The current sell-off may end up emboldening the bulls, if the last tech bubble is a guide


The bubble isn’t burst yet.


Justin Edmonds/Getty Images

Traders at the moment seem to have as much patience with tech stocks as Kansas City Chiefs fans do for a moment of unity.

Thursday was the fourth ugly finish in five sessions, with the Nasdaq Composite
COMP,
-1.99%

skidding 2%, and the other major indexes backtracking as well.

Andrea Cicione, head of strategy at independent investment research firm TS Lombard, said excessive leverage in the market really began in earnest in July. Cicione added that was occurring in U.S. stocks wasn’t happening anywhere else in the world.

And while he’s seeing signs of a bubble, he thinks if the selling doesn’t intensify, the bubble may reflate soon.

“The leverage accumulation so far may not be enough to burst the bubble just yet,” he writes. “If the recent selloff does not intensify further, the whole episode may end up simply emboldening the bulls to buy the dip and take even more risk.”

Between 1997 and 1998, the Nasdaq experienced three sell-offs of at least 17%, only to emerge stronger and rise four-fold to the 2000 peak. “Leverage is a key characteristic of all bubbles, and almost invariably it is the mechanism that leads to their collapse. But there may not have been enough leverage for the dot-com 2.0 bubble to burst just yet,” he says.

The reason leverage is important in bursting bubbles is because it uniquely can lead to forced unwinding. “When faced with margin calls they cannot meet, investors may have to liquidate positions against their will. The resulting fall in prices can instil doubts in the mind of others, persuading them to sell,” he said.

The buzz

Consumer price data for August is due at 8:30 a.m. Eastern.

The quarterly services survey and August budget deficit are also due for release. The Congressional Budget Office, which typically gets the budget picture pretty close to the mark, estimated the August deficit was $198 billion, and said the September-ending fiscal year gap will be the highest relative to the economy since 1945.

Database software giant Oracle
ORCL,
+0.66%

topped earnings and revenue expectations, helped by revenue from key client Zoom Video Communications
ZM,
-1.32%
.
Oracle also declined to discuss whether it will buy the U.S. operations of social-media company TikTok, as U.S. President Donald Trump said Thursday there will be no extension of the Sept. 15 deadline for it to be sold to a U.S. company or shut.

Peloton Interactive
PTON,
-3.75%
,
the exercise bicycle company, reported stronger-than-forecast fiscal fourth-quarter earnings and revenue, with its current year outlook also well ahead of estimates.

Jean-Sébastien Jacques, the chief executive of mining giant Rio Tinto
RIO,
-1.67%
,
announced he will resign in March following the controversy over the firm blowing up ancient caves while excavating for iron ore.

Thursday marked the first day since spring when new coronavirus cases in the European Union and the U.K. exceeded the United States.

The market

U.S. stock futures
ES00,
+0.65%

NQ00,
+0.64%

were stronger.

Gold futures
GCZ20,
-0.46%

fell while oil futures
CL.1,
+0.21%

edged higher.

The British pound
GBPUSD,
+0.18%

continues to reel from its more combative stance taken against the European Union in trade negotiations.

The chart

This incredible UBS illustration of Tesla
TSLA,
+1.38%

shows how shares have performed compared to other tech giants since joining the $100 billion market cap club. It took Apple
AAPL,
-3.26%
,
Alphabet
GOOGL,
-1.36%

and Facebook
FB,
-2.05%

between 4 to 11 years to achieve what Tesla did in three quarters. UBS increased its Tesla price target to $325 from $160 ahead of the company’s battery day presentation.

Random reads

Here’s the 2010 memo from a venture capital firm on an investment which valued retail software maker Shopify at $25 million. Shopify
SHOP,
-1.59%

is now worth $114 billion.

China said its U.K. ambassador’s Twitter account was hacked — after a steamy post was liked.

An experimental treatment kept mice strong in space, one that could have uses back on Earth.

Need to Know starts early and is updated until the opening bell, but sign up here to get it delivered once to your email box. The emailed version will be sent out at about 7:30 a.m. Eastern.



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DocuSign, Inc. (DOCU) CEO Dan Springer Presents at D.A. Davidson 19th Annual Software & Internet Conference (Transcript)


DocuSign, Inc. (NASDAQ:DOCU) D.A. Davidson 19th Annual Software & Internet Conference September 9, 2020 5:45 PM ET

Company Participants

Dan Springer – CEO

Conference Call Participants

Rishi Jaluria – D.A. Davidson

Rishi Jaluria

Alright. Good afternoon, everyone. Let’s go ahead and get started. Last one of the day. Hopefully everyone had a productive day. My name is Rishi Jaluria. I cover software here at D.A. Davidson. I’m delighted to have with me DocuSign’s CEO, Dan Springer. Any investors that want to ask Dan question, please submit it through the chat function at the bottom, and I’m going to continue to monitor that as it goes on or feel free to e-mail me directly at rjulia@dadco.com R-J-A-L-U-R-I-A@dadco.com.

With that, Dan, thank you for joining us and I’m not sure if this beard is a new quarantine look, I’m a big fan.

Dan Springer

It is. Thank you for having me. And we’ll see how it goes. There’s been some debate back and forth about whether it’s time to lose the beard. It’s been about three months in the making.

Question-and-Answer Session

Q – Rishi Jaluria

Very cool. Alright. Let’s start kind of a high level. Not that anyone needs to know what DocuSign is, because we’ve all used it. But maybe I’ll — starting with having a look at the evolution of DocuSign from being just a digital ink provider into this broader Agreement Cloud that you’ve really become today.

Dan Springer

Yes. Well, as you said it right, when you say the word DocuSign, most people immediately respond with eSignature. And it’s clearly what brought us to the dance. It’s clearly what built over $1 billion in revenue. And we feel great about it. There’s nothing but positive feeling we have because it’s a fantastic ROI products for our customers. And that makes them happy to be customers and makes our employees happy to be at the company where our customers love the products. So, it’s just nothing but goodness.

And we talked about in the past, I think we could with an only eSignature business, because the TAM is so significant, we could grow at a substantial rate. And as we have historically, just on the eSignature platform. But as you alluded to, Rishi a couple of years ago, when I still recently newly joined, I joined about four years ago, start talking to customers, it became clear to me that they were asking us to broaden that, and what we ended up coming as an answer to that is what we call DocuSign Agreement Cloud. And we now really squarely think of ourselves as the Agreement Cloud company. And in addition to eSignature, we’ve realized that our customers need more of — they need a way to prepare agreements that are native to the signature workflow and process. So, somewhere down the process — some are going through that workflow, they want to edit and associate a permanent agreement. You don’t have to cancel, start over again, go back to Microsoft Word or whatever, where you created the agreement before, to create a new one, put it back into the flow and start over again. So, that was a key step and we are excited that we launched last year the prepare functionality.

We also saw more and more demand from people who said, we need to act on agreements once they’ve been memorialized. And so, we’ve already had some pretty good API integrations. We’ve really stepped that up again. Now 60% of all of our transactions actually occur, not with someone starting an envelope session in a web or mobile browser, but someone having an API call kick-off a DocuSign envelope being sent. So truly integrated, whether it’s integrated into Salesforce or SAP, or Workday, or one of their other softwares that are integrated with us, or in your internal systems, where they’ve leveraged our API library to build an integration.

And then the last piece, after the act on, say, taking actions was around the edge. And increasingly what we see has happened with the advent of the digital signature becoming so popular, people now have digital agreements and they need a way to manage all of those agreements. So, the manage phase is about the repository. It’s about rules and obligations management for those. It’s about search, and being able to intelligently understand how to run your business better and manage your business better, because you can access those agreements that you create. So, that cycle, prepare, sign, act, and manage is how we think about the components of the Agreement Cloud.

And one of the things I always say, Rishi — I know it’s a long-winded answer, but kind to set up the whole piece together. When a seller goes out today, to talk to a customer or to a prospect, they need to say, DocuSign, we’re the Agreement Cloud company. Let me walk you through how we prepare, sign, act and manage. And they give their little spiel. If a customer says back to them, hey, that’s great. And it was really, really good to understand that foundation. But today, I’d like to buy some eSignature. That’s why I called you. The only right answer is, yes, ma’am or yes, sir, we can sell you some eSignature today. And what we’ve seen with business today, eSignature is still a killer app here. It’s still the killer piece. People are going to want to enter the relationship with DocuSign. And there’s no shame about that. Signature will be that leading franchise for us for years and years and years to come. But we do want to start every conversation with the Agreement Cloud position. So that’s the vision.

Rishi Jaluria

Alright, that sounds great. Alright. Let’s dive kind of into the current environment. So obviously, you’ve put up some really impressive numbers, billings accelerating twice during the current environment, and Q2 often is really a difficult compare. Maybe can you — you talk about what you’re seeing — how sustainable do you think this boost is because arguably you’re the second biggest software beneficiary after [Zoom], which is a crazy thing to think about. And I’m going to tie an investor question I just got into this one, which is, do you see pent-up demand for products that’s going to be unleashed once the pandemic is in the rearview?

Dan Springer

Yes, that’s an interesting perspective, and the last question, too. So let me give you the high-level view we have, I think we were off in Q1 to a great start. The first half of Q1, we started February 1st, beginning of our year, we were having a good year. When the pandemic hit, it absolutely accelerated. It created a tailwind and accelerated our business. It’s not something you want to have accelerating your business. And obviously, we have struggled, as most other companies have, taken our 5,000 employees that involve work a 100% remotely now. It’s been very challenging onboarding new employees. We’ve hired almost 1,000 people since the pandemic started. So onboarding people, we never had a chance to meet in person. It’s not the easiest thing. But it has created a need for certain companies in a work-from-home environment to take some use cases around contracts, agreements, new hiring packages and things that they used to do in a manual paper-based process that they couldn’t do because no one was in the office to get paper. And so that has definitely been a boost.

If you look at the billings, I think is the best indicator of that. See 59% in Q1 and 61%, as you said, off a tough compare — reasonably tough compare in Q2. A big part of that is definitely because we had that sort of boost.

In terms of what happens going forward, I mean, I don’t think it’s going back. So our perspective is nobody says, have this paper-based process, it’s manual, and I route it around, it always takes a while to sign. And you know what? I miss that. Now I got the digital solution, but I really want to go back to that paper-based manual process because it takes more time, it’s a less good experience. It costs more money. I mean, what’s not to like. So people aren’t going back. And I know it’s a big question for a lot of SaaS businesses right now. We’re very comfortable with it.

