Q2 2023 Coupa Software Inc Earnings Call
Margin for the quarter.
In Q2, we saw very strong performance in the North America enterprise market, new customers, such as audience linked in and Royal Caribbean chose our ROI driven business spend management platform to optimize their spend.
While demand in North America continued to be very strong it's worth noting that European demand remained softer.
Now.
When looking at our business Holistically going forward.
We're encouraged by our largest ever pipeline and the training enablement and ramp of our new sales colleagues. We added earlier in the year progresses continues to progress well.
The question that continues to be debated broadly in the market is whether we are headed for a recession or a soft landing.
Our most recent business spend index provides some interesting insights into this topic with respect to macroeconomic data unemployment and inflation.
As an example, we have seen significant increases in air airfare prices yet despite the uptick in prices demand has not fallen.
But rather has increased as businesses progress towards returning to pre pandemic levels of travel.
The net effect of the underlying data showed some signs of projected growth in certain areas and signs of potential contraction in others.
For broader insights I once again suggests exploring our business spend index on spend index Dot com.
Now as many of you have come to know we pride ourselves on managing our business with discipline.
We've done so during times of strong prosperity as well as during times of contraction.
This approach has become a foundational element of our management philosophy and stewardship of Cooper.
I'm sure. We can all agree that the current environment is highly dynamic and how the macro picture plays out is yet to be known.
That ambiguity is being contemplated by leaders across industries and businesses globally.
For Cooper.
Let me articulate what we mean by thoughtful disciplined execution and share our current thinking in this area.
If we take a moment to isolate the variable of future demand uncertainty there are several scenarios that could play out.
First scenario would be that the economy experiences a softer landing and the demand environment remains relatively healthy.
In this scenario, we will continue to thoughtfully invest for growth and as always balanced with profitability.
Of course, a recession as possible. So another scenario would be that we enter an environment that impacts it spending budgets in the near term.
In this scenario, we are prepared to moderate our investments appropriately, resulting in increased profitability and cash flows.
And more extreme cases, we will show spend discipline at significantly increased levels.
Now near term scenarios aside we are proudly the clear leader in business spend management.
Our total addressable market is massive and underpenetrated.
And we are excited as ever in our pursuit to revolutionize this market and deliver customer success like never seen before.
Speaking of customer success, let me, we now have well over 2500 Cooper customers and thousands of prospects, who seek to partner with us and benefit from our value as a service solutions.
They need to have DSM discipline and use it a lot and so with that let me share. Some examples of customers investing in DSM transformation.
One in the context of our three waves strategy.
Wave one of course is capturing all spent it's.
It's a strategy to capture all spend through our highly scalable and configurable transactional core.
The first example, I'll share is that of pro petrol and oilfield services company.
They implemented the Cooper platform to enable process improvements efficiencies and increased controls <unk>.
<unk>, 94% of their spend is now preapproved and they are electronically processing, 89% of their purchase orders and 80% of their invoices.
By capturing the spend they have visibility and control freeing them to focus on growth oriented initiatives.
Another energy company <unk> energy required requires timely operational support to keep their 60 drilling operations platforms running 24 seven <unk>.
Emmanuel procurement processes left the company vulnerable to duplicate our missed orders, resulting in inventory overages shortages and costly overnight delivery orders.
Previously their accounts payable personnel dedicated nights and weekends to verify receipts assigning GL codes and posting accruals.
<unk> implemented Cooper in just three months and was able to automate their processes and reduce invoice cycle times by 90%.
Their procurement leads stated our platform operations now run more smoothly, while spend visibility and control helps our reporting and our bottom line.
These are examples of our wave wave one strategy in action for our customers.
Let me also share a few of the most recent enhancements from our September release.
Related to our first wave.
In this release, we streamlined the mobile App for expenses, we improved visibility into Reimbursable spend we made it easier to manage unused travel tickets and we integrated virtual cards into our travel offering and much much more.
