we previously noted despite some of the near term financial noise the transit.

<unk>. This transition is in the best interests of all our stakeholders and most importantly, our customers.

As we carry on with the transition I encourage investors to look more towards subscription revenue results rather than our total revenue results as an indicator of growth.

For calculated billings on a trailing 12 month basis, we expect to exit Q3 at a year over year growth rate of approximately 41%.

Our estimate contemplates a significantly lower contribution from supply chain design and planning for <unk> in Q3 compared to Q2.

We expect Q3 non <unk> gross margin of approximately 69%. We expect Q3, non-GAAP operating income of $6 million to $7 million and non-GAAP net income of $1 million to $2 million, resulting in non-GAAP net income per share of 1% to three.

On approximately 77 million diluted shares for the quarter, We expect Q3 adjusted free cash flows of approximately $10 million.

Moving onto the full year, we expect total revenue of $706 million to $708 million. This includes subscription revenue of $616 million to $618 million and.

<unk> services and other revenue of approximately $90 million.

Moving down the income statement for fiscal 'twenty, two we plan to continue investing in our business to capture the clear market opportunity. As a result, we expect non-GAAP gross margin of approximately 69% non-GAAP operating income of $40 million to $41 million and non-GAAP net income of 21 to 22 million.

This results in non-GAAP net income per share of <unk> 27 to 29.

On approximately 76.5 million diluted shares for the year, we reiterate our expectation that adjusted free cash flows will be up on an absolute dollar basis year over year for fiscal 'twenty two.

Before wrapping up prepared remarks.

We've got a couple of new folks joining the coverage team and I wanted to remind everyone that in Q4 of last year, we had a onetime opening deferred revenue benefit of $22.0 million for Lomonosov for calculated billings. This should be backed out of the compare period for calculated billings when we deliver Q4 results. This year, we will remind you about this.

Next quarter, when we give Q4 guidance that concludes our prepared remarks, we'd now be happy to take your questions operator.

Thank you Mr forward, ladies and gentlemen, if you have a question. Please press star one on your Touchtone telephone.

Okay.

We'll take our first question from Ryan Macdonald with Needham.

Hi, Thanks for taking my questions and congrats on a really strong quarter here.

I guess the first one I have is really around the calculated billings beat here you talked about really the strength.

With supply chain here.

Curious as you look at the pipeline and the increased demand there and what are you seeing in terms of mix of demand between sort of the legacy on prem versus subscription offerings.

Sure. So let me say first of all Ryan Thanks for the nice words.

Yes.

This isn't just a matter of supply chain on Prem or cloud. This is about business spend management more broadly and so when we look at the pipeline. We're just seeing a great deal of enthusiasm around companies wanting to address this whole set of challenges comprehensively.

Just to give you a sense for that obviously.

On the more traditional core application side are seeing value in supply chain design, and planning and vice versa, but what they are all seeing as the overall business spend management opportunity now within the supply chain design and planning area Theres, a great deal of interest and enthusiasm around the cloud version I mean did the extensibility and flexibility and <unk>.

Figure ability of that cloud offering is really second to none and is helping us lead in a whole host of deals and now that we're unlocking suite synergy between that and our.

Cooper sourcing optimization area is even more promising so very very positive overall and definitely driven an inclined by a push towards towards the cloud solutions and Ryan just to add one thing there as you noted we had nearly 50% calculated billings growth in total for our business. Although we did have a good contribution for.

<unk> soft this quarter of $25 million when you back that out in a couple of other adjustments that I noted we were still in excess of 30% organically for the business.

Alright, and then maybe Tony just as a follow up.

Great to see the cost synergies coming through earlier than expected can you just talk about a few areas, where you really were able to drive some of those synergies quicker more quickly than expected.

Yes, I mean of course.

Our overall operating income result, there was a strong top line beat first and foremost I mean, we benefited from not only double net new business again for the second quarter in a row, but also strong linearity in the quarter versus you know, sometimes you can see a more of a backend loaded quarter.

On top of that I would say, we executed incredibly well across the board.

The <unk> acquisition has been three quarters.

And running now in this coming quarter Q3 to be our last quarter and as far as taking advantage of cost synergies with hosting with alignment of our teams.

Just incredibly strong execution across the board, which I think results from experience that we have.

Executing on integrating acquisitions and incredible dedication by the team.

Hi.

And congrats again.

Sure.

Your next question is from Bob Napoli with William Blair.

Thank you.

Okay.

Yeah.

Okay.

Hi, there.

We can hear you, yes, sorry, sorry.

Sorry about that.

A question on the marketplace.

And I mean, you've added a number of products are.

To do that with a big pipeline and how do you expect.

The marketplace to affect your business over the medium to long term.

Sure Bob Thanks for the question look I. The main purpose of the marketplaces to foster and grow the partner ecosystem around us.

This business spend management opportunity is is really sizable.

No we've defined the marketed.

Tens of tens of billions of dollars globally in mid market and enterprise and.

And across the board internationally. So the reality of that we've been able to hit every component and every type of use case that a customer would whatever expect is not likely in the near term. So we want to build an ecosystem around us and the fact that so many great emerging companies.

And developed companies are building on our on our marketplace is going to make it so much easier for our customer community to begin to subscribe to these applications and have them pre integrated with the core Cooper platform. So again, another way to just grow our overall ecosystem for the benefit of the customer community that we're creating.

Rob and then just to follow up on the gross margin really nice rebound in our gross margin.

This quarter, but it's a little bit confused on the gross margin guide it seemed.

I was just wondering.

No Tony if you could just give me a little more color around the guide for the third quarter versus the actuals for the second quarter.

Sure Bob.

Last quarter I believe we guided in the 66 to 67 range. This quarter, 69% gross margin on certainly we had a strong performance this quarter coming in at 71, 5% in total.

We realize that we have a massive growth opportunity ahead of us and as we look to build scale, we want to maintain the flexibility to increase and kind of move the dials on investments as we see fit.

We're leaving us those degrees of freedom.

Your next question is from Brad Sills with Bofa Securities.

Oh, Great Hey, guys. Thanks for taking my question congratulations on a real nice quarter I wanted to ask about just the environment, we've seen a number of back office.

Application providers see some uptick this quarter, you're certainly seeing it.

What are you hearing from CFO and CIO is with regards to plans for kind of refresh and.

Is this kind of a catch up at some pent up demand here in pipeline would you say or is it just a function of more digital transformation accelerating as we're getting into reopening. Thank you so much.

Sure Brad I mean, my sense for it is that it is digital transformation taking hold.

And finally really beginning to take hold in the areas, where we operate largely in the back office and look just to give you a sense I mean, just in this quarter, we had more seven figure enterprise deal so certainly than last quarter.

We had our first ever seven figure deal in the mid market this quarter, which which was very interesting and when you look at the texture of these transactions. They are not sort of just pent up.

Demand unlocked they are transformational deployments of business spend management.

Of our business spend management platform.