The question, how long will it continue? And then the new one is, will there be other pent-up demand to unleash, here’s how I sort of think about it. I think we will continue to provide increased value and Mike put out perspective and said, yes, we’re going to see attractive growth rates in revenue and billings on good compares from the previous Q3s and Q4s, particularly Q4 is a very strong compare. So we obviously have confidence that the rest of this year we’re going to see good strength. We haven’t provided any guidance into the New Year. But I can tell you at a high level, we think that there’s a lot of momentum that is built in the business, and a lot of people are starting to see that these digital transformation plans they had, they had in the distance, they just pulled forward. It wasn’t — these aren’t things that weren’t going to happen eventually, they’re just happening a little bit faster now. And so I think we’re going to continue to see that expansion and growth in the future. And the prospects for that eSignature piece are very good.

In terms of pent-up demand, I don’t know that I’d say there’s a lot of pent-up demand for additional eSignature solutions. But if you go back to that Agreement Cloud and you think about things like CLM in that manage phase, we know there’s a lot of companies that started talking to us about CLM in, let’s say, February and March getting ready to make a purchase decision. The pandemic hit and those transactions slowed. People said, you know, I got all my people in different places. To put in a CLM, you need to do a statement of work, higher professional services of some sort, maybe the systems integrator, maybe it’s your own people, maybe it’s DocuSign for a server. There’s a little more complexity to those. And I think we’re going to see towards the end of this year and going into the New Year, there will be some pent-up demand for those software products that we sell, that we’ll probably see a little bit of a boost from that.

Rishi Jaluria

Alright. I want to go to maybe some of the recent acquisitions that you’ve made to expand the platform, right? SpringCM, Seal and now Liveoak. Can you talk a little bit about traction with these acquisitions? And obviously, we can’t read real traction because that just happened. But kind of how you’re thinking about that? And maybe philosophically, how do you weigh that build versus buy decision here?

Dan Springer

Yes. So in terms of those three, so SpringCM is almost 2 years old now. In fact, it’s coming up on the 2-year anniversary on that deal where — we did the Liveoak, as you said just weeks ago. And Seal though actually closed in the end of May. So that wasn’t that long ago either. Keep in mind, Seal had been a partner. We had an investment in Seal software prior and as we had — we’ve been co-selling with them. So we knew them pretty well before we decided to buy the rest of that business. I think the way I’d position it this way. I think SpringCM, now it’s called DocuSign CLM, we’ve made some changes. We integrated into our business. It’s going well. At the end of last year, we ended up telling people we were ahead of our plan. We actually were getting that adoption in the — now being able to cross-sell that into our DocuSign base above our plans and expectations. That definitely slowed a little when hit COVID and so — because of that longer sales cycle I was describing, take some of that momentum. But we’re starting to see that pipeline build through this period. And I think as I said, I think we feel that will be back on track as we get through this first stage of the pandemic.

In terms of Seal software, we’re already selling it jointly with customers. I think we feel it’s continued to have good momentum. Same situation with Spring, I think COVID definitely put some headwinds. When someone is making a big AI-type decision, they really want to be able to get their teams together. It’s harder to do that. So that has elongated some cycle, but we’re also seeing a lot of momentum building there, filling there same sort of space. With Liveoak, as you said, the key thing that we’re doing is Liveoak has got collaboration capability that we saw as an interesting. But more importantly, we saw that, that together with our electronic Notary Service together will allow us to really deliver on the promise of remote online notary. And so that beta — and in fact, we just put together and sort of published the demo of what that data is going to look like, that’s coming out in a couple of months. And by the beginning of the year, we should have that again really available. So we think that won’t really kick off until Q1 for us in terms of starting to see meaningful volumes, but it will be in customers’ hands in Q4. And it feels like that development work is going great.

And in terms of your strategy question broadly about build versus buy, looking at the highest level, I suppose I’d rather build versus buy only because then you don’t have any integration questions. You don’t have any integration risk questions with teams, et cetera, that’s all known in your control. You don’t spend as much money probably. But the way we look at it is, we are trying to deliver on that Agreement Cloud vision. And if we see somebody has built something that is central to that vision we want to deliver to our customers, we think they have the domain expertise, maybe the starting of the business it could accelerate our pace to get there in a significant way, and it’s not egregious as a cost, then buying is something definitely we’re open to do. We feel — we did this first deal of Spring, so we didn’t want to do another one for a while. We really wanted to make sure we got the integration right. We build that muscle, how we can successfully integrate companies. I think we did a really nice job. And I think we had some initial — like we had to figure that out. We were kind of doing it for the first time as a company in many, many years, definitely under the regime of this leadership team. And I think we got pretty good at it, and that allowed us to make the decision to do Seal. Seal went very smoothly and allowed us to very quickly follow up with Liveoak. The Liveoak is a much smaller deal, small, 25-person team in Austin. But still we wouldn’t have been able to make that decision so quickly if we hadn’t booked the Seal, the process we had to integrate Seal, I think was going to go very successful.

Rishi Jaluria

And I’m sure you’ll integrate Seal really well, please don’t stop giving out little stuffed animals, the Seal is I think just a different from a lot of those.

Dan Springer

Yes, yes.

Rishi Jaluria

Alright. I wanted to think about — going back to the API, as you brought that up, I think that’s a really fascinating point that, that 60% of signatures happening through APIs. Can you talk a little bit more about that API strategy, and especially with the fact that you have like 100,000 developers getting DocuSign APIs today?

Dan Springer

Yes. Yes, 100,000 sandboxes now. Yes. The way we’ve thought about it is, developers are going to be key to us in our ecosystem. And one of the things that’s interesting about DocuSign in the history of the company, when we were private, it’s quite unusual how many large software companies, that all compete with each other, were not only customers of ours and go-to-market partners, but investors in the business. So that includes Microsoft, SAP, Salesforce, Google, Intel, I mean just sort of down the line most of the big tech, and particularly in the software space companies were part of our ecosystem that way. So we spent a lot of time thinking about integration with that broadly sign ecosystem. We have about 450 prebuilt integrations with a leading software company, leading SaaS provider. And then again, as you said, we have about 100,000 developers who built their own, just leveraging our award-winning API sort of set of tools. And I think the answer is, we want to have both those strategies. We want to look at people who are getting successful where our customers are saying, hey, this is an important integration, and then we’ll work with those companies to create direct bidirectional feeds.

And then in the other situation, we want to let 1,000 flowers bloom. And a lot of our customers are doing those innovations. It’s not about a third-party software. They’re just hardwiring us into their own business systems. It’s going to be homegrown software, and we think that’s great. One thing we find is that those use cases are pretty sticky. When people build the integration, they tend to last longer, and then we grow with the customer. As their business grows, they just have more transactions with some of those platforms and we get more growth. So we really like those aspects a lot. We just, last week, rolled out a new developer center, very slick. We kind of took it up I’d say, from a level of good to a leading in the space. And I think that strategy is going to allow us to continue to be successful by continued investment in the developer community.

Rishi Jaluria

Got it. Alright. I want to turn to international now. We’ve had some really strong international growth this past quarter and even before that. What geographies are we seeing the most strength in? What changes in the international or should we expect now that Mike’s taking over that? And maybe alongside that, Mike is someone that we all got to know really well as CFO. What should we expect now with Cynthia kind of taking over the role of CFO?

Dan Springer

Yes. Yes. So let me start talking a little bit about the market, and then I’ll come back and talk to you about the team and how we’re thinking about the leadership from that standpoint. So look, I mean, you saw we bumped up from 18% to 19% of our revenue from international. And I was pleased to get that extra point this quarter. Just to be frank about it, a company well over $1 billion in revenue, I believe software company like ours should have more than 19% of its revenue internationally. We were a little late to enter in the international markets. Some of that was because we had a lot of success domestically, and the company just hadn’t gotten around to it quite frankly. But there’s also some nuances about the core signature business, I’ll just share with you to understand how it will play out.

Most of countries, the vast, vast majority have 1 or 2 models for agreements. It’s common law or civil law. And the differences are specific to each country, but mostly there around how you identify someone in order to make an agreement, and that’s how the rule of law works there. So the Commonwealth countries are the ones that you think about real Commonwealth, the British Commonwealth. So that’s the U.S., that’s Canada, it’s the UK and Ireland, it’s Australia, New Zealand, countries you think about in that context. And those are the places we’ve done well because we launched in the U.S. and we had that framework in place and went into those markets.

We came to basically all the other countries in the world, which are in the civil law now. So that’ Germany, that’s France, Brazil, that’s Japan. I mean, they’re not part of the Commonwealth, they tend to have the civil structure. And we had to do some work on our core platform procedure to really be attractive to those markets. So we were slower in getting in there. And therefore, they’re — our level of adoption there is lower. So that’s how to think about where we are in the markets. But I think the growth opportunities are — France is just as effective as the market for us in the UK is, UK is bigger right now because we got an earlier start in the UK than we did in France. Think about that one.

In terms of what to expect, I think you’re going to see Mike is going to aggressive and help us try the giant growth opportunity. And I think we’re going to see some work right now, the kind of three phases, as I’ve been thinking about it. There’s some work on execution. As you guys maybe heard on the call, Mike started his role sort of playing a GM of Europe. We ask you to sort of look at coordinate across our functions there. And we got so encouraged by that effort over the last couple of quarters that we came up with this idea that we really should just make this senior executive responsibility and inevitably the all-in international opportunity. But the first phase is very much around getting us as a company to work effectively across each of these pieces. And I think that’s good. I think that’s a good opportunity for us to do that in the other regions. And so we’re not done with that in Europe, but we’re off to a great start there. We’re seeing improvement already. We’re going to see that in LatAm. We’re going to see that in Japan. We’re going to see that in APAC. So that will be phase one.

Phase two is think about what are the other countries we have this what we call focused 8 model. We said we don’t want to put physical presence. We sell digitally in 140 countries, but we want to be focused on our direct efforts in the core 8. Those focused 8 countries are U.S., Canada, Brazil, Germany, France, UK, Australia or ANZ, and Japan. And so those are the focused 8. The question is, what are the next ones we should be going into? And when does that happen? So that will be a big secondary thing for Mike to dig in on. And so I think that’s what you should expect. I think you’re going to see even more great growth coming out of the international business.