Integrating virtual cards into <unk> allows our customers to unlock additional synergistic value.
It also provides another avenue to drive incremental total payment volume through our platform.
To that end, our cumulative total payment volume reached nearly $15 billion by quarter end as more customers continue to come online that is nearly 50% increase in approximately two quarters.
Now let me move on to the second wave of our strategy, which is optimizing every dollar spent through suite synergy.
Many of our customers maximize their savings and efficiency by leveraging power user applications within our suite.
One of these companies is maersk, a Danish multinational shipping and container logistics giant.
They digitize their entire procurement process and are using Cooper for procure to pay supplier risk management and sourcing optimization.
With sourcing optimization masked identified over $100 million of potential savings by utilizing reverse auctions, where several shippers are bidding for their business.
Not just savings it's about efficiency with the help of coupon <unk> only needs seven people to cover thousands of supplier negotiations and auctions per year.
We were humbly appreciative of their comments they said.
It's actually relatively easy from a technology technical point of view since it SaaS you can get it up and running.
Generally the impact for your business in weeks.
Cash is also leveraging our platform to support their sustainability goal of achieving carbon neutrality by 2050.
Truly are thrilled to be part of this journey with Maersk.
We're very proud to have masks and many other customers amongst our ever expanding community, which has now driven more than $3 eight trillion in cumulative spend under management through the platform.
The resulting data from this spend is what fuels the third wave of our winning strategy.
<unk> community value.
As you may recall community that AI can be broken into three areas.
Pooling of customer spend such as with Cooper advantage, the pooling of brainpower and collaboration amongst community members and the pooling of data through AI and machine learning the intelligence component.
This quarter I'll share. An example of how our spend guard solution utilizes this third area the pooling of data for fraud protection and prevention.
Vanguard Leverages AI and machine learning technology to automatically analyze a customers business spend and flag suspicious transactions in real time.
So let me share a real life customer example from the selling group.
He has a diverse European retail group that process several hundred thousand invoices pose an expense reports through our platform annually.
Immediately upon implementing spend guard they halted a large duplicate invoices before payment could be made.
Now I can't emphasize how important that is to catch these issues before money leaves a customer's bank account it saves them from having to recover cash.
This importance wasn't lost on one of their leaders, who said Cooper community AI is a must have within three days of uptime. It has paid back our investment.
Another example is that of a globally recognized provider of electronic solutions with over 45000 employees in more than 40 countries by.
By identifying Noncompliant purchase order spend spend guard allowed them to edit overdraw, a certain purchase orders prior to their suppliers incurring any costs or invoicing them.
In less than a year of spend guard helped this company saved tens of millions of dollars.
Now as I've mentioned before this is just the tip of the iceberg of what our community Dot AI platform can.
Can do and we are still in the early days of delivering true value of service in this area at the scale that we envision.
These solutions will only become more and more valuable as we continue to develop the third wave of our strategy and our community Dot AI vision becomes fully realized.
This <unk> strategy is of course underscored by our vision areas as exemplified by the letters in the name Cooper, which stands for comprehensive open user centric prescriptive and accelerated.
Now switching to our core values. Let me highlight this quarter is most valuable players who represents best represent each value as selected by our colleagues.
I'll start with <unk> from our technology support team won the award for our first core value of ensuring success chenille goes above and beyond when helping others across groups and across regions is incredibly effective at understanding where problems problems exist and determining the best approach to solving them is called.
Leagues have conveyed to us that his contributions are so meaningful that they typically save at least 50% of the developers time.
Next is Jake cells from our cloud operation support team the winner of our second core value of focusing our results Jacobs put forth significant time and effort that has yielded multiple platform improvements. He co led and automation effort that tremendously improve the workflow for our colleagues Jake's contributions have.
Been key to enabling platform agility, automating security, allowing for continuous improvement on our platform.
Last but certainly not least Bonnie Ho from our channel marketing team won the award for our third core value of striving for excellence.
