Q1 2023 Coupa Software Inc Earnings Call

June 6, 2022

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Good afternoon, ladies and gentlemen, and welcome to the Cooper software first quarter fiscal year 'twenty to 2022 earnings conference call.

Our host for today's call is Steven Horwitz.

At this time all participants are in a listen only mode.

Later, we will conduct a question and answer session.

I would now like to turn the call over to your host.

Mr. Schwartz you may begin sir.

Thank you.

Good afternoon, and welcome to Cooper Software's first quarter conference call.

Joining me today are Rob Bernstein to the CEO and Tony <unk> CFO .

Our remarks today include forward looking statements about guidance and future results of operations strategies market size products competitive position and potential growth opportunities.

Our actual results may be materially different.

Forward looking statements involve risks and uncertainties and assumptions that are described in our most recently filed 10-K.

These forward looking statements are based on our beliefs and assumptions today, and we disclaim any obligation to update any forward looking statements.

If this call is replayed after today the information presented may not contain current or accurate information. We also present, both GAAP and non-GAAP financial measures a reconciliation of certain of these measures is included in today's earnings release, which you can find on our Investor Relations website.

A replay of this call will also be available.

Unless otherwise stated growth comparisons are against the same period of the prior year.

With that I will now turn the call over to Rob.

Thanks, Steven and welcome everyone and thank you everyone for joining us I'm excited to share our first quarter business results with you today from our New York offices.

It's been amazing getting back in front of customers to collaborate and face to face real time sessions to help them fully understand what we're doing here at Cooper, we're giving them visibility control and agility over their business spending helping them build foundational resilience in their back office operations for the long term and empowering them to make.

<unk> data driven decisions that youll positive outcomes for their businesses.

As we look at our results, let me start by sharing a few financial highlights from the first quarter this being our 53rd quarter of execution.

In Q1, we delivered 196 million of total revenue, including $178 million of subscription revenue calculated.

Calculated billings for the quarter were $188 million.

We once again reported strong free cash flow margins coming in at 23% for both the quarter and the trailing 12 months, we were able to deliver strong free cash flows.

Simultaneously continuing to make thoughtful investments into our business to capitalize on our growth opportunities.

Our approach remains dynamic and agile in the context of consistently changing times, which have which we have navigated over the last 13 years of operational execution.

We continue to drive meaningful topline growth, while maintaining best in class unit economics and sales efficiency.

And strong free cash flow metrics as well.

As our business as business is plan for tougher economic times, we believe our model of growth with profitability makes us, especially resilience over the long term.

And speaking of resiliency, we were overwhelmed with incredible positive energy from the thousands of our customers and prospects that we connected with live at our inspire events in Las Vegas and Berlin This quarter.

The resiliency they showed with respect to their businesses leveraging our platform was nothing short of humbling and inspiring for all of us at Cooper.

As well they are preparing to use our platform to help their businesses navigate the potential uncertainties ahead.

Now as we are all acutely aware the global business environment is currently highly volatile.

We have seen some early signs of potential softening in Europe , especially as the war in Ukraine, and inflationary pressures that appear to be winning more business leaders than they were before.

Yet in this context, we remain agile and pragmatic in how we run our business and make investments.

With that backdrop and a strong pulse on our business, we feel confident raising our subscription revenue guidance for both the second quarter.

And the full year.

Now more than ever it's undeniable that business leaders recognize the importance of optimizing their business spend.

Cooper is empowering companies to build the transformational business architecture, they need to for John into this uncertain future.

Through our industry, leading BSM platform built on our vision areas are being comprehensive open user centric prescriptive and accelerated.

We are providing our customers with one source of truth to run their businesses.

And as we look to the coming years, we believe that we're on our way to becoming the de facto business spend management platform for <unk>.

Cfos and with the support of forward thinking CIO.

Now.

Our path to winning the BSM market and unlocking vast amounts of real measurable value for our customers is paved by our three wave strategy.

First capturing all spend.

Secondly, optimizing every dollar spent and finally amplifying community value.

For the first wave capturing all spend let me share a couple of customer stories that demonstrate how our platform increases operational efficiency by digitizing processes.

The first story is that of CBRE, the world's largest commercial real estate services and investment firm.

CBRE users Cooper in 49 countries around the world, including in Japan, where the digital payments processes for more than 700 supply partners were streamlined.

They were quickly able to mitigate 80% of the region's spend from manual processes to digital E invoicing.

Not only did they reduced cycle times by more than 50%. They were also able to improve payment fulfillment in Japan by 85% positively impacting cash flow.

I am appreciative of the comment they shared with us which was.

Cooper has made material improvements in Cbre's cross functional collaboration internally and with their business partners. The platform is critical to our ability to execute our business spend management strategy.

Another example of transforming business spend from manual to digital is that a revision and electric vehicle automaker.

They are a testament to how businesses scale on our platform by leveraging <unk> ability to improve processes and drive automation. Libyan has maintained the same procurement operations team size, while its overall employee base has grown 20 X in the last 18 months they have gone from a completely manual approach.

<unk>, 93% of their purchase orders and 90% 90% of their invoices processed electronically.

Cooper Arabian has gained visibility into and control over their spend and has benefited greatly from the scalability of our platform.

As many of you know a key component of our first wave is Cooper pay.

Our attach rate on new customer deals in Q1 has again was again meaningfully above 30% with mid market and attach rates being well over 50%.

Also we surpassed $10 billion of cumulative total payment volume in Q1 and are now processing payment transactions at a run rate of more than $1 billion per month.

Yes.

Now, let's move on to the second wave of our strategy optimizing every dollar spent through suite synergy.

The first example, I'll share with you is that of ally financial and financial services and insurance company that is experiencing firsthand the benefits of end to end business spend management.

Allied greatly simplified its IP landscape by replacing several systems with one integrated Cooper platform.

They are using source to pay contingent workforce third party risk supplier diversity and <unk> by.

By taking a comprehensive approach ally is able to work more strategically and collaboratively across the organization delivering strong ROI and maintaining the agility to make changes when necessary.

Another example is Microsoft who has a cooper supply chain design and planning customer.

Microsoft joined US at our inspire conference a couple of months ago to discuss the importance of using data to manage their supply chain.

With such a wide range of products for multiple types of customers that get delivered through so many different distribution channels. They clearly have an extremely complex supply chain to manage micra.

Microsoft emphasize that with massive amounts of data data coming in every day.

Utilization is incredibly important to them the data helps drive the organization to make the correct decisions today, while also considering the necessary planning as far out as three to five years.

Each business decision can't just be correct for one part of Microsoft.

Collectively all of the decisions need to work in concert with each other use.

Using cooper's supply chain design and planning solution, Microsoft is achieving its goals of maximizing the cost benefit equation minimizing lead times and working towards being carbon neutral by 2030.

Paul with data as the driving force.

Now it's also data along with community collaboration that makes up the key components of our third wave amplifying community value.

With our cumulative spend under management, reaching nearly three six trillion. This quarter, our customers are tapping into real time spend data and prescriptions to better identify ways to reduce risk.

<unk> efficiency and be more profitable.

While the best is yet to come we continue to unlock value for our customers through community Dot AI and we see an increase in utilization of prescriptions by our customers.

Nearly 70% of customers that are live on the platform have used community insights or community connections multiple times per month on average.

A common example of one of these prescriptions might be contextually informing the customer that they should move specific unstructured spend to on contract spend by.

By linking negotiated contracts the customer can ensure better pricing and compliance with the company's preferred suppliers.

As I mentioned collaboration is also key to our third wave.

Our app marketplace is a collaborative environment, where customers can connect their enterprise systems to Cooper to further break down silos.

We offer enterprise apps that are used for connecting to systems, both inside and outside of business spend management.

Now have nearly a dozen apps that are prebuilt and certified these.

These applications are easy to use and are essentially instantly accessible for our entire growing customer community.

Cooper certification comes from our engineers with a specific focus on reliability performance and security.

A great example of one of these prebuilt apps as a key solution from <unk>.

Customers using the <unk> app can access supplier risk at the time of sourcing.

It also provides ongoing monitoring of third party data and instant visibility into supply risk scores across cyber ESG financial.

Geopolitical and operations.

This is just one example of the value our customers can extract from our platform and how it's expanding through our growing app marketplace.

As we continue our pursuit of winning the BSM market, our thought leadership and innovation, playing an increasing role in the mind activation of our community, especially through ESG.

Our customers are establishing key ESG goals that they want to achieve but aren't necessarily sure how to accomplish.

To help these customers, we have introduced more than 80 different capabilities and our sustainable BSM toolkit to impact ESG.

One example of functionality, we deliver to our customers is providing minority owned and sustainability data on their suppliers.

As well as the suppliers of their suppliers and we provide that data at the time a transaction takes place to help our customers make better decisions that will help them achieve their ESG goals.

Now speaking of ESG, we are making an impact on each area.

<unk> environmental we recently introduced price benchmarks for ocean freight and scope III carbon emissions tracking well.

We've also launched a partnership with the climate software platform to help measure and reduce carbon footprint.