That is going to help these folks recognize incredible operational efficiency the agility that they simply don't have without these these types of applications fully deployed.

And so I think it is more of the latter of the two options that you shared but.

We'll see how it plays out but that's what we're feeling here no doubt that's good.

Great. Thanks, Robin with that with that record quarter. In these bigger deals that you mentioned is that a function of Cooper moving up market kind of in an ongoing basis or is it more customers are committing to more components of the stack and we used to be procure plus invoice. It sounds like now you are seeing real traction with sourcing supplier management.

How much of this is a function of.

Just wider footprint on the initial sale and even potentially upsell acceleration here as well versus.

Just to move up market. Thank you so much.

Yeah, No. It's a great question and I think it's worthwhile for everyone listening to understand this is we don't have our continued move upmarket. We have three really strong businesses in enterprise and upper mid market and mid market, which have a really strong growth rate have a very strong sales and marketing.

<unk> see to them.

That are operating in and of themselves separately as very good strong businesses, having said that all when you look in aggregate and by the way individually the average.

Subscription annual subscription price point has continued to grow in all segments virtually every quarter now for 50 quarters, Brad which is very very encouraging and that is not just a mobile market that is a continued move to deliver more and more of the BSM footprint more and more of the value as a service to our customers both upfront as you noted.

As well as for those that stay with us and add on more components all of that boils down to this vision lock, we have with our customers around digitally transforming their back office operations through modern business spend management solutions.

Your next question is from Peter Levine with Evercore.

Okay.

Peter If you are speaking we can't hear you.

And Peter you made operator.

Okay.

Okay, well just move onto our next question. Your next question is from Stryker back with Wolfe Research.

Okay.

Hi, Thanks for taking the question here.

So.

Number two part you talked about the economic environment not quite back to pre COVID-19 levels, but can you just talk about how that's changed over the past three months. When you last gave US an update and then we seek really positively about your pipeline and your late stage pipeline, but sales cycles are also not quite back yet how those conversion rates.

Trending and then when you look to the back half of the year, how does that pipeline between the larger enterprise price and maybe the small and medium businesses. Thank you.

Sure I mean, there were a lot of questions. There, let me address it at the key level, where I think you were going in terms of pipeline the pipeline appears quite healthy across segments.

I look at it today I will tell you without question, we have our largest pipeline we've ever had.

As we enter Q3 and we're seeing this pace of sales cycles continue to improve they are not quite.

Where they were pre pandemic, but they're continuing to improve.

It's a delicate thing right I mean, when we saw what the variant that the delicate thing things were moving a lot quicker baring came maybe slowed down a little bit so it's a little bit touch and go but generally speaking when you kind of zoom out.

Big growing pipeline faster versions and most importantly, this clear acknowledgment on behalf of CFO and frankly, <unk> that they need to digitally transform their back office are particularly in the area of how they they.

They spend money on their business.

Your next question is from Terry Tillman with Trulia.

Hey, guys. This is Joe Meares on for Terry Thanks for taking the questions really appreciate it.

Just thinking in terms of international markets. What are you guys seeing in terms of propensity and willingness to buy.

Our sales and bookings comparing to the U S market right now or are you seeing more growth in the mid market side is supposed to answer side internationally.

Although the two slices are international on them by segment as I mentioned earlier, all segments are doing very very well and continuing to to improve and get closer and closer to pre pandemic levels in terms of international our strategy has always been an organic expansion internationally.

We entered Europe, many years ago with a handful of folks and landed our first customers and leverage those references to land more and more and more and now Europe represents.

Very significant portion of our business, we're seeing the same dynamic happening in other areas of the world and in South America.

And parts of Asia, and South Africa, and other locations so healthy and.

They are I wouldn't say there are any statistically significant.

Off roads in any particular market that are consistent with where they are calling out maybe tony like that yes, just to add some additional color. So for this quarter, we will report, 59% U S revenue contribution of 41% International.

We've kind of steadily been on around that 60.40 range for quite a bit of time now.

And Rob pointed out some of our expansion Latin America and <unk> is still early.

And also we've been seeing some good early progress with our.

Our Japanese business as a result of our joint venture.

Super Helpful. And then just a quick follow up any update on the U S Federal government side.

The government side in the U S.

Sure I, probably know a particularly meaningful update this quarter beyond what we shared last quarter.

We're fed ramp ready moderate we've passed many of the rigorous tests required which was the arguably the hardest part of all of that.

The next steps are to complete our audit and we're working with a customer and a third party assessment firm for that.

And we see some real opportunity there.

A lot of that will likely begin to truly materialize in the back half of <unk>.

Next year, but good progress.

In city state and federal.

But not not anything overly statistically say them again to call on the call.

Your next question is from Brian Peterson with Raymond James.

Congrats on the quarter gentlemen, the upsides definitely invoke but Rob just one high level. One for me it's interesting to me that there is.

As always such a high ROI.

We're in the platform, but youre also hitting a very strategic dynamics right with supply chains and everything else is just it's beyond hard dollar savings so.

If we're thinking about that value as a service framework, how much does pricing come up as part of the conversation relative to conversations prior to the pandemic just curious to get your thoughts there. Thank you.

Well, that's a great question Ryan Thank you.

You know pricing always comes up at some level in our market because some of the folks involved in in championing our offerings or evaluate our offerings.

Our job to create some level of a competitive environment.

And choose amongst the options, having said that as you could see.

With a very very honest and fair spirit.

Of pricing our average annual subscriptions have gone up virtually every quarter as I mentioned for <unk>.

Now 50 quarters and that Hasnt changed in the last four to six that we've been.

<unk> the pandemic what customers want is number one high likelihood of success, we think by far we offer that better than anyone else in the market highest likelihood of success. They want time to market. They want to get deployed quickly in an accelerated way that the a and cooper they want the value and the ROI to be justifiable.

And the price to value equation for what we offer is unlike anything I've seen in my two.

<unk> 27 year career in enterprise software. So I think we're in a really really good spot with that and as long as we continue to be focused on.

Fantastic honest conversation with our customers being real trusted advisors to them and being maniacally oriented toward ensuring their customer success.

I think we sit in a really good spot in the market.

Good to hear thanks, Rob.

Your next question is from city Pentagon with Mizuho.

Hi, Thanks for taking my question, Rob I know you want to talk about BSM platform, but just wondering any color in terms of trained our attach rate of this contract management or even Treasury management and also specifically Cooper travel have you seen any recovery in that part of the business.

Well, if we manage the business as a platform the business from a management platform, obviously, we're seeing more and more of our capabilities getting purchased upfront and more and more of our capabilities getting deployed and that for sure includes contract lifecycle management and many of the other areas that you may not be mentioning but our customers are deploying.

And getting value from it.

In terms of traveling expense.

We're continuing to deploy and sell our expense management offering we are in the process of building out our bookings component, but I can't say, yet in any meaningful way that travelers picked up to a level where.