Finally goes above and beyond to promote a collaborative environment with our partners and her Cooper colleagues. She is passionate and is dedicated to driving more effective events, which in turn helps us bring more customers into the community.
As Bonnie excel that her job it saves Cooper time money and ensures that the right customers are being introduced to the right products.
Congratulations and thank you Sunil Jake and Bonnie for embodying the core values, which lay the foundation for the special culture, we're developing at Cooper, which just last month has once again globally certified and certified as a great place to work with.
We're really proud that the great place to work survey revealed that 95% of our employer respondents ascribed to each of our three core values.
Now obviously, our third core value dictates that we still have work to do to get the other 5% onboard and we plan to continue our efforts to do just that.
Yes.
We were also recently recognized by fast company as great as the best workplace for innovators. Additionally, we earned a leading position on the software reports top 100 software companies of 2022 lists.
We're building something really special here.
We will work tirelessly to continue to build a stronger company, a stronger platform and a stronger community.
Now before I close let me make you aware of our second annual ESG report, which can be found on the corporate sustainability page of our website.
I'll share our mission statement with you.
Through the power of trillions of dollars in business spend our mission is to unlock our customers full potential to do well and do good anchored in a shared belief that we are smarter together.
Before I hand, the call over to Tony Let me emphasize the managing business spend to drive agility savings and increased profitability is now more important than ever.
Our solutions with a demonstrable and measurable ROI are rightfully moving to the forefront.
Together, we can leverage the strength of the Cooper platform and our community to help our customers navigate through these uncertain times.
With that let me turn the call over to our CFO Tony <unk>.
Thanks, Rob and good afternoon, everyone.
As Rob highlighted we delivered strong topline growth margins and cash flows for the second quarter.
Let me dive right into the numbers.
Subscription revenue for Q2 was $193 million up 23% year over year.
Or 24% on a constant currency basis.
Total revenue was $211 million up 18% year over year or 19% on a constant currency basis.
Subscription calculated billings were $217 million up 25% year over year.
Or 27% on a constant currency basis.
non-GAAP gross margin for the quarter was 74, 5% highlighted by subscription gross margin of 80%.
non-GAAP operating income was $24 million or 11% of total revenue.
And non-GAAP net income was $16 million or <unk> 20 per share on approximately 87 million diluted shares.
Cash at quarter end was $809 million.
Q2, operating cash flows were $29 million and adjusted free cash flows were $25 million.
This coming off very strong operating and adjusted free cash flow results for Q1 of $50 million and $46 million respectively.
For the trailing 12 month period, adjusted free cash flows were $159 million or 20% of total revenue.
Our rule of 40 on a trailing 12 month basis exiting Q2 was 43%.
As a reminder, we define the rule of 40 is the total revenue growth rate plus the adjusted free cash flow margin for the period.
In Q2, our gross renewal rate and net retention rate. We are in the consistent historical range of approximately 94% to 96% and 110% to 112% respectively.
The number of customers with annualized subscription revenue greater than $100000.
Was one 519 at the end of the quarter up 23% from a year ago.
These results illustrate the leverage and scale, we have in our financial model. We are focused on topline growth, but as Rob noted. We also prioritize strong unit economics, gross and operating margins and free cash flow margins.
That lets now turn to guidance.
As Rob noted in his remarks, and as we discussed last quarter in Europe , we continue to see a softer demand environment with lengthening sales cycles, which is factored into our guidance.
Consistent with Q1, our Q2 performance in North America was strong however, we recognize the global macro environment is uncertain.
So we have factored the potential for additional macro headwinds into our guidance to derisk the outlook for the back half.
Yeah.
For Q3.
We expect subscription revenue of $194 million to $196 million.
We expect professional services and other revenue of approximately $17 million to $18 million and we expect total revenue of $211 million to $214 million.
For Q3, we expect subscription calculated billings of approximately $198 million.
Moving down the income statement.
We expect Q3 non-GAAP gross margin of approximately 73%.
