COUPA SOFTWARE INCORPORATED
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our condensed consolidated
financial statements and related notes appearing elsewhere in this Quarterly
Report on Form 10-Q. As discussed in the section titled "Note About
Forward-Looking Statements," the following discussion and analysis contains
forward-looking statements that involve risks and uncertainties, as well as
assumptions that, if they never materialize or prove incorrect, could cause our
results to differ materially from those expressed or implied by such
forward-looking statements. Factors that could cause or contribute to these
differences include, but are not limited to, impacts on our business and general
economic conditions due to the current COVID-19 pandemic, those identified
below, those discussed in "Note About Forward-Looking Statements" and those
discussed in the section titled "Risk Factors" under Part II, Item 1A in this
Quarterly Report on Form 10-Q.
Overview
We are a leading provider of Business Spend Management ("BSM") solutions. We
offer a comprehensive, cloud-based BSM platform that has connected our customers
with more than seven million suppliers globally. Our platform provides greater
visibility into and control over how companies spend money, optimize supply
chains, and manage liquidity. Using our platform, businesses are able to achieve
real, measurable value and savings that drive their profitability.
We refer to the process companies use to purchase goods and services as business
spend management and to the money that they manage with this process as spend
under management. Our BSM platform delivers a broad range of capabilities that
would typically require the purchase and use of multiple disparate point
applications. The core of our platform consists of procurement, invoicing,
expense management, and payment solutions that form the transactional engine for
managing a company's business spend. In addition, our platform offers
specialized modules targeted for power users, to help companies manage more
technical and strategic areas of BSM, including areas such as strategic
sourcing, contract management, contingent workforce, supplier risk management,
supply chain design and planning, treasury management, and spend analysis.
We also provide purchasing programs, such as Coupa Advantage, which offers
access to pre-negotiated discounts from various suppliers, and Source Together,
which connects community members to engage in group sourcing events, allowing
them to leverage pooled buying power to achieve better contracting terms and
capture greater savings. Moreover, through our Coupa Open Business Network,
suppliers of all sizes can list their goods and services, establish pricing, and
interact with buyers electronically, thus significantly reducing paper,
improving operating efficiencies, and reducing costs.
We offer access to our platform under a Software-as-a-Service business model. At
the time of initial deployment, our customers often make a set of common
functions available to the majority of their licensed employees, as well as
incremental modules for select employees and procurement specialists, whom we
refer to as power users. Therefore, we are typically able to capture a majority
of the expected annual recurring revenue opportunity at the inception of our
customer relationships, rather than targeting specific power users at the outset
of the customer relationship with the intention of expanding and capturing more
annual recurring revenue at later stages of the customer relationship. Customers
can rapidly implement our platform, with implementation periods typically
ranging from a few weeks to several months. Customers also benefit from software
updates that typically require little downtime.
We market and sell our solutions to a broad range of enterprises worldwide. We
have a diverse, multi-national customer base spanning various sizes and
industries and no significant customer concentration. No customer accounted for
more than 10% of our total revenues for the three and six months ended July 31,
2021 and 2020, respectively.
We market our platform primarily through a direct sales force and also benefit
from leads driven by our partner ecosystem. Our initial contract terms are
typically three years, although some customers commit for longer or shorter
periods. The large majority of our customers pay annually, one year in advance.
Our subscription fee includes access to our service, technical support and
management of the hosting infrastructure. We generally recognize revenues from
our subscription fees ratably over the contractual term of the arrangement. We
do not charge suppliers who are on our platform to transact with our customers.
We believe this approach helps attract more suppliers to our platform and
increases the value of our platform to customers.
We have continued to make significant expenditures and investments for long-term
growth, including investment in our platform and infrastructure to deliver new
functionality and modules to meet the evolving needs of our customers and to
take advantage of our market opportunity. We intend to continue to increase our
investment in sales and marketing, as we further expand our sales teams,
increase our marketing activities, and grow our international operations.
Internationally, we currently offer our platform in Europe , the Middle East and
Africa , Latin America and Asia-Pacific , including Japan . The combined revenues
from non-U.S. regions, as determined based on the billing address of our
customers, constituted 41% and 36% of our total revenues for each of the six
months ended July 31, 2021 and 2020, respectively. We believe there is further
opportunity to increase our international revenues in absolute dollars and as a
percentage of our total revenues. As a result, we are increasingly investing in
our international operations and we intend to expand our footprint in
international markets.
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Operating in international markets requires significant resources and management
attention and will subject us to regulatory, economic and political risks that
are different from those in the United States . While we are gaining additional
experience with international operations, our international expansion efforts
may not be successful in creating additional demand for our platform outside of
the United States or in effectively selling subscriptions to our platform in any
or all of the international markets we enter.
In March 2020 , the World Health Organization declared COVID-19 a global
pandemic. This pandemic has infected populations within the United States and
many other regions at fluctuating rates. Recently, infection and hospitalization
rates in many regions in the United States , Europe and elsewhere have been
increasing - in many cases notwithstanding concurrently increasing rates of
vaccination - largely due to the emergence of recently discovered variants that
are thought to be more contagious (such as the increasingly widespread "Delta
variant"). The COVID-19 pandemic has resulted in authorities implementing
numerous measures to try to contain and mitigate the virus, including travel
bans and restrictions, business shut-downs and limitations, quarantines, and
shelter-in-place and social distancing orders.