Now in terms of Cynthia, I wouldn’t have been able to promote Mike into that role and allocate his time to the international growth if we didn’t have a fantastic CFO like Cynthia right there. And it was just a perfect set. I’ve been on Board for a couple of years chairing our Audit Committee, so working closely with the finance organization. Great experience, both as sort of a strategist, she was Head of Corp Dev for Twitter. She was a Morgan Stanley MD in their tech team there. So that was a fantastic background. And then she was the CFO of a public software company, Pivotal. So it’s just kind of check all the boxes of the experience we want. And the fit, we just knew was going to be fantastic, which is always one of these issues. It’s harder to sometimes to figure out while interviewing. So as the pieces came together, Pivotal got bought back in to their ecosystem, the Dell system. And she is available. We saw the path of Mike, and it’s just the piece that fell together really very nicely. I think what you’re going to see with her as a very strategic CFO who is very straightforward. The nice things about Cynthia, you don’t have to wonder if there’s a — in the same way, Mike, it is direct. And you’re going to get a clear straight answer. She is going to tell you what she is going to tell you. And she’ll also tell you what she is not going to tell you. And you can ask her 19 times about some questions disclosing some perspective. And the answer was no the first time. It will be no the next 18 times too. You are all free to keep asking. It’s your job. But she is going to be really disciplined in that way. And I think she is going to be just fantastic add to our senior management team.

Rishi Jaluria

Yes. Right. And really looking forward to working with Cynthia. So I got another question on — or two more investor questions. So first is, with the broad move into the Agreement Cloud, are you potentially infringing on the TAM of your partners? What does that mean for the core eSignature? Do you see companies like Salesforce and SAP and Adobe investing into their CLM offerings and maybe launching their own products to compete with the DocuSign Agreement Cloud? And while you’ve mentioned Adobe, we may as well ask about what you’re seeing from Adobe Sign because that was the most common investor question I got when I launched it with $40, and I still get that question today over $200 here.

Dan Springer

Yes. Well, so I think if we talk about the ecosystem a little bit, Rishi, and I think the answer is we have a robust set of relationships. I feel pretty good. Same thing when we kind of start to go public, the two big questions were competition from Adobe because it’s a great company and a reasonable question to ask. And this question of are all these partners going to someday try to compete and get into your core signature business? So I’ve been answering that question for a number of years, and there’s been very little change to the answer because there’s been very little change to the market situation. I don’t have — see a lot of concern from our partners that they think we’re infringing on their franchises and what we’re doing with the Agreement Cloud. I think we’re building the next big cloud opportunity. I don’t — I think it’s very distinct from what’s in like the CRM cloud or the HR cloud or ERP, it’s just different. It’s how people do their agreements as opposed to how they manage those systems of record.

But that could change I suppose at some point. We haven’t seen any indication of that yet to have a partner, so to say, hey, we’re uncomfortable with what you guys are doing in this basically to compete with us. I suppose it could happen someday, but I haven’t seen any of it today. And I’m pretty confident that they all look at DocuSign as a clear leader in the space. And so if you were one of our key partners, and you were to say, well, I’m going to build my own or I don’t know, buy — I don’t know if you buy, but buy someone else that has kind of capability and start competing with DocuSign, I think they have put themselves at such a competitive disadvantage against the other folks in the ecosystem, that’s great. They’re using this product signature price. We’re going to push the fact that we use DocuSign. So I think it kind of — the Switzerland aspect we have sort of I think restricts the probability of that. Anything could happen, I can’t promise that it won’t happen. So if Oracle launches eSignature product tomorrow, I can’t take responsibility for that. But I don’t think they’re going to.

And then when we think about the question around the competitiveness, we do really thoughtful analysis every quarter, Rishi, right before — we do it right before the earnings call, to take a look at how our pricing has changed and how competitive threats have changed. There has been virtually no change since we’ve been a public company. 10 quarters in, and we’re just not seeing it. We do know when people who compete with us, Adobe is the next biggest player, we’re about 6, 7 times their size and we’re growing, we think close to twice as fast as theirs. We’re taking share even at that rate. But they compete primarily on price, and they bundle a lot. So we will have cost, sits with enterprise customer commentating like, hey, Adobe’s offering us free or virtually free signature as part of our overall relationship to sort of strengthen that relationship because they don’t — I think the — they can compete on features or quality. They just don’t have the scale that we have. They don’t have the brand, they don’t have the uptime. They don’t have the network that we’ve built, the security. They just — they haven’t been able to at their scale to make the same investments we’ve made. And don’t forget, Adobe is a great company, but eSignature is somewhere around 1% of their revenue. It would be crazy for Shantanu to be investing in that. The other way we’re investing in it, where it’s our Agreement Cloud is our only business. So I think that kind of naturally makes sense, and we haven’t seen any changes there. We talk about, very clearly it sounds sometimes like a little tough to achieve, but we mean it very straightforward, which is our biggest competitor is paper. And we’re out there in the market as we’re competing with paper and manual-based processes. That’s what we have to make sure we can beat and show the dramatic ROI benefit, and the rest of it takes care itself.

Rishi Jaluria

That makes a ton of sense. Alright. On kind of going back to the expansion into the broader Agreement Cloud, how has adoption of the products outside of the core eSignature been to the extent you can, like what sort of multi-product penetration are we at now? How should this trend over time? Any way to kind of frame this would be helpful?

Dan Springer

Yes. Yes. Great question. So we get that question a lot. And a lot of times it comes around the net retention rate, too, right? I say, hey, if you got a net retention rate of 120% was last quarter and 119% the quarter before. I think is that because you’re selling a lot of CLM into the product? And so let me be really clear. Signature is the dramatic majority of our business. And it will be to years from now. It will be through — it’s just the scale and the rate at which eSignature is growing. Even before this kind of boost, we talked about from COVID. Now at the COVID boost, it’s even more dramatic in terms of getting a bigger scale and the rate of growth there being very difficult for the other products to sort of make a dent in it is that’s just the reality of where we are. I don’t think it’s a bad reality, it’s good reality. But we do believe the TAM for outside of signature, we paid about $25 billion is how we think about the signature TAM. And we got to grow over time. And we think the rest of the Agreement Cloud broadly the time will be around $25 billion as well. And we’re already seeing significant chunks like CLM, like intelligent agreements, Advanced Analytics. We’re getting into a bunch of other areas there. But in totality, that maybe equals the signature TAM.

So — and we’re, of course, well on our start with signature and we’re new in the other agreements. So it’s going to be years and years before we start saying things like the percentage of CLM, we’re ways away from that. I can tell you that when we have 120% net revenue retention, the vast majority of that is because signature grew. And the people — if you look a year ago, it was almost all signature, but then today, it’s mostly signature, right? So it’s a small piece. But the TAM, I think, is a good way to think about the size of these other deals. So I actually think that the — if you’re doing a CLM deal, it can be the same as our total eSignature business with that customer, depending on where the maturity is. So it’s that sort of magnitude of deals. They tend to actually be bigger deals on average on signature deals. They’re more involved. As I said, is also a statement of work, there’s just some implementation and integration work.

So the magnitude over time should start to approach roughly even, but it will be years and years and years before the rest of it can catch up. It’s the same problem. You talked about international, when you go. If international is growing faster, shouldn’t you catch up? And the answer is, yes, the domestic business is growing a little fast from a very large base. So it’s hard for the international business to sort of catch up, even though it’s growing at a much higher rate. So that’s how I sort of think about the mix.

Rishi Jaluria

I got another follow-up question on international, which is how do we think about pricing? Is international more price sensitive, especially APAC? And then maybe I’m guessing LatAm on top of that. So how do we think about that?

Dan Springer

Yes. There’s not dramatic differences in pricing for us. It’s interesting to say that about — think about APAC. Remember, most of our APAC business is Australia and New Zealand, which has very similar pricing models as the U.S. because the Aussie dollar is down, at times it’s been at parity with the U.S. dollar. Now it’s around $0.70 on the dollar. So I think it’s probably more — it’s a little less expensive there if you do in U.S. dollar adjust, but they’re in the same ballpark. We don’t have a big — we don’t have a presence in China there. We don’t do a lot of selling in India, which took a little bit of digital. So some of those markets that get associated. I think in Asia we’re being very, very price competitive. We’re in Japan and ANZ. So we don’t — I mean, we have some business in Southeast Asia, but it’s small as a mix. So we don’t see it as much. Europe, I don’t think pricing is very different. LatAm, I think will be a market. In Brazil, where there’s a little more price competitiveness. I wouldn’t say it’s dramatic, but I would say it’s noticeable difference. And I think the challenge there is some people will not need our full advanced functionality but want to buy, so like an enterprise pro addition, but want to pay a business addition kind of pricing.

So we have some of that scenario where I think we have a little bit of challenge sometimes trying to control that distribution. But in general, it’s not something that we spend a lot of time thinking about in terms of international pricing.

Rishi Jaluria

Makes sense. And please, by the way, I know you’re not there in a big way, but please get into India because Jesus Christ, they’re like, will travel across town for 2 hours and Mumbai to get people who physically sign things. That is clearly a massive need for these solutions. Alright. Last question I got because it’s end of day, and I think we all can use a drink desperately. But an interesting one, just how should we think about blockchain. Is that something that you could see more widely used buy customers and buy products in the future, especially as it goes more into the broader Agreement Cloud?

Dan Springer

Yes. Yes. Blockchain is one of these fascinating topics. But by the way, we talked earlier about questions that have been with us through from the IPO process. And at the time, blockchain — crypto was even a little more — 2.5 years ago, a little more in the business press. So it was probably even a more heightened sense of interest in the topic. So look, we look at blockchain and say, blockchain is an underlying technology that we think has got a lot of promise. And we’ve actually built out for customers that have requested it, the ability to do a blockchain storage of their agreements. And there are certain people that are intrigued by that as a business process. I can tell you to date that the number of people that have done a blockchain implementation with DocuSign is exactly equal to the number of customers that wanted to do a press release about doing a blockchain. And so this is not — it’s not a constructive business piece for one reason, the economics. It’s the scale economics aren’t there yet, blockchain is too small. So we’ve partnered with Ethereum. It’s open source rate blockchain network. And it costs us about $1 to sort of say we’re going to store that agreement in their blockchain virtually forever. The same way we store them all in the DocuSign system forever. The total cost for us of a transaction, we just think about that implementation cost to do just talking about signature now. But to do that creation of the envelope, the routing around in the envelope, the storing of it, the processing, the encryption, all of the whole things that happened to that workflow, it cost us about $0.07, and that includes the storage, whatever, right?

So we have incremental buck on top of that, you look at it and you go, it’s just irrational almost if you’re doing a pure economic decision today. And so I think the key thing about blockchain is, today, it’s just not commercially viable to scale. But if you think about what you need is you probably need about one or two orders of magnitude change before it becomes really highly valuable in that solution. So I think the question is how fast the overall blockchain development is going to occur. If it happens really fast, I think we’ll see in the future, DocuSign customers saying, I want to have that option. That’s why we’ve built that capability. If it doesn’t take off, and I think the answer is blockchain will be an interesting technology that people will still be kind of curious about, and then when they want to sort of demonstrate a new technology and do a “press release”, it will still happen from time to time. But it just won’t take off because it’s just not commercially — economically viable at this time.