We expect non-GAAP operating income of $14 million to $16 million.
non-GAAP net income of $7 million to $9 million, resulting in non-GAAP net income per share of 8% to 10.
On approximately 87 5 million diluted shares for the quarter.
We expect Q3 adjusted free cash flows of approximately $20 million.
Now, let's move on to full year fiscal 'twenty three guidance.
Expect subscription revenue of 766% to $771 million.
Representing an increase from last quarter's full year guide of $4 million at the midpoint.
We expect professional services and other revenue of $72 million to $73 million or 9% of total revenue.
This would result in total revenue of $838 million to $844 million for fiscal 'twenty three.
We expect our non-GAAP gross margin for the year of 73% and non-GAAP operating income for the year of 62, 5% to $68 $5 million.
<unk> and non-GAAP net income per share of 37% to 44.
On approximately 87 5 million weighted average diluted shares for the year.
Finally today, we announced the approval of a <unk> open market share repurchase program of up to $100 million.
This program reflects the confidence we have in our business and our ability to create shareholder value. While also serving as a way to reduce net share dilution.
That concludes our prepared remarks, we will now take your questions operator.
If you would like to ask a question. Please press star one.
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Or please keep it to a single question to allow time for everyone to ask their questions.
Again.
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And our first question comes from Keith Weiss.
Your line is open.
Hey, guys. This is Christian Toro on for Keith.
That's on the quarter.
Question from our end Bob.
Last quarter, you talked about the softness in Europe being more of a lagging indicator than a leading one.
Anything changed in the quarter were now you'll continue to see some of that European weakness throughout the quarter.
Sure. Thanks for the question.
Lengthening sales cycles as what we saw.
Last quarter, we saw some of the same elements this quarter I won't say much worse, so much better.
So it remains an area that we're watching very carefully.
We believe largely due to their greater levels of uncertainty in the region and then obviously, we'll look at it country by country and segment by segment, but broadly speaking.
What we're what we're saying.
Our next question comes from Alex Zukin.
Your line is open.
Hey, guys. Thanks for taking the question just a two parter for me I guess.
Rob you talked a little bit about.
The longer sales cycles in Europe I want.
I think Tony you talked about reflecting some incremental conservatism to derisk the guidance for the year seeing if that activity spreads to the U S. I wondered if you could talk about where from a vertical perspective, youre seeing areas of weakness and areas of strength and then Tony maybe just commenting on.
On the guide I think.
<unk>.
Is that a good.
Aspect of seasonality for subscription billings.
I think prior to that we had a little bit of a.
More.
A more even waiting if you will on subscription billings in Q3 to Q4, so just any color commentary there would be helpful.
Yeah, Thanks, Alex I'll take the first one.
Nothing really to call out by industry at this time that significant for us and the way that pie. The pie is split up over the years of building out the business but.
But I would say certainly the impact is seems to be much more geographically based and that is worth calling out yes.
Yeah, and Alex I don't think.
We have our typical seasonality I think I would classify this as typical seasonality nothing outside the norm.
As we noted there is there is some uncertainty out there with respect to the global macro picture and how things will play out so for that reason, we've factored some incremental impact from potential broader macroeconomic macroeconomic headwinds into our guide.
Okay.
And we have a question from Brad sills.
Your line is open.
Oh, great. Thanks, so much for taking my question guys I wanted to ask one on kind of a macro a little differently if I could please.
To what extent is reopening providing some tailwind to the business that perhaps might be an offset to slowing macro here because the value proposition change at all as employees are back in the office for just core procure and then second question would just be any color commentary on what you might have seen across the different power user apps, where there any relative areas.
The strength, whether it's CRM or supplier information about Cooper pay.
Any color on that please thank you so much.
Yeah, I wouldn't say so much that there is due to the fact that more folks are physically in offices that thats provided tailwind for us, but I think the fact that folks are more engaged in transformational projects to the use of technology has been a tailwind in <unk>.
And I think that.
Can be correlated pretty well with a very strong North America enterprise.