On the social front, we recently shared our own diversity equity and inclusion statistics via blog, but our chief people Officer Ray Martin early and have reinforced our commitment to continued improvement in our own hiring processes.

While we are early in our process in 2021, we increased our global female representation and our underrepresented minorities in our colleague base and we are already doing more in 2022, as we believe that by increasing diversity, we've become more creative and pathetic and productive.

Along the lines of governance, we joined the chief executives for corporate purpose and organisation that advises companies on how to further their corporate purpose strategies and shares actionable insights with its CEO led coalition to address stakeholder needs.

Now speaking of making an impact let me share with you Cooper's MVP Award winners for Q1, who best exemplify our core values as voted by colleagues.

I'll begin with Kate Mcintyre, who exemplifies our first core value of ensuring customer success, Kate consistently find solutions to challenging issues. She quickly earns the trust and respect of our customers. She helps get situations addressed expediently and positively Kate always puts the customer success first.

Yeah.

Next we will meta was recognized for <unk>, our second core value focusing on results we.

We will make sure we aren't delivering functionality, but rather using the feedback of all members of the community to deliver a solution that is highly impactful and adoptable from day one.

Regardless of how complex a problem as Rahul is there to successfully drive towards an elegant solution with a strong bias for action.

Finally, Julie Progestin Restrepo was recognized for our third core value striving for excellence.

Julie played a key role in our journey together.

She had an has an amazing focus and attention to detail that enables us to maximize the likelihood of success on each project.

Our customers commended her on her tireless work ethic, which resulted in clear value delivery.

My Congratulations go out to Kate, Brazil, and Chile.

As we recognize our colleagues for their contributions were also humbled to be recognized for the values of service, we're delivering to the market as a company.

Forrester recently published its first ever comprehensive analysis of the business spend management market in their supplier value management wave analysis.

We are proud to have achieved the highest scores in the industry and strategy.

<unk> technology.

This recognition is also a result of the deep relationship we have with our community of customers and partners.

As I mentioned earlier, we couldnt have been more thrilled to reunite with these groups at our inspire event in Las Vegas, a couple of months ago and again more recently in Europe .

We welcomed thousands of attendees, who continue to embrace being United by the power of spend and who appreciate the value of being part of a global community of forward thinking leaders from supply chain procurement finance treasury and it.

There was incredible excitement and energy at both events with customers sharing their transformation success stories and learning from each other.

We are thankful to the dozens of customers who shared their stories at our events.

They include ADM Astrazeneca BMW DHL General Mills General Motors, Jabil lows Mastercard <unk>, Microsoft Staples.

Unilever UBS Walmart and so many more.

Now before I turn it over to Tony.

Let me restate the obvious that the global market environment remains uncertain.

Yet we are well positioned to navigate and thrive we continued to deliver solid top line growth.

Best in class unit economics, and strong free cash flows keep.

Keep in mind that we built the foundation for this business during the heart of the financial crisis over a decade ago and the disciplined forged during those years is in our DNA.

We are the leader and businessman management, which has a huge total addressable market, we couldnt be more excited about our journey towards becoming one of the world's best enterprise cloud software companies by delivering unprecedented value to our customers.

With that let me now hand, the call over to our CFO , Tony Good morning, Tony.

Thanks, Rob and good afternoon, everyone.

As Rob highlighted we delivered strong topline growth margins and cash flows for Q1.

Let's dive right into the numbers.

Total revenue for the quarter was $196 million, including subscription revenue of $178 million up 27% year over year.

Total calculated billings for Q1 was $188 million up 26% year over year subscription.

Subscription calculated billings for Q1 was $170 million up 37% year over year.

In Q1, we benefited from some renewals that closed earlier than we anticipated contributing approximately $10 million to calculated billings.

We make this adjustment our reported subscription billings growth would have been 29%.

Also in Q1 due to the strength of the U S dollar, particularly particularly against the euro.

Both subscription and total calculated billings were impacted by approximately 200 basis points on a constant currency basis.

non-GAAP gross margin for the quarter was 74% <unk>.

non-GAAP operating income was $14 million or 7% of total revenue and.

And non-GAAP net income was $5 $5 million or <unk> <unk> per share on approximately 86 million diluted shares.

Q1 operating cash flows were $50 million Q1, adjusted free cash flows were $46 million or 23% of total revenue.

For the trailing 12 months period, adjusted free cash flows were $171 million or 23% of total revenue.

As we head into Q2, we continue to make thoughtful investments into our business to drive growth.

However, along with growth and on the back of best in Class unit Economics, We also prioritize sales and marketing efficiency and free cash flow margins as key pillars of our financial performance.

Over the past five years, we've delivered adjusted free cash flow margins that have scaled from 8% to 23%.

While we are focused on growth, we will continue to make investments thoughtfully as we continue on our path towards our long term target of 30% to 35% adjusted free cash flow margin.

Cash at quarter end was $786 million, an increase of $57 million from last quarter.

Our rule of 40 for Q1 was 41% as we continued to demonstrate our ability to deliver meaningful growth with strong cash flows and margins.

As a reminder, we define the rule of 40 as the total revenue growth rate plus the adjusted free cash flow margin for the period.

Here are a few other key data points for Q1.

This quarter, we reported $18 million of professional services and other revenue.

In Q1 of last year, we reported $27 million.

As we've highlighted in the past the decrease is due to our planned migration of supply chain implementation work to Cooper partners and conversion of legacy term license contracts to subscription.

In Q1 of this year, we had $3 $6 million in supply chain supply chain Pro Serv in license revenue.

That's compared to $8 6 million in Q1 of last year.

The impact of this decrease in year over year professional services revenue from supply chain was approximately 400 basis points on our total revenue growth rate.

As I'll discuss in a few moments, we will be providing additional details on subscription billings, which is more reflective of the underlying health of our business.

Also in Q1, our gross renewal rate was and are consistent with historical range of 94% to 96%.

Dollar based expansion was in the 110 to 112 range the.

The number of customers with annualized subscription revenue greater than $100000 was 1441 at the end of the quarter up 27% from a year ago.

And we ended the quarter with $1 3 billion in total RPM.

A 35% year over year increase with that let's now turn to guidance.

Before sharing guidance as Rob noted towards the end of Q1, we began seeing signs of some potential softening in the European demand environment, driven by the Russia, Ukraine conflict pressure on your pressure on European currencies and installations.

Do we have not yet seen a meaningful impact on our business. We have factored this uncertainty into our guidance.

For Q2, we expect subscription revenue of between 185 and $188 million.

And professional services and other revenue of approximately $17 million, yielding total revenue of between $200 million to $205 million.

With respect to calculated billings given the impact of the year over year decline in professional services and license revenue. We are also providing guidance on subscription calculated billings, which is more reflective of the health and heart of our business.

Also factored into our guidance is the assumption that FX rates will remain similar to today's rates, which would result in a 100 to 300 basis point impact to our subscription revenue and billings results for Q2 and for the rest of the year.

Given the timing of the $10 million in earlier than anticipated renewals in Q1 that will not benefit Q2, let me normalize our subscription billings guidance by first sharing guidance for the first half of fiscal 'twenty three.

For the first half of fiscal 'twenty, three we expect year over year subscription calculated billings growth of approximately 25% on an as reported basis and between 26 and 28% on a constant currency basis.

Since we haven't shared this data in the past I'll now share our historical subscription billings figures going back to the beginning of last year.

For fiscal 'twenty to subscription billings were 124 million for Q1.

$173 million for Q2.

$172 million for Q3.

And 298 million for Q4.

For Q1 of this year subs billings were $170 million and we expect approximately $202 million for Q2.

Also for the first half of this year, we expect year over year total calculated billings growth of approximately 19% on an as reported basis and between 2022% on a constant currency basis.

Incorporated in these figures as our expectation of total calculated billings of approximately $220 million for Q2.

Moving down the income statement, we expect our Q2 non-GAAP gross margin of approximately 72, 5%.

We expect Q2, non-GAAP operating income of $9 million to $12 million.

And non-GAAP net income of $6 million to $9 million.

<unk> and non-GAAP net income per share of seven to 10 cents on approximately 87 5 million diluted shares for the quarter.

We expect Q2 adjusted free cash flows of approximately $20 million coming off the strong collections finish we had in Q1.

Now, let's move on to the full fiscal 'twenty three guidance.

We expect subscription revenue of $762 million to $767 million we.

We expect professional services and other revenue of approximately $76 million or 9% of total revenue. This would result in total revenue between 838 and $843 million for fiscal 'twenty. Three we expect non-GAAP gross margin for the year of between 72 and 73%.

And non-GAAP operating income for the year of 36% to $41 million.

<unk> and non-GAAP net income per share of <unk> 21 to 27.

On approximately 88 5 million weighted average diluted shares for the year.

That concludes our prepared remarks, we will now take your questions operator.

If you would like to ask a question. Please press star one on your Touchtone keypad now.

Please be prepared to answer your question.

When prompted.

And limit yourself to one question per person.

Once again, if you have a question. Please press star one on your phone now.

And our first question comes from Matt Van Vliet.