Rishi Jaluria

I think it’s a great place to hop off, Dan. Thank you so much. Always appreciate the insights and for sticking out until the end of the day. I wish this was in person, so we could go grab a beer in happy hour, but I trust you’ll get some much needed relaxation time. So thank you again. Really appreciate it.

Dan Springer

Thank you, Rishi. Pleased to be with you guys. And looking forward to the time where we can have that beer together versus this.





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Apple countersues Epic Games for breach of contract


Apple Inc. countersued Epic Games Inc. on Tuesday, claiming the maker of “Fortnite” breached a contract when it introduced a new in-app payment system within the popular videogame.

The iPhone maker
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-6.72%

asked U.S. District Judge Yvonne Gonzalez Rogers for punitive damages and to block Epic from continuing what it calls unfair business practices, in the escalating skirmish between the two companies. Late Friday, Epic sought an injunction to force Apple to put “Fortnite” back on the App Store, disclosing that roughly a third of “Fortnite” players access it through the App Store.

“Although Epic portrays itself as a modern corporate Robin Hood, in reality it is a multibillion-dollar enterprise that simply wants to pay nothing for the tremendous value it derives from the App Store,” Apple said in a filing Tuesday.

An Apple spokesman declined further comment, but pointed to a company statement on the Epic case called “Free Fortnite.” Epic was not immediately available for comment.

Apple shares plunged nearly 7% in trading Tuesday in another rough day for tech stocks.

The latest legal jousting comes nearly a month after Epic introduced the payment system within the “Fortnite” to side-step the 30% fee Apple and Alphabet Inc.’s
GOOGL,
-3.64%

GOOG,
-3.68%

Google charge for in-app purchases. Epic’s gambit prompted both companies to boot the game from their app marketplaces. Epic eventually sued Apple and Google in federal court in Northern California, accusing the computing giants of anticompetitive conduct.

Epic’s stand against Apple has prompted voices of support from Microsoft Corp.
MSFT,
-5.41%

, Spotify Technology Inc.
SPOT,
-3.30%

, and others.

The Apple-Epic case has set evolving battle lines on market definition, according to antitrust attorney Paul Swanson.

“Market and product definition may end up being the central battleground in this case. Does Apple have to open up the app-purchasing and in-app purchasing space to competitors, or are those intrinsic parts of Apple’s products that it can rightfully control?” Swanson told MarketWatch.



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Colin Kaepernick will take the field again in EA’s ‘Madden 21’


Colin Kaepernick is back on a football field. Kind of.

The quarterback, who has not played in the NFL since 2016, will be playable in Electronic Arts Inc.’s
EA,
-4.48%

popular “Madden 21” videogame through a software update. Though Kaepernick is still not on any actual NFL team’s roster, he will be available to add to any team in the game.

“The team at EA Sports, along with millions of Madden NFL fans, want to see him back in our game,” EA Sports said Tuesday on Twitter. “Knowing that our EA Sports experiences are platforms for players to create, we want to make Madden NFL a place that reflects Colin’s position and talent, rates him as a starting QB, and empowers our fans to express their hopes for the future of football. We’ve worked with Colin to make this possible, and we’re excited to bring it to all of you today.”

Since he’s no longer part of the NFL Players Association, EA reportedly negotiated directly with Kaepernick to add his likeness, which will include a “Black Power” salute when he scores a touchdown.

Kaepernick, then with the San Francisco 49ers, kicked off a social-justice movement in 2016 by kneeling during the national anthem to protest systemic racism and inequality in America. He faced backlash from many, including President Donald Trump, and has not played since that season. He later sued the league, claiming teams colluded to keep him from playing again. That suit was settled in 2019 for reportedly less than $10 million.

Earlier this year, the NFL admitted it should have supported Kaepernick’s protests at the time. “We, the National Football League, condemn racism and the systematic oppression of black people,” Commissioner Roger Goodell said in a video in June. “We, the National Football League, admit we were wrong for not listening to NFL players earlier and encourage all to speak out and peacefully protest.”

Goodell recently said he has “encouraged” NFL teams to sign Kaepernick, though none have.

Kaepernick, now 32, led the 49ers to the Super Bowl in 2013, and for a while was one of the league’s most dynamic players. And though he hasn’t seen action in four years, EA Sports gave him an 81 overall rating — a elite number that’s better than Patriots quarterback Cam Newton (78) and young Cardinals star Kyler Murray (77).

It’s quite a turnaround for EA, which controversially deleted a reference to Kaepernick in song lyrics featured in “Madden 19,” a move it apologized for at the time.

While Kaepernick’s NFL future is unclear — Packers legend Brett Favre, for one, says he still has the skills to play — his backstory will be made into a Netflix
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-1.75%

series directed by Emmy-winning filmmaker Ava DuVernay.





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Coupa Software Incorporated (COUP) CEO Rob Bernshteyn on Q2 2021 Results – Earnings Call Transcript


Coupa Software Incorporated (NASDAQ:COUP) Q2 2021 Results Conference Call September 8, 2020 4:30 PM ET

Company Participants

Steven Horwitz – VP, IR

Rob Bernshteyn – CEO

Todd Ford – CFO

Conference Call Participants

Bob Napoli – William Blair

Josh Beck – KeyBanc

Chris Merwin – Goldman Sachs

Robert Simmons – RBC Capital Markets

Stan Zlotsky – Morgan Stanley

Brad Sills – BofA

Terry Tillman – Truist Securities

Daniel Jester – Citi

Peter Levine – Evercore

Siti Panigrahi – Mizuho

Koji Ikeda – Oppenheimer

Brian Peterson – Raymond James

Ryan MacDonald – Needham

Joseph Vafi – Canaccord

Operator

Good day, ladies and gentlemen, and welcome to the Coupa Software Second Quarter Fiscal Year 2021 Earnings Release Conference Call. At this time, all participants are in a listen-only mode. At the conclusion of our prepared remarks, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this call is being recorded.

I would now like to introduce your host for today’s conference call, Mr. Steven Horwitz, VP of Investor Relations. Mr. Horwitz, you may begin your conference.

Steven Horwitz

Thank you. Good afternoon and welcome to Coupa Software second quarter conference call. Joining me today are Rob Bernshteyn, Coupa’s CEO; and Todd Ford, Coupa’s 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-Q. These forward-looking statements are based on our beliefs and assumptions today, and we disclaim any obligation to update any forward-looking statements. If this call is replayed after today, the information presented may not contain current or accurate information.

We also present both GAAP and non-GAAP financial measures. A reconciliation of certain of these measures is included in today’s earnings release, which you can find on our Investor Relations website. A replay of this call will also be available. Unless otherwise stated, growth comparisons are against the same period of the prior year.

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

Rob Bernshteyn

All right. Well, thank you, Steven. Hello, everyone, and thank you for joining us.

When we started this journey more than a decade ago, we had a very clear vision to forever change the way things were done in what was the procurement space and solve the broader challenges and how businesses manage their spending with the support of innovative and reimagined information technology solutions.

We sought to achieve this by delivering 100% cloud-based comprehensive business spend management platform that would scale for virtually every company in the world, unlocking massive amounts of untapped value. Our platform would provide real time visibility, control, automation, spend compliance, and so much more. We set out to help our customers be more agile, to flourish in great times, and be more resilient in difficult times. And most importantly, we wanted these customers to be smarter together with something completely unprecedented in our industry, the concept of the community and the power of community intelligence. We have made some very significant strides towards fulfilling our objectives, as evidenced by the nearly $2 trillion in cumulative spend under management that has now flowed to Coupa’s transactional core.

Looking at our financials for this quarter. We once again delivered record revenue of $126 million, despite the global macroeconomic headwinds present today. It’s important to note that while we are largely focused on growth, we’re also focused on profitability and cash flows. To that end, Q2 was our ninth consecutive quarter of profitability on a non-GAAP basis. We also reached a new milestone this quarter, having generated more than $100 million in adjusted free cash flow over the trailing 12 months.

Our financial results clearly illustrate the leverage in our model, not to mention the strength in our balance sheet. We delivered solid results across the board. But make no mistake, we are playing to win the market over the long term.

Let me share some additional updates about our business. Sales cycles have not surprisingly extended somewhat from what we were seeing last year. However, many customer prospects, who had paused in the March and April timeframe, reengaged and became the newest members of our Coupa community. We’re also seeing strong pipeline build and an increase in our RFP activity.

Our new customers and prospects are focused on business resilience, and they’re seeing Coupa’s platform as mission-critical for today’s new realities. Many of these customers are testifying to the importance of our Value as a Service platform. A prime example of this is TransUnion, who spoke about Coupa on their June earnings call. They discussed their strategic initiative to transform global operations by creating consistent standards around the world. They specifically highlighted that they are implementing a full lifecycle procure to procure-to-pay system from Coupa, allowing complete business spend visibility globally.

Schneider Electric’s global director of P2P transformation shared comments about their recent successful go-live. She said, I’m extremely proud of my team in deploying Coupa software, harmonizing processes and centralizing our people across France, U.S. and Mexico. We are bringing simplification, compliance and organizational efficiency around the world, delighting our stakeholders.

Another mention came from Westpac Bank. Their CPO said, amazing that someone can access a procurement business application and make purchases within 15 seconds without any manual instructions of training. We’re excited to be implementing this at Westpac. Thank you, Coupa and Deloitte for being on this journey with us. Clearly, their CPO quickly discovered the user-centric aspect of our platform, also known as the U in Coupa.

Now, this quarter, we completed 100% of our go-lives remotely, and did so with great efficiency. We have reduced implementation times by roughly one month, as customers are relying more heavily on our prescriptive approach around best practices.

Now, let me highlight a few of the many customers that have gone live across more than a dozen industries during the quarter. Representing the consumer products industry, ADM, a fortune 50 global leader in human and animal nutrition has recently gone live with Coupa. Even with project teams working remotely, the implementation was completed on schedule.

Joe Canaday VP Global Procurement said, the pandemic certainly added challenges, but I’m extremely proud of our ADM team, Coupa and our business partners for their relentless engagement and focus which allowed us to deliver this go-live as planned.

Using Coupa, ADM enhances end to end process, improves data insights establishes a common platform for spot bids, and standardizes and automates core processes. This is done through a business spend management platform that makes it easy for colleagues to request the goods and services they need and for business partners to engage with ADM.

