Coupa Software Inc (COUP) 2018 Q3 法說會逐字稿

Good day, everyone, and welcome to the Coupa Software Third Quarter Fiscal 2018 Earnings Call. Today's call is being recorded.

At this time, I would like to turn the conference over to Mr. Ryan Hutchinson. Please go ahead, sir.

Thank you. Good afternoon, and welcome to Coupa's Third Quarter Fiscal 2018 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 and plans, market size, products, competitive position and potential growth opportunities. Our actual results may be materially different.

Forward-looking statements involve risks, uncertainties and assumptions that are described in our most recently filed Form 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'll also be presenting both GAAP and non-GAAP financial measures. A reconciliation of non-GAAP to GAAP is included in today's release, which you can find on our Investor Relations website. A link to the replay of this call will also be available. And if you prefer to access the replay via phone, you can find that information in the earnings release. Unless otherwise stated, growth comparisons are against the same period of the prior year.

With that, I'll turn the call over to Rob.

Hello, everyone. Thank you for joining us today. I'd like to start today's call by thanking all of the members of our Coupa community. First, thank you to our customers for your commitment to unleashing real value to the organizations. Thank you to our strategic partners, analysts and industry friends for sharing our vision. Thank you to our shareholders for their continued investments and support. And last, but not least, thank you to my Coupa colleagues around the world for their pledge to ensure customer success, focus on results and continually strive for excellence.

Coupa is more than 800 employees strong, and we remain unwavering in our commitment to our 3 core values, which are vital now as they've ever been for our continued success.

The first is ensuring customer success: not just focusing on customer satisfaction or desire for customer success but ensuring tangible, measurable results for all our customers, overcoming any challenges that we may face.

The second is focusing on results: setting specific measurable, attainable, relevant and time-bound goals and working relentlessly to achieve them.

And thirdly, striving for excellence: committing to an authentic, collaborative, passionate and high-integrity environment where all our colleagues are living life without fear and feeling safe in pushing boundaries, making mistakes, learning and improving as professionals and human beings.

Last week, we had our final board meeting of the year at Coupa headquarters along with the full management team and board member annual dinner event. I was inspired to see the camaraderie, healthy dialogue and commitment toward continuing to build a very special company. The market opportunity in the spend management market is huge, and we're attacking it thoughtfully. In doing so, we are continuing to execute on the strategic approach we laid out at the time of our IPO just over a year ago: cultivating a winning customer success-oriented culture, expanding our global brand awareness and demand generation, maintaining a disciplined growth strategy in scaling our enterprise and mid-market go-to-market capabilities and capacity, launching innovations to drive greater share of wallet and customer add-on business, acquiring key assets to further broaden our value proposition and expanding and developing our global partner ecosystem around Coupa.

The differentiated vision we are offering in the market can be broken down into 5 fundamental components, simply explained with 5 letters that make up our name, C-O-U-P-A. Our business -- our vision is comprehensive, open, user-centric, prescriptive and accelerated. In every new feature we develop, acquisition we make, integration we build and investment we set forth, our intent is to bolster our offering in one or more of these areas.

I recently finished up a blog series I mentioned on last quarter's call with these visionaries. The blog can be found on the Coupa website for those that are interested.

Now let's talk about one nonfinancial measure that we use to track our progress: spend under management. Last quarter, we reached a key milestone surpassing $500 billion in cumulative spend under management. This figure continues to grow at a fast pace, landing at $570 billion at the end of Q3. It's really an amazing thing.

I also can't help but consider that with the colossal sum of transactional spend and the related data and information that has run through our platform, we've created meaningful competitive barriers to entry. With each new data element we track, our community intelligence gets smarter as does the value of our offering for our customers.

So with that, let's take a look at some key financial results for Q3. I'm proud to say that we again delivered strong results across the board, including quarterly record revenues of $47.3 million. Earlier this year, we drove positive operating and free cash flows in both Q1 and Q2. I'm delighted to say that we did so again in Q3, ending the quarter with positive operating cash flows of $5.2 million and positive free cash flows of $3.9 million.