A significant boom is coming has come to our app.

Our ability to sell that that standalone offering or that offering being the lead for the overall BSM platform as of yet.

And Tony just a quick follow up what's the M&A contribution embedded into your guidance.

Yes.

For our Billings Guide, let me give you some details on our Cte.

We guided to 41% exiting the quarter, which from a dollar perspective is very similar to what we guided for last quarter.

Yeah.

It mainly boils down to one thing based on what we know and there are a lot of moving parts.

We expect lamassoure calculated billings to be approximately $8 million to $10 million less in Q3 compared to the $25 million that we recognized in calculated billings in Q2. So that's the main kind of color there.

Alright, thank you.

Yeah.

Your next question is from Steve Koenig with S N B C.

Hey, guys. This is on Hayward on for Steve. Thanks.

Thanks for taking my question and congrats on the strong results I'm wondering if you can drill into Cuba supply chain a bit more so how are the synergies developing both on the sales side and on the product side on the soft and as you move into supply chain can you tell us more about what the sales mix it looks like very good complementary to existing sales motions.

Separate sales motion.

<unk> and staying or the various different and then lastly, considering talent brought in through the war on the BOP acquisition, what synergies do you see longer term on the product side and then maybe how can you leverage the added AI expertise across Europe DSM product suite. Thank you.

Sure a lot of questions. There, let me try to kind of pull them all together, but I think what youre asking is very very obviously very relevant to us. So when we talk about supply chain design and planning integration, we slice it not to similarly to the way you did with the sales product talent, but we look at is people process and technology. So from the people side we.

Feel really good about.

The way, we drove synergies aggressively right at the outset of the of that acquisition and faced plenty of challenges as we had expected we'll find ourselves now in a pretty good spot in terms of the folks that we have onboard the folks we're hiring and the fact that we're all rowing in the same direction, which is really a testament to some <unk>.

Credible people that are now part of Cooper, who are once part of that does that acquired company on the process side everything is already integrated a big Testament to the hard work of many of the departments within Cooper to make that happen, but we're operating as one company today and then on the technology piece, which you touched on.

We have in our latest release.

Implemented our first primary integration point, which is between the design and planning and the Cooper sourcing optimization platform and we have customers.

There that are deploying and utilizing that first primary synergistic integration point, we've also done everything on the technology side.

From the from the low level of stack in the technology stack as well as in the user experience being being very very.

Complementary and last piece that you touched on which is.

Some of the synergies with people. So the sales cycle began a bit differently, it's becoming more and more complimentary as our teams begin to work with one another and showcase overall there.

Overall BSM vision in how these applications work together on one platform and we have created a center of excellence around artificial intelligence that is led by a key leader from the acquisition that is now beginning to reap rewards for us that span the entire footprint of the Cooper platform. So all progressing well.

Well and couldn't be more excited about this integrated group of people we have now.

Your next question is from Michael <unk> with Wells Fargo Securities.

Hey, there. Thanks, good afternoon, just going back to the Lama soft.

Migration efforts that activity that you saw this quarter versus what you are assuming next quarter I, just I wanted to kind of dig in there a little bit and just try to try to ask around how much of that might just be general conservatism. We know you've talked in the past around assuming limited assuming.

Majority of migration activity almost entirely migration activity is driving that business in the coming year.

How much of this is just similar to how you've historically guided versus something you saw in Q2 and anything you've got anything you can add just around how the migration efforts and renewal conversations are progressing relative to maybe what you were expecting at the start of the year. Thank you.

Sure Michael Thanks for the question so.

Definitely we always Cooper.

Cooper have a little bit of conservatism, but but no based on the inputs that we have in front of us for contracted billings for renewals professional services licenses for next quarter definitely there are some moving parts, but we do see a meaningful decrease from Q2, which was $25 million move into Q3, a bit of conservatism, but.

But based on the numbers we're looking at.

We have decent visibility into that and that's what we expect.

Part of that is seasonality for enterprise software for example for Cooper and Lama soft was and now is incorporated with coupon our business Q1, and Q3 tend to be seasonally weak weaker with Q2 and of course Q4 being the largest quarter seasonally so that's part of it and then part of it as you mentioned.

Is the.

The continued migration.

We had in Q4, when we first acquired Lama soft for the full quarter, we had about $15.0 million of license revenue in Q1 that was down to about three and a half I believe and then this quarter. It was one five so.

We're definitely making good progress on the conversions as well.

That's great. This details are super helpful. Thank you Tony.

Your next question is from Matt Vanvliet with BTG.

Yes, thanks for taking the question.

I just wanted to dig in a little bit on the Cooper pay side and it sounded like another strong quarter of attach rates on new deals, but wondering if you could update us on maybe a couple of things. One how are you doing with existing customers looking to add that on and then just from a structural standpoint is there anything limiting that to sort of.

Later than 30% attach rates you talked about the last several quarters, what could be the driver to get that number significantly higher going forward. Thanks.

Sure well, let me just say Matt to start out that our goal is not so much the attach one thing or another thing to an existing account or attach it into new deal. Our goal first and foremost is to get vision lock with prospective customers and maintain vision lock with existing customers around the full business spend management platform. That's what we're playing for.

So so the idea of attaching one product to another is interesting, but that isn't the driver for us and having said that without even the focus on attach rates, it's encouraging to see now multiple quarters of over 30% attach rate.

On Cooper pay we're seeing customers themselves and you asked about deployments taken pretty much.

Our methodical approach to ramping their transactional spend whether it be through <unk>.

Core Cooper Invoiced through V cards to early payment discounts, we're seeing customers, taking multiple cooper pay products up and deploying them in alignment with their digital transformation.

Kind of staging strategy, so very very healthy.

Up tick in utilization of the product as well as interest in the products from the very front end.

As part of the overall business spend management.

The offering and that's where our attention is and it's reaping rewards for us clearly.

Great. Thank you.

Your next question is from Joseph <unk>.

With Canaccord.

Hey, guys. Good afternoon. Thanks for taking my question and Great results I just wanted to.

Kind of drill into.

Sure.

You are kind of a two sided network.

Pretty powerful at this point and.

I just wanted to explore.

Our ability to penetrate the supplier side of the network.

More.

Two.

Yeah.

For those suppliers actually to become customers of the product.

As a buyer.

And.

How that goes and how youre seeing customer acquisition cost there versus perhaps looking at kind of greenfield opportunities where.

Potential new client is not already in the supplier network.

Yeah. Thanks, Joe It's a very strategic question that you ask and.

Our.

Thought processes unquestionably that we want to be.

Platform for <unk> commerce between buyers and suppliers and that does mean spending some energy to make sure that suppliers could easily be on boarded that their experience is has the same level of usability that they are used to from consumer applications that theyre able to transact seamlessly with our buyers and as you know.

We manage.

Purchasing from our buyers with millions of millions of suppliers all over the world. So.