Your line is open.

Yes. Good afternoon. Thanks for taking the question guys nice job on the quarter I just wanted to touch on kind of what what are some of the factors that you are seeing driving the weakness that you talked about in Europe .

Are you seeing any even early signs of similar trends in other regions.

Or maybe Conversely, what gives you the confidence to raise the subscription guidance revenue.

Here given that you are starting to see a little bit of weakness in one of the bigger markets.

Sure. Thanks for the question.

There are parts of the World and I would also say in Europe that weakness feels much more of a lagging indicator than a leading indicator as I mentioned, we just came back from Berlin I think about two weeks ago, where we had just an incredible.

Inspire conference with nearly.

2000 people, many many customers hundreds of prospects incredible energy.

Lots of conversations about transformational projects getting back on the rails.

That had been sort of.

Arguably postpone for a number of years, so we're feeling pretty pretty bullish all around but we did want to call that out because we saw towards the end of <unk>.

So the kind of tail end of last quarter.

In Europe .

Great. Thank you.

Okay.

Thank you and our next question comes from.

Keith Weiss your line is open.

Okay.

Thank you guys for taking the question.

Nice quarter.

Carrying on.

That last question a little bit.

One for Tony and one for Rob for Tony.

How do you reflect that softness if you did it all that you saw in Europe in the guide was there.

Any extra layers of conservatism that you added or sort of like changes in your assumptions around close rates. When it came to that European business or was it like small lot that you just didnt really reflect it mechanically in the forecast on a go forward basis and then the question for Rob.

You guys have been through cycles before can you remind us.

Intuitively, what you guys do should become even more value add when people were dealing what they're dealing with right now like inflationary pressures and trying to add to that.

Sustained operating margin.

And the like.

At what point does.

The softening demand.

Get counter balance for sort of outweighed by eliciting.

What you need to do in these types of times to support your operating margins in kidney environment ever become a tailwind in that in that sense.

Yeah sure Keith Let me, let me touch on both a little bit and then before I turn it over to Tony is telling more about Europe , but generally speaking you know some of the some of the softness we saw late in the quarter in Europe .

Drive is kind of a wider range of potential outcomes and thats, what youre seeing in some of the some of our projections, but youll hear more about that from Tony in terms of the climate and I. Appreciate you calling out that we did see that see this before if you think about 2009 2010 2011.

Some of the wind in the sales of the value proposition, we offer will there and are here today to focus on.

Tightening expenditures to focus on getting more spend on contract the desire to have greater visibility of the business spending, but I would tell you. We were very very small company 2910, 11 viability was a concern on our platform wasn't yet scale, but we werent able to support multilingual multi currency deployments today.

They were.

Notably viable we have thousands of thousands of customer references and proof points in virtually every industry and we think that really bodes well for us as we enter these uncertain times with a value proposition that can deliver.

And the last component I think worth calling out as well what we saw during Covid is that people became more and more aware of just how.

But they are back office.

Information technology capabilities were lagging dose of front office capabilities, particularly in the cloud and that gives us an opportunity to really take full is focused on a much more modern agile resilient world.

As I mentioned thousands of proof points to get them comfortable but let me turn it over to Tony on Europe .

Sure. Thanks, Rob I think you covered most of Rob and thanks for the question Keith.

Overall, I would say our guidance methodology methodology has not changed from last quarter, There's always a range of outcomes and now there's a broader range of outcomes given this uncertainty in European demand.

You also have to consider the constant currency impact of between 100 300 basis points for billings in Q2 and for the rest of the year and this is factored into our guidance.

But definitely we feel.

We feel excited about our pipeline.

<unk>.

We're excited about Q2.

Got it thank you guys.

Okay.

Thank you.

Have a question from.

Raimo, let cheryl.

Your line is open.

Thank you.

Can I follow on that a little bit.

Rob if you think about the opportunity to previous declines and upset across so can you speak a little bit about the recently acquired assets like <unk> and then also when you talked about the payment attached here like what sort of payment already taking is it the virtual card is it a prepay.

And then just one for Tony last quarter, you talked about sales capacity increases is that still on the cards are you changing your tone there. Thank you.

Okay.

Sure.

We're seeing really nice attach rate across the board as you know our average subscription value for dealers as well in virtually every quarter now for 53 quarters, but specifically to pay.

The largest attach rate ever in this quarter meaningful greater than 30% mid market I mentioned, well over 50%. The total payment volume cumulatively has exceeded 10 billion with 1 billion a month now happening.

We are seeing.

A whole host of adoption across the board. So mid market is very strong we're seeing strong uptake of virtual card in the enterprise and we continue to push upmarket with digital payments capability and the beauty of pay is that it's part of our first waste strategy. All of that has been built organically and continues to improve three times.

A year a year with our releases.

Thanks for the question as I noted in my prepared remarks, we're definitely still investing for growth, but we're doing so thoughtfully you saw this quarter that we delivered 27% subscription revenue growth.

We had meaningfully higher sales and marketing opex as well as other areas.

But we're doing so thoughtfully and we delivered 23% free cash flow margins for the quarter and for the trailing 12 months.

Part of our calculation and of course, as we meet every quarter and discuss our investments very carefully and one of the things informing our decisions as the momentum of our business new business, consisting of new logos and add on business was up nearly 40% year over year in Q1. So all those things are factored into.

Our investments, but the key point here is that we're continuing to invest for growth, but doing so thoughtfully.

With respect to sales and marketing efficiency and free cash flow margin.

Perfect very clear congrats thank you.

Okay.

Thank you.

And we have a question from Alexandra Zukin.

Your line is open.

Hey, guys. Thanks for taking the question.

I guess, maybe just the first one is with respect I know youre going to get this question five times on macro but.

Are we.

Is it longer sales cycles is it more signatures required on deals.

And the confidence Rob.

Rob that you that you have that this was a Europe only issue given the war and the factors and not something youre seeing in the U S. But are you being prudent in the sense that some of your outcomes do incorporate degradation.

The same factors domestically and then for Tony.

Appreciate you guys talking about efficiency and cash flow a lot more.

The script and that makes total sense given what we're seeing both on the demand environment, but also with valuations.

I guess you talked about the rule of 40 in this quarter you talked about it on a trailing 12 month basis is there more also the commitment to try to hit that rule of 40, either next quarter or for the current year.

In general how are you positioning for that.

Sure Alex will look I would tell you. Obviously, we are looking at every segment of our business both geographically as well as mid market upper mid market enterprise strategic and when we look at it at a whole host of operational metrics to make sure. We have not only a really shrunk portfolio effect, but that we're properly investing against opportune.

<unk> is in front of us quarter in quarter out and with the exception of some of the late quarter softness we saw in Europe .

Tell you that all of our other segments. So just really.

Executing beautifully and we're scaling them accordingly with there.

With.

With how they are progressing along the way, making thoughtful investments as we've done for obviously.

Dozens of quarters now.

Yes.

On your second question look I mean, we've definitely are investing in growth to take advantage of a large market opportunity and the momentum we have with our new business.

And we're doing so thoughtfully, though right with respect to the sales and marketing efficiency unit economics free cash flow margins. We don't look at them independently, we looked at them all in conjunction with each other and we have strong controls of our investments in data to support them. So we're focused on both top.

Align growth.

But also thoughtful about free cash flow margin.

Okay understood. Thank you guys.

Yes.

We have a question from.

City.

Primary growing.

Your line is open.

Thank you.

Thanks for taking my question just wondering as you're looking into the remaining quarter. In this macro environment are you now trying to focus going back to the base any kind of changes you are doing in the incentive structure anything would be helpful.

Yeah sure sure. It's a great question, Neil a primary vehicle for growth has.

Has been and continues to be what we call hunting right, where we have a strong desire to win this market within within a huge total addressable market. So our primary vehicles hasnt continues to be hunting.

But as we continue to grow the scope the scale of our business, we obviously see opportunity in harvesting and to date.

Investments that we've made in harvesting has been very measured.

The opportunity to unlock value there is real.

And I would tell you that as with all elements of our business. We continue to make as Tony mentioned thoughtful investments quarter in quarter out to make sure we maximize the opportunity.

For many years to come.

Thank you.

Question from.

Sue.

Your line is open.

Oh, great. Thanks, guys.

Wanted to ask about mid market you called out Rob some mid market strength, we're certainly hearing that in the channel as well what are your observations. There is this a potential leading indicator for perhaps the enterprise segment coming back and then on the net revenue retention. If you could help us unpack a little bit where the incremental add ons expansion kind of deals are happening with.

The power user stack, there's just so much in there and Theres a lot of moving parts right now with the macro.

Supply chain I would imagine that there's quite a difference today in terms of the mix of business Youre seeing versus say a year ago.

Well look first of all on the mid market.

Thanks to an incredible leadership and it's just an amazing growing team in mid market. We just have a business that is.

Frankly on fire, it's very very scalable.

Our approach to customer acquisition is measured in the deal sizes are fair and so we continue to just push into that market.

Quarter on quarter out and we feel like it's very predictable as well, which is which is a wonderful thing to have from a portfolio effect perspective, and just the continued growth for the continued growth of our business.