Year-to-date, we generated positive operating cash flows of $21.5 million and positive free cash flows of $18 million, and we have $219 million in cash as of October 31, 2017.

While we took many customers live this quarter, let me highlight Caterpillar, the world's leading manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines and diesel electric locomotives. But it has already gone live with Coupa at their first location, just months after kicking off the project with us earlier in the year.

Now, of course, we have plenty of exciting new customer wins in Q3 as well. Toyota Financial Services, a leading provider of automotive financial services offering financial products to tailor to customer and dealers, selected Coupa Source to Pay and contract life cycle management to streamline their core source to pay process, leveraging the power of Coupa's unified platform and suite synergy.

Zurich Insurance, a leading multiline insurer that serves its customers in global and local markets, selected Coupa Source to Pay and expense management, replacing an incumbent solution based primarily on usability and employee adoption as well as, of course, product innovation.

Some of the other customers we added during the quarter include Razer in Asia Pacific; CrossFit; CHEP USA; Host Analytics; SoftServe; CrossCounty; TeamHealth; Bristol Hospice; Auction Edge; Moovel; P.F. Chang's; Dansk Supermarket Group, the largest retailer in Denmark; and many others. We're excited to partner with all these new customers and partners.

In October, we hosted our annual European spend management conference, Coupa Inspire '17, in London. The conference featured speakers from some of the world's leading brands, both customers and partners of Coupa, which included Airbus, IKEA, Deloitte, Accenture, Maersk, Pearson and others. The event flowed with debate and discussion around value-based innovation. And the atmosphere was simply invigorating.

My Coupa colleagues and I left Inspire London with a renewed sense of energy and alignment as we look to finish what has been a very successful year thus far and prepare for next year.

Next on the agenda will be Coupa Inspire San Francisco in 2018, which is slated for Q2 of next year and currently being planned.

Also in October, we announced the general availability of Coupa Open Buy with Amazon Business. This offering expands customer buying options by giving employees access to the Amazon Business marketplace. We believe this to be a game changer for unified catalog management and guided buying. And just last week, we announced the addition of Coupa to the AWS Marketplace, where customers can now quickly discover and subscribe to Coupa spend management solutions. Overall, we're excited that we continue to expand our relationship with Amazon, a valued customer, key supplier and strategic partner to Coupa.

At Inspire London, we announced the general availability of Coupa Release 19. We believe Release 19 is further evidence that the Coupa platform for business spending continues to set the innovation agenda for the industry. R19 enhances the platform with more than 70 new capabilities, modernizes risk management and redefines sourcing optimization.

R19 is prescriptive with recommendations, which are identified through Coupa community intelligence. Other advancements in R19 include streamlined invoice management, enhanced user experience to suppliers connected to the platform and increased compliance and audit capabilities. Reception thus far from our customers has been simply outstanding.

Today, I also wanted to take a moment to touch on our Coupa Advantage program. Coupa Advantage offers our customers, large and small, supplier discounts which are negotiated by leveraging the billions of dollars of transactional spend running through the Coupa platform. New customers sign up for Advantage right away, free of additional charge and start recognizing hard dollar savings right off the bat. Now our core principal advantage is that a portion of the proceeds generated are donated towards inspiring not-for-profit causes around the world as well as aspiring our Coupa Cares corporate responsibility program, which is focused on 3 main areas: sustainability, diversity and civic engagement. In under a year, we've logged over 1,300 volunteer hours from employees around the world.

Moving on. As we laid out at the time of our IPO, we continue to invest heavily in organic development on our modern cloud platform and carefully evaluate potential acquisitions when the right opportunities present themselves. Our acquisition strategy continues to be aimed at adding key power user application technology that we can integrate into our unified platform and to our key technology components that enhance our transactional engine.

Consistent with the strategy, we have successfully executed upon a series of acquisitions over the past decade. In October, we are proud to announce our latest, Deep Relevance, based here in the San Francisco Bay Area. Deep Relevance uses artificial intelligence and relationship analytics to identify individual employee and collusive fraud and other suspicious transactions. The addition of Deep Relevance allows us to accelerate our vision of helping our customers reduce fraud through community intelligence. Some areas of fraud detection with this technology includes conflicts of interest, bidding integrity, fraudulent invoices, inflated expense claims, duplicate expenses and personal expenses. I'm very excited about the value of this technology and what it will bring to our customers and the expanding moat of community intelligence we're building around our unified cloud platform for business spending.