Representing the process manufacturing industry, Grupo Cementos de Chihuahua, a leading supplier and producer of cement and concrete across Mexico, United States and Canada, has gone live on Coupa. The focus of GCC was to automate supplier management, increase spend control and generate savings.

With Coupa, GCC has gone from disconnected purchasing process to a single digitized platform and has procured millions of dollars in peel back spend in just the first few weeks of being live. Such accelerated user adoption has helped GCC to increase spend management and elevate cost savings through contract compliance.

In the oil and gas industry, ProPetro Holdings completed its implementation of Coupa to enable process improvements for great efficiency and enhanced spend control. Using Coupa, ProPetro established best practices across procure-to-pay, including the use of online catalogs to ensure spend compliance and dynamic approval chains for spend visibility and improve financial controls. Within the first 12 days, they have processed millions of dollars in pre-approved spend through Coupa.

And in the relatively hard hit retail industry, Canadian Tire Corporation went live with Coupa to standardize and automate non-merchandise procure-to-pay purchases. Leveraging Coupa, Canadian Tire has replaced multiple disintegrated systems across its retail locations with a unified enterprise-wide platform. Already more than $1 billion of spend has flowed through the platform.

Our cross-industry impact doesn’t end with these examples. We also completed implementations in the banking, business services, industrial manufacturing, insurance, life sciences, nonprofit, technology and transportation industries during the quarter.

Now, let me welcome some of our new customers, representing companies of all industries and sizes as well. First, let me highlight some up incoming companies such as Confluent, Deli’s, [ph] Gap Materials, SalesLoft, Samancor Chrome, Shorelight Education, Welltok and many others. We also welcome the midsize organizations including CSC ServiceWorks, Strategic Education, Toyota Financial Australia, and others. And of course, we welcomed large enterprise companies such as Canfor, Cycle & Carriage, Engen Petroleum, OneMain Financial, Shaffer, Sekisui Chemical, Westpac Banking and numerous others. Not only are companies of all sizes joining our community, but also across nearly 20 different industries.

Now, as you heard me say many times before, our continued progress in providing customers with prescriptive insights, the P in Coupa is a major reason our prospects and customers are in lockstep with our vision. There is a revolution happening in business where companies are cognitively there with us that they will have a strategic advantage if they can leverage insights from our growing customer community. On a side note, I’m humbled to have the opportunity to share personal thoughts on this subject in our new book, Smarter Together, which is being released this week. This new book is essentially a position paper that builds upon our first book Value as a Service.

Let me share an example of how community intelligence helped The Brock Group, a company who provides specialty craft and maintenance services to diverse industries across the United States and Canada, and employs more than 13,000 employees in over 400 facilities, reduce fraudulent spend. As construction and maintenance projects ramp up at the end of each year, The Brock Group hires seasonal field workers. With so many seasonal employees submitting expenses, it’s difficult for them to review all expense reports for suspicious transactions. This means opportunities for spend leakages and even fraud. Coupa Community Intelligence has helped them address this problem by detecting suspicious transactions at scale across all of their spend. Using artificial intelligence to detect patterns from the Coupa Community, spend that deviates from expected behaviors that would otherwise fly under the radar is flagged as suspicious.

In the first hour after turning on these capabilities, The Brock Group identified tens of thousands of dollars of suspicious transactions. They identified duplicate transactions and even discovered an employee who had submitted thousands of dollars of seemingly legitimate small dollar expenses that were fraudulent. With community intelligence, Brock Group prevented spend leakage and fraud.

The knowledge that comes from assets of data is also extremely important when strategically managing inventory. Detailed inventory studies have shown that company inventory is inaccurate more than one third of the time, and nearly half of companies either don’t track inventory or do so manually. When you consider that inventory represents approximately 15% of the total assets for public companies in the United States, there’s clearly a big disconnect. To remedy the disconnect, Coupa has worked with more than 100 customers to improve visibility, management and optimization in the area of inventory management. Whether your inventory includes a camera, TV, medical supplies or any direct components that are part of your manufacturing process, by linking inventory directly with procurement, customers can optimize their spend.

One of our enterprise customers, Amazon takes advantage of this real time visibility with all their packing materials such as boxes and labels to ensure that their fulfillment centers around the world always have the materials necessary to quickly ship packages to customers. By having a single system of record for orders, receipts and inventory, they can ensure that they aren’t placing duplicate orders and that employees are making purchases from approved suppliers. With hundreds of thousands of transactions every month, the optimization of this inventory process saves the companies significant amounts of money.

Moving on, the pandemic induced focus on cost reduction and risk mitigation has led to higher demand for quick ROI solutions, such as Coupa Advantage, Coupa Risk Assess, Coupa Strategic Sourcing and Coupa Source Together. An example of how our customers address this focus, while simultaneously continuing to tap into our open platform, they owe in Coupa, can be seen with strategic sourcing. A great example is illustrated by a quote from Procter and Gamble’s associate director of purchasing. He said, with the help of Coupa’s sourcing tools, Procter and Gamble significantly optimized several hygiene raw materials purchases. With Coupa, the team was able to manage the end to end source and process more efficiently, collecting bids and running numerous complex scenarios to optimize awards in a short period of time. The process is now more robust and we’re better able to achieve our stewardship goals.

Another area where our customers are extracting meaningful value is to Coupa Pay. As most of you know by now, our pay module has strong value propositions for both, large enterprises and midsized customers. Apart from the efficiency that a company of any size can extract from integrating payments into their spend platform, enterprise customers are able to save hundreds of thousands of dollars per year by eliminating the need for bank integrations. At the same time, midsize companies can migrate from manual to digitized processes. One example of a midsize company that has digitized their payments approach is SambaNova, a next generation AI company that takes innovations from advanced research organizations around the world and makes them available to everyone everywhere. One of our earliest Coupa Pay customers, SambaNova uses the entire time pay module and platforms to consolidate technology and banking, scale payment processes, and significantly improve compliance and control.

Implementing Coupa Pay, they were running a siloed process using spreadsheets — before implementing Coupa Pay, they were running a siloed process using spreadsheets. Hundreds of invoices covering millions of dollars per month were being handled manually. These manual processes not only increased the potential for error, but they were far from optimal for internal process purposes. They also had an inefficient working capital approach, often paying bills by paper check in 15 days in fear of having late payments. Scalability was out of the question. To fix these issues, SambaNova wanted a unified process and integrated platform. Working closely with our customer success team, Coupa Pay was implemented in less than three months, a great example of accelerated or the A in Coupa. Within 90 days of being live, they were 95% of their invoices through the Coupa platform. SambaNova now has confidence in their simple and trackable digital payments process.

They’ve even commented on how feedback from their suppliers is overwhelmingly positive with an appreciation that the money is in the bank and the remittance is right there at Coupa. And the ease of cross border payments has enabled them to confidently scale internationally. Perhaps that’s why their VP of Finance said in a recent webinar, Coupa Pay is an absolute no brainer.

We appreciate the finance people realize the value that Coupa Pay provides. In fact, it’s part of our strategy to continue bringing more value to the office of the CFO as we expand our already comprehensive offering, known as the C in Coupa. To that end, during the quarter, we completed the acquisition of BELLIN, a leader in treasury management. BELLIN’s offering provides real-time transparency on cash balances, centralize the control of cash accounts to prevent fraud, provides efficient liquidity management and supports direct bank-to-bank communications for money transfer.

Treasury is another important department within companies that Coupa is working to help unsilo and make part of a strategic approach for any business. Our intention with Coupa Treasury Management is to make spend, contract data and the risks associated with both clearly visible to and actionable by the Treasury team. As we work to synergize our integrated offering, future capabilities of Treasury will include assets to community intelligence, which will show our customers best practices for conserving cash. They will also be made aware of potential contract risks if a customer has filed for bankruptcy. These are just a few examples representing only the tip of the iceberg when it comes to the value we will be able to create by incorporating treasury management into the Coupa platform.

As I’ve noted before, anytime we look at a potential acquisition, we are focused on adding technology components to maximize and enhance the value of our organic, transactional core engine and/or augmenting this engine with key events power applications that optimize the value of these transactions. This acquisition addresses both aspects of this strategy. Most importantly, BELLIN’s culture and values are in close alignment with ours, and we are already well on our way towards unifying as one.

Now, let’s move on to the Coupa Business Spend Index or BSI. The BSI is a leading indicator of economic growth, analyzing hundreds of billions of dollars in aggregated and anonymized business spend. Before getting into the Q3 outlook, I’d like to once again reiterate that the BSI data is not necessarily indicative of the trends we’re seeing in Coupa’s business.

I previously shared that the Q2 BSI showed a significant decline in economic confidence, likely as a response to the pandemic. The Q3 BSI indicates that business spend sentiment has modestly improved, likely as a correction to the acute scenario witnessed during Q1. Sector data indicates financial services retail and high tech showed improvement quarter-over-quarter. Although it is important to note that all sectors remain below trend. For example, spend sentiment in the retail sector continues to be significantly impacted by the pandemic, but more online shopping has likely contributed to the slight improvement in sentiment relative to the previous quarter. Also, given the continued impact on global supply chains, spend sentiment in manufacturing decreased slightly in Q3. For closer look at our Q3 BSI where we share more details on each of these trends, please visit www.spendindex.com.

Moving on, let me now recognize a few of my colleagues that have made outstanding contributions that clearly demonstrate Coupa’s core values. Let’s start with Kevin Christopher-George, who was recently recognized by his peers for exemplifying a number one core value of ensuring customer success. Customers consider Kevin to be a strategic resource, often feeling like he is part of their company. He holds the customer accountable for their commitments and always delivers on his.

Next, I’d like to mention Terry Kim, how was recognized for focusing on results. We win many deals because of Terry. He works across teams to ensure we are as accurate as possible up front. This sets everyone up for success during implementation. He always pushes projects towards the best outcomes for the customer.

And finally, Srinivas Kannan, embody striving for excellence. Sri passionately pushes everyone to connect, collaborate and improve, and he does so with tremendous inspiration and professionalism. Congratulations. And thank you, Kevin, Terry and Sri.

Further to our core values, we showed great alignment across our employee base in a survey completed by Great Places to Work. 97% of respondents ascribe to our number one core value of ensuring customer success. 98% ascribe to our number two core value of focusing on results, and 97% ascribe to our number three core value of striving for excellence. My aspiration is to get all of these to 100%.