The extent to which the COVID-19 pandemic may impact our financial condition or
results of operations in future periods remains uncertain. The effect of the
COVID-19 pandemic may not be fully reflected in our results of operations and
overall financial performance until future periods. We may experience decreased
customer demand, reduced customer spend, customer bankruptcies and other
non-payment situations, shorter contract duration, longer sales cycles and
extended payment terms, any of which could materially adversely impact our
business, results of operations and overall financial performance in future
periods. The extent and continued impact of the COVID-19 pandemic on our
operational and financial performance will depend in part on future developments
and conditions, including the duration and spread of the outbreak; government
responses to the pandemic; the impact on our customers and our sales cycles;
extent of delays in hiring and onboarding new employees; and effect on our
partners, vendors and supply chains, all of which are uncertain and difficult to
predict. Additionally, due to concerns over the COVID-19 pandemic, we have
replaced our in-person, annual Inspire conferences and other in-person marketing
events with web-based alternatives. In the first quarter of fiscal 2021, we
closed our offices globally and required our employees to work remotely. During
the second quarter of fiscal 2022, we implemented a phased-in approach in
re-opening certain of our offices and invited our employees to return to work if
they wished to do so. Our employees' health and safety is our top priority, and
we will continue to monitor local restrictions across the world, the
administration of vaccines, and the number of new cases, as we continue to
slowly move towards re-opening certain of our offices. Our offices will re-open
on a staggered, region-to-region basis in accordance with local authority
guidelines while ensuring that our return to work is thoughtful, prudent, and
handled with a safety-first approach. The impact, if any, of these and any
additional operational changes we may implement is uncertain, but changes we
have implemented to date have not materially impaired and are not expected to
materially impair our ability to maintain operations, including financial
reporting systems, internal control over financial reporting and disclosure
controls and procedures. See the section "Risk Factors" for further discussion
of the possible impact of the COVID-19 pandemic on our business.
Recent Business Developments
In February 2021 , we acquired all of the equity interest in Pana Industries,
Inc. ("Pana"), a corporate travel booking solution company. The purchase
consideration was approximately $48.5 million in cash (of which $7.1 million is
being held in escrow for fifteen months after the transaction closing date). In
addition, we issued 23,822 shares of unvested common stock with an approximate
fair value of $7.6 million to two of Pana's shareholders. These shares are
subject to service-based vesting conditions including continued employment with
us.
In March 2021 , we established a joint venture with Japan Cloud. This joint
venture is intended to enable us to scale to support the growing number of
Japanese companies looking to gain greater efficiency and agility through
Business Spend Management. As of July 31, 2021 , we had a 51% controlling
ownership interest in the joint venture.
In fiscal 2022, we announced the launch of Coupa Ventures , a fund to foster
innovation in Business Spend Management. Coupa Ventures will invest in early and
growth-stage companies that we believe are breaking down inefficiencies in how
businesses manage their spend, aligning processes and decisions across supply
chain, procurement, and finance. As of July 31, 2021 , we have invested a total
of $7.5 million in three portfolio companies.
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Our Business Model
Our business model focuses on maximizing the lifetime value of a customer
relationship, and we continue to make significant investments in order to grow
our customer base. Due to our subscription model, we recognize subscription
revenues ratably over the term of the subscription period. As a result, the
profitability of a customer to our business in any particular period depends in
part upon how long a customer has been a subscriber on our platform. In general,
the associated upfront costs with respect to new customers are higher in the
first year than the aggregate revenues we recognize from those new customers in
the first year. We believe that, over time, as our customer base grows and a
relatively higher percentage of our subscription revenues are attributable to
renewals versus new customers or upsells to existing customers, associated sales
and marketing expenses and other allocated upfront costs as a percentage of
revenues will decrease, subject to investments we plan to make in our business.
Over the lifetime of the customer relationship, we also incur sales and
marketing costs to manage the account, renew or upsell the customer to more
modules and more users. However, these costs are significantly less than the
costs initially incurred to acquire the customer. We calculate the lifetime
value of our customers and associated customer acquisition costs for a
particular year by comparing (i) gross profit from net new subscription revenues
for the year multiplied by the inverse of the estimated subscription renewal
rate to (ii) total sales and marketing expense incurred in the preceding year.
On this basis, we estimate that for each of fiscal 2021 and 2020, the calculated
lifetime value of our customers has exceeded six times the associated cost of
acquiring them. Other companies may calculate lifetime value and customer
acquisition costs differently than our chosen method and, therefore, may not be
directly comparable.
Key Metrics
We review the following key metrics to evaluate our business, measure our
performance, identify trends affecting our business, formulate business plans
and make strategic decisions:
As of July 31,
2021 2020
Cumulative spend under management (in billions) $ 2,803.7 $ 1,952.2
Remaining performance obligations (in millions) $ 1,114.5 $ 744.8
Deferred revenue (in millions) $ 359.2 $ 249.0
Trailing twelve months calculated billings (in millions) $ 752.9 $ 518.5
Customers with annualized subscription revenue above $100,000 1,230 874
Cumulative Spend Under Management
Cumulative spend under management represents the aggregate dollar value of
transactions through our core platform for all of our customers collectively
since we launched our core platform. We define our core platform for purposes of
this metric as our procurement, invoicing and expense management modules. We
calculate this metric by aggregating the actual transaction data for purchase
orders, invoices and expenses from customers using our core platform. Cumulative
spend under management does not include spending data or transactions associated
with modules from acquired companies. We regularly review our process for
calculating this metric and periodically make adjustments to improve its
accuracy. We believe that any such adjustments are immaterial unless otherwise
stated.
The cumulative spend under management metric presented above does not directly
correlate to our revenue or results of operations because we do not generally
charge our customers based on actual usage of our core platform. However, we
believe the cumulative spend under management metric does illustrate the
adoption, scale and value of our platform, which we believe enhances our ability
to maintain existing customers and attract new customers.
Remaining Performance Obligations and Deferred Revenue
Remaining performance obligations represent the amount of consideration
allocated to unsatisfied performance obligations related to non-cancelable
contracts, which include both the deferred revenue balance and amounts that will
be invoiced and recognized as revenue in future periods. In calculating the
remaining performance obligation amount, we elected to apply the two expedients
under the revenue standard to exclude remaining performance obligations amounts
related to contracts that are twelve months or less and contracts where revenue
is being recognized under the as-invoiced method.
We generally execute multiple year subscription contracts for our platform and
invoice an initial amount at contract signing followed by subsequent annual
invoices. At any point in the contract term, there might be amounts that are not
due for billing yet. These amounts are not recorded in our condensed
consolidated financial statements, and are considered to be part of the
remaining performance obligations amount.