Recently, I was pleased to announce the employment of Mark Riggs as our new Chief Customer Officer at Coupa. Mark brings over 25 years of experience with a consistent track record of creating and scaling customer-facing teams across organizations large and small. Mark is here to help us continue maximizing the lifetime value of Coupa for our customers. We're very excited to have Mark onboard. In fact, many of you will see Mark and the rest of the Coupa management team next Monday, December 11, at Coupa's first-ever financial analyst day, which will be held at the NASDAQ market site in New York City.

Analyst Day is the perfect forum for us to give the investment community an opportunity to meet new team members on our management team, review some of our accomplishments and, most importantly, better understand our go-forward strategy as we plan to take our business to the next level. I look forward to seeing many of you there next week.

In summary, we're very pleased with our Q3 performance. We're in a very strong position in the market as we continue to execute. To date, we've put together 34 consecutive successful quarters in a row from both the financial and business goals perspective. With Q4 upon us, we're laser-focused on finishing out the fiscal year strong.

Let me now turn the call over to Todd who will review our Q3 financials in detail and provide our outlook for Q4 and the full fiscal year. Todd?

Thanks, Rob, and good afternoon, everyone.

The company continues to execute and once again delivered strong results for the quarter. Total revenues for the third quarter were 34% year-over-year to $47.3 million. For Q3, subscription revenues were $42.8 million, up 39% year-over-year and comprised 90% of total revenue.

Our non-GAAP operating loss was $2.4 million or negative 5% of revenue compared to negative 8% in the year-ago period.

Total calculated billings for the trailing 12 months ended October 31, 2017, were $195.7 million, up 37% year-over-year, which was up slightly from our trailing 12 months' billings growth rate at the end of Q2 of 36%.

Total deferred revenue at quarter-end was $97.6 million, up from $73 million in the previous year.

As a reminder, we defined calculated billing as the change in deferred revenue on the balance sheet for the period plus revenue recognized during the period.

Our calculated billings and deferred revenue results often fluctuate on a quarterly basis due to seasonality, timing of renewals and timing of annual contracted billings.

Let's now turn to operating expenses and results of operations. Our third quarter non-GAAP gross margin was 72.6% compared to 69.4% in the same period last year. Although we continue to invest in our professional services and support organizations, we have continued to show gross margin improvement.

Non-GAAP gross margin from subscriptions was 81% and non-GAAP gross margin from professional services and other was negative 5%.

Operating expenses were in line with our expectations, and the net result of our Q3 performance was a non-GAAP net loss of $2.8 million and a loss per share of negative $0.05 on a 53.8 million weighted average shares.

Given that we are in a net loss position, all outstanding stock options and common stock equivalents are anti-dilutive and not included in the loss per share calculation.

Now let's move on to the balance sheet and cash flows. Cash at quarter-end was $219 million, up from $208 million at the end of Q2. Cash flows from operations in the third quarter were positive $5.2 million and $21.5 million year-to-date. Free cash flows for the third quarter were positive $3.9 million and $18 million year-to-date.

Q3 also marks the first time that free cash flow has been positive on a trailing 12-month basis, exceeding our original expectations.

Given the seasonality in our business, similar to Q4 of last year, we are expecting cash flows to be negative in Q4. That said, we expect operating and free cash flows to be positive for the current fiscal year. As a reminder, we define free cash flow as operating cash flows plus investment cash flows minus the impact of any cash payed for acquisitions.

Now let's turn to guidance. For the fourth quarter, we expect total revenues to be between $48.3 million and $48.8 million. This includes expected subscription revenues of between $43.8 million and $44.3 million and professional services revenues of approximately $4.5 million.

We are expecting Q4 non-GAAP gross margins to be between 69% and 71%. We expect non-GAAP loss from operations to be between $7.5 million and $9 million.