Absolute behooves us to spend energy on our on the supply side of our platform. We're doing that while we're certainly not yet doing that in a way that would lead to any specific monetization plans. Our goal is to make the buying experience as seamless as possible and make that E. Commerce <unk> exchange is.

Seamless as possible currently.

Okay.

Fair enough, but I mean, it feels like that could be that could be a good.

You know maybe emerging opportunity strategically on customer acquisition I mean, when you look at it.

Accounts payable accounts receivable automation, we're seeing a lot of synergies across those two.

I appreciate it I appreciate the perspective, thank you Joe.

Your next question is from Hana runoff with Piper Sandler.

Okay.

Hi, guys. This is Hannah on for Brent Rosslyn today. Thanks for taking my question just one for me here I guess, how sustainable are you thinking the impressive operating margin gains during Q2, where which really surprised to the upside even with the ongoing along with acquisition.

Yeah. So thanks Hanna for the question.

As far as our outperformance this quarter. So the first part of it is because we have an industry leading deployment of Cooper, which allows us to visualize and control our costs incredibly well in fact for everyone on the call I strongly suggest.

They consider using it to benefit their companies as well but.

Look I mean of course, we had a very very strong top line beat first of all in the quarter. There were a few factors there just the magnitude of new business for the quarter and also the linearity therefore bleeding into revenue.

We had faster than expected synergies.

From the supply chain design and planning of the <unk> acquisition and now as we go forward, we want to leave ourselves as I mentioned before degrees of freedom and flexibility to invest to capture the growing market. So there's a number of factors at play.

I think that.

Our results this quarter did have some component.

Of us wrapping up some pieces of the Lama soft acquisition.

Thank you.

At this time there are no further questions. This concludes the conference call for today, we do thank you for joining you may now disconnect.

Okay.

Yes.

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<unk>.

Yes.

Sure.

[music].

Good day, ladies and gentlemen, and welcome to the Cooper software first quarter fiscal year 2021 earnings release Conference call. At this time all participants are in a listen only mode. At the conclusion of our prepared remarks, we will conduct a question did answer session. If you would like to ask a question you May press star.

One on your Touchtone pad at any time, if anyone should require assistance during the conference. Please press star zero on your Touchtone pad at any time as a reminder, this call is being recorded I would now like to introduce your host for today's conference call. Mr. Steven Horwitz VP of Investor Relations Mr.

Horwitz you may begin your conference.

Thank you good afternoon, and welcome to Cooper Software's second quarter Conference call. Joining me today are Rob Bernstein, Cooper, CEO and Tony just cornea.

Chief Financial Officer.

Thanks, Steve I hope, everyone had an enjoyable and safe Labor day weekend.

Let me start with a few highlights from this quarter, our 15th quarter of execution as a business.

49% growth for calculated billings was $179 million in revenue.

Now more than three years of consecutive quarterly non-GAAP profitability and roughly 2.8 trillion in cumulative spend under management.

This strong financial performance was highlighted by the following indicators of a steadily improving business environment.

We're seeing sales cycles continue to move towards normalizing, even if there is still a bit longer than where they were before the pandemic.

We're seeing enterprise customers are companies become more engaged as evidenced by the increased number of seven figure deals we closed this quarter.

We're seeing global scale and improved predictability in our mid market business.

We're realizing early dividends from our Japanese joint venture in the form of both pipeline and early wins.

And these are just some of the recent highlights.

What were the oldest encouraging news about Cooper and our business. It's clear that we are still very much living through a time when companies are operating with a heightened level of uncertainty.

Well, we are witnessing as the companies are doing their best to adapt to this uncertainty.

Now our Cooper business spend index report that was released last week illustrates that our customers are doing just that they're adapting to this uncertainty.

While the BSI data shows that global order per customer activity has returned to pre pandemic levels. The increased supplier to buy a ratio illustrates how our companies are diversifying diversifying their supply base to do risk supply chain disruptions.

The BSI data also shows an increasing lack of correlation between Covid case spikes and order patterns, which would imply the companies have taken the need to become more adept regarding continuity of operations.

As the leader in our industry, we see our customers are approaching this need for agility head on and proudly. The Cooper platform is a critical element of their strategy.

Let me share an example.

Our distribution of the customers are running into unprecedented bottlenecks with transportation. Many cases trucking companies haven't been able to increase their personnel quickly enough to meet increasing demand.

This forces them to figure out not only how to source the transportation, but also how to do so without paying exorbitant fees.

Our supply chain design and planning solutions are helping identify where these shortages will impact the customer ahead of time at which point dynamic sourcing event can be kicked off the engage multiple suppliers, while maintaining fair prices and high quality of service.

This is just one example of how continuous design and redesign is leading to significant improvements in agility.

I want them to thrive in this time of uncertainty.

In my view this is the future of modern back office operations and at Cooper The futures arrive.

And speaking of the future of this quarter also marked the launch of the Cooper application market.

The Cooper App marketplace.

The coup at marketplace gives customers, an easier and smarter way to extend the power of our platform.

With that marketplace, we're enabling quick access to solutions, such as supply chain insights supplier risk analysis, it management and much more.

Many of the solutions included a ready to use right off the virtual shelf.

This is also the very first marketplace in the business spend management space that empowers users to customize their experience, making it a more powerful tool share information automate workflows and conduct key tasks.

We proudly have more than 70 applications on boarded already with over 20 more in the pipeline.

The more customers participate more powerful our platform will become and helping them comprehensively address their spend.

Now as you've heard me say the third wave of our strategy is powered by community that AI as you'll recall. The first wave is focused on capturing all spend comprehensively. The seconds is focused on optimizing every dollar spent with sweet synergy.

And the third is amplifying community value with our platform for.

For those of you new to this wave of our strategy. Let me illustrate a few examples of how this third wave is already delivering for our customers.

The most straightforward is via a coup advantage with Cooper advantage, we pool customer spending to provide more value through prenegotiated contracts, giving customers access to better pricing from trusted suppliers like UBS national rent a car zoomed Staples home Depot office depot and many many more.

Then there's the intelligence component of Cooper of community that AI, where we pull customer data when I say data I'm, not just referring to transactions, but the combination of transactions configurations and outcomes.

This is more than just information intelligence and it helps customers and a host of ways.

One of those ways is risk mitigation to illustrate one of our customers recently leveraged this intelligence to discover that a particular supplier had a high error rate, which led to a more in depth investigation and as a result, the risky supplier was removed from our clinical drug trial.

The third component is collaboration a pooling not of spend our data but of brainpower.

I've said many times, we're not a products company, where our value as a service company and that value is amplified because of our growing community that is getting smarter together every single day.

To that end Cooper is quickly becoming the place for spend management professionals to share insights and best practices and because of the platform Embeds. These opportunities for collaboration within the process of conducting transactions. This collective wisdom is that their fingertips, when they're making key decisions.

For example, say you're beginning a sourcing event on the platform one you've never tried before it context aware suggestion may come up referring you to other community members, who opted into sharing their experiences with launching similar events at their companies.