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The remaining performance obligations amount is intended to provide visibility
into future revenue streams. We expect remaining performance obligations to
fluctuate up or down from period to period for several possible reasons,
including amounts, timing, and duration of customer contracts (including changes
that we may see to customer contracts as a result of the COVID-19 pandemic), as
well as the timing of billing cycles for each order.
Our deferred revenue consists of amounts that have been invoiced but not yet
recognized as revenues as of the end of a reporting period. The majority of our
deferred revenue balance consists of subscription revenues that are recognized
ratably over the related contractual period.
Trailing Twelve Months Calculated Billings
Trailing twelve months calculated billings represents total revenues recognized
during the period of consecutive twelve months ended July 31, 2021 and July 31,
2020 plus the change in deferred revenue for each of those same periods.
Trailing twelve month calculated billings is comprised of subscription contracts
with existing customers (including renewal contracts and add-on contracts),
subscription contracts with new customers, term-based license contracts, and
contracts for professional services, training and other revenues.
The trailing twelve months calculated billings is intended to provide
information about our subscription revenue growth over time, and can typically
be seen as an early indicator of trends in revenue growth. While trailing twelve
months calculated billings can increase as our revenues grow, it may fluctuate
up or down from period to period for several reasons, including amounts, timing,
and duration of customer contracts, as well as the timing of billing cycles for
each order.
Customers with Annualized Subscription Revenue Above $100,000
We define customers with annualized subscription revenue above $100,000 as the
total number of customers that contributed subscription revenues in excess of
$25,000 during the relevant fiscal quarter, which corresponds to $100,000 on an
annualized basis. For purposes of this metric, we generally define a customer as
a separate and distinct entity (such as a company or an educational or
government institution), a distinct business unit of a large corporation or a
partner organization, in each case that has a distinctive active contract with
us to access our services. Most of the subscription revenue we recognize each
quarter is attributable to customers that accounted for more than $25,000 of
that revenue during the quarter, and our sales and marketing strategy focuses
heavily on the acquisition of customers that have the potential to contribute at
least $100,000 in subscription revenues annually. Accordingly, we believe that
this metric is a useful tool to aid investors in understanding a key factor that
drives changes in our subscription revenues from period to period and in
assessing trends in our growth, penetration of our core customer market, and our
overall performance. Because the dollar threshold is tied to the actual revenue
recognized during a particular quarter, customers that we acquired midway
through or at the end of the quarter may not yet be included in this count, even
if they have placed orders representing more than $100,000 in annual
subscription revenue.
Components of Results of Operations
Revenues
We primarily offer subscriptions to our cloud-based BSM platform, including
procurement, invoicing and expense management and pay. We derive our revenues
primarily from subscription fees, professional services fees and other.
Subscription revenues consist primarily of fees to provide our customers access
to our cloud-based platform, which includes routine customer support at no
additional cost. Term-based licenses are sold as bundled arrangements that
include the rights to a term license and post-contract customer support ("PCS").
Accordingly, we allocate the transaction price to each performance obligation.
The revenues related to the amount allocated to PCS are included in subscription
revenue, which are recognized ratably over the contract term beginning on the
license delivery date. Professional services fees and other include deployment
services, optimization services, training, and revenues allocated to license
component for the sales of term-based licenses. Subscription revenues are a
function of renewal rates, the number of customers, the number of users at each
customer, the number of modules subscribed to by each customer, and the price of
our modules.
Generally, subscription fees are recognized ratably as revenues over the
contract term beginning on the date the application is made available to the
customer. Our new business subscriptions typically have a term of three years,
although some customers commit for longer or shorter periods. We generally
invoice our customers in annual installments at the beginning of each year in
the subscription period. Amounts that have been invoiced are initially recorded
as deferred revenue and are recognized ratably over the subscription period.
Amounts that will be invoiced and recognized as revenue in future periods are
reflected as remaining performance obligations within the notes to our condensed
consolidated financial statements.
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Professional services revenues and other consist primarily of fees associated
with the implementation and configuration of our subscription service and
revenues allocated to the license component for sales of term-based licenses.
Professional services are generally sold on a time-and-materials or fixed-fee
basis. Revenue for both time-and-material and fixed-fee arrangements are
recognized over-time as the services are performed. We have the ability to
reasonably measure progress towards completion of the professional services
arrangements. For fixed-fee arrangements, we recognize revenue on the basis of
performed hours relative to the total estimated hours to complete satisfaction
of the professional service arrangement. For the license component from the
sales of term-based licenses, we recognize revenues at the start of the license
term when delivery is complete.
Our professional services engagements typically span from a few weeks to several
months. For this reason, our professional services revenues may fluctuate
significantly from period to period. The terms of our typical professional
services arrangements provide that our customers pay us within 30 days from the
invoice date. Fixed-fee services arrangements are generally invoiced in advance.
We have made significant investments in our professional services business that
are designed to ensure customer success and adoption of our platform. We are
continuing to invest in expanding our professional services partner ecosystem to
further support our customers. As the professional services practices of our
partner firms continue to develop, we expect them to increasingly contract
directly with our subscription customers and we incentivize our sales force to
further this objective.
Cost of Revenues
Subscription
Cost of subscription consists primarily of expenses related to hosting our
service and providing customer support. Significant expenses are comprised of
data center capacity costs; personnel and related costs directly associated with
our cloud infrastructure and customer support, including salaries, benefits,
bonuses and stock-based compensation; allocated overhead; and amortization of
acquired developed technology and capitalized software development costs.
Professional Services and Other Cost of Revenues
Cost of professional services and other cost of revenues consist primarily of
personnel and related costs directly associated with our professional services
and training departments, including salaries, benefits, bonuses and stock-based
compensation; the costs of contracted third-party vendors; amortization of
acquired developed technology; and allocated overhead. These costs are generally
expensed in the period incurred.
Professional services associated with the implementation and configuration of
our subscription platform are performed directly by our services team, as well
as by contracted third-party vendors. In cases in which third-party vendors
invoice us for services performed for our customers, those fees are accrued over
the requisite service period.