We expect non-GAAP net loss per share in the range of negative $0.14 to negative $0.16 per share based upon an estimated 54.7 million weighted average shares for the quarter.

For the full year ending January 31, 2018, we expect total revenues to be between $181.5 million and $182 million, with non-GAAP gross margins coming in near the high end of the range given for Q4 of 69% to 71%. We expect non-GAAP loss from operations to be between $19.5 million and $21 million, and we expect non-GAAP net loss per share in the range of $0.37 to $0.39 based upon an estimated 53 million weighted average shares for the full year.

We will provide FY '19 guidance on our next call, but I'd like to remind you with a few things regarding Q1 of next year as you begin to roll your models forward. First, we recognize revenue based on the number of days in the quarter. Since Q3 has 3 fewer days in the quarter due to February, our steady-state subscription revenues will be approximately 3% lower in Q1 as compared to Q4.

Secondly, in Q1 of next year, the new revenue recognition rules take effect. We have not yet finalized our analysis. However, we expect some deferred revenue will need to be eliminated, which will have a corresponding impact on our Q1 revenue and calculated billings.

To conclude, our strategy remains the same. We are investing for the long term with a disciplined growth strategy to maximize market opportunity and financial results.

Now we would be happy to take your questions. Operator?

(Operator Instructions) And your first question will come from Stan Zlotsky with Morgan Stanley.

Maybe just to start off. The Amazon partnership, it certainly sounds like this -- over the last couple of months, there's been a lot of movement there. And then we've seen from various webinars that you guys have been advertising, there's certainly a lot more marketing around the partnership. Maybe just walk us through what kind of opportunity do you see there and what kind of look, what's the profile of a customer that you see as the target for the Amazon partnership?

Thanks, Stan. Well, beyond what we reported in our earnings call and what I shared as part of the opening comments, there's really nothing new to formally report regarding the partnership. Now when we see good business opportunities, we like to take advantage of them, and we're sure that Amazon thinks very much the same way. We have a great relationship with Amazon as a customer, as a supplier. And we found ways to partner on a host of different initiatives like the ones just described. We see an opportunity for a whole host of customers across just about every company size and every vertical to take advantage of some of the synergies we're bringing to market together.

Got it. And maybe just one for Todd. The impact to Q1 from ASC 606, and well, I'm guessing also the broader fiscal '19, can you just maybe -- as much as you're still evaluating it, what are the puts and takes there as far as what would cause the headwind to revenue being recognized?

So when we adopt 606 beginning next year, different things with respect to BESP, professional services that may have been impacted due to go-lives under the prior method, so there will be an amount of revenue that gets eliminated. We think the overall impact is going to be small, but if you look at it from a Q1 perspective, it could be a few million dollars. And quite frankly, we won't know what it is until we close Q4, but we just want to at least call it out so that there's no surprises on the next earnings call.

And do you expect most of that pressure to take place on pro services line, right?

There will also be subscription revenues, some things that were calculated under different allocation methods that we have to eliminate revenue on.

From JPMorgan, Mark Murphy.

So Rob, the wins with Zurich and Dansk look very impressive, potentially in terms of scale. Any commentary on what percent of spend you'll have under management with those organizations? And also were they swayed by the community intelligence, so the volume of data that you're bringing to the table or any of the newer AI capabilities that you've been layering in?

Sure. Thanks for that question. One of the things we do that I think is quite special in this market is with every one of our customers at the exploration of identifying value for them and then going into delivering that value and optimizing that value, we set very clear measurable goals. Very often, those goals are around getting a certain amount of spend under management, in some cases, a certain amount of savings targets, whatever they may be. And they're very unique and specific to every one of our customers and confidential to that customer.

But we like to use spend under management as the key non-financial measure for the organization because, at the end of the day, if you're not capturing that spend, you don't have an opportunity to optimize it, look for greater value propositions around it. As you've seen our spend under management numbers continue to grow faster and faster and faster. So there's an acceleration there, and it's clearly correlated with value being delivered.