I also believe that having nearly all our employees ascribing to these core values is a big reason Coupa was included in the list of Best Enterprise Software Companies to Work for by Glassdoor. We are proud and humbled to have 95% of survey respondents recommend working at Coupa.

So, in conclusion, we believe that the archaic, old fashioned methods of attempting to deliver value in our industry will soon be a thing of the past. Frankly, those who have been disappointed in the past are vexed, fuming and they’ve had it up to here. We aspire to a completely different level of customer value creation. As we unleash value for our customers like never before, we will continue to emphasize the importance of business resilience. Decisions made today will affect how companies persevere during difficult times and how they position themselves for even stronger economic conditions in the future.

In closing, we are currently well into our 47th quarter of execution. And as we guide our customers through these times as a key priority, we simultaneously remain focused on Coupa’s long-term success and market leadership.

With that, let me now hand it over to our Chief Financial Officer, Todd Ford, who will review our Q2 financial results and provide our outlook for the third quarter and updated fiscal 2021. Todd?

Todd Ford

Thanks, Rob. And good afternoon, everyone. While the world has changed, we’re all adapting to the new normal, our strategy at Coupa has not changed. We continue to manage our business to 30% annual revenue growth, disciplined sales and marketing investment, and demonstrating leverage and our operating model as we continue to grow, specifically operating and cash flow margin. As we continue to grow our business and extend our market leadership position, we’ll do so from a position of operational and financial strength with a focus on resiliency over the long-term.

Now, getting into some of the details starting with Q2 results. Total revenue for Q2 grew 32% year-over-year to $125.9 million, subscription revenue for Q2 was $111.6 million, up 34% compared to Q2 of last year, comprising 89% of total revenue, professional services and other revenue was $14.3 million. Calculated billings for Q2 were $130.5 million, up from $107.7 million in Q2 of last year, representing a 21% year-over-year increase. For the trailing 12 months, calculated billings were $518.5 million, up from $378.8 million in the previous trailing 12-month period, representing a 37% increase. Total deferred revenue at the end of Q2 was $249 million, up from $244.5 million at the end of Q1 and up from $188.9 million at the end of Q2 of last year, a year-over-year increase of 32%.

When considering our billing results, I’d like to remind you of the comments from last quarter on a difficult compare that existed going into the quarter. There were two events from Q2 of last year that impacted the year-over-year compare for billings this year. Specifically, one, some of the new customer billings which were billed in Q2 of last year, were billed in Q1 of this year for the terms of the contract; and two, a onetime spike in billings related to the Exari acquisition that we completed in Q2 of last year. The impact to Q2 billings from these two events was approximately $15 million from a year-over-year compare perspective.

Let’s now turn to margins and results of operations. Our second quarter non-GAAP gross margin was 72.1%, which was above our guidance of 70% to 71%, but down from Q1. The sequential decrease was primarily due to the impact of our acquisition of BELLIN, now Coupa Treasury Management. We typically see a drag in gross margin for the first few quarters after completing

quarter after completing an acquisition, due to immediately post acquisition, we carry the full burden of the acquired business’s costs, but don’t recognize 100% of the revenues, because of the write-down of deferred revenue in the purchase accounting and also, it typically takes a few quarters to complete the full business integration to the point where we can take advantage of expense-related synergies, such as the benefit of combining supplier purchases. We expect to see an impact on margins this quarter and for part of Q4, normalizing for the most part by the end of the year. Consistent with our long-term strategy and disciplined approach, we continue to make investments in our business, including hiring new employees. Even so, we were yet again able to demonstrate the scale and leverage in our operating margin and adjusted free cash flow results.

For the quarter, we delivered non-GAAP operating income of $12.3 million, as well as non-GAAP net income of $15.2 million or $0.21 per share on 73 million diluted shares. I’d also like to note that we booked a general reserve of $2 million in Q2, reflecting the uncertainty in today’s macroeconomic environment.

Moving to cash and cash flows. Entering Q2 cash collection expectations were difficult to predict due to the extended COVID-19 pandemic environment, but the strength of our business was clearly evident in our Q2 cash flows results. GAAP operating cash flows for Q2 were $23.4 million and we delivered record adjusted free cash flow this quarter of $35.7 million or 28% of total revenue. We define adjusted free cash flows as operating cash flows less purchases of property and equipment, plus repayments of convertible senior notes attributable to discount — that discount.

For the trailer 12 months, GAAP operating cash flows were $86.9 million, or 19% of total revenues. For adjusted free cash flows, as Rob noted, we delivered $100.4 million, or 22% of total revenues for the trailing 12 months, a new financial milestone for the Company. Our strong cash flow performance speaks to the quality of our customer base, the mission-critical nature of our platform, and ultimately, the value we’re delivering to our customers.

Cash at quarter-end was $1.34 billion, up from $706 million last quarter. The main driver of the increase was the issuance of our 2026 convertible notes of $1.38 billion, including the exercise of the green shoot. This was offset by $193 million paid for our capped call at an up 125 premium and $484 million paid towards obligations from our first convert, our 2023 notes. At the end of Q2, we still have approximately $16 million of principal remaining from our 2023 notes. We also used $84 million of cash this quarter towards the acquisition of BELLIN and ConnXus.

Now, let’s turn to guidance. With respect to guidance, our operating thesis is similar to last quarter, and that we expect the macroeconomic environment will remain challenging for at least Q3 and into Q4, with the possibility of things beginning to open up more broadly, starting early in the New Year. From a go-to-market perspective, we entered Q3 with a significantly stronger pipeline than the same time last year, both on a gross dollar basis and in terms of what we considered later stage, qualified pipeline.

Not surprisingly, however, many customers and prospects continue to operate with caution, especially those in industries highly affected by the pandemic, making it difficult to predict the timing of when deals will close.

The third quarter and full year 2021 guidance we’re providing today incorporates our current assumptions with respect to the uncertain effects of the challenging macroeconomic environment based on information available to us at this time around new business, renewals, timing of collections and various other inputs. Variations from these assumptions may cause our results to differ. Our guidance also assumes no billings or revenue contribution from Coupa Travel Sabre, formerly Yapta, for the remainder of the year. As you may recall, entering the year, we expected approximately $20 million in billings and revenue contribution from Coupa Travel Sabre.

With this as the backdrop, we expect total Q3 revenue of $123 million to $124 million. This includes subscription revenue of $112 million to $113 million and professional services revenue of approximately $11 million. We expect a Q2 non-GAAP gross margin of 70% to 71% and GAAP income from operations of $4.5 million to $5 million. This results in non-GAAP net income per share of $0.02 to $0.03 on approximately 74 million weighted average diluted shares for the quarter.

For non-GAAP net income per share, please keep in mind that other income and expense or quote unquote, below the line expenses are affected by the drop in interest rates over the last two quarters. Our non-GAAP other income and expense guidance also contemplates potential currency fluctuations and tax liabilities as well as additional cash interest on our latest convert at 0.375%.

On the OpEx side in Q2, we incurred about half of a typical quarter’s expense from acquisition of BELLIN. We will of course have a full quarter of BELLIN expenses in Q3. Also, after generating a record $36 million of adjusted free cash flows this quarter, we expect adjusted free cash flows for Q3 to be breakeven or slightly positive.

For the fiscal year ending January 31, 2021, we expect total revenues of $496.5 million to $498.5 million. This includes subscription revenue of $446 million to $448 million and professional services and other revenue of approximately $50.5 million. We expect non-GAAP gross margin for the year of 71% to 72%. We also expect non-GAAP operating income for the year of approximately $33.5 million to $35.5 million, non-GAAP earnings per share of approximately $0.43 to $0.45, based upon an estimated 73 million averaged diluted shares for the year. We expect adjusted free cash flows to be up year-over-year on an absolute basis.

To conclude, we are still living in unique and uncertain times. As we focus on the safety of our employees and the long-term prospects of our business, we will continue to execute on our strategy, which is founded on growth, financial discipline and operational efficiency, backed by a strong balance sheet to emerge stronger than ever when we all return to some level of efficiency.

Now, we’d be happy to take your questions. Operator?

Question-and-Answer Session

Operator

Thank you, Mr. Ford. [Operator Instructions] And your first question comes from the line of Bob Napoli from William Blair.

Bob Napoli

Thank you. Good afternoon. I was hoping to get an update on Coupa Pay. It is obvious question, just if you could give any trends on attach rates or the reception by certain clients, but some update on Coupa Pay would be helpful.

Rob Bernshteyn

Sure. Well, we continue to see some really good data there and an observable sort of impact in terms of Coupa Pay. For one, without doubt, we continue to build a very rich pipeline in the market. Secondarily, we are closing quite a few deals. And I would say if you look at many of the solutions that we’ve rolled out over the course of the last decade plus, Coupa Pay of all of those solutions has probably taken on the fastest ramp in terms of new customers and in terms of go lives. And that’s really my third point around go lives. You see these customers not only going live but you see them getting measurable value. They’re clearly moving away from paper-based or disjointed processes to more streamlined centralized processes. And they’re more than willing to stand up as references on our behalf in the marketplace. So, it feels like a very promising continued trajectory. And, we can be more excited about it.

Bob Napoli

Thank you.

Operator

And your next question comes from the line of Josh Beck with KeyBanc.

Josh Beck

Thanks for the question, I myself on mute there. I just kind of like to understand a little bit about how you’re thinking about the recovery, as we go through the year. I think, on the last call you had kind of expected Q4 to start to see signs of recovery. This quarter, certainly seems like it came in better than you had anticipated, if you look at the billings number or the spend under management number. But, at the same time, I think you said that you were pushing back a little bit to the first half of next year, when you were starting to factor in that broader macro recoveries. So, maybe just provide a little bit of color on what some of the positive surprise you saw in the quarter? And how that juxtaposes with pushing out the recovery timing just a bit on the macro front?

Rob Bernshteyn

Sure, sure. I appreciate the question. I think, the broader context is worth sharing with everyone on the call. And for those of you that have known us for some time, you know that we’re playing to win in this category without any question whatsoever. And to that end, we’ve continued to develop a really rich and robust and very sizeable pipeline. And we continue to have incredible engagement within that pipeline. So, that it’s not a pipeline that is moving out. It’s a pipeline that is actively engaged with us and building business cases for approval and driving that through their organizations. To that end, we’ve also continued thoughtfully hiring to make sure that we can support that pipeline fulfill demand as it drops. And what as you well know is a really large total addressable market.

And I would say that the environment we’re in right now, to your question, is really bringing even more attention to spend practices. There are new terms and practices that need to be addressed very quickly, kind of higher ROI areas, like sourcing and risk. There’s also the need to really set up companies for the future of how they do business spending.