Operating Expenses
Research and Development
Research and development expenses consist primarily of personnel costs of our
development team, including salaries, benefits, bonuses, stock-based
compensation expense and allocated overhead costs. Our cycle of frequent updates
has facilitated rapid innovation and the introduction of new modules throughout
our history. We have aggressively invested, and intend to continue to invest, in
developing technology to support our growth. We capitalize certain software
development costs that are attributable to developing new modules and features
and adding incremental functionality to our platform, and we amortize such costs
as costs of subscription revenues over the estimated life of the new application
or incremental functionality, which is typically three years.
Sales and Marketing
Sales and marketing expenses consist primarily of personnel and related costs
directly associated with our sales and marketing staff, including salaries,
benefits, bonuses, commissions and stock-based compensation. Commissions earned
by our sales force that are considered incremental costs for obtaining a
non-cancelable subscription contract are deferred and amortized over a period of
benefit that we have determined to be five years. For commissions earned from
the sale of term-based license contracts, we allocate the costs of commission in
proportion to the allocation of the transaction price of license and PCS
performance obligations. Commissions associated with the license component are
expensed at the time the related revenue is recognized. Commissions allocated to
PCS are deferred and then amortized over five years. Other sales and marketing
costs include promotional events to promote our brand, including our Inspire
conferences, web advertising, events, allocated overhead and amortization of
customer relationships and trademark.
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General and Administrative
General and administrative expenses consist of personnel costs and related
expenses for executive, finance, legal, human resources, recruiting, and
administrative personnel, including salaries, benefits, bonuses and stock-based
compensation expense; professional fees for external legal, accounting,
recruiting and other consulting services and allocated overhead costs. During
the six months ended July 31, 2020 , general and administrative expenses included
a benefit of $12.5 million related to the reversal of the Yapta contingent
consideration payable. Refer to the Company's consolidated financial statements
for the year ended January 31, 2021 for details of the contingent consideration
payable.
Interest Expense Interest expense consists primarily of interest expense associated with our outstanding convertible senior notes.
Other Income (Expense), Net Other income (expense), net consists primarily of interest income earned on our investments in marketable securities and cash and cash equivalents, and gain or loss on conversion of convertible senior notes, in addition to the effects of exchange rates on our foreign currency-denominated asset and liability balances, which are recorded as foreign currency gains (losses) in the condensed consolidated statements of operations. Provision for (Benefit from) Income Taxes Provision for income taxes consists primarily of income taxes related to foreign and state jurisdictions in which we conduct business. Benefit from income taxes is primarily related to the reversal of aU.S. deferred tax liability as a result of current year intangible amortization and convertible note original issue discount amortization and excess tax benefits related to stock-based compensation, and remeasurement of deferred tax assets due to tax rate changes in theUK , partially offset by income taxes related to foreign and state jurisdictions in which we conduct business. We maintain a full valuation allowance on net deferred tax assets of ourU.S. entities as we have concluded that it is not more likely than not that the deferred assets will be utilized. Results of Operations The following tables set forth selected condensed consolidated statements of operations data and such data as a percentage of total revenues for each of the periods indicated: 37
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Three Months Ended Six Months Ended
July 31, July 31,
2021 2020 2021 2020
(in thousands, except percentages)
Revenues:
Subscription $ 156,230 87 % $ 111,581 89 % $ 296,334 86 % $ 217,316 89 %
Professional services and other 23,016 13 14,340 11 49,841 14 27,819 11
Total revenues 179,246 100 125,921 100 346,175 100 245,135 100
Cost of revenues:
Subscription 51,398 29 33,805 26 102,423 30 62,807 26
Professional services and other 27,822 15 14,634 12 56,524 16 28,470 12
Total cost of revenues 79,220 44 48,439 38 158,947 46 91,277 37
Gross profit 100,026 56 77,482 62 187,228 54 153,858 63
Operating expenses:
Research and development 41,799 23 30,212 24 85,636 25 56,931 23
Sales and marketing 76,279 43 50,488 41 154,122 44 96,627 39
General and administrative 36,248 20 28,705 23 75,625 22 37,849 15
Total operating expenses 154,326 86 109,405 88 315,383 91 191,407 78
Loss from operations (54,300) (30) (31,923) (26) (128,155) (37) (37,549) (15)
Interest expense (30,621) (17) (20,223) (16) (59,724) (18) (32,512) (13)
Other income (expense), net (1,983) (1) 4,759 4 (1,448) 0 8,087 3
Loss before benefit from income
taxes (86,904) (48) (47,387) (38) (189,327) (55) (61,974) (25)
Benefit from income taxes (155) - (4,271) (3) (2,221) (1) (4,042) (2)
Net loss (86,749) (48) (43,116) (35) (187,106) (54) (57,932) (23)
Net loss attributable to
non-controlling interests (517) - - - (517) - - -
Adjustment attributable to
non-controlling interests 5,235 3 - - 5,235 2 - -
Net loss attributable to Coupa
Software Incorporated $ (91,467) (51) % $ (43,116) (35) % $ (191,824) (55) % $ (57,932) (23) %
Three Months Ended July 31, 2021 and July 31, 2020
Revenues
Three Months Ended
July 31,
2021 2020 % Change
(in thousands)
Subscription $ 156,230 $ 111,581 40 %
Professional services and other 23,016 14,340 61 %
Total revenues $ 179,246 $ 125,921 42 %
Total revenues were $179.2 million for the three months ended July 31, 2021
compared to $125.9 million for the three months ended July 31, 2020 , an increase
of $53.3 million , or 42%. Subscription revenues were $156.2 million , or 87% of
total revenues, for the three months ended July 31, 2021 , compared to $111.6
million , or 89% of total revenues, for the three months ended July 31, 2020 .
This increase in absolute dollars was predominantly driven by the increase in
the number of customers with annualized subscription revenue above $100,000 ,
which was 1,230 as of July 31, 2021 , compared to 874 as of July 31, 2020 .
Professional services and other revenues were $23.0 million for the three months
ended July 31, 2021 compared to $14.3 million for the three months ended July
31, 2020 . The increase of $8.7 million , or 61%, was primarily due to increases
in implementation services and sales of term-based licenses, to a similar
extent, as a result of our expanded customer base.