Net retention in add on it's across the board.

It's really looks like a pizza pie.

You have add on business in terms of users that's across the board, but in terms of module. So it's everything from supply risk to supply chain design and planning.

To contingent workforce, we're seeing utilization, we're seeing more and more inventory management treasury.

Strategic sourcing so it's really across the board.

And I think thats, because our customer base really is in a state of vision lock with us in terms of what it takes to orchestrate comprehensive business spend management, it's simply a question of where to begin and how to navigate that transformation.

So that's what we're seeing there and then sort.

The last part of your question was in the Middle there in terms of is what we're seeing in midmarket indicative of the enterprise.

I don't know if I would say that.

Specifically, but I will tell you as I look at the enterprise business, particularly what we saw in the U S and other regions around the world the largest scale more transformational projects are coming back online and we're engaging in the flash physically.

With prospects and we're navigating these sales cycles from early awareness as we've always done all the way through to close so it's certainly feels promising and thats and thats seen in how we're thinking about the business and how we're investing into the business.

Great to hear thanks, Rob.

Sure.

Yes.

As a.

<unk> if you do have a question. Please press star one on your Touchtone cube.

And we have a question from Brian Peterson.

Your line is open.

Hi, gentlemen, thanks for taking the question so Rob I was actually in that Microsoft session out of the inspire and it was interesting to hear kind of the value proposition for them.

Be curious to get an update on how the supply chain business is booking goes from like a pipeline and deal cycle perspective, There's obviously lots of news there in terms of challenges there across across the globe, but im curious what youre seeing and how should we be thinking about the growth of that business going forward. Thanks, guys.

Sure I appreciate the question I would say at the core.

<unk>.

This is sort of the negative element is that that most most companies are still in a very acute phase as it pertains to dealing with the supply chain disruption.

Engaging more broad transformational supply chain design and planning.

Engagements hasnt been as fast as we would like having said that having said that.

We're seeing incredible.

Buildup in the pipeline of that area, we're seeing the deal sizes of.

Within supply chain zoning planning grow even from a lagging indicator perspective, and we feel really bullish about what's possible. There in this kind of multiyear journey to.

To get to one comprehensive suite.

We have this vision lock with our customers around so.

Boding very well for us.

When you look at this in a kind of mid to long term.

Arc, rather than a short term kind of add on quick.

Quick quick quick growth kind of market.

We have a question from Peter Levine.

Your line is open.

Great. Thanks, Congrats on a good quarter.

Rob you mean, obviously to the climate talked about fundamentals.

Fundamentals in environment of playing in your favor obviously would protect you provide but is there a change in tone on your longer term outlook of sustaining organic 45% growth can we see that long term growth targets, perhaps coming from down near term and offset higher margins cash flow.

Squeeze in a second what are your hiring plans for the year specifically within sales. Thanks.

Well look as Tony mentioned, when we think about hiring and then we think about not just sales. When you think about hiring sales head count we think about investment in sales training and enablement and we think about discretionary marketing investments and how to place those that is a quarterly planning process for us we always want to be not too far ahead and not too far behind.

And we want to make sure we're very thoughtful in the way, we manage our own business spending.

Peter but as you can tell from the tone of both our comments what we're seeing in the market is one that bodes well for us in terms of.

In terms of wanting to be a little bit ahead of the curve because it's returning.

<unk> for us.

Having said that it's dynamic out there and we're prudent executives are going to be very very thoughtful with the money that we have to spend against the opportunity and we'll make those calls.

Each and every quarter.

Thank you.

We have a question from Gabriele barges.

Your line is open.

Good afternoon. Thanks for taking the question Toni I'm, hoping you can give us a little more detail on what you're seeing in the business with the return to office, particularly traveling expense lines coming back I think in the past you've given us a little bit of commentary around the portion of the business that are tied directly to G&A expense management.

Maybe just a little more detail on that are you seeing a recovery in that business, how much could it contribute to correct.

<unk>.

Yes.

This is Rob maybe I'll I'll start so.

Interestingly when we look at our business spend index and looking at the data there, it's showing a good steady increase in travel and without us even seen it ourselves, which is a wonderful thing to see in our own company.

We talk to agencies that we have as partners they expect to see a return to.

Pre pandemic levels by 2024, obviously than a fortune tellers, but thats kind of a consensus of what we're hearing out there and that is incredibly good timing for us to have released our own travel booking solution, which we've been working on now for.

Roughly a year or so and that is just incredibly usable product.

It is in its early stages.

It will begin its journey in the mid market, primarily in the U S and we think it can be a really promising growth vector process.

Traveled continues.

Continues to emerge.

Yes, and thanks Gabriel for the question as Rob noted were very excited about our positioning as travel begins to re emerge from COVID-19.

I'd also point out with respect to our spend under management figures, which are roughly a trillion dollars.

Running through our core on a trailing 12 month basis that the large majority of that is from.

<unk> and invoices and there is a small percentage and theyre very very small.

Directly related to <unk>. So we have hundreds of customers using our <unk> solution and we're excited about the go forward.

Thank you.

We have a question from Terry Tillman.

Your line is open.

Yes. Thanks for taking my question. It's a two part question first for Rob it's going to be about their consolidation. We're hearing a lot from our enterprise software companies, where because of their platform capabilities theyre seeing bigger deals there where they can displace point solutions. So I'm curious on these larger enterprise deals is the ticket size actually increasing still and then for.

Tony last quarter, you did I think give some perspective on current our appeal at about 33% growth I know the total ARPA was similar to last quarter at 35%, but anything on the current Rps. Thank you.

Thanks, Terry will look I mean, the beauty of our deal size the positive our deal sizes that virtually every quarter as I've shared in the past they've continued to grow on a 53 quarters.

<unk>.

Growth in deal size that the negative side of that is given the incredible value, we're delivering to our customers that's measurable and visible we'd like to see that grow even faster right. So there's two sides to that but generally quite quite healthy generally quite healthy and in many cases, yes, displacing smaller point solutions along the way it is.

All about getting that vision lock.

With the prospect around comprehensive business spend management showcasing for them references in their industry in which in cases, where we have literally hundreds and in every industry being the.

The platform and the partner, that's highest likelihood to help them succeed and lowest likelihood of failure and in all those areas. We feel really good. So so that's how it's fair for us.

And thanks, Terry as you pointed out our total <unk> growth year over year was 35%.

Our <unk> growth year over year was similar it was around 35%.

We actually manage that we don't manage our business by <unk>, it's more of a.

A metric that is driven by the results, we actually manage our business for subscription billings. So going forward Thats, what were going to focus on but <unk> was around 35% for Q1.

Alright, thank you.

Okay.

We have a question from Michael <unk>.

Your line is open.

Hey, there. Thanks. Good afternoon I. Appreciate you taking the question Tony you mentioned the move to emphasizing subscription billings. It makes sense given some of the moving to a model you mentioned FX, how should we think about the impacts of the conversion of supply chain revenue from license subscription on that metric and I know you mentioned $5 million last one on professional services, but is there anything you can add.

To help us like for like comparable license versus subscription pricing.

Would you expect.

Seasonal profile.

Subscription billings to play through similar to prior years, just with a much heavier Q4 waiting.

<unk>.

Sure Michael we definitely benefited in fiscal 'twenty, two from being very successful with the conversion of legacy supply chain licenses to a subscription and also from rebuilding customers at 100% for the deferred revenue components that came over at a 50% haircut. However, as we look.

Forward.

We're confident in mid twenties subscription calculated billings and mid 'twenty subscription revenue growth.

Alright.

We have a question from Joseph Murphy.

Your line is open.

Okay.

Hey, guys good.

Good afternoon. Thanks for taking my question I thought I thought I'd, just follow up a little bit on some of the previous quest.

Questions on enterprise versus.

Mid market and also then drill down on some of your comments on the pay module I know the attach rate.

In mid market I know.

Quite a bit higher than enterprise.

Time goes on more transformational, but are you seeing more kind of entrenched players or or AP players.

Enterprises have already embraced and perhaps the.

The mid market is still a little bit more greenfield or what youre seeing exactly on on the pay module in those two markets. Thanks.

Thanks, Joe will certainly the mid market is generally more greenfield as it pertains to every one of our modules, but we continue to push up market with pay capabilities not only in virtual.

Cards, but.

In digital payments, and where we're getting more and more functionality built into the offering that makes it.

Something that walked in large enterprises can can leverage.

I will tell you Joe early enterprise adopters should be using the platform in the coming two to three quarters, which should drive much more.

Transaction volume and should really bode well for us in terms of building up a revenue reference base, rather and being able to go wider and wider with the solution. So we're feeling really good about the progress we're making there it's not a <unk>.

One two or three quarter kind of story, obviously to multiyear journey, but we're we're really into that journey now and as we shared I think I guess it was analyst day, a year and a half ago. So we're almost accelerate phase now where we are we're making it happen.

We have a question from Ryan Macdonald.

Your line is open.

Yeah.

Okay.

Congrats on nice quarter.

You talked about.

Attendance from inspire.