Business, we saw this past quarter with a scalable mid market business, we can prove.
To drive so I think it's more of the re engagement, whether it's physical or not.
Post Covid I think that's more correlated and then definitely nothing overly significant in this quarter.
On a product by product.
Kind of mix, there are quarters, where we see supplier risk being at the front end of the driver will be quarters, where the.
The travel component of our <unk> offering is seeing.
Some greater pull but nothing that would call and say well. This this module. This module really drove this suite sales. It continues to be the vision lock, we have with our customers around where BSM is going in and their confidence in us being able to take them take them there.
Our next question comes from Raimo <unk>.
Your line is open.
Thank you and Rob Thanks for the clarity about the different scenarios.
Yes.
I hope it's the last question on macro but what are you seeing in terms of.
Pipeline pipeline evolution at the moment in terms of like.
Is that are we still seeing the same number of projects are you kind of pushing for like slightly more pipeline coverage given kind of potentially issues on closure rates further in the second half of the year can you just speak to that scenario. Please. Thank you.
Yes, sure look at it from a pipeline perspective things are very healthy with this business in terms of new pipeline being created in the size of the pipeline we continue to move.
We're seeing as I mentioned really strong results in each of the segments by region.
Enterprise mid market.
We're seeing the reps that we're bringing on continue to ramp pretty well get acculturated understand how to navigate within our authentic culture and collaborate on deal closure and we're seeing some really good results.
We have all of our developing markets from Latam to Asia and beyond.
And maybe to the root of your question of course, we're keeping our eyes.
Closely.
In terms of monitoring time to close and how deals are progressing through that pipeline from the early stages of awareness through close to give us any leading indicators of various scenarios to play out as I said in the prepared remarks.
Our next question is from Bob Napoli.
Okay.
Alright, Thank you and good afternoon solid results.
I'd like to get maybe a little more of an update.
On Cooper pay last quarter, you talked about.
Pretty attractive attach rates in mid market and some very good momentum there youre talking about virtual cards at any can you give any color on.
The revenue from people pay revenue growth rates are is the revenue yield trending up virtual card cross border would be much higher yield products, but just any anything any update on Cooper pay on.
The economics of Cooper pay.
And the addition of new products.
Yeah sure sure Bob So look first of all customer acquisition has continued to be consistently quite strong rate greater than 30% overall mid market over over 50% of our deals right. So demand for the offering there were both in market and market with the offerings that we're in market with <unk> and the desire.
Higher upmarket four fully built out offerings is there.
Total payment volume since inception has increased by 50% over just the last six months as one data point.
But.
Probably one of the most exciting things is the enterprise solution around digital payments right that we're getting closer and closer to introducing.
Early enterprise adopters should be using the platform and likely two to three quarters and Thats why I feel we'll really be able to test out.
The overall value proposition of the offerings under the Coupe umbrella.
Our next question comes from Ryan Macdonald.
Your line is open.
Alright, Thanks for taking my question Robyn, it's great to hear the commentary about sales reps ramping well and.
Progressing while as you go through the year.
Can you talk about what Kpis, you're marching in measuring two to sort of gauge those sales rep ramping and then a follow up for Tony.
93% gross margins for third quarter and full year and the guide can you just remind us what what sort of headwinds or why we should expect a step down I think last year.
Those are at least on the subscription side remained at 80% plus in.
In the back half would love some more color there. Thanks.
Sure. So thanks for the question look I am not going to bore the audience with every kpis that we look at running this business is literally hundreds of them every quarter, but as you would expect all the local ones of ability to get on the board in any kind of deals ability to get within a certain set percentile of quota attainment time to ramp with class.
Our sales reps into what we call <unk> and software juniors and seniors and expectations we have for each.
So we have a lot of kpis to help us really.
What's happening now, but but I'd like to refer you to the answer I gave to an earlier question, which is we're not just looking at that we're looking at how the pipeline continues to develop we're looking at the time to close from awareness.