We will continue to monitor the COVID-19 pandemic carefully and its impact on our customers and customer acquisitions.
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Cost of Revenues
Three Months Ended
July 31,
2021 2020 % Change
(in thousands)
Subscription $ 51,398 $ 33,805 52 %
Professional services and other 27,822 14,634 90 %
Total cost of revenues $ 79,220 $ 48,439 64 %
Cost of subscription was $51.4 million for the three months ended July 31, 2021
compared to $33.8 million for the three months ended July 31, 2020 , an increase
of $17.6 million , or 52%. The increase in cost of subscription was primarily due
to an increase of $7.0 million in amortization of developed technology assets
related to acquisitions, an increase of $3.5 million in employee compensation
costs related to higher headcount, including stock-based compensation costs, an
increase of $3.3 million in hosting fees to accommodate increased customer
spend, an increase of $1.6 million in software costs to manage our platform, and
an increase of $2.2 million in other costs driven by our overall growth.
Cost of professional services and other was $27.8 million for the three months
ended July 31, 2021 compared to $14.6 million for the three months ended July
31, 2020 , an increase of $13.2 million , or 90%. The increase in cost of
professional services was primarily due to an increase of $6.3 million in
employee compensation costs related to higher headcount, including stock-based
compensation costs, an increase of $5.7 million in amortization of developed
technology assets related to acquisitions, and an increase of $1.2 million in
other costs driven by our overall growth.
We will continue to monitor the COVID-19 pandemic carefully and its impact on
our cost profile in providing hosting solutions and services to our customers.
Gross Profit
Three Months Ended
July 31,
2021 2020 % Change
(in thousands)
Gross profit $ 100,026 $ 77,482 29 %
Gross profit was $100.0 million for the three months ended July 31, 2021 ,
compared to $77.5 million for the three months ended July 31, 2020 , an increase
of $22.5 million , or 29%. The increase in gross profit was primarily due to the
acquisition of new customers with annualized subscription revenue above
$100,000 . Gross margin was 56% for the three months ended July 31, 2021 ,
compared to 62% for the three months ended July 31, 2020 . The decrease in gross
margin was primarily due to the increase in amortization of developed technology
assets related to acquisitions.
Operating Expenses
Research and Development
Three Months Ended
July 31,
2021 2020 % Change
(in thousands)
Research and development $ 41,799 $ 30,212 38 %
Research and development expenses were $41.8 million for the three months ended
July 31, 2021 compared to $30.2 million for the three months ended July 31,
2020 , an increase of $11.6 million , or 38%. The increase was primarily due to an
increase of $9.5 million in employee compensation costs related to higher
headcount, including stock-based compensation costs, an increase of $1.5 million
in costs associated with the development of our platform and other costs for
research and development activities, and an increase of $0.6 million in other
costs driven by our overall growth.
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Sales and Marketing
Three Months Ended
July 31,
2021 2020 % Change
(in thousands)
Sales and marketing $ 76,279 $ 50,488 51 %
Sales and marketing expenses were $76.3 million for the three months ended July
31, 2021 compared to $50.5 million for the three months ended July 31, 2020 , an
increase of $25.8 million , or 51%. The increase was primarily due to an increase
of $10.8 million in employee compensation costs related to higher headcount,
including stock-based compensation costs, an increase of $10.5 million in
amortization of customer relationship assets related to acquisitions, an
increase of $1.7 million in marketing costs, and an increase of $2.8 million in
other costs driven by our overall growth.
General and Administrative
Three Months Ended
July 31,
2021 2020 % Change
(in thousands)
General and administrative $ 36,248 $ 28,705 26 %
General and administrative expenses were $36.2 million for the three months
ended July 31, 2021 compared to $28.7 million for the three months ended July
31, 2020 , an increase of $7.5 million , or 26%. The increase was primarily due to
an increase of $8.4 million in employee compensation costs related to higher
headcount, including stock-based compensation costs, an increase in outside
services of $1.5 million , and an increase of $1.3 million in other costs driven
by our overall growth, partially offset by a decrease in allowances for credit
losses of $3.7 million .
Interest Expense
Three Months Ended
July 31,
2021 2020 % Change
(in thousands)
Interest expense $ 30,621 $ 20,223 51 %
Interest expense was $30.6 million for the three months ended July 31, 2021
compared to $20.2 million for the three months ended July 31, 2020 . The $10.4
million increase in interest expense was primarily due to amortization of the
debt discount and issuance costs on the 2026 Notes issued in the middle of the
second quarter of fiscal 2021.
Other Income (Expense), Net
Three Months Ended
July 31,
2021 2020 % Change
(in thousands)
Other income (expense), net $ (1,983) $ 4,759 NM
Other expense, net was $2.0 million for the three months ended July 31, 2021
compared to other income, net of $4.8 million for the three months ended July
31, 2020 . The $6.7 million decrease in other income (expense), net was primarily
due to unfavorable fluctuations of foreign currency exchange rates for
approximately $4.8 million , a decrease of $1.3 million in income earned from our
investments in marketable securities and money market funds primarily as a
result of a lower market yield, and a decrease of $0.6 million in gains from
early conversions on the 2023 Notes.
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Benefit from Income Taxes
Three Months Ended
July 31,
2021 2020 % Change
(in thousands)
Benefit from income taxes $ (155) $ (4,271) NM
The benefit from income taxes was $0.2 million for the three months ended July
31, 2021 compared to a tax benefit of $4.3 million for the three months ended
July 31, 2020 . The benefit from income taxes for the three months ended July 31,
2021 was primarily related to the reversal of a U.S. deferred tax liability,
foreign excess tax benefits related to stock-based compensation, and
remeasurement of deferred tax assets due to tax rate changes in the UK ,
partially offset by foreign tax expense. We maintain a full valuation allowance
on net deferred tax assets of our U.S. entities as we have concluded that it is
unlikely that these deferred income tax assets will be utilized.