That's in the U S and internationally just curious.

Two months beyond that.

No.

Pipeline.

Our conversion of that pipeline is flowing through from an in person event.

As opposed to some of the virtual events from prior years. Thanks.

Sure Ryan you were breaking up a little bit there, but I think.

At the core of your question was.

How we feel about pipeline, particularly coming out of these in person events and look I can tell you proudly we again have the largest pipeline.

We've ever had as a company for certain.

Move into that pipeline from early stage.

Through the close is something where we're strongly focused on we've continued to scale our sales capacity available to move that pipeline.

From early stages through to close and my my instinct, if I could be so bold as that pipeline. That's that that is touched physically particularly in the enterprise tends to move a bit quicker than purely through.

Zoom or virtually but that of course remains to be seen and we wanted to be very prudent with how we.

Manage our expectations for everyone involved, especially <unk> and especially how we make our investments in a quarter in quarter out.

We have a question from <unk>.

Mcguinness.

Your line is open.

Yeah, Hi, Thanks for taking my question just looking at <unk>. So if we adjust total billings growth for the early renew all it looks like the upside was a little bit softer than what we've seen in the past and so I appreciate the shift to subscription billing, but just in that quarter was there anything else aside from.

Some of the professional services headwinds that you call out and then as a second part to this question just when we look into two key you guide.

Guide for subscription revenue and billings it looks pretty strong.

Just given that it looks like <unk> is the toughest comp and some of the macro commentary you called out so is there like one or two drivers of that.

Large deal activity, returning or some some upsells returning that you would point to to help US bridge some of those comments. Thanks.

Thanks Taylor.

So with respect to total calculated billings first of all as everyone knows the U S. Dollar has been strengthening meaningfully against some of the foreign currencies, including the euro and a lot of that occurred very acutely in in April which was at the very end of our quarter. So the first thing you have to do is add back a couple of points for <unk>.

Constant currency that we didn't necessarily anticipate.

And the second thing is on the services and license transition for supply chain.

Honestly, it's going faster than we even originally expected and really this is to the benefit of our customers and our subscription business. We have more trained partners that already so if you add back those two things you get closer to mid twenties for total calculated billings.

Thank you.

Last question comes from Robert Symons.

Your line is open.

Hey, Thanks for taking the question.

Okay.

Yes.

Okay.

Robert If you are speaking we can't hear you operator.

Okay.

Sorry can you hear me now Mr Sun.

Go ahead please.

Sorry about that thanks for taking the question I was wondering if you could update us on the progress that youre, making on getting more involved on the direct side of the.

I know that can be gray area at times, but I just kind of help there.

Hate it.

Sure.

You're referring to direct spend that our customers processed through the platform right.

Yes, exactly yes sure sure. So look first of all it should be noted that of the three six trillion or so thats run through our platform cumulatively that a significant portion of that is in fact direct spend and has been.

Growing in a proportionality for years.

And we've made significant strides in helping our customers manage inventory for direct spend helped them manage complex strategic sourcing as it pertains to the <unk> now over the last few quarters help them in that supply chain design and planning for.

The direct spend so for us we're quite agnostic in terms of.

How we engage with our customers will start from the indirect the longest of the long tail. The most complex supply chain and direct spend requirement that they have and find ways to bring them into a modern cloud platform that drives value for them. So it's both.

<unk> boding quite well for us.

And we have no further questions in queue at this time.

Thank you everyone and we look forward to speaking to you next quarter. Thanks.

This concludes today's conference call. Thank you for attending.

The host has ended this call goodbye.

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Good afternoon, ladies and gentlemen, and welcome to the Cooper software first quarter fiscal year 2002, 2022 earnings conference call.

Our host for today's call is Steven Horwitz.

At this time all participants are in a listen only mode.

Later, we will conduct a question and answer session.

I would now like to turn the call over to your host.

Mr. Schwartz you may begin sir.

Thank you.

Good afternoon, and welcome to Cooper Software's first quarter conference call.

Joining me today are Rob Bernstein, Cooper, CEO and Tony <unk> CFO .

Our remarks today include forward looking statements about guidance and future results of operations strategies market size products competitive position and potential growth opportunities.

Our actual results may be materially different.

Forward looking statements involve risks and uncertainties and assumptions that are described in our most recently filed 10-K.

These forward looking statements are based on our beliefs and assumptions today, and we disclaim any obligation to update any forward looking statements.

A replay of this call will also be available.

Unless otherwise stated growth comparisons are against the same period of the prior year.

With that I will now turn the call over to Rob.

Thanks, Steven and welcome everyone and thank you everyone for joining us I'm excited to share our first quarter business results with you today from our New York offices.

It's been amazing getting back in front of customers to collaborate and face to face real time sessions.

I'm fully understand what we're doing here at Cooper, we're giving them visibility control and agility over their business spending helping them build foundational resilience in their back office operations for the long term and empowering them to make strategic data driven decisions that youll positive outcomes for their businesses.

As we look at our results, let me start by sharing a few financial highlights from the first quarter this being our 53rd quarter of execution.

In Q1, we delivered $196 million of total revenue, including $178 million of subscription revenue calculated.

Calculated billings for the quarter were $188 million, we once again reported strong free cash flow margins coming in at 23% for both the quarter and the trailing 12 months, we're able to deliver strong free cash flows while simultaneously continuing to make thoughtful investment.

<unk> into our business to capitalize on our growth opportunities.

Our approach remains dynamic and agile in the context of consistently changing times, which have which we have navigated over the last 13 years of operational execution.

We continue to drive meaningful top line growth, while maintaining best in class unit economics and sales efficiency.

And strong free cash flow metrics as well.

As our business as business is planned for tougher economic times, we believe our model of growth with profitability makes us, especially resilience over the long term.

The resiliency they showed with respect to their businesses leveraging our platform was nothing short of humbling and inspiring for all of us at Cooper.

As well they are preparing to use our platform to help their businesses navigate the potential uncertainties ahead.

Now as we are all acutely aware the global business environment is currently highly volatile.

We have seen some early signs of potential softening in Europe , especially as the war in Ukraine, and inflationary pressures that appear to be winning more business leaders than they were before.

Yet in this context, we remain agile and pragmatic in how we run our business and make investments.

With that backdrop and a strong pulse on our business, we feel confident raising our subscription revenue guidance for both the second quarter.

And the full year.

Now more than ever it's undeniable that business leaders recognize the importance of optimizing their business spend.

Cooper is empowering companies to build the transformational business architecture, they need to for John into this uncertain future.

Through our industry, leading BSM platform built on our vision areas are being comprehensive open user centric prescriptive and accelerated.

We are providing our customers with one source of truth to run their businesses.

And as we look to the coming years, we believe that we're on our way to becoming the de facto business spend management platform for <unk>.

Cfos.

And with the support of forward thinking <unk>.

Now.

Our path to winning the BSM market and unlocking vast amounts of real measurable value for our customers is paid by our three wave strategy.

First capturing all spend.

Secondly, optimizing every dollar spent and finally amplifying community value.

For the first wave capturing all spend let me share a couple of customer stories that demonstrate how our platform increases operational efficiency by digitizing processes.

The first story is that of CBRE, the world's largest commercial real estate services and investment firm.

CBRE users Cooper in 49 countries around the world, including in Japan, where the digital payments processes for more than 700 supply partners were streamlined.

They were quickly able to mitigate 80% of the region's spend from manual processes to digital E invoicing.

Not only did they reduced cycle times by more than 50%. They were also able to improve payment fulfillment in Japan by 85% positively impacting cash flow.

I am appreciative of the comment they shared with us which was.

Another example of transforming business spend for manual to digital is that a revision and electric vehicle automaker.

They are a testament to how businesses scale on our platform by leveraging <unk> ability to improve processes and drive automation Ruby and has maintained the same procurement operations team size, while its overall employee base has grown 20 acts in the last 18 months they have gone from a completely manual approach.

93% of their purchase orders and 90% at 90% of their invoices processed electronically.

Cooper Arabian has gained visibility into and control over their spend and has benefited greatly from the scalability of our platform.

As many of you know a key component of our first wave is Cooper pay.

Our attach rate on new customer deals in Q1 has again was again meaningfully above 30% with mid market attach rates being well over 50%.

Also we surpassed $10 billion of cumulative total payment volume in Q1 and are now processing payment transactions in a run rate of more than $1 billion per month.

Yes.

Now, let's move onto the second wave of our strategy opt.

Optimizing every dollar spent through sweep synergy.

First example, I'll share with you is that of ally financial and financial services and insurance company that is experiencing firsthand the benefits of end to end business spend management.

Allied greatly simplified its IP landscape by replacing several systems with one integrated Cooper platform.

They are using source to pay.

Contingent workforce third party risk supplier diversity and teeny.

Another example is Microsoft who has a cooper supply chain design and planning customer.

Microsoft joined US at our inspire conference a couple of months ago to discuss the importance of using data to manage their supply chain.

With such a wide range of products for multiple types of customers that get delivered to so many different distribution channels. They clearly have an extremely complex supply chain to manage <unk>.