From awareness to close and how.
How pipeline moves through the stages, we're looking at ramp rep ramp scale in each of our segments.
Enterprise mid market and core and in each of our Geos.
There's a lot that goes into really gauging the health of the business and then figuring out the right level of investment to push into it quarter in quarter out as we've been doing now for 54 quarters.
Yes, Brian on the gross margin question nothing in particular to call out that would be a one off or a headwind heading into Q3 in the back half of the year in our midterm target.
Gross margins are 74% to 75%.
We delivered obviously on that the last couple of quarters, and we believe with good execution in our process of delivering that again would be strong.
We have a question from Terry Tillman.
Your line is open.
Great. Thanks for taking the question. This is Robert on for Terry I'm curious to get an update on the federal side with the recent fed ramp authorization, how has traction been in that vertical and anything to share on the execution of that pipeline.
Pipeline in that area continues to develop really well, we had a number of pretty thorough.
Early stage, but very interesting.
Accomplishments that we actually considered maybe sharing on the call, but decided to hold off.
I think we will have a lot more work to report around our traction there as we get through Q4 and get into the early part of next year.
Okay.
As a reminder, if you do have a question. Please press star one on your telephone keypad now.
Please limit yourself to one question to allow time for everyone.
And our next question comes from Michael <unk>.
Your line is open.
Hey, there. Thanks, good afternoon I appreciate you taking the question.
In terms of Lama soften in the supply chain design category I'm wondering if anything you could share just around migration efforts there.
Things.
Seems to be progressing well and if that's at all an area of increasing focus from the demand side.
Uncertainty, we're all hearing more about continues to form and just a small follow up I just want to be clear in terms of the outlook in North America, specifically it sounded like youre, taking potential for some headwinds there to perform but not anything that youre seeing currently just want to make sure that's clear as well. Thank you.
Yes, I think I think <unk> got the second part right on the first part in supply chain design and planning.
We continue to leverage our solutions in these distinct use cases that I have shared in the past.
That where they can play the greatest role and deliver the greatest value episodic use.
Use cases for example, like transport optimization, which is a huge issue are currently for so many of our customers.
They are still in what we believe to be in the acute phase of dealing with supply chain disruption.
And we're doing everything in our power to really solidify our offering an application. During this time, so that we can be in a position to.
Really drive into more transformational projects once this Keith face gets get settled.
Our next question comes from Brian Peterson.
Your line is open.
Hi, gentlemen, thanks for taking my questions. So Tony just one for you obviously the margin guidance is moving a lot higher I'd be curious what are some of the key drivers or any context, you can add there.
Maybe specifically Samsung how youre looking at on hiring or thinking about sales capacity as we go on throughout the year. Thanks guys.
Yes, Hey, Brian .
I think the margin profile of our business and the fact that we've.
Ben in the <unk>, 74% to 75% range the last couple of quarters.
And to your point our guidance is higher is reflective of really the scale that we have and the leverage we have in our model and our business model.
I think hiring continues to go along as planned.
And with good execution.
The mid term target of 74% to 75%.
Gross margins that we're operating in now we think are attainable with good execution.
We have a question from Robert Simmons.
Your line is open.
Hey, Thanks for taking my question.
You bumped up subscription revenue guide for the year, but lower professional services and other is.
Is that due to warm up conversion is going well or is there something else driving that change.
Yes, I mean, I think Lama salt.
Supply chain term license conversion from the legacy business have gone very well.
We're not completely done with those but for all intents and purposes, you probably wont hear us talk much about it anymore because they are mostly completed.
Really I mean, when you think about our model.
We have said for many years that we would like our professional services and other revenue as a percentage of total to be in that kind of 8% to 10% range.
We have a partner led model and we continue to focus.
As a key strategic element of our business on partners, leading implementation. So I think more than anything it's reflective of that.
And we have a question from Josh Beck.
Your line is open.
Yes, Thank you for taking the question.
Well, maybe going back to the kind of the CIO level are you seeing any.