Six Months Ended
Revenues
Six Months Ended
July 31,
2021 2020 % Change
(in thousands)
Subscription $ 296,334 $ 217,316 36 %
Professional services and other 49,841 27,819 79 %
Total revenues $ 346,175 $ 245,135 41 %
Total revenues were $346.2 million for the six months ended July 31, 2021
compared to $245.1 million for the six months ended July 31, 2020 , an increase
of $101.0 million , or 41%. Subscription revenues were $296.3 million , or 86% of
total revenues, for the six months ended July 31, 2021 , compared to $217.3
million , or 89% of total revenues, for the six months ended July 31, 2020 . This
increase in absolute dollars was predominantly driven by the increase in the
number of customers with annualized subscription revenue above $100,000 , which
was 1,230 as of July 31, 2021 , compared to 874 as of July 31, 2020 . Professional
services and other revenues were $49.8 million for the six months ended July 31,
2021 compared to $27.8 million for the six months ended July 31, 2020 . The
increase of $22.0 million , or 79%, was primarily due to increases in
implementation services and sales of term-based licenses, to a similar extent,
as a result of our expanded customer base.
Cost of Revenues
Six Months Ended
July 31,
2021 2020 % Change
(in thousands)
Subscription $ 102,423 $ 62,807 63 %
Professional services and other 56,524 28,470 99 %
Total cost of revenues $ 158,947 $ 91,277 74 %
Cost of subscription was $102.4 million for the six months ended July 31, 2021
compared to $62.8 million for the six months ended July 31, 2020 , an increase of
$39.6 million , or 63%. The increase in cost of subscription was primarily due
to an increase of $14.3 million in amortization of developed technology assets
related to acquisitions, an increase of $9.1 million in hosting fees to
accommodate increased customer spend, an increase of $8.3 million in employee
compensation costs related to higher headcount, including stock-based
compensation costs, an increase of $3.7 million in software costs to manage our
platform, an increase of $1.6 million in amortization of capitalized development
costs, and an increase of $2.6 million in other costs driven by our overall
growth.
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Cost of professional services was $56.5 million for the six months ended July
31, 2021 compared to $28.5 million for the six months ended July 31, 2020 , an
increase of $28.1 million , or 99%. The increase in cost of professional services
was primarily due to an increase of $14.9 million in employee compensation costs
related to higher headcount, including stock-based compensation costs, an
increase of $12.0 million in amortization of developed technology assets related
to acquisitions, and an increase of $1.2 million in other costs driven by our
overall growth.
Gross Profit
Six Months Ended
July 31,
2021 2020 % Change
(in thousands)
Gross profit $ 187,228 $ 153,858 22 %
Gross profit was $187.2 million for the six months ended July 31, 2021 , compared
to $153.9 million for the six months ended July 31, 2020 , an increase of $33.4
million , or 22%. The increase in gross profit was primarily due to the
acquisition of new customers with annualized subscription revenue above
$100,000 . Gross margin was 54% for the six months ended July 31, 2021 , compared
to 63% for the six months ended July 31, 2020 . The decrease in gross margin was
primarily due to the increase in amortization of developed technology assets
related to acquisitions.
Operating Expenses
Research and Development
Six Months Ended
July 31,
2021 2020 % Change
(in thousands)
Research and development $ 85,636 $ 56,931 50 %
Research and development expenses were $85.6 million for the six months ended
July 31, 2021 compared to $56.9 million for the six months ended July 31, 2020 ,
an increase of $28.7 million , or 50%. The increase was primarily due to an
increase of $23.8 million in employee compensation costs related to higher
headcount, including stock-based compensation costs, an increase of $2.1 million
in hosting fees, and an increase of $2.8 million in other costs driven by our
overall growth.
Sales and Marketing
Six Months Ended
July 31,
2021 2020 % Change
(in thousands)
Sales and marketing $ 154,122 $ 96,627 60 %
Sales and marketing expenses were $154.1 million for the six months ended July
31, 2021 compared to $96.6 million for the six months ended July 31, 2020 , an
increase of $57.5 million , or 60%. The increase was primarily due to an increase
of $28.2 million in employee compensation costs related to higher headcount,
including stock-based compensation costs, an increase of $21.6 million in
amortization of customer relationship assets related to acquisitions, an
increase of $2.5 million in marketing costs, an increase in outside services of
$1.0 million , and an increase of $4.2 million in other costs driven by our
overall growth.
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General and Administrative
Six Months Ended
July 31,
2021 2020 % Change
(in thousands)
General and administrative $ 75,625 $ 37,849 100 %
General and administrative expenses were $75.6 million for the six months ended
July 31, 2021 compared to $37.8 million for the six months ended July 31, 2020 ,
an increase of $37.8 million , or 100%. The increase was primarily due to an
increase of $26.6 million in employee compensation costs related to higher
headcount, including stock-based compensation costs, a non-recurring prior
period benefit of $12.5 million arising from the reversal of the Yapta
contingent consideration liability, an increase in outside services of $2.0
million , and an increase of $3.1 million in other costs driven by our overall
growth. This was partially offset by a decrease in allowances for credit losses
of $6.4 million .
Interest Expense
Six Months Ended
July 31,
2021 2020 % Change
(in thousands)
Interest expense $ 59,724 $ 32,512 84 %
Interest expense was $59.7 million for the six months ended July 31, 2021
compared to $32.5 million for the six months ended July 31, 2020 . The $27.2
million increase in interest expense was primarily due to amortization of the
debt discount and issuance costs on the 2026 Notes issued in the middle of the
second quarter of fiscal 2021.
Other Income (Expense), Net
Six Months Ended
July 31,
2021 2020 % Change
(in thousands)
Other income (expense), net $ (1,448) $ 8,087 NM
Other expense, net was $1.4 million for the six months ended July 31, 2021
compared to other income, net of $8.1 million for the six months ended July 31,
2020 . The $9.5 million decrease in other income (expense), net was primarily due
to a decrease of $3.6 million in income earned from our investments in
marketable securities and money market funds primarily as a result of a lower
market yield, a decrease of $3.3 million in gains from early conversions on the
2023 Notes, and from the unfavorable fluctuations related to foreign currency
exchange rates.