Okay. And then a question for you, Todd, the Deep Relevance acquisition. Do you have any metrics in terms of the number of employees or number of customers, bookings or revenue run rate, just anything that would help us to approximate the size and scale of the organization?

Thanks, Mark. It's consistent with other M&A strategy we've done. This one I would classify more as an [ample] hire, a smaller group, so nothing that would be I would call out from a customer revenue standpoint.

Okay. And Todd as well, are we still on track for, I think, in round numbers, to have a billings benefit of something like $1.5 million for Q3 and then roughly $3 million for Q4, just going back and relating to the change in the professional services rev rec?

Well, we're definitely seeing that billings headwind subside. If you were to look at Q3 in particular, year-over-year, the professional services revenue was down 2%.

So while we did see a slight positive impact in Q3, it wasn't as pronounced as I would have originally anticipated. But I think you'll see that turn faster in Q4.

And Mark, this is Rob. I want to try to answer the second part of your question because I don't think I addressed it. I was trying to make sure I understood, you said Zurich Insurance, I couldn't hear you well. In terms of the value proposition to customers like Zurich and others, the P in COUPA, which stands for prescriptive, is the method by which we deliver the community intelligence capabilities to our customers, right? We're able to see across hundreds of billions of dollars of spending and being prescriptive to them about information such as supplier risk and the like without question, many of our customers over the course of the year recognize the value of that vision, and many of them have already taken advantage of that with our latest release around community intelligence focused on Perfect Fit Insights, which are aspirational benchmarks running across company as well as our Risk Aware product, which we made generally available at the last Inspire event. So without a doubt, this is an area that continues to be of high interest for our prospective customers and one that continues to build huge barriers to entry for us in the marketplace given the hundreds of billions of dollars of data and spending that we're tracking on one unified cloud platform.

Next question will come from Raimo Lenschow with Barclays.

First one for you, Rob. Can you -- this kind of big wins like you had at Zurich now and Caterpillar and Unilever the quarters before, can you talk about the evolution of the partner ecosystem around it because I would assume there's going to be a lot more work coming their way with your success here at the moment? How happy are you with where they are? And what's their progress?

Well, we're not going to be happy until every primary partner, the biggest systems integrators engage us with their clients and tell them they should consider optimizing their spend leveraging a platform such as Coupa, and that's where we'll be able to say our goal is complete. But without a doubt, we're continuing to make significant progress there. All the key systems integrators of note are beginning to build practices around Coupa with real revenue targets. We're continuing to certify hundreds of consultants around the world that are equipped to implement Coupa. And we think we're continuing to make progress, moving well past the early-adopter stage of customers to the early-majority stage where the heart of the market lies. And as you know, and as we shared many times, we believe this to be a $25 billion type market that we're in the very early phases of continuing to take share in.

Perfect. And then next one I had on -- if it looks like Caterpillar is going to be a huge installation for you guys and you mentioned like parts of that are already live, like how -- can you talk us through a big account like Caterpillar, like how do we have to think about a rollout of Coupa in that in terms of timing? Is it on a regional level? Is it on a business unit level? How do we have to think about that?

I could tell you the way we think about it internally, and to give you some leading indicators to how we're recognizing it, the way we think about it internally is that we never want to be the bottleneck, we never want to be the obstacle to adoption as fast as the customer is willing to adopt us. Now very often, they'll run change management programs, procurement transformation initiatives around the Coupa deployment, but rarely are they sitting around and asking, well, can you do this or that in Coupa or do we have technical constraints. So we provide as much agility as possible to the customer, and then we allow them to work in concert with the systems integrators to get customers deployed. The leading indicator metric of adoption, of course, is the one key nonfinancial measure that we share, and that is spend under management, how quickly they continue to adopt. They may adopt division by division. They may go product category by product category, they may go geography by geography, they may go business process by business process. We want them to have the agility that they desire but to get value in an accelerated way, which is, of course, the A in COUPA.

Yes. Okay. And then last question, one for Todd. Todd, you mentioned earlier 606 in Q1 gave you some headwinds, and you mentioned some on the subscription side as well. What's driving that? A, I mean, is you have other vendors that have some small parts of the business as on-premise solutions, and hence, you have a change to revenue recognition? Is that kind of the same case for you as well? Or how can subscription be impacted for you guys?