Now with respect to modernizing.
The ERP systems, obviously, I think thats.
Project that brings in.
Procurement and BSM and medications.
Or is it maybe they're moving forward with those projects, but maybe wanting to.
Have a narrower budget just curious if theres anything.
You are seeing on that front.
Full of prospects are rightfully cost conscious they've always been cost conscious and in that light, we still been able to drive our average annual subscription value per deal up virtually every quarter for 54 quarters, which tells US we have something of incredible value to offer.
And I think both scenarios are playing out.
<unk> raised one is.
There are folks that are retaining their existing ERP deployments, which were completely comfortable with because we are a strategic extension to ERP as it pertains to the business spending and give them a lot of leverage out of the many ERP.
P systems, they may have in their it environment and in some cases, they are considering upgrading their entire ERP platform, which is part of our broader transformation initiatives and very often we fit very well at the very front end of that because the savings generated through our platform can actually pay in many cases for some of that transformation.
Happen downstream so.
Both dynamics put us in a pretty interesting position in our sales segment offering a unique value proposition.
Our next question comes from <unk>.
Kind of growing.
Your line is open.
Hi, This is <unk> on for <unk>, So kind of a question to breaking out pipeline a little bit what are you guys seeing in terms of later stage pipeline versus more top of the funnel and kind of what how does that break out and then I guess along those lines.
The same thing for new logos versus cross sell are you starting to see more and more cross sell activity.
Farmers start to slow down or what does it look like for both of those.
Photos vectors. Thank you.
Okay.
Yes look the pipeline continues to develop in a healthy way both at the very front end as well as through stages of pipeline and as I mentioned earlier the key for US is carefully managing monitoring movement from from early stage awareness all the way through close which we are.
Our eyes very firmly planted in terms of your question about.
Expansion.
I can tell you we've been we've been at this for well over a decade and we've developed a pretty comprehensive business. The management platform that now has over a dozen market leading capabilities. So while we're still primarily focused on hunting and landing net new logos, we have begun iterating on what our harvesting <unk>.
Model could look like.
Looking at the right regions right products right customer segments, we won't want to focus on so we're in the early stages of evaluating how to how to fully maximize that potential for us downstream.
We have a question from Peter Levine.
Your line is open.
Okay. Thank you guys for taking my questions.
Maybe just one for you Tony is how should we think about the durability of we're sustaining your youre targeting 25% subscription billings target going forward I don't want to corner, you into giving guidance, but maybe.
Walk us through the variables that would alter that trajectory given the current environment and then some of the near term scenarios you outlined earlier on the call.
Sure. Thanks for the question Peter I think I think Rob outlined really well some of the different variables in play with respect to the macro.
Environment, and how that looks in some of the softness we've seen in Europe . The strength, we've seen in North America.
To your point I mean, we've already provided guidance on this call with respect to subscription billings for Q3.
So for us, it's partly about that and also about execution.
Our next question is from Daniel Jester.
Your line is open.
Great. Thanks for taking my question.
Just on the scenarios that you mentioned at the beginning of the call.
The different macroeconomic outlook and how you can.
Adjusted levers of the business I mean, how real time can that.
The leverage default is that something that we can see within a quarter or two or are you thinking about things longer term when you're framing the scenarios in your ability to toggle expenses. Thanks.
Dana I think Thats, a phenomenal question and when I really appreciate and for those of US those even though our business well and how we run it we do quarterly releases of discretionary budget of talent head count all expenditures in the company. So yes, absolutely. That's the type of thing that is.
Very dynamic for us and manage quarterly.
Our next question is from Taylor Mcginnis.
Your line is open.
Yeah, Hi, Thanks, Tom forgive you for taking my question I guess, just given the current macro the subscription billings upside in the quarter with pretty solid. So can you talk about what drove the upside were there any deals that slipped last quarter that ended up closing or any uptick in large deal activity to fly again, maybe as a second part to that.
Question long term Dr has been.