This is of course, just the tip of the iceberg. These solutions will only continue to become more and more valuable as we develop the third wave of our strategy and their community Dot AI vision becomes realized.

Now, let's talk about ESG.

Recently, we published our inaugural environmental social and governance report.

But we're just one company and as proud as we are of the work. We're doing we're equally proud of how we're enabling others to do so as well.

With thousands of customers millions of suppliers and trillions of dollars of business spend we're leveraging our scale and the power of our community to enable companies to do just that.

A great example of this is chip a brambles company.

<unk> relies upon our supply chain design and planning software to reduce waste engage in strategic planning save cost and create circularity it caused.

Flip that aims to eliminate waste and minimize the consumption of resources through continual reuse.

The key to supporting this has been the use of flow optimization strategies that are there to implement and assess the most efficient and environmentally friendly transportation modes and routes.

The Cooper chip is significantly reducing waste while simultaneously optimizing their logistics.

Another area of ESG impact is meeting sustainability and diversity benchmarks. This is another area, where we and our community that AI focus are making a big difference for many of our customers.

Cooper dynamically highlight suppliers that meet sustainability and diversity of benchmarks and does so at the point of potential transaction it.

Now switching to our core values my colleagues and I are proud of the impact we're making.

So let me share this quarter's most valuable player awards at Cooper.

Let me start with Constance Caillat, who was recognized for our first core value of ensuring customer success.

Kosmos has a depth of building positive and trusting relationships with customers. She has been particularly instrumental and helping our European customers deploy spend analysis solutions driving visibility and value for their organizations.

Next sell all laughter was recognized for it penalizing, our second core value focusing on results.

<unk> has an incredible work ethic and cares deeply about getting the right result, no matter, how large or small to task.

From catching potential errors and a credit posting to keeping our business moves fast with complex border approvals Sal is uniquely driven.

Lead by example, and inspires a modem.

Around him.

And finally, Carl Darling was recognized for demonstrating our third core values striving for excellence.

That's just one example, I'll take the initiative to organize a cross training series between our core source to contract and our contract lifecycle management teams to strengthen the knowledge within the overall.

Recently, a customer asked if they could steal calaway.

Thankfully cultures to stay on our continued journey together.

Ultimately for US everything comes back to executing on the strategic vision area is spelled out in the letters of our company name.

E O U P. A to bring the most comprehensive open user centric prescriptive and accelerated approach to the market as we partner with our community of customers to deliver them unprecedented value as a service.

With that let me now hand, the call over to our CFO, Tony <unk> going out.

Thanks, Rob and good afternoon, everyone Q2 was a great result across the board for all key financial metrics.

We delivered strong top line growth driven by rich levels of engagement with customers and partners strong momentum in the area of back office optimization and outstanding execution by our teams in both the enterprise and mid market.

We also delivered strong bottom line results in terms of gross margin operating margin and cash flows as.

As we enter the back half of the year, we continue to be excited about our business and our focus on continuing to drive growth by unlocking incredible value for our customers employees and partners.

With that let's dive right into the details of our second quarter results.

Calculated billings for Q2 were $195 million.

49% year over year.

For the second quarter in a row and on the back of stellar sales execution, we more than doubled new business compared to the prior period.

We also have seasonally strong calculated billings contribution from supply chain design and planning, formerly lamassoure coming in at $25 million.

Total revenue for the quarter was $179 million.

Up 42% year over year subscription revenue was $156 million up 40% year over year.

Strong new bookings and favorable linearity and the timing of deal closure contributed to our Q2 subscription revenue performance.

We also delivered solid results in terms of gross margin operating margins cash flows and other financial metrics.

Our Q2 non-GAAP gross margin was approximately 71, 5%, while non-GAAP operating income was $27 million or.

Or 15% of total revenue.

Non-GAAP net income was $20 million or 26 per share on approximately 77 million diluted shares.

These results were significantly ahead of our Q2 expectations.

This can be primarily attributed to strong outperformance on the top line.

Faster than expected realization of synergies from the supply chain design and planning the integration.

Q2, operating cash flows were a record $41 million and adjusted free cash flows were $37 million.

Cash at quarter end was $634 million.

Up from $600 million a quarter ago in.

In terms of complementing growth with profitability.

We continued to deliver strong results from our rule of 40 perspective, where the current and trailing 12 month calculation of approximately 59%.

As a reminder, we define the rule of 40 as the trailing 12 month revenue growth rate.

The trailing 12 months adjusted free cash flow margin.

Yeah.

Before moving onto guidance, let me share some additional color on calculated billings.

As you know, we typically don't provide a detailed breakdown of organic versus inorganic because that's not aligned with how we run our business.

Our focus is to quickly integrate our acquisitions and the go to market as a business spend management platform rather than a menu of distinct products.

We also don't monitor distinct products separately from our financial statements or P&L perspective, when making decisions about our business rather we leveraged one set of financial and operating results.

With that said this quarter I'd like to provide some additional data points.

We estimate that the Q2 calculated billings contribution from supply chain design and planning.

Approximately $25 million.

This included approximately approximately $10.0 million from professional services and about one $5 million from term licenses. Overall, we are pleased with the migration of our supply chain customers from term license to subscription as evidenced by a reduced license revenue.

No.

Last quarter marked the one year anniversary of the Cooper Treasury acquisition, formerly balance.

Which means no inorganic contribution should be considered going forward only a nominal contribution should be considered for Q2 at the anniversary date was in the first half of the quarter in early June.

Finally, as a reminder.

The acquired deferred revenue from Berlin in Q2 of last year was $6.0 million.

This was a onetime benefit that should be backed out from last year's calculation.

When when calculating the compare figure for calculated billings.

Based on these figures year over year organic Q2 calculated billings was in excess of 30%.

With that let's now turn to guidance.

I'll begin by laying out some of the background.

As evidenced by our financial results our business has been re accelerating as a pandemic wings.

However, similar to last quarter.

Be remiss, if I didn't mentioned that customers and prospects continue to operate with some level of caution and that the delta variant and other variance have some feeling uncertain about the potential impact on their business.

We expect total Q3 revenue of 178% to 177% to $178 million.

This includes subscription revenue of $158 million to $159 million.

And professional services and other revenue of approximately $19 million as we continue to execute on our strategy of migrating legacy Lama sub term license arrangements to subscription and shifting professional services to partners the trend for professional services and other revenue will continue to decline and this is by design.

<unk>.

The transition will also be a headwind in Q4 on a year over year compare basis as last year professional services from Lomonosov were at their height.

And there were still significant term licenses being recognized in our professional services and other line items as we previously noted despite some of the near term financial noise. The transition. This transition is in the best interest of all our stakeholders and most importantly, our customers.

As we carry on with the transition I encourage investors to look more towards subscription revenue results rather than our total revenue results as an indicator of growth.