Benefit From Income Taxes
Six Months Ended
July 31,
2021 2020 % Change
(in thousands)
Benefit from income taxes $ (2,221) $ (4,042) (45) %
The benefit from income taxes was $2.2 million for the six months ended July 31,
2021 compared to a tax benefit of $4.0 million for the six months ended July 31,
2020 . The benefit from income taxes for the six months ended July 31, 2021 was
primarily related to the reversal of a U.S. deferred tax liability, foreign
excess tax benefits related to stock-based compensation, and remeasurement of
deferred tax assets due to tax rate changes in the UK offset by foreign tax
expense. We maintain a full valuation allowance on net deferred tax assets of
our U.S. entities as we have concluded that it is unlikely that these deferred
income tax assets will be utilized.
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Liquidity and Capital Resources
Our principal sources of liquidity are cash, cash equivalents, marketable
securities, and cash generated from operations. As of July 31, 2021 , we had cash
and cash equivalents of $432.0 million , and marketable securities of $201.6
million .
We had outstanding 2023 Notes, 2025 Notes and 2026 Notes with principal amounts
of $5.9 million , $805.0 million and $1,380.0 million , respectively, as of
July 31, 2021 .
As of July 31, 2021 , the remaining 2023 Notes with a principal amount of $5.9
million and 2025 Notes with a principal amount of $805.0 million are convertible
at the option of the holders. We have the ability to settle the Convertible
Notes in cash, shares of our common stock, or a combination of cash and shares
of our common stock at our own election. As of July 31, 2021 , there were no
unsettled conversion requests related to the 2023 Notes and 2025 Notes. In
addition, from August 1, 2021 to the date of this filing, we have received
additional conversion requests for $4.0 million principal amount of the 2023
Notes, which are expected to be settled during the quarter ended October 31,
2021 . The 2026 Notes were not convertible as of July 31, 2021 . It is our current
intent to settle conversions of the remaining 2023 Notes, 2025 Notes and 2026
Notes through combination settlement, which involves repayment of the principal
portion in cash and any excess of the conversion value over the principal amount
in shares of our common stock.
In conjunction with the issuance of the Convertible Notes, we entered into
capped call transactions that reduce our exposure to additional cash payments
above principal balances in the event of a cash conversion of the Convertible
Notes. We may owe additional cash to the noteholders upon early conversion if
our stock price exceeds $63.821 per share for the 2023 Notes, $295.550 for the
2025 Notes, or $503.415 for the 2026 Notes. Although our incremental exposure to
the additional cash payment above the principal amount of the Convertible Notes
is reduced by the capped calls, conversion of the Convertible Notes by
noteholders may cause dilution to the ownership interests of existing
stockholders. We did not exercise the capped calls for the converted 2023 Notes
and 2025 Notes. As of July 31, 2021 , all the capped calls for the 2023 Notes,
2025 Notes and 2026 Notes remained outstanding.
Our cash equivalents are comprised primarily of bank deposits and money market
funds. Cash from operations could be affected by various risks and
uncertainties, including, but not limited to, the effects of the COVID-19
pandemic and other risks detailed in Part II, Item 1A titled "Risk Factors."
However, we believe our existing cash and cash equivalents and marketable
securities will be sufficient to meet our projected operating requirements for
at least the next 12 months from the filing date of these financial statements.
Our future capital requirements will depend on many factors, including our pace
of growth, subscription renewal activity, the timing and extent of spend to
support development efforts, the expansion of sales and marketing activities,
the introduction of new and enhanced services offerings and the continuing
market acceptance of our services. We continually assess potential acquisitions
and expect to continue to pursue acquisitions of or investments in complementary
businesses, services and technologies and intellectual property rights. We may
be required to seek additional equity or debt financing. In the event that
additional financing is required from outside sources, we may not be able to
raise it on terms acceptable to us, or at all. If we are unable to raise
additional capital when desired, our business, operating results and financial
condition would be adversely affected.
Operating Activities
Cash provided by operating activities for the six months ended July 31, 2021 was
$72.9 million , compared to $38.8 million for the six months ended July 31, 2020 .
The increase was primarily driven by cash collections from customers.
Investing Activities
Cash provided by investing activities for the six months ended July 31, 2021 of
$20.8 million was primarily related to $80.8 million of net cash receipts from
purchases, maturities and sales of short-term marketable securities, partially
offset by $45.8 million in cash used for acquisitions, $7.5 million for other
investments, and $6.7 million for the purchases of property and equipment.
Financing Activities
Cash provided by financing activities for the six months ended July 31, 2021 of
$15.0 million was primarily due to approximately $15.2 million of proceeds from
the issuance of common stock under the ESPP and exercise of stock options,
investment from redeemable non-controlling interests of $2.2 million , partially
offset by $2.4 million for repayments of the 2023 Notes.
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Off-Balance Sheet Arrangements
Through July 31, 2021 , we did not have any relationships with unconsolidated
organizations or financial partnerships, such as structured finance or special
purpose entities that would have been established for the purpose of
facilitating off-balance sheet arrangements or other contractually narrow or
limited purposes.
Commitments and Contractual Obligations
Our principal commitments and contractual obligations consist of our Convertible
Notes, obligations under operating leases for office facilities and contractual
purchase obligations for hosting services and web development services that
support our business operations. The following table summarizes our
non-cancelable contractual obligations as of July 31, 2021 :
Payments Due by Period
Less Than 1 More Than 5
Total Year 1-3 Years 3-5 Years Years
(in thousands)
Convertible senior notes (1) $ 2,190,866 $ 88
6,203 12,374 10,853 -
Operating lease obligations 45,013 14,950 22,560 6,455 1,048
Purchase obligations 31,319 17,392 13,077 850 -
Total contractual obligations $ 2,296,628 $ 38,633 (1)The conversion period for the 2023 Notes and 2025 Notes was open as ofJuly 31, 2021 , and as such, the net carrying value of the 2023 Notes and 2025 Notes are included within current liabilities on our condensed consolidated balance sheet. The principal balances of$5.9 million and$805.0 million of the 2023 Notes and 2025 Notes, respectively, were reflected in the payment period in the table above based on the contractual maturity assuming no conversion or repurchase. (2)Represents estimated aggregate interest obligations for our outstanding Convertible Notes that are payable in cash. Critical Accounting Policies and Estimates Our management's discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenues generated and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. There have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates disclosed in our Annual Report on Form 10-K for the year endedJanuary 31, 2021 . Recent Accounting Pronouncements Refer to Note 2, "Significant Accounting Policies" in the notes to our condensed consolidated financial statements for analysis of recent accounting pronouncements that are applicable to our business. NonGAAP Financial Measures In addition to our results determined in accordance withU.S. generally accepted accounting principles, or GAAP, we believe the following nonGAAP measures are useful in evaluating our operating performance: •Non-GAAP operating income; •Non-GAAP net income attributable toCoupa Software Incorporated ; and •Adjusted free cash flows.