Now, specifically, I would tell you that the fidelity, as it pertains to precision on any deal close timing, is probably not as high as it might have been historically. Having said that, we continue to close a robust book of business, while building up this pipeline to attack in Q3, Q4 throughout next year as we build this Company into something very, very meaningful and special in the world of information technology, enterprise software, and business.

Operator

Your next question comes from the line of Chris Merwin with Goldman Sachs.

Chris Merwin

I just had one for Rob. I think, you talked in the prepared remarks about an acquired tool for treasury management software. And I guess the question is twofold. Number one, should we see any major impacts to the financials? And number two, I know that there’s an account receivable automation vendors out there that offer treasury management solutions. So, in the future community, can you maybe see you expand more into the accounts receivable automation space? I know, there’s a lot of TAM where you’re now, but just curious when you think about the product or M&A pathway from here? Thanks.

Rob Bernshteyn

Sure. Well, thinking generally around mergers, around M&A or acquisitions that we would be considering is for to fall into the strategy that every one of the acquisitions we’ve done before falls into. A core component that can unlock value at that transactional core or power applications like a BELLIN in Treasury Management that can get even more value out of that massive accelerating transactional flow. With BELLIN, it’s really a no brainer for us. I mean, cash management in real time is pretty important when you think about income of cash and spending of cash, obviously.

Really helping our customers understand cash risk, really understand liquidity and where they are at any given point in time, understanding working capital management. These are the sort of ancillary spaces that the office of CFO has been interested in engaging with us for quite some time. And I would say, the other component that was really powerful here is just to get a little bit deeper into bank-to-bank, money transfer communications, the things we’re doing with Coupa Pay will actually be enhanced with some of the components coming from BELLIN. So, we’re likely to follow very much the same strategic approach to acquisitions. And this one clearly fell right in the sweet spot of that.

Todd Ford

And on the financial contributions, Chris, we obviously spent $84 million for BELLIN and ConnXus in the quarter. 90% of that was approximately BELLIN. Obviously, the full impact of the expenses is in our guidance. And as you’ve seen with the acquisitions in the past, it will take time for the revenue to ramp to steady state. But, as we look out to fiscal 2022, I’d expect $20 million to $25 million in revenue contribution from those two acquisitions, once again, primarily BELLIN being the majority of that. And then, I would also expect as Rob mentioned, additional positive impact to Coupa Pay than overall pricing of the BSM platform as we continue to see our average deal size increase quarter-on-quarter, which we continued to see this last quarter as well.

Operator

Your next question comes from the line of Alex Zukin with RBC Capital Markets.

Robert Simmons

Hi. This is Robert Simmons on for Alex. Thanks for taking the question. So, you had mentioned the customer is over 95% of transactions going through the platform. So, I’m wondering, if you tell us how that’s impacted your ASP, kind of pre-Pay and now with Pay?

Rob Bernshteyn

Sure. So, I’m not sure that directly impacts it. The reality is, we charge based on value delivery. We don’t have a sort of take rate model of some percentage of the electronic transaction model with just a few exceptions, Coupa Pay in some cases being that type of exception. When you think about the overall business, it’s largely a Value as a Service business where there’s a fair recurring subscription revenue price point for value delivery. And to that end, this is our virtually – our 46th quarter, virtually every quarter going up in average subscription revenue per customer. So clearly, they’re seeing more and more value being delivered for them on this platform and Coupa Pay is just an additional module that provides it.

Robert Simmons

And then, can you talk to your net retention rate, what are you seeing there?

Todd Ford

Yes. If you look at the renewal rates, continue to remain strong and best-in-class. Nothing that I would call out related to COVID or otherwise. One of the things I would say though, as Rob mentioned, we’ve seen significant positive trends in upsell with our current customers, and multiple areas, whether it’s Coupa Risk Assess, Coupa Sourcing, Coupa Pay and other. And one of the things that’s important to note and we saw a little bit of impact of this in Q2. When we do these power app add-ons, in many cases, we don’t realize the benefits of a full year billing to the customer on our calculated billings results, because the first billing installment for the add-on modules is often coterminous with the customer’s either annual anniversary or renewal date, meaning that we only build the customer for a partial year upfront. So, while no impact necessarily revenue, does impact billings for partial payments. And it’s likely we’ll see some benefit from this dynamic in Q4 where a significant amount of our deals are billed and transacted.

Operator

[Operator Instructions] And your next question comes from the line of Stan Zlotsky with Morgan Stanley.

Stan Zlotsky

Maybe just one very quick one for me. Todd, I’m not sure if maybe I missed it during the prepared remarks. But, how are you thinking about billings for Q3, either as a point estimate or maybe on a trailing 12-month basis?

Todd Ford

Yes. Thanks, Stan. So, given the current macroeconomic environment, we’ve continued to be very measured with our billings outlook. And if you look at the three components, professional services, renewals and new business, on the professional services front, we went into the quarter with a very strong pipeline, and we’ve also demonstrated the ability to take customers live remotely. As Rob mentioned in the remarks, 100% of our go-lives were done remotely. So, feel good about professional services. Renewals have continued to be strong, and we’ve seen even customers reaching in on the expansion that we have talked about. So, a lot of people expected impact from COVID, and we haven’t seen that at all.

And then on the new business front, I can give you a couple of comments quantitatively and qualitatively. So quantitatively, although you somewhat have to consider the lost small numbers, our new bookings in August were higher than last year. And in entering Q3, as I noted in my remarks, we had a substantially stronger pipeline for the second half of the year compared to that of last year both in terms of gross pipeline and later stage. But as Rob mentioned, it’s also difficult to predict sales cycle’s time. And there’s also some seasonality in Q3 historically, although there’s some trends pointing to perhaps that won’t be the case this quarter. And when we have seen deals push out, it’s typically weeks or months and not quarters. And then on the qualitative side, we are seeing some green shoots, particularly in the level of engagement by our go-to-market teams being extremely high. And overall, I would say my confidence entering Q3 is stronger than that entering Q2. But given historical seasonality and just the macroeconomic environment and expecting to get back to normal hopefully sometime later this year, the point estimate I would use for calculated billings on a trailing 12-month basis would be 27%, exiting Q3. But once again, it’s difficult to determine the order of magnitude just given all the factors I just covered.

Operator

And your next question comes from the line of Brad Sills with BofA.

Brad Sills

I wanted to ask about some of the progress you’ve seen here with the Community Intelligence applications; you mentioned advantage of Risk Assess, Sourcing. It seems like those are picking up. We’re hearing that from the channel as well. Is there a common theme here? Is it just that these offerings are now maturing, where you’re building that analytics capability, really leveraging that data set in there, or is it just awareness growing of the benefits of these solutions? I suspect it’s both. But any color on just what may be driving that? Thank you.

Rob Bernshteyn

Yes. Thanks very much for the question. I think it’s absolutely both. It’s very hard to understand exactly how some of the tipping points develop. But clearly, there’s a massive amount of data that’s going into providing the Community Intelligence back to customers now. I think we’ve passed many thresholds of data volume that we require to make the individual insights that are prescribed or offered up to individual customers be a value. And we’re getting to levels where that is becoming meaningful and valuable for them in making their decisions. I think there’s also an incredible continued willingness amongst our community to share anonymized and sanitized data, so that builds up the likelihood that insights would be valuable. And then, it’s the current times. And I think the current times are an important factor to consider here as well. Many of the conversations I’m having with folks — CFOs and folks in the CFO’s office are about the supply chain disruptions they’re seeing, the risk that they’re seeing amongst their supply base that they need, neighborhood watch type programs like we have built into Community Intelligence to help them mitigate that risk, their need to get advice and insight on how to go from perhaps single sourcing with certain suppliers to multi-sourcing, ideas or input around best practices for renegotiating certain categories of spend, how to prioritize where to renegotiate, where to start and how to move into a much more digital best practices way of doing things. So, there’s a lot of factors that are coming into play, but all of them are producing exactly what I think you’re hearing from our community, which is we’re starting to get real meaningful value from Community Intelligence. And I could tell you, without any reservation, we’re definitely just at the very tip of the iceberg in terms of what’s possible in terms of making all of our customers smarter together.

Operator

And your next question comes from the line of Terry Tillman with Truist Securities.

SEPTEMBER 08, 2020 / 8:30PM, COUP.OQ – Q2 2021 Coupa Software Inc Earnings Call

Terry Tillman

Yes. Thanks for taking my question. It’s related to, Todd, what you just talked about a few questions ago as it related to billing. This concept of the add-on sales, what I’m curious about is, you called that out and how that could potentially impact 4Q. Could you maybe give us a little bit more perspective on how notable that could be? And is this add-on sales motion something that you’ve all been aggressively pursuing, or it’s just kind of happening kind of organically or naturally given the times we’re in?

Todd Ford

Yes. I would say, it’s been more organic in nature and as customers are looking to drive value and get a very quick ROI and reduce risk, right? So, if you look at the sourcing tool, we’ve had customers literally save tens of millions of dollars within the first week, obviously a quick payback. And then, in the COVID-19 environment, you’ve got people especially with supply chains and risk and making sure their supply chain doesn’t go out, go down and potential issues related to bankruptcy and that type of thing. And then, you’ve also seen some uptake in Coupa Pay, which is broader, but there are some slight benefits with respect to digital checks and that type of thing. So, when you look at the number of add-ons we had in Q2, and actually even Q1 to be frank, they were pretty significant. And what I — is it more than $1 million? Yes. And is it less than $5 million? Probably so. So, somewhere in that range. I’m not going to give a specific point estimate. And a lot of that doesn’t show up anywhere. Right? It would come up, meaning from a backlog perspective or deferred revenue, so. But, it should definitely be a net benefit in Q4 as people either go through their annual contracted cycle — billing cycles and/or their renewals.

Operator

And your next question comes from the line of Daniel Jester with Citi.

Daniel Jester

So, the last couple of quarters, you talked about some customers that were using Coupa more for direct procurement. And I’m wondering, given some of your comments about sort of supply chains being reworked, what you’re seeing on that front today.