For calculated billings on a trailing 12 month basis, we expect to exit Q3 at a year over year growth rate of approximately 41%.

Our estimate contemplates a significantly lower contribution from supply chain design and planning for <unk> in Q3 compared to Q2.

We expect Q3 non-GAAP gross margin.

Approximately 69%, we expect Q3 non-GAAP operating income of $13.0 million and non-GAAP net income of $1 million to $2 million, resulting in non-GAAP net income per share of one to three.

Approximately 77 million diluted shares for the quarter, we expect Q3 adjusted free cash flows of approximately $10 million.

Moving onto the full year, we expect total revenue of $706 million to $708 million. This includes subscription revenue of $616 million to $618 million and.

<unk> services and other revenue of approximately $90 million.

Moving down the income statement for fiscal 'twenty, two we plan to continue investing in our business to capture the clear market opportunities. As a result, we expect non-GAAP gross margin of approximately 69% non-GAAP operating income of $40 million to $41 million and non-GAAP net income of 21 to 22 million.

This results in non-GAAP net income per share of <unk> 27 to 29.

On approximately 76.5 million diluted shares for the year, we reiterate our expectation that adjusted free cash flows will be up on an absolute dollar basis year over year for fiscal 'twenty two.

Before wrapping up prepared remarks.

We've got a couple of new folks joining the coverage team and I wanted to remind everyone that in Q4 of last year, we had a onetime opening deferred revenue benefit of $22.0 million.

For Lomonosov for calculated billings this should be backed out of the compare period for calculated billings. When we deliver Q4 results. This year, we will remind you about this next quarter. When we give Q4 guidance that concludes our prepared remarks, we'd now be happy to take your questions operator.

Thank you Mr for ladies and gentlemen, if you have a question. Please press star one on your Touchtone telephone.

Okay.

We will take our first question from Ryan Macdonald with Needham.

Hi, Thanks for taking my questions and congrats on a really strong quarter here.

I guess the first one I have is really around the calculated billings beat here you talked about really the strength.

With with supply chain here.

Curious as you look at the pipeline and the increased demand there and what are you seeing in terms of mix of demand between sort of the legacy on prem versus subscription offerings. Thanks.

Sure. So let me say first of all Ryan Thanks for the nice words.

This isn't just a matter of supply chain on Prem or cloud. This is about business spend management more broadly and so when you look at the pipeline. We're just seeing a great deal of enthusiasm around companies wanting to address this whole set of challenges comprehensively.

Just to give you a sense for that obviously.

On the more traditional core application side are seeing value in supply chain design, and planning and vice versa, but what they're all seeing as the overall business spend management opportunities now within the supply chain design and planning area Theres, a great deal of interest and enthusiasm around the cloud version I mean did the extensibility and flexibility and.

Configure ability of that cloud offering is really second to none and it's helping us to lead in a whole host of deals and now that we're unlocking suite synergy between that and our Cooper sourcing optimization area is even more promising so very very positive overall and definitely driven an inclined by a P.

<unk> towards towards the cloud solutions and Ryan just to add one thing there as you noted we had nearly 50% calculated billings growth in total for our business. Although we did have a good contribution from <unk> this quarter of $25 million. When you back that out in a couple of other adjustments that I noted we were still in excess of 30%.

<unk> for the business.

Alright, and then maybe Tony just as a follow up.

Yeah, I mean of course.

Our overall operating income result, there was a strong top line beat first and foremost I mean, we benefited from not only double net new business again for the second quarter in a row, but also.

Strong linearity in the quarter versus you know, sometimes you can see a more of a backend loaded quarter.

On top of that I would say, we executed incredibly well across the board.

The lumps of that position has been three quarters, rather than running now in this coming quarter Q3 will be our last quarter and as far as taking advantage of cost synergies with hosting with alignment of our teams just incredibly strong execution across the board I think results from experience that we have in executing on.

Integrating acquisitions and incredible dedication by the team.

Hi.

Awesome Congrats again.

Your next question is from Bob Napoli with William Blair.

Thank you.

Yeah.

Okay.

Hey, there.

We can hear you, yes, sorry, sorry about that.

A question on Cooper marketplace.

And I mean, you've added a number of products.

To do that with a big pipeline and how do you expect the.

The marketplace to affect your business over the medium to long term.

Sure Bob Thanks for the question look I. The main purpose of the marketplaces to foster and grow the partner ecosystem around US you know this business spend management opportunity is is really sizable you know we've defined the marketed.

Tens of the tens of billions of dollars globally and in mid market and enterprise and.

And across the board internationally. So the reality of the wig unable to hit every component and every type of use case that a customer would whatever expect is not likely in the near term. So we want to build an ecosystem around us and the fact that so many great emerging companies.

Develop companies are building on our on our marketplace is going to make it so much easier for our customer community to begin to subscribe to these applications and have them pre integrated with our core Cooper platform. So again, another way to just grow our overall ecosystem for the benefit of the customer community that we're creating.

Thanks, Rob and then just a follow up on the gross margin I mean that really nice rebound in the gross margin.

This quarter, but it's a little bit confused on the gross margin guide it seemed.

I was just wondering.

Yeah, Tony if you could just give me a little more color around the guide for the third quarter versus the actuals for the second quarter.

Sure Bob Yeah last quarter I believe we guided in the 66 to 67 range. This quarter, 69% gross margin certainly we had a strong performance this quarter coming in at 71, 5% in total.

So we're leaving that those degrees of freedom.

Our next question is from Brad Sills with Bofa Securities.

Oh, Great Hey, guys. Thanks for taking my question and congratulations on a real nice quarter.

Wanted to ask.

Not just the environment, we've seen a number of back office.

Application providers see some uptick this quarter, you're certainly seeing it.

What are you hearing from CFO and CIO is with regards to plans for kind of refreshing.

Sure Brad I mean, my sense for it is is that it is digital transformation taking hold.

We had our first ever seven figure deal in the mid market this quarter, which which was very interesting and when you look at the texture of these transactions. They are not sort of just pent up demand unlocked. They are transformational deployments of business spend management.

Our business spend management platform.

That is going to help these folks recognize incredible operational efficiency. The agility. They simply don't have without these these types of applications fully deployed.

And so I think it is more of the latter of the two options that you shared but.

We'll see how it plays out but that's what we're feeling here no doubt that's.

Great. Thanks, Robin with it with that record quarter in these bigger deals that you mentioned is that a function of Cooper moving up market kind of in an ongoing basis or is it more customers are committing to more components of the stack and we used to be procure plus invoice. It sounds like now youre seeing real traction with sourcing supplier management.

How much of this is a function of.

Wider footprint on the initial sale and even potentially upsell acceleration here as well versus.

Just to move up market. Thank you so much.

Yeah, No. It's a great question and I think it's worthwhile for everyone listening to understand this is we don't have a continued move up market. We have three really strong businesses in enterprise and upper mid market and mid market, which have a really strong growth rates have a very strong sales and marketing.