Increasing as a percentage of the mix of total PR and Steve maybe benefited billings a bit. So can you just like is the second part maybe comment on what's driving that as well.
So this is rob nothing that I see significant sort of pushes and pulls of deals from quarter to quarter to your first question and maybe comment on that.
Second question Taylor, we noted this last quarter as well.
Environment like this which I think has some uncertainty we're likely out in front of our customers sooner and more often than we typically would be in the past and so just aligning with them on renewals renewal terms. So.
That could be part of the equation with respect to long term deferred revenue.
And we have a question from Gabriela voyages.
Your line is open good afternoon.
Good afternoon, Thank you for Rob of Attorney.
A question on EMEA versus North America in a slightly different way, which it.
How did activity compared relative to your expectations and specifically what was that as any originally expected three months ago, and then follow up for Tony If I may back in March we had a discussion around the potential for acceleration in fiscal year 2024, just a commentary on the macro change our conviction in one.
Trajectory could look like into 2024, alright, there are enough company specific drivers to reiterate essentially there will be an acceleration. Thank you.
Yes. Thank you Gary the first questions really great one.
What was <unk>.
Much stronger than we anticipated.
Call. It three to six months ago was the level of engagement, we're seeing across Europe , we thought it wouldn't be at lower levels than it was and it was really really strong which left us fairly encouraged on what we see in terms of.
Movement of pipe.
From awareness to close and that second portion didn't materialize. So we were under <unk> with the second portion.
Overwhelmed with what we saw on the front end.
Yes, Gabriele on your on the second part of your question I would say the following when we look at.
The additional capacity that we hired in Q4 and Q1 of this year.
Definitely we are seeing great progress in the ramp of those colleagues sales colleagues that we discussed.
So that's one variable I think rob isolated the other variables, which are macro environment, and we've talked about Europe and Rob mentioned.
As Rob mentioned, none of Us know exactly where that's all headed that could certainly have an impact, but we still have to see how that plays out.
Our next question comes from Steve Koenig.
Your line is open.
Hey, guys. Thanks for taking the question. This is one day with one for Steve I'm wondering if you can just give a little more color on the conversations you're having with these European customers.
To what extent is the softness is that softness there from a change in prioritization of their BSM initiatives and then as a quick second how are you adjusting your go to market motions and sales focus for these demand headwinds if at all thank you.
Conversations are good they just more improvers more time being spent more evaluation more uncertainty in the European context, which is definitely.
Definitely not a prioritization change its not a.
Removal of initiatives around Cooper from the list of priorities is simply.
Longer time in the pipe.
And our final question comes from Pat well Ravens.
Your line is open great. Thank you. Thank you.
So Rob a year ago I asked you what Youre <unk>.
Top three priorities were so.
From my notes in September 2021, they were number one cement the organization so <unk> grown a lot.
Both organically and Inorganically number two you said was set the pace. Thanks for everyone's running in the right direction and number three was established in the second and third levels of leadership to scale.
So what are they today.
Well I was going to actually flip back on the goals previously Pat so.
On the Org I think a year ago, we were maybe 2000 and so people are a little over that 3400 or so.
As you see we have more than 90% and the best place to work survey that <unk>.
This is such a place and more than 95% ascribed to our values and part of our values is to maintain a pace. The second one is focus on our results. So we feel.
Pretty good about that and when I look at the leadership at the second tier and third tier I'm, feeling more and more optimistic about that some really great acculturated colleagues to see our vision and see and see where we're going so I feel like we're in a pretty good spot with that and we set the themes path for the comp.
And I set those themes.
At the start of our calendar year, So I'd love to pick up with that on your overview on that.
Either on our next call or sometime in between.
So you could hear what we're thinking about there.
Okay.
Yeah.
Okay.
And we have no further questions in queue.
And with that thank you everyone. We look forward to speaking to you next quarter.
Okay.
That concludes today's conference. Thank you for joining and have a pleasant day.
Yes.