Microsoft emphasize that with massive amounts of data data coming in everyday digitization is incredibly important to them.

The data helps drive the organization to make the correct decisions today, while also considering the necessary planning as far out as three to five years.

Each business decision can't just be correct for one part of Microsoft.

Collectively all of the decisions need to work in concert with each other.

Now it's also data along with community collaboration that makes up the key components of our third wave amplifying community value.

While the best is yet to come we continue to unlock value for our customers through community Dot AI and we see an increase in utilization of prescriptions by our customers.

Nearly 70% of customers that are live on the platform have used community insights or community connections multiple times per month on average.

A common example of one of these prescriptions might be contextually informing the customer that they should move specific unstructured spend to on contract spend by.

By linking negotiated contracts the customer can ensure better pricing and compliance that the company's preferred suppliers.

As I mentioned collaboration is also key to our third wave our app marketplace is a collaborative environment, where customers can connect their enterprise systems to Cooper to further break down silos.

We offer enterprise apps that are used for connecting to systems, both inside and outside of business spend management.

Now have nearly a dozen apps that are prebuilt and certified these.

These applications are easy to use and are essentially instantly accessible for our entire growing customer community.

Cooper certification comes from our engineers with a specific focus on reliability performance and security.

A great example of one of these prebuilt apps as a key solution from Interros.

Customers using the <unk> app can access supplier risks at the time of sourcing.

It also provides ongoing monitoring of third party data and instant visibility into supply risk scores across cyber ESG financial geopolitical and operations.

This is just one example of the value our customers can extract from our platform and how it's expanding through our growing app marketplace.

As we continue our pursuit of winning the BSM market, our thought leadership and innovation, playing an increasing role in the mind activation of our community, especially through ESG or.

Our customers are establishing key ESG goals that they want to achieve but aren't necessarily sure had accomplish.

To help these customers, we have introduced more than 80 different capabilities and our sustainable BSM toolkit to impact ESG.

One example of functionality, we deliver to our customers is providing minority owned and sustainability data on their suppliers.

As well as the suppliers of their suppliers and we provide that data at the time a transaction takes place to help our customers make better decisions that will help them achieve their ESG goals.

Now speaking of ESG, we are making an impact on each area.

<unk> environmental we recently introduced price benchmarks for ocean freight and scope III carbon emissions tracking well.

We've also launched a partnership with the climate software platform to help measure and reduce carbon footprint.

While we are early in our process in 2021, we increased our global female representation and our underrepresented minorities in our colleague base.

And we are already doing more in 2022, as we believe that by increasing diversity, we've become more creative empathetic and productive.

Now speaking of making an impact let me share with you Cooper's MVP Award winners for Q1, who best exemplify our core values as voted by colleagues.

I'll begin with Kate Mcintyre, who exemplifies our first core value of ensuring customer success.

<unk> consistently find solutions to challenging issues. She quickly earns the trust and respect of our customers. She helps get situations addressed expediently and positively Kate always puts the customer success first.

Next we will meta was recognized with <unk>, our second core value focusing on results.

We will make sure we aren't just delivering functionality, but rather using the feedback of all members of the community to deliver a solution that is highly impactful and adoptable from day one.

Regardless of how complex a problem as Rahul is there to successfully drive towards an elegant solution with a strong bias for action.

Finally, Julie purchasing <unk> was recognized for our third core value striving for excellence.

Julie played a key role in our journey together.

She had an has an amazing focus and attention to detail that enables us to maximize the likelihood of success on each project.

Our customers commended her on her tireless work ethic, which resulted in clear value delivery.

My Congratulations go out to Kate Rahul and Julie.

As we recognize our colleagues for their contributions were also humbled to be recognized for the values of service, we're delivering to the market as a company.

Forrester recently published its first ever comprehensive analysis of the business spend management market and their supplier value management wave analysis.

We are proud to have achieved the highest scores in the industry and strategy.

<unk> technology.

This recognition is also a result of the deep relationship we have with our community of customers and partners.

As I mentioned earlier, we couldnt have been more thrilled to reunite with these groups at our inspire event in Las Vegas, a couple of months ago and again more recently in Europe .

There was incredible excitement and energy at both events with customers sharing their transformation success stories and learning from each other.

We are thankful to the dozens of customers who shared their stories at our events.

They include ADM Astrazeneca BMW DHL General Mills General Motors, Jabil lows Mastercard <unk>, Microsoft Staples.

Unilever UBS Walmart and so many more.

Now before I turn it over to Tony.

Let me restate the obvious.

The global market environment remains uncertain, we are well positioned to navigate and thrive we continued to deliver solid topline growth.

Best in class unit economics, and strong free cash flows keep.

Keep in mind that we built the foundation for this business during the heart of the financial crisis over a decade ago and the disciplined forged during those years is in our DNA.

With that let me now hand, the call over to our CFO , Tony Good morning, Tony.

Thanks, Rob and good afternoon, everyone.

As Rob highlighted we delivered strong topline growth margins and cash flows for Q1.

Let's dive right into the numbers.

Total revenue for the quarter was $196 million, including subscription revenue of $178 million up 27% year over year.

Total calculated billings for Q1 was $188 million up 26% year over year subscription.

Subscription calculated billings for Q1 was $170 million up 37% year over year.

In Q1, we benefited from some renewals that closed earlier than we anticipated contributing approximately $10 million to calculated billings.

If you make this adjustment our reported subscription billings growth would have been 29%.

Also in Q1 due to the strength of the U S dollar, particularly particularly against the Euro both subscription and total calculated billings were impacted by approximately 200 basis points on a constant currency basis.

non-GAAP gross margin for the quarter was 74%.

non-GAAP operating income was $14 million or 7% of total revenue.

And non-GAAP net income was $5 $5 million or <unk> <unk> per share on approximately 86 million diluted shares.

Q1 operating cash flows were $50 million Q1, adjusted free cash flows were $46 million or 23% of total revenue.

For the trailing 12 month period, adjusted free cash flows were $171 million or 23% of total revenue.

As we head into Q2, we continue to make thoughtful investments into our business to drive growth.

However, along with growth and on the back of best in Class unit Economics, We also prioritize sales and marketing efficiency and free cash flow margins as key pillars of our financial performance.

Over the past five years, we've delivered adjusted free cash flow margins that has scale from 8% to 23%.

While we are focused on growth, we will continue to make investments thoughtfully as we continue on our path towards our long term target of 30% to 35% adjusted free cash flow margin.

Cash at quarter end was $786 million, an increase of $57 million from last quarter.

Our rule of 40 for Q1 was 41% as we continued to demonstrate our ability to deliver meaningful growth with strong cash flows and margins.

As a reminder, we define the rule of 40 as the total revenue growth rate plus the adjusted free cash flow margin for the period.

Here are a few other key data points for Q1.

This quarter, we reported $18 million of professional services and other revenue.

In Q1 of last year, we reported $27 million.

As we've highlighted in the past the decrease is due to our planned migration of supply chain implementation work to Cooper partners and conversion of legacy term license contracts to subscription.

In Q1 of this year, we had $3 $6 million in supply chain supply chain Pro Serv in license revenue.

Thats compared to $8 6 million in Q1 of last year.

The impact of this decrease in year over year professional services revenue from supply chain was approximately 400 basis points on our total revenue growth rate.

As I'll discuss in a few moments, we will be providing additional details on subscription billings, which is more reflective of the underlying health of our business.

Also in Q1, our gross renewal rate within our consistent historical range of 94% to 96%.

Dollar based expansion was in the 110 to 112 range the.

The number of customers with annualized subscription revenue greater than $100000 was 1441 at the end of the quarter up 27% from a year ago.

And we ended the quarter with $1 3 billion in total RPM.

A 35% year over year increase with that let's now turn to guidance.

Do we have not yet seen a meaningful impact on our business. We have factored this uncertainty into our guidance.

For Q2, we expect subscription revenue of between 185 and $188 million.

And professional services and other revenue of approximately $17 million, yielding total revenue of between $200 million to $205 million.

For the first half of fiscal 'twenty, three we expect year over year subscription calculated billings growth of approximately 25% on an as reported basis and between 26%, 28% on a constant currency basis.

Since we haven't shared this data in the past I'll now share our historical subscription billings figures going back to the beginning of last year.

For fiscal 'twenty to subscription billings were 124 million for Q1 $173 million for Q2.

$172 million for Q3.

And 298 million for Q4.

For Q1 of this year subs billings were $170 million and we expect approximately $202 million for Q2.

Also for the first half of this year, we expect year over year total calculated billings growth of approximately 19% on an as reported basis and between 2022% on a constant currency basis.

Incorporated in these figures as our expectation of total calculated billings of approximately $220 million for Q2.

Moving down the income statement, we expect our Q2 non-GAAP gross margin of approximately 72, 5% we.

We expect Q2, non-GAAP operating income of $9 million to $12 million.

And non-GAAP net income of $6 million to $9 million.

The resulting in non-GAAP net income per share of seven to 10 cents on approximately 87 5 million diluted shares for the quarter.