CNC to them.

That are operating in and of themselves separately as very good strong businesses, having said that all when you look in aggregate and by the way individually the average.

As well as for those that stay with us and add on more components all of that boils down to this vision lock, we have with our customers around digitally transforming their their back office operations through modern business spend management solutions.

Your next question is from Peter Levine with Evercore.

Hum.

Okay.

Peter If you are speaking we can't hear you.

And Peter you made operator.

Okay.

Okay, well I'll just move on to our next question. Your next question is from Stryker back with Wolfe Research.

Okay.

Hi, Thanks for taking the question here.

So kind of a two part you talked about the economic environment not quite back to pre COVID-19 levels, but can you just talk about how that's changed over the past three months. When you last gave US an update and then we seek really positively about your pipeline and your late stage pipeline, but sales cycles are also not quite back yet how it goes.

Conversion rates trending and then when you look to the back half of the year, how does that pipeline that between the larger enterprise surprised and maybe the small medium businesses. Thank you.

Sure I mean, there were a lot of questions. There, let me address it as a key level, where I think you were going in terms of pipeline the pipeline appears quite healthy across segments.

I look at it today I will tell you without question, we have our largest pipeline we've ever had.

As we enter Q3, and we're seeing this pace of sales cycles continue to improve they're not quite.

Where they were pre pandemic, but they're continuing to improve.

And it's a delicate thing right and then when we saw what the variant that's a delicate thing things were moving a lot quicker baring came maybe slowed down a little bit so it's a little bit touch and go but generally speaking when you kind of zoom out.

Big growing pipeline faster versions and most importantly, this clear acknowledgment.

Half of Cfos, and frankly, CIO is that they need to digitally transform their back office are particularly in the area of how they.

They spend money on their business.

Your next question is from Terry Tillman with true list.

Hey, guys. This is Joe Meares on for Terry Thanks for taking the questions really appreciate it.

Thinking in terms of international markets. What are you guys seeing in terms of propensity and willingness to buy.

Our sales bookings comparing to the U S market right now are you seeing more growth in the mid market side, especially on their side internationally.

Okay.

So the two slices are international and then by segment you know as I mentioned earlier, all segments are doing very very well and continuing to to improve and get closer and closer to pre pandemic levels in terms of international you know our strategy has always been an organic expansion internationally.

We entered Europe, many years ago with a handful of folks and landed our first customers and leverage those references to land more and more and more and now Europe represents.

Very significant portion of our business, we're seeing the same dynamic happening in other areas of the world.

In South America.

And parts of Asia, and South Africa, and other locations so healthy and.

There are I wouldn't say there are any statistically significant.

I'll throw it in any particular market that that are consistent of worthy of calling out maybe Tony would like that yes, just to add some additional color. So for this quarter, we will report, 59% U S revenue contribution of 41% International.

We've kind of steadily been aren't around that 60.40 range for quite a bit of time now.

And Rob pointed out some of our expansion Latin America in AP J are still early.

And also we've been seeing some good early progress with our.

Our Japanese business as a result of our joint venture.

Super Helpful. And then just a quick follow up any update on the U S Federal government side.

The government type deal.

Sure I, probably know, particularly meaningful update this quarter beyond what we shared last quarter.

With that we're fed ramp ready moderate we've passed many of the rigorous tests required which was the arguably the hardest part of all of that.

The next steps are to complete our audit and we're working with a customer and a third party assessment firm for that and we see some real opportunity there and we think a lot of that will likely begin to truly materialize in the back half of <unk>.

Next year, but good progress in city state and federal.

But not not anything overly statistically say them again to call on the call.

Your next question is from Brian Peterson with Raymond James.

Congrats on the quarter gentlemen, the upside is definitely invoke but Rob just one high level. One from me you know what's interesting to me that Theres always such high ROI of the software the platform, but you're also getting a very strategic dynamics right with supply chains and everything else is just it's beyond hard dollar savings so.

Well, that's a great question Ryan Thank you.

You know pricing always comes up at some level in our market because some of the folks involved in in championing our offerings or evaluate our offerings.

Your job to create some level of a competitive environment.

And choose amongst the options, having said that as you could see.

With a very very honest and fair spirit.

Of pricing our average annual subscriptions have gone up.

Virtually every quarter as I mentioned for <unk>.

Now 50 quarters and that Hasnt changed in the last four to six that we've been experiencing.

Experiencing the pandemic what customers want is number one high likelihood of success, we think by far we offer that better than anyone else in the market.

Its likelihood of success they want time to market they want to get deployed quickly in an accelerated way that the AAN Cooper they want the value and they are what would be justifiable and the price to value equation for what we offer is unlike anything I've seen in my 27 year career in enterprise software. So I think we're in a.

Really really good spot with that and as long as we continue to be focused on.

Atlantic honest conversation with our customers being real trusted advisors to them and being maniacally oriented toward ensuring their customer success.

I think we sit in a really good spot in the market.

Good to hear thanks, Rob.

Your next question is from city Pentagon here with Mizuho.

Well, if we manage the business as a platform the business spend management platform, obviously, we're seeing more and more of our capabilities getting purchased upfront and more and more of our capabilities getting deployed and that for sure.

<unk>.

Contract lifecycle management and many of the other areas that you may not be mentioning but our customers are deploying and getting value from it in.

In terms of traveling expense.

We are continuing to deploy and sell our expense management offering we're in the process of building out our bookings component, but I can't say yet in any meaningful way that travels picked up to a level where.

A significant boom is coming has come to our.

Our ability to sell that that standalone offering or that offering being the lead for the overall BSM platform as of yet.

And Tony just a quick follow up what's the M&A contribution embedded into your guidance.

Yes.

For our Billings Guide, let me give you some details on our Cte.

Sure.

We guided to 41% exiting the quarter, which from a dollar perspective is very similar to what we guided for last quarter.

It mainly boils down to one thing based on what we know and there are a lot of moving parts.

We expect <unk> calculated billings to be approximately $8 million to $10 million less in Q3 compared to the $25 million that we recognized in calculated billings in Q2.

So that's the main kind of color there.

Alright, thank you.

Yeah.

Your next question is from Steve <unk> with S N B C.

Hey, guys. This is Owen hayworth on for Steve Kent.

Thanks for taking my question and congrats on the strong results I'm wondering if you could drill into Cuba supply chain a bit more so how are the synergies developing both on the sales side and on the product side and on the soft and as you move into supply chain can you tell us more about what the sales mix it looks like they get complimentary to existing sales motions.

Separate sales motion.

<unk> the same or the buyer is different and then kind of lastly, considering talent brought in through the one stop acquisition what synergies do you see longer term on the product side and then maybe how can you leverage the added AI expertise across your BSN product suite. Thank you.

Sure a lot of questions. There, let me try to kind of pull them all together, but I think what youre asking is very very obviously very relevant to us. So when we talk about supply chain design and planning innovation, we slice it a not to someone leaves the way you did with the sales product talent, but we look at is people process and technology. So from the people side we.