We regularly review and consider these measures when we evaluate our business and for internal planning and forecasting purposes.
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The following tables provide a reconciliation of loss from operations to
nonGAAP operating income, from net loss attributable to Coupa Software
Incorporated to non-GAAP net income attributable to Coupa Software Incorporated ,
and from net cash provided by operating activities to adjusted free cash flows
(in thousands):
Three Months Ended Six Months Ended
July 31, July 31,
2021 2020 2021 2020
Loss from operations $ (54,300) $ (31,923) $ (128,155) $ (37,549)
Stock-based compensation 47,500 33,843 94,792 58,040
Amortization of acquired intangible assets 33,518 10,362 67,058 19,228
Change in fair value of contingent - - - (12,500)
consideration payable
Non-GAAP operating income $ 26,718 $ 12,282 $ 33,695 $ 27,219
Three Months Ended Six Months Ended
July 31, July 31,
2021 2020 2021 2020
Net loss attributable to Coupa Software $ (91,467) $ (43,116) $ (191,824) $ (57,932)
Incorporated
Stock-based compensation 47,500 33,843 94,792 58,040
Amortization of acquired intangible assets 33,518 10,362 67,058 19,228
Change in fair value of contingent - - - (12,500)
consideration payable
Amortization of debt discount and issuance 28,872 56,262
costs 19,407 31,357
Loss (gain) on conversion of convertible senior - (631) 129 (3,202)
notes
Income tax effects and adjustments (3,404) (4,632) (6,381) (5,298) Adjustment attributable to non-controlling 5,235 5,235 interests - - Non-GAAP net income attributable to Coupa$ 20,254 $ 15,233 $ 25,271 $ 29,693 Software Incorporated Three Months Ended Six Months Ended July 31, July 31, 2021 2020 2021 2020
Net cash provided by operating activities
$ 72,893 $ 38,797 Less: purchases of property and equipment (3,908) (3,429) (6,662) (7,028) Add: repayments of convertible senior notes - 15,732 517 26,336 attributable to debt discount Adjusted free cash flows$ 36,903 $ 35,692 $ 66,748 $ 58,105 We define non-GAAP operating income as loss from operations before stock-based compensation, amortization of acquired intangible assets and the change in fair value of contingent consideration related to an acquisition. We define non-GAAP net income attributable toCoupa Software Incorporated as net loss attributable toCoupa Software Incorporated before stock-based compensation, amortization of acquired intangible assets, the change in fair value of contingent consideration related to an acquisition, amortization of debt discount and issuance costs, gain or loss on conversion of convertible senior notes, the adjustment attributable to non-controlling interests, and related tax effects, including non-recurring income tax adjustments. We define adjusted free cash flows as net cash provided by operating activities, less purchases of property and equipment, plus repayments of convertible senior notes attributable to debt discount. We believe non-GAAP operating income and non-GAAP net income attributable toCoupa Software Incorporated provide investors and other users of our financial information consistency and comparability with our past financial performance and facilitate period to period comparisons of operations. We believe non-GAAP operating income and non-GAAP net income attributable toCoupa Software Incorporated are also useful in evaluating our operating performance compared to that of other companies in our industry, as these metrics generally eliminate the effects of certain items that may vary between companies for reasons unrelated to overall operating performance. 46 -------------------------------------------------------------------------------- We believe adjusted free cash flows provides useful information to investors because it is an indicator of our capital strength and liquidity, and we also use it to measure performance of our business operations. We exclude repayment of convertible senior notes attributable to debt discount in calculating this measure in part because our use of cash to satisfy this obligation (relating to the Convertible Notes) was discretionary, and we have the ability to satisfy similar obligations in the near future through shares of our common stock, or a combination of cash and shares of our common stock, at our election. However, you should bear in mind that this measure does not reflect any reduction for cash settlements of our debt obligations, nor does it represent our residual cash flow available for discretionary expenditures. Due to these and other limitations, you should not consider this non-GAAP measure in isolation or as a substitute for analysis of other GAAP financial measures, such as net cash provided by operating activities. We use non-GAAP operating income, non-GAAP net income attributable toCoupa Software Incorporated and adjusted free cash flows in conjunction with traditional GAAP measures as part of our overall assessment of our performance and liquidity, including the preparation of our annual operating budget and quarterly forecasts, to evaluate the effectiveness of our business strategies and to communicate with our board of directors concerning our financial performance and liquidity. Our definitions may differ from the definitions used by other companies and therefore comparability may be limited. In addition, other companies may not publish these or similar metrics. Thus, our non-GAAP operating income, non-GAAP net income attributable toCoupa Software Incorporated and adjusted free cash flows should be considered in addition to, not as substitutes for, or in isolation from, measures prepared in accordance with GAAP. We compensate for these limitations by providing investors and other users of our financial information a reconciliation of nonGAAP operating income to loss from operations, non-GAAP net income attributable toCoupa Software Incorporated to net loss attributable toCoupa Software Incorporated , and adjusted free cash flows to net cash provided by operating activities. We encourage investors and others to review our financial information in its entirety, not to rely on any single financial measure and to view nonGAAP operating income, non-GAAP net income attributable toCoupa Software Incorporated , and adjusted free cash flows in conjunction with loss from operations, net loss attributable toCoupa Software Incorporated , and the condensed consolidated statements of cash flows. 47
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