We expect Q2 adjusted free cash flows of approximately $20 million coming off the strong collections finish we had in Q1.

Now, let's move on to the full fiscal 'twenty three guidance.

We expect subscription revenue of $762 million to $767 million.

We expect professional services and other revenue of approximately $76 million or 9% of total revenue. This would result in total revenue between 838 and $843 million for fiscal 'twenty three.

We expect non-GAAP gross margin for the year of between 72 and 73%.

And non-GAAP operating income for the year of 36% to $41 million, resulting in non-GAAP net income per share of <unk> 21 to 27.

On approximately $88 5 million weighted average diluted shares for the year.

That concludes our prepared remarks, we will now take your questions operator.

If you would like to ask a question. Please press star one on your Touchtone keypad now.

Please be prepared.

So to your question.

When prompted.

And limit yourself to one question per person.

Once again, if you have a question. Please press star one on your phone now.

And our first question comes from Matt Van Vliet.

Your line is open.

Yes. Good afternoon. Thanks for taking the question guys nice job on the quarter I just wanted to touch on kind of what what are some of the factors that youre seeing driving the weakness that you talked about in Europe .

Are you seeing any even early signs of similar trends in other regions.

Or maybe Conversely, what gives you the confidence to raise the subscription guidance revenue.

Here given that you are starting to see a little bit of weakness in one of the bigger markets.

Sure. Thanks for the question.

I would say that weakness in Europe was something we saw late in the quarter, it's sort of early signs of weakness due to obvious macro obvious conditions with the Ukraine conflict, we're not seeing that in other parts of the world and I would also say in Europe that weakness feels much more of a lagging indicators.

A leading indicator as I mentioned, we just came back from Berlin, I think about two weeks ago, where we had just an incredible inspire.

Inspire conference with nearly <unk>.

2000 people, many many customers hundreds of prospects incredible energy.

Lots of conversations about transformational projects getting back on the rails.

That had been sort of.

Arguably postpone for a number of years, so we're feeling pretty pretty bullish all around but we did want to call that out because we saw towards the end of <unk>.

So the kind of tail end of last quarter.

In Europe .

Great. Thank you.

Okay.

Thank you and our next question comes from.

Keith Weiss your line is open.

Okay.

Thank you guys for taking the question.

Nice quarter.

Carrying on.

That last question a little bit more.

One for Tony and one for Rob.

<unk>.

How do you reflect that softness if you did it all that you saw in Europe in the guide was there.

You guys have been through cycles before can you remind us.

Intuitively, what you guys do should become even more value add when people were dealing what they're dealing with right now like inflationary pressures and trying to add to that.

Sustained operating margin.

And the like.

At what point does.

The softening demand.

Get counter balance for sort of outweighed by eliciting.

What you need to do in these types of times to support your operating margins in kidney environment ever become a tailwind in that in that sense.

Yeah sure Keith So let me touch on both a little bit before I turn it over to Tony are telling more about Europe , but generally speaking you know some of the some of the softness we saw late in the quarter in Europe .

Drives kind of.

Wider range of potential outcomes and Thats, what youre seeing in some of the some of our projections, but youll hear more about that from Tony in terms of the climate and I. Appreciate you calling out that we did see that see this before if you think about 2009 2010 2011.

Some of the wind in the sales of the value proposition. We offer we are there and are here today to focus on.

Hey.

And the last component I think worth calling out as well what we saw during Covid is that people became more and more aware of just how.

But they are back office.

As I mentioned thousands of proof points to get them comfortable but let me turn it over to Tony on Europe .

Sure. Thanks, Rob I think you covered most of it Rob, but and thanks for the question Keith.

Overall, I would say our guidance methodology methodology has not changed from last quarter. There is always a range of outcomes and now there's a broader range of outcomes given this uncertainty in European demand.

You also have to consider the constant currency impact of between 100 300 basis points for billings in Q2 and for the rest of the year and this is factored into our guidance.

But definitely we feel.

We feel excited about our pipeline and.

We're excited about Q2.

Got it thank you guys.

Okay.

Thank you.

Have a question from.

Raimo, let cheryl.

Your line is open.

Thank you.

Can I follow on that a little bit.

And then just one for Tony last quarter, you talked about sales capacity increases is that still on the cards are you changing your tone there. Thank you.

Sure.

We're seeing really nice attach rate across the board as you know our average subscription value for dealers as well virtually every quarter now for 53 quarters, but specifically to pay.

No.

We are seeing.

A year a year with our releases.

We had meaningfully higher sales and marketing opex as well as other areas.

But we're doing so thoughtfully and we delivered 23% free cash flow margins for the quarter and for the trailing 12 months.

Part of our calculation of course, as we meet every quarter and discuss our investments very carefully and one of the things informing our decisions as the momentum of our business new business, consisting of new logos and add on business was up nearly 40% year over year in Q1. So all those things are factored into.

Our investments, but the key point here is that we're continuing to invest for growth, but doing so thoughtfully.

With respect to sales and marketing efficiency and free cash flow margin.

Perfect very clear congrats thank you.

Okay.

Thank you.

And we have a question from Alexandra Zukin.

Your line is open.

Hey, guys. Thanks for taking the question.

I guess, maybe just the first one is with respect I know youre going to get this question five times on macro but.

Are we.

Is it longer sales cycles is it more signatures required on deals.

And the confidence Rob that you that you have that this was a Europe only issue given the war and the factors and not something you are seeing in the U S. But are you being prudent in the sense that some of your outcomes do incorporate degradation.

The same factors domestically and then for Tony I. Appreciate you guys talking about efficiency and cash flow a lot more.

In the script and that makes total sense given what we're seeing both on the demand environment, but also with valuations.

And in general how are you positioning for that.

Sure Alex will look I would tell you. Obviously, we are looking at every segment of our business both geographically as well as mid market upper mid market enterprise strategic.

And we look at.

At a whole host of operational metrics to make sure we have not only a really shrunk portfolio effect, but that we're properly investing against opportunities in front of us quarter in quarter out and with the exception of some of the late quarter softness we saw in Europe I can tell you that all of our other segments. So just really.

Executing beautifully and we're scaling them accordingly with there.

With.

With how they are progressing along the way, making thoughtful investments as we've done for obviously thousands of quarters now.

Yes.

On your second question look I mean, we've definitely.

Investing in growth to take advantage of a large market opportunity and the momentum we have with our new business.

And we're doing so thoughtfully, though right with respect to the sales and marketing efficiency unit economics free cash flow margins. We don't look at them independently, we look at them all in conjunction with each other and we have strong controls of our investments in data to support them. So we're focused on both topline.

Growth.

But also thoughtful about free cash flow margin.

Okay understood. Thank you guys.

Yes.

We have a question from.

City.

Primary growing.

Your line is open.

Thank you.

Thanks for taking my question. Just wondering are you looking into the remaining quarter. In this macro environment are you know trying to focus going back to the base any kind of changes you're doing in the incentive structure anything would be helpful.

Yeah sure sure. It's a great question Yale a primary vehicle for growth has.

It has been and continues to be what we call hunting right.

We have a strong desire to win this market within within a huge total addressable market. So our primary vehicles hasnt continues to be hunting.

But as we continue to grow the scope and scale of our business, we obviously see opportunity in harvesting and to date <unk>.

Vestments that we've made in harvesting has been very measured but the opportunity to unlock value there is real.

And I would tell you that as with all elements of our business. We continue to make as Tony mentioned thoughtful investments quarter in quarter out to make sure we maximize the opportunity.

For many years to come.

Thank you.

Question from.

Sue.

Your line is open.

Oh, great. Thanks, guys.

The power user stack, there's just so much in there and Theres a lot of moving parts right now with the macro.

Supply chain I would imagine that there's quite a difference today in terms of the mix of business Youre seeing versus say a year ago.

Well look first of all on the mid market.

Thanks to an incredible leadership and it's just an amazing growing team in mid market. We just have a business that is.

Frankly on fire, it's very very scalable.

Our approach to customer acquisition is measured in the deal sizes are fair and so we continue to just push into that market.

Net retention in add on it's across the board.

It really looks like a pizza pie I mean, obviously you have add on business in terms of users that's across the board, but in terms of module. So it's everything from supply risk to supply chain design and planning.

To contingent workforce, we're seeing utilization, we're seeing more and more inventory management treasury.

Our strategic sourcing so it's really across the board.

So that's what we're seeing there and then.

Some of the last part of your question was in the Middle there in terms of is what we're seeing in midmarket indicative of the enterprise.

I don't know if I would say that specifically, but I will tell you as I look at the enterprise business, particularly what we saw in the U S and other regions around the world the largest scale more transformational projects are coming back online and we're engaging.

In the flash physically with.

Great to hear thanks, Rob.

Sure.

As a reminder, if you do have a question. Please press star one on your Touchtone keypad.

And we have a question from Brian Peterson.

Your line is open.

Hi, gentlemen, thanks for taking the question so Rob I was actually in that Microsoft session out of the inspire and it was interesting to hear kind of the value proposition for them.

Curious to get an update on how the supply chain business is booking goes from like a pipeline and deal cycle perspective, There's obviously a lot of news there in terms of challenges there across.