Rob Bernshteyn

Sure. Well, thanks for the question. That’s absolutely the case, and that’s seen in our pipeline. First of all, let’s just touch on that. When you look at our global systems integrator partners, we have an open pipeline in the hundreds of millions of dollars. And a lot of that has to do, I think, with our proven referenceability in the market and the successes we’ve had, but also the conditions externally where there is real disruption happening, and procurement and CFOs really have a chance to lead. So, you look at capabilities like dynamic strategic sourcing with multi-factoral, AI-powered assessments of where to get the goods and services you need at the right price point for the right delivery through the right freight for a point in time challenge, I mean we have some of the largest companies in the world standardized on Coupa for making those decisions and a pipeline of folks who want to do the same. Similarly in the area of contract management, the ability to very quickly understand where contracts need to be renegotiated, dynamically engage with suppliers on that renegotiation process in the right priority order, taking into account the risk that those suppliers may have to their business, will they even be in business in the next quarter and year, and leveraging community insight to help them make those decisions. We see it in the treasury management area, as I discussed earlier around having liquidity and cash management properly sorted out within your company. We see it in inventory management and the levels that companies are willing to go to, to balance on-hand inventory with outstanding orders. We see it in the area of contingent workforce where we see companies pushing to a greater agility through contingent workforce management with many of the modules we deliver.

So, I mean we’re really in the heart of a very significant focus area for so many companies around the world, large, medium and somewhat aspiring or growing. And our job is to take it one customer at a time and drive value for each and every one of them in a way that’s fair, thoughtful and is going to allow us to build a long-term market-leading business here.

Operator

And your next question comes from the line of Peter Levine with Evercore.

Peter Levine

Maybe could you talk about how customers are thinking about Coupa, whether that be procurement, travel and expense or payments relative to other mission-critical systems in terms of prioritization around spend, especially in this environment? Because I mean, I think — and to your results and your commentary, it seems like investor concerns that some of the back office would have been pushed off. It seems like, at least for Coupa and what you deliver, it seems like that’s not the case. But curious to know how your customers think about your products in terms of prioritization. Thank you.

Rob Bernshteyn

Sure. Well, look, I think the categories around business spend management and that business management is comprised of, has always been — have always been on the priority list as part of the digital transformation set of initiatives. I wouldn’t say that they were first. I think some — to your point, the front office capabilities around CRM and other perhaps came earlier, but we were moving to an area where this was becoming more and more in the spotlight. And I think what has happened now, where there’s just such disconnect — such a disconnection that’s happening around people understanding how subpar their processes are internally around procurement, paper-based invoice processing, complicated payments, difficulty in, not only managing expenses, but maintaining situations where fraud doesn’t escalate, all of these areas in the business management are being seen in a much greater light, and — or I should say, greater light is being put on to them. And we’re in a phase right now that I would assess as one where companies are really trying to figure out how to develop their transformation agendas for the next two, three years for midsize companies and next decade for larger companies. And I really like where we stack up in the marketplace as it pertains to that. And I’m really excited about everything that our team and our partners are doing to make sure that we map our capabilities to those challenges in a way that is most likely, not only to build up a bigger customer base, but to ensure that they are going to get value with us forever and stay with us forever as we build this business.

Operator

And your next question comes from the line of Siti Panigrahi with Mizuho.

Siti Panigrahi

Thanks for taking my question and thanks for all the color in terms of macro. Just wondering, what kind of performance you’re seeing in the U.S. versus international? Any color on geography would be helpful.

Rob Bernshteyn

One of the things with this business is we’ve tried for the last decade-plus to create a really robust portfolio effect for ourselves. And when I say portfolio effect, I mean, so when we get on calls like with our investor base, we will have — we can say with great confidence that we have delivered the goods, if you will, delivered to the best of our ability to manage our, not only quarterly expectations, but to set ourselves up for a bright future. And that portfolio comes in a couple of dimensions. One is certainly geographic, as you mentioned. There are certain quarters where we have a greater impact from Asia or Europe or South America or United States. The other dimension is enterprise and mid-market and our corporate team. There are many quarters where we see a lot more volume, let’s say, in the mid-market business, and there are some quarters where we have significant wails in the enterprise that get us to where we need to be. We also have an incredible portfolio effect in our product areas and modules. We have so many different modules. We began with one in procurement 11 years ago and now have nearly a dozen modules.

So, any given quarter, we’ll see different dynamics from any of those three dimensions. But ultimately, they get us to where we want to be, which is ensuring that every customer we close has a high likelihood of laying out measurable success criteria that we could deliver on, and this quarter was really no different at all.

Operator

And your next question comes from the line of Koji Ikeda with Oppenheimer.

Koji Ikeda

I wanted to ask you a question about deal cycles. Thinking about some of your larger slipped deals from the first half or maybe organizations are thinking about longer sales cycles overall. Have those conversations changed at all, now that companies are becoming more comfortable in the norm for now environment? Are any of those elongated enterprise sales cycles coming back to something more recognizable pre-pandemic? Thank you.

Rob Bernshteyn

That’s a great question. Absolutely, they are. One of the things I shared, and it’s exactly how I see it, the fidelity, the precision of when the actual timing of a deal will naturally come to closure and we could begin frankly the more interesting work, which is the implementation and the results realization, the referenceability and then coming back around. So, that precision is not where it has been pre-pandemic yet, but it is coming back. It has absolutely come back, as Todd shared about the kind of last months of the quarter. And look, due to the pandemic, the sales cycle times in some cases have extended, but they’ve extended in the near term, and we could see our way to them landing. And that is happening in tandem with incredible engagement across the entire pipeline and in tandem with the pipeline growing very, very rapidly at the same time. So, all that really spells for a really healthy medium, kind of longer term prospects on the business, while at the same time allows us to close dozens and dozens of deals, new deals as we’ve done just this past quarter.

Operator

And your next question comes from the line of Brian Peterson with Raymond James.

Brian Peterson

So, Rob, if you have to think about the value — the customer value journey or call it a quest, if you had to put that through the lens of a hard dollar ROI, I’m curious how do you stack rank the value of Coupa Pay specifically relative to some other parts of the platform? Do you think that time-to-value looks materially different?

Rob Bernshteyn

That’s a great question, and I’m not going to be able to give a distinct answer because it really does depend on the maturity of the company and the use cases where they are more mature versus not. We face certain companies that have incredible processes, let’s say around procurement, preordering, everything is clean and done really well. But, when you look at their expense process, it’s completely fragmented or vice versa. They have some incumbent solution for expense management that seems to be okay, but their pre-approval percentage is horrible. Their on-contract spend is horrible. Their invoice processing is paper-based. As I mentioned with inventory, they might not even be tracking inventory. So, our goal here has always been to be really like a Swiss army knife. I mean, you can use any component first, wherever the pain is greatest, wherever the organizational momentum is closest to beginning a business management transformation. And then, as you start to gain value and working with us in this Value as a Service model, we’ll turn on other capabilities. Now that’s not to say there aren’t some customers we face who are doing almost 100% paper-based payments processes or completely disjointed logins to 15 or 16 different systems to run a monthly batch payment job, where clearly the value is much, much greater to begin there than maybe streamlining expense management, for example.

So, it’s very, very customer specific. And one of the things I’m quite proud of is that with our colleagues here, we’ve figured out a way to really be consultative with our prospective customers to — with integrity and honesty, try to see where we can begin with them that can drive the most value for them and then build the experience and partnership with them over a long period of time.

Operator

And your next question comes from the line of Ryan MacDonald with Needham.

Ryan MacDonald

One for you, Rob. As we look at the ConnXus acquisition, obviously much smaller of the two that you made during the quarter. But, there’s an interesting core data set that you’re really acquiring with that business. Could you talk about, one, how that’s enhancing Community Intelligence; but two, how you might be able to use that core data set as a competitive advantage against some of your competitors moving forward? Thanks.

Rob Bernshteyn

Yes, absolutely. And we’re very excited about the new colleagues from ConnXus. And I feel like they’re a completely integrated team. I haven’t heard that name in a while because we’re all Coupa colleagues now. But I’ll tell you, that data set is very, very powerful. I mean, we have a very clear understanding now of supplier diversity. And we are in a position now — and we’ve always focused on this. We’re even in a better position now than ever to help our buyers, right, who are hundreds and hundreds and hundreds of companies around the world and millions of users make decisions in part about whom they spend money with on criteria such as are these minority-owned suppliers, are these diverse suppliers, are these inclusive suppliers. So, it’s another set of criteria that we now have as part of our data set that we can not only expose one customer at a time, but they can give the keys to our community so they can leverage that, add to their data set, build that data set and help us in that regard. And that’s just one example. There’s a whole host of other use cases with which that data will be — will continue to be valuable for us.

Operator

And your next question comes from the line of Joseph Vafi with Canaccord.

Joseph Vafi

Thanks and great results, guys. I was just wondering, it may be a multipart answer, but could you try to frame the competitive landscape around Pay? I know there is a lot of momentum in kind of pure play AP solutions. There’s payment embedded in a lot of mid-market ERPs. You have AR. You’ve got different players here. Just some thoughts on competitive landscape would be appreciated. Thanks.

Rob Bernshteyn

Sure. Well, I think, you touched on it, right. There are incumbent solution providers. There are obviously some smaller kind of new entrants in the marketplace. We’ve done our homework initially probably two years ago when we started thinking about entering into the space. And ultimately, we haven’t seen any of them really flex on us. I mean, we have seen the situation in a way where the greatest competition is ourselves. I mean, we have an opportunity to really reimagine the way companies manage business payments, taking them from a largely still paper-based world, a very dysfunctional, decentralized world and making it much, much easier, making it much more user-centric, which is of course the U in Coupa, making it much more open so they have choice amongst banking relationships, which is the O in Coupa, and we’re really just getting going here. But I will tell you, great leading indicators. When I do see win reports, I do see a number of incumbents and early entrants that we’ve been lucky enough to be chosen over in selections, and I think that as well is still very early innings.

Operator

And your last question comes from the line of Pat Walravens with JMP Securities.

Unidentified Analyst

Hi. This is Mark on for Pat. Thank you so much for taking my question. So, just wondering with everybody working from home, how do you make Coupa a place people want to work in?

Rob Bernshteyn

Sure. Well, it’s not anything new for us. Our goal, our second core value here is focus on results. And so the fact that people are working from home, whether they’re working in the office or they’re working for a different plan, it doesn’t matter to us. It’s the result that we’re focused on. So, we’ve always had a very flexible approach with our employees and our colleagues. We’ve always been highly decentralized as an organization. There’s only a couple of hundred people here at our headquarters and thousands all over the world. And so we are on Zoom. We are connecting over the phone. We are engaging with customers in ways that we actually weren’t able to probably at the pace we would have liked in the past. So, in general, I think, it’s really a net positive for us in that regard. Having said that, there is some level of collegiality and physical presence that is lost, and we’re doing all that we can to emulate that in this environment for now. Looking forward to a time when we could all be together at physical locations and engaging in day-to-day collaboration and banter and everything that comes with work life.

Operator

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





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