Feel really good about.

The way, we drove synergies aggressively right at the outset of the of that acquisition and faced plenty of challenges as we had expected we will find ourselves now in a pretty good spot in terms of the folks that we have onboard the folks that were hiring and the fact that we're all rowing in the same direction, which is really a testament to some <unk>.

Credible people now part of Cooper, who are once part of that does that acquired company on the process side everything is already integrated a big Testament to the hard work of many of the departments within Cooper to make that happen, but we're operating as one company today and then on the technology piece, which you touched on.

On we have in our latest release of <unk>.

Implemented our first primary integration point, which is between the design and planning and the Cooper sourcing optimization platform and we have customers.

There that are deploying and utilizing that first.

Primary synergistic integration point, we've also done everything on the technology side.

From the from the low level of stack in the technology stack as well as in the user experience being being very very.

Complementary and last piece that you touched on which is.

Are some of the synergies with people. So the sales cycle began a bit differently, it's becoming more and more complimentary as our teams began to work with one another and showcase overall.

The overall BSM vision in how these applications work together on one platform and we have created a center of excellence around artificial intelligence that is led by a key leader from the acquisition that is now beginning to reap rewards for us that span the entire footprint of the Cooper platform. So all progressing.

Well and I couldn't be more excited about this integrated group of people we have now.

Your next question is from Michael <unk> with Wells Fargo Securities.

Hey, there. Thanks, good afternoon, just going back to the Lama soft.

Gration efforts that activity that you saw this quarter versus what you are assuming next quarter I, just I wanted to kind of dig in there a little bit and just try to try to ask around how much of that might just be general conservatism. We know you've talked in the past around assuming limited assuming.

Majority of migration activity almost entirely migration activity is driving that business in the coming year.

How much of this is just similar to how you've historically guided versus something you saw in Q2 and anything you can add anything you can add just around how the migration efforts and renewal conversations are progressing relative to maybe what you were expecting at the start of the year. Thank you.

Sure Michael Thanks for the question so.

Currently we always coupe.

But based on the numbers we're looking at.

We have decent visibility into that and that's what we expect.

Part of that is seasonality for enterprise software for example for Cooper and Lama soft was and now is incorporated with coupon our business Q.

Q1, and Q3 tend to be seasonally weak weaker with Q2 and of course Q4 being the largest quarter seasonally so that's part of it and then part of it as you mentioned is the.

The continued migration.

We had in Q4, when we first acquired Lama saw for the full quarter, we had about $15.0 million of license revenue in Q1 that was down to about three and a half I believe and then this quarter was one five so.

We're definitely making good progress on the conversions as well.

That's great. This details are super helpful. Thank you Tony.

Your next question is from Matt Vanvliet with BT I T.

Yes, thanks for taking the question.

I guess I wanted to dig in a little bit on the Cooper pay side it.

It sounded like another strong quarter of attach rates on new deals, but wondering if you could update us on maybe a couple of things. One how are you doing with existing customers looking to add that on and then just from a structural standpoint or is there anything limiting that to the sort of greater than 30% attach rates you talked about the last several quarters.

What could be the driver to get that number significantly higher going forward. Thanks.

Sure well, let me just say Matt to start out that our goal is not so much the attach one thing one other thing to an existing account or attach it into new deal. Our goal first and foremost is to get vision lock with prospective customers and maintain vision lock with existing customers around the full business spend management platform. That's what we're playing for.

Sure.

So the idea of attaching one product to another is interesting, but that isn't the driver for us and having said that without even focus on attach rates, it's encouraging to see now multiple quarters of over 30% attach rate.

On Cooper pay we're.

We're seeing customers themselves and you asked about deployments taken pretty much a methodical approach to ramping their transactional spend whether it be through.

Core Cooper invoice through V cards to early payment discounts, we're seeing customers, taking multiple coupe of PE products up and deploying them in alignment with their digital transformation.

Staging strategy, so very very healthy.

Ill tick in utilization of the product as well as interest from our products from the very front end.

As part of the overall business spend management.

<unk> and that's where our attention is and it's reaping rewards for us clearly.

Great. Thank you.

Your next question is from Joseph <unk>.

With Canaccord.

Hey, guys. Good afternoon. Thanks for taking my question and Great results I, just wanted to just kind of drill into.

Sure.

Or a two sided network.

Pretty powerful at this point and.

I just wanted to explore.

Our ability to penetrate the supplier side of the network.

More.

Two.

For those suppliers actually it should become customers of the product.

As a buyer and <unk>.

How that goes and how youre seeing customer acquisition cost there versus perhaps looking at kind of greenfield opportunities where.

Potential new client is not already in the supplier network.

Yeah. Thanks, Joe It's a very strategic question that you ask and.

Our.

Thought processes unquestionably that we want to be.

The platform for <unk> commerce between buyers and suppliers and that does mean spending some energy to make sure that suppliers could easily be on boarded that their experience is has the same level of usability that they are used to from consumer applications that they are able to transact seamlessly with our buyers and us.

You know we manage.

Purchasing from our buyers with millions of millions of suppliers all over the world. So.

Absolutely behooves us to spend energy on our on the supply side of our platform. We're doing that while we're certainly not yet doing that in a way that would lead to any specific monetization plans. Our goal is to make the buying experience as seamless as possible and make that E Commerce <unk> exchange.

As seamless as possible currently.

Okay.

Fair enough.

It feels like that could be that could be.

Good.

You know maybe emerging opportunity strategically on customer acquisition I mean, when you look at it.

Accounts payable accounts receivable automation.

A lot of synergies across those two.

Well I appreciate it I appreciate the perspective, thank you Joe.

Your next question is from Hana runoff with Piper Sandler.

Hi, guys. This is Hannah on for Brent bracelet today. Thanks for taking my question just one for me here I guess, how sustainable are you thinking than perhaps a operating margin gains during Q2, where which really surprised to the upside even with the ongoing along with soft acquisition.

Yes, so thanks Hanna for the question.

As far as our outperformance this quarter or the first part of it is because we have an industry leading deployment of Cooper, which allows us to visualize and control our costs incredibly well in fact for everyone on the call I strongly suggest.

They consider using it to benefit their companies as well but.

Look I mean of course, we had a very very strong top line beat first of all in the quarter. There are a few factors there just the magnitude of new business for the quarter and also the linearity therefore bleeding into revenue.

We had faster than expected synergies.

From the supply chain design and planning of the <unk> acquisition and now as we go forward, we want to leave ourselves as I mentioned before of degrees of freedom and flexibility to invest to capture the growing market. So there's a number of factors at play.

I think that.

Our results this quarter did have some component.

Of us wrapping up some pieces of the Lama soft acquisition.

Thank you.

At this time there are no further questions. This concludes the conference call for today, we do thank you for joining you may now disconnect.

Q2 2022 Coupa Software Inc Earnings Call

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