Across the globe, but im curious, what youre seeing and how should we be thinking about the growth of that business going forward. Thanks, guys.

Sure I appreciate the question I would say at the core.

This is sort of the negative element is that that most most companies are still in a very acute phase as it pertains to dealing with the supply chain disruption, so engaging more broad transformational supply chain design and planning.

Engagements hasnt been as fast as we would like having said that having said that.

We're seeing incredible.

Buildup in the pipeline of that area, we're seeing the deal sizes of.

Within supply chain zoning planning grow even from a lagging indicator perspective, and we feel really bullish about what's possible. There in this kind of multiyear journey to.

To get to one comprehensive suite.

We have this vision lock with our customers around so.

Boding very well for us.

When you look at this in a kind of mid to long term.

Art, rather than a short term kind of add on quick.

Quick quick quick growth kind of arc.

We have a question from Peter Levine.

Your line is open.

Great. Thanks, Congrats on a good quarter.

Rob you mean, obviously to the climate talked about fundamentals.

Fundamentals in environment of playing in your favor obviously with the turnkey provide but is there a change in tone on your longer term outlook of sustaining organic 45% growth can we see that long term growth targets, perhaps coming from down near term and offset higher margins cash flow.

Squeeze in a second what are your hiring plans for the year specifically within sales. Thanks.

Okay.

Very thoughtful in the way, we manage our own business spending.

Peter but as you can tell from the.

The tone of both our comments what we're seeing in the market is one that bodes well for us in terms of.

In terms of wanting to be a little bit ahead of the curve because it's returning results for us.

Having said that it's dynamic out there and we're prudent executives are going to be very very thoughtful with the money that we have to spend against the opportunity and we'll make those calls.

Each and every quarter.

Thank you.

We have a question from Gabriele borders.

Your line is open.

Good afternoon. Thanks for taking the question Toni I'm, hoping you can give us a little more detail on what you're seeing in the business with the return to office and particularly traveling expense lines coming back I think in the past you've given us a little bit of commentary around the portion of the business that are tied directly to G&A expense management.

Maybe just a little more detail there are you seeing a recovery in that business how much could it contribute to your question yes.

<unk>.

Gabrielle and maybe this is Rob maybe I'll I'll start so.

Interestingly when we look at our business spend index and looking at the data there, it's showing a good steady increase in travel and <unk> seen it ourselves, which is a wonderful thing to see in our own company.

We talk to agencies that we have as partners they expect to see a return to.

Roughly a year or so and that is just incredibly usable product.

It is in its early stages and it will begin its journey in the mid market primarily in the U S and we think it could be a really promising growth vector process.

Traveled continues.

Continues to emerge.

Yes, and thanks, Scott for the question as Rob noted we are very excited about our positioning as travel begins to re emerge from COVID-19.

I'd also point out with respect to our spend under management figures, which are roughly a trillion dollars.

Running through our core on a trailing 12 month basis that the large majority of that is from.

<unk> and invoices and there is a small percentage and they're very very small.

Directly related to <unk>. So we have hundreds of customers using our <unk> solution and we're excited about the go forward.

Thank you.

We have a question from Terry Tillman.

Your line is open.

Thanks, Terry will look I mean, the beauty of our deal size the positive our deal sizes that virtually every quarter as I've shared in the past if they continue to grow on a 53 quarters.

<unk>.

All about getting that vision lock with the prospect around comprehensive business spend management showcasing for them references in their industry in which in cases, where we are.

Literally hundreds and in every industry being the.

The platform and the partner, that's highest likelihood to help them succeed and lowest likelihood of failure and in all those areas. We feel really good. So so that's how it's fair for us.

And thanks, Terry as you pointed out our total ARPA growth year over year was 35%.

Our <unk> growth year over year was similar it was around 35%.

We actually manage that we don't manage our business by <unk>, it's more of a.

A metric that is driven by the results, we actually manage our business for subscription billings. So going forward Thats, what were going to focus on but <unk> was around 35% for Q1.

Alright, thank you.

Okay.

Yes.

We have a question from Michael churn.

Your line is open.

Hey, there. Thanks. Good afternoon I. Appreciate you taking the question Tony you mentioned the move to emphasizing subscription billings. It makes sense given some of the moving pieces in the model you mentioned FX, how should we think about the impacts of the conversion of supply chain revenue from license subscription on that metric I know you mentioned $5 million last one on professional services, but is there anything you can add.

To help us like for like comparable license versus subscription pricing.

Would you expect.

Seasonal profile.

Subscription billings to play through similar to prior years, just with a much heavier Q4 waiting.

<unk>.

Forward.

We're confident in mid twenties subscription calculated billings and mid 'twenty subscription revenue growth.

We have a question from Joseph Murphy.

Your line is open.

Okay.

Hey, guys good.

Good afternoon. Thanks for taking my question I thought I thought I'd, just follow up a little bit on some of the previous questions on enterprise versus.

Mid market and also then drill down on some of your comments on the pay module I know the attach rate.

In mid market I know.

Quite a bit higher than enterprise.

Time goes the more transformational but are you seeing more kind of entrenched players or or AP players.

Enterprises have already embraced gentlemen, perhaps.

Mid market is still a little bit more greenfield or what youre seeing exactly on on the pay module in those two markets. Thanks.

Thanks, Joe will certainly the mid market is generally more greenfield as it pertains to every one of our modules, but we continue to push up market with pay capabilities not only in virtual.

Cards, but.

In digital payments, and where we're getting more and more functionality built into the offering that makes it.

Something that Walter and large enterprises can can leverage.

I will tell you Joe early enterprise adopters should be using the platform in the coming two to three quarters, which should drive much more.

<unk>, two or three quarter kind of story Odyssey to multiyear journey, but we're we're really into that journey now and as we shared I think that gets it was analyst day, a year and a half ago. So we're almost accelerate phase now where we are we're making it happen.

We have a question from Ryan Macdonald.

Your line is open.

Yeah.

Thanks and.

Congrats on a nice quarter.

You talked about.

In attendance from inspire.

And that's in the U S and internationally just curious as you.

Two months beyond.

No.

Pipeline.

Our conversion of that pipeline is flowing through from an in person event.

Posted some of the virtual events from prior years. Thanks.

Sure Ryan you were breaking up a little bit there, but I think that.

The core of your question was.

How do we feel about pipeline, particularly coming out of these in person events.

I can tell you proudly we again have the largest pipeline.

We've ever had.

As a company for certain the move into that pipeline from early stage.

Through to close is something where we're strongly focused on we've continued to scale our sales capacity available to move that pipeline.

From early stages through the close and my my instinct, if I could be so bold as that the pipeline thats that that has touched physically particularly in the enterprise tends to move a bit quicker than purely through.

Zoom or virtually but that of course, it remains to be seen and we want to be very prudent with how we.

Manage our expectations for everyone involved, especially <unk> and especially how we make our investments in a quarter in quarter out.

We have a question from.

Taylor Mcginnis.

Your line is open.

Yeah, Hi, Thanks for taking my question just looking at <unk>. So if we adjust total billings growth for the early renew all it looks like the upside with a little bit softer than what we've seen in the past and so I appreciate that.

Chip to subscription billing, but just in that quarter was there anything else aside from some of the professional services headwinds that you call out and then as a second part to that question just when we look into two P. M. The guide for subscription revenue and billings it looks pretty strong.

Just given that it looks like Q2 is the toughest comp and some of the macro commentary you called out. So is there like one or two drivers one is that large deal activity returning or some some upsells returning that you would point to to help US bridge some of those comments. Thanks.

Thanks Taylor.

For constant currency that we didn't necessarily anticipate and.

And the second thing is on the services and license transition for supply chain.

Thank you.

Last question comes from Robert Symons.

Your line is open.

Hey, Thanks for taking the question.

Okay.

Yes.

Okay.

Robert If you are speaking we can't hear you operator.

Okay.

Sorry can you hear me now Mr Sun.

Go ahead please.

Sorry about that thanks for taking the question I was wondering if you could update us on the progress that youre, making on getting more involved on the direct side of the equation I know that can be gray area at times, but I just need you to any help there would be appreciated.

Sure.

You're referring to direct spend that our customers process.

Platform right.

Yes, exactly yes sure sure. So look first of all it should be noted that of the three six trillion ASO that's run through our platform cumulatively a significant portion of that is in fact direct spend and has been.

Growing in a proportionality for years.

And we've made significant strides in helping our customers manage inventory for their expand help them manage complex strategic sourcing as it pertains to the <unk> now over the last few quarters helped them in the supply chain design and planning.

Direct spend so for us we're quite agnostic in terms of.

How we engage with our customers will start from the indirect the longest of the long tail and the most complex supply chain and direct spend requirements that they have and find ways to bring them into a modern cloud platform that drives value for them.

So its bone boding quite well for us.

And we have no further questions in queue at this time.

Thank you everyone and we look forward to speaking to you next quarter. Thanks.

This concludes today's conference call. Thank you for attending.

Q1 2023 Coupa Software Inc Earnings Call

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