Yes. So first, it's a very -- in the whole scheme of things, very minimal. And certainly, as you noted, companies that have on-prem solutions have a much more material impact from 606. But there are times based upon BESP where different allocations are made between subscription revenue and professional services revenue, for example, for giving professional services away for free and it's a big implementation, you'd have to reallocate some of that subscription revenue. So while it's very much a corner case for a few of those situations like that, that under the new rules, they would no longer be able to recognize the deferred revenue, so it will be completely eliminated. So in the few cases of those that exist, that would be no longer recognized as revenue going forward.

From BTIG, Joel Fishbein.

Rob, for you, just love to hear how your sales ramp is ramping and also how are you doing on your sales productivity metrics.

Sure. Thank you for that question. So when we think about the buildup of this business, we're obviously consistently looking at managing our overall sales and marketing expense and continue to scale our reps and utilize our discretionary marketing effectively and carefully. So there's a lot of aspect that go into developing this business. One is, of course, how many reps are on the ground for coverage but, of course, the regional pipeline metrics, our discretionary marketing elements, the systems integrator pool, as I think Raimo was asking about, how we continue to develop our brand, how we're aligning our talent and training our talent from a sales training program perspective, the marketing collateral we're creating, the product maturity that we're driving. So in balancing all of those, the net of it is that we continue to feel better and better about the team we're putting on the ground and the expenditures we're putting in place to maximize the opportunity, all against the 3 pillars of our business. So absolutely a continued area of investment and focus for the business, and we continue to mature.

Next, we'll hear from Ross MacMillan with RBC Capital Markets.

One for Rob. First of all, when I look at your spend under management metric, I think that's up $270 billion when I look at the incremental in the last year. And that's actually much larger than your big competitor that also discloses a business network incremental spend under management number. So you know you're smaller, you're growing that number at a faster rate, I guess, is the point. And I just was curious as to getting your perspective on how much of that is just your success in kind of core procure to pay or how diversified is that number becoming. So I think at the time of the IPO, we're about 90% procure to pay, but I was curious to get a sense for how that's evolving.

Thanks for those comments and the question. It absolutely continues to diversify. When we look at our capability mix the customers are subscribing to quarter-over-quarter, I think, looking back as far as 34 quarters, it continues to broaden, so with the Value as a Service that we're offering is really what customers are buying. They're not buying a module. They're not buying a product. They're buying a subscription to value. And that value continues to get broader as well as richer with every release we come out with 3x a year. We're also learning how to implement the solution more effectively. We're doing it us, as I mentioned, in an accelerated way. So I think all of those capabilities that we're developing are part of why the spend under management number continues to grow at such a fast pace.

Is it possible to talk to how big those other nonprocurement pieces are within the mix yet? Or should we keep our powder dry for the Analyst Day?

Yes. I was just going to suggest we'll go into some actually planning to share some of that information at Analyst Day. So look forward to give you more color on that.

Great. Maybe just one follow-up for Todd just on -- you've given as a TTM gross-to-net dollar base retention rate historically. I wondered if you had those numbers to hand.

Yes. They remain virtually exactly the same for the past 3 quarters. So no real new updates there. It's trending basically flat for the last 3 quarters.

From Raymond James, Brian Peterson.

So maybe just a high-level perspective. If we think about the data opportunity that's in front of you, particularly with the $570 billion in spend, I'm curious how you think about that. Are you thinking that, that could actually evolve into a monetization strategy? Or are you guys early enough in the growth opportunity where that will be more about acquiring new customers at this point?

It's a great question. Look, ultimately, as I was sharing in the earlier question, we're offering these customers Value as a Service. So the more data we have and the more community intelligence we develop and the more use cases with which we elevate that community intelligence so that, at the point of need, it's being given to the particular user or the particular customer for them to make a business decision, the more value we're going to offer. And for that incremental value, we hope to be paid fairly, and we anticipate being paid fairly. So we'll look for different ways to bring these capabilities out as part of the subscription, but there's no question, they drive a great deal of value. And that as well as the network effect that's created in this marketplace, the leverage of buy-side aggregation that we created through Coupa Advantage and community intelligence, we think we're building a significant barriers to entry for anyone else entering the market but, most importantly, we're able to drive more and more value for customers for the near term and the long term.

Got it. And Todd, maybe one for you real quick. Just on the gross margin guidance, the 69% to 71%. It's down a little bit sequentially. Any moving parts you want to highlight there?

Just continued investments in all areas of professional services and the support organization and then Q4, different groups may have bonuses and payments associated with contribution margins. So nothing that I would call out as significant in that guide.

And that'll come from Pat Walravens with JMP Securities.

Rob, I guess, I'm wondering, big picture, as Workday and SAP and Oracle are all starting to really push moving financials to the cloud, does that create a tailwind?

Well, look, as I've said many times during these calls and as I witness almost on a daily basis working with prospects and customers, we think that although this is a large-sized market and there'll always be plenty players, ultimately, the only competition here is ourselves. The opportunity is very real. We're not a financial application ERP provider, we're a spend management provider that works very seamlessly with just about any ERP system that's out there.

So we think long term, we have this big market opportunity to build into. And so as you know, we're being very thoughtful about how we manage across all 3 pillars, our revenue growth, our sales and marketing efficiency and how we're scaling our operating margins and cash flow markets. So we're going to continue to be very thoughtful about that. We know that there are options for folks to consider. But for many of the ones that sign on with us, they're becoming more and more of the early majority stage and they're signing up for future, modern cloud-based spend management solutions that can work seamlessly with any of the companies you just named.

Okay. And where are we going to end up on the sort of machine learning AI journey? What's your vision? Not 10 years out, but 2 or 3 years from now, what would you like to be able to do that you can't do today?

Well, look, our vision in -- one area of our vision I think that's worth talking about is that the best UI is no UI. And the way that goes deeper is simply if the machine can handle the processing work, can make the decisions, the machine should do that and should only interface with a human being in areas where they themselves can add some sort of value. So there are a whole host of permutations where that comes up to the surface. The need to do data entry is going to be removed in a lot of places through machine learning as we're doing within our invoice mass capabilities as one example of that. The need to process a lot of spend data offsite somewhere at a lower cost can be automated through machine learning capabilities to drive spend analysis and really give you a deep understanding of categories you want to focus on or opportunities for savings, opportunities for value. Those are just 2 examples. So consistently thinking about ways where we can remove repeated tests that drive end-user proactive sort of interaction with our system to areas that we could streamline for them through machine learning capabilities. And the biggest opportunity, I would say, of all and the one that we are clearly focused on is around overall community intelligence data. So leveraging the sanitized, distilled insights from transactional data happening around the world daily, millions of transactions, hundreds of billions of dollars of spend information and help each customer get smarter and smarter about the way their organizations spends money and drives value. And that's what we're planning for, without a doubt.

From Northland Capital Markets, Robert Breza.

Rob, maybe just a big-picture question. If you think about the business model margins, you're at 800 employees now, how do you think about devising the go-forward employee headcount? Specifically, I want to really get some insight from you with the customers that you mentioned on the international side versus North America. How are you thinking about the investments going forward just from a headcount perspective?

Sure. So those investments obviously across every function in our business, and we manage the business annually, but we also manage the business quarterly. From a sales and marketing investment perspective, we've committed to staying within the tight band of sales and marketing efficiency, and we've stayed within that band now for 34 quarters. So as we continue to build up our recurring revenue base, we invest accordingly. In areas where we feel that we're overly efficient perhaps, in some of the deeper markets where we have good -- we're beginning to get good penetration, that pays for some of our broader investments that might be less efficient in the shorter term but may pay off in the longer term. An example would be our mid-market business, some of our international areas, some of our federal attempts to date. So that's how we think about that line.

As we move down, we look at our cost -- well, as we go up, we look at cost of good sold, so we look at ways way to manage carefully our operating infrastructure through Amazon. As we think about margins, we think about our services capability and the number of -- the kind of oversight we need of internal services, consultants and the type of ecosystem we need to build out there of systems integrators to drive value for customers. And then moving on down to support where we want to make sure that we can maintain all [resonate to] customers, given the level of support that they need internationally, always looking for areas to be more thrifty in the way we bring those resources to bear in places like Reno and Dublin and Pune. And last but certainly not least, we're always looking at development and thinking carefully about how we can bring on the type of talent that cannot only help us push the platform, but not going too fast which is having people idle and not knowing exactly how to contribute, and not going to slowly such as we've missed the opportunity to develop the breadth that we want for this platform longer term. So rest assured, on a quarterly and annual basis, the team and I sit down and think through carefully how we manage this money. And I think a good result of that has been how conservative -- how thoughtful we've been with the money we spend. I'm proud to say that to date, we've created much more recurring revenue than the amount of money we've burned since the date of our inception. And we plan to be and are continuing to be as thoughtful about it in the quarters to come.

From Cantor Fitzgerald, Joseph Foresi.

This is Mike Reid on for Joe. Just had a question, if there was any more detail maybe on international outlook performance demand outside of the big wins in Europe this period.

I would say at the time of this earnings call, there's nothing material that would be worthy of your attention to focus on. I won't say that there's something happening internationally that would be elevated to an earnings call transcript or a big marquee account that we wanted to showcase at the moment. Having said that, we placed certain bets, and we're seeing some good pipeline traction and some good closures in certain markets that we believe we can build off of. When we look back to the way we built Europe, which now supports nearly 30% of our current revenue base, we began very carefully by landing key marquee accounts, making them highly referenceable in each country and building off of that. And we're taking a very similar strategy to the other markets around the world.

All right. And then on R19, are there any new capabilities that you want to call out specifically? And are there anymore releases coming up soon?

Sure. So we've committed to 3x a year releases, 3 releases per year. We obviously shared the details of those at -- in our -- at our Inspire event and also through a whole host of channels to which we communicated with our customers and prospects such as webinars and our online customer community. The latest release in R19 has more than 70 new feature capabilities. Our community voted on hundreds of feature capabilities from which we've distilled those 70. And I would say at the highest level, they hit across 3 different dimensions of our strategy: one is continuing to go deeper in key modules; the second is continuing to go wider to enhance the breadth of our application set; and thirdly, to do something that's innovative and never been done before in our market. And you're seeing many of those coming through community intelligence broadly, but also in each functional module area. I wish I had the time to share with you everything that we've done there, but certainly at Analyst Day, we'll cover more of that and show a demonstration and go much deeper.

(Operator Instructions) We'll go to Ken Wang with First Analysis.

Just wondering if you can offer just any commentary on where you might see potential functionality gaps in the Coupa suite currently?

Well, I can tell you that the concept of a gap is something that is, in my mind, very much driven by feature base selection process. And when I think back to the way customers chose software in the late '90s, it was largely driven by how many features you have. And the more features you have, the more likely you were to be chosen. But what we discovered a decade later is that it wasn't the amount of features that matter to whether or not you'd go live and get value, it was more about how deep the capabilities were, how usable those capabilities were and, most importantly, how much they would tie to the measurable value drivers that your customer is actually trying to get. So our focus doesn't begin with getting to feature and function parity of incumbent solution providers. Our focus is how do we get customers in an accelerated way to recognize measurable value and be able to build off to that value in the years to come. And the strategy we've chosen is very straightforward. We want to nail all the transactional areas of spend in a collectively exhaustive way: procurements, invoice management and expense management. And once we get a company's spend under management and transactional flow is rolling and hundreds of billions dollars are going through collectively, we then have the ability to get them more power user capabilities to optimize that spend well. And that's areas that we've been focusing on particularly over the last 3 to 4 years in both the build and acquire manner. And I can tell you that many of our customers, particularly those in the early-adopter stage moving to early-majority, understands that on this platform, they'll be able to get the full breadth of capabilities for driving spend. And that is very much in line with what we're playing for here.

And that concludes the question-and-answer session and today's conference. Thank you for your participation. You may now disconnect.