COUP (2020 - Q2)

Good day, ladies and gentlemen and welcome to the Coupa Software Second Quarter Fiscal Year 2020 Earnings Release Conference Call. At this time, all participants are in a listen-only mode. At the conclusion of our prepared remarks, we will conduct a question-and-answer session. As a reminder, this call is being recorded. I would now like to introduce your host for today’s conference call, Ms. Nicole Noutsios, Investor Relations. Ms. Noutsios, you may begin your conference. Nicole N

Good afternoon and welcome to Coupa Software’s second quarter conference call. Joining me today are Rob Bernshteyn, Coupa’s CEO and Todd Ford, Coupa’s CFO. Our remarks today include forward-looking statements about guidance and future results of operations, strategies, market size, products, competitive position and potential growth opportunities. Our actual results may be materially different. Forward-looking statements involve risks and uncertainties and assumptions that are described in our most recently filed 10-K. These forward-looking statements are based on our beliefs and assumptions today and we disclaim any obligation to update any forward-looking statements. If this call is replayed after today, the information presented may not contain current or accurate information. We also present both GAAP and non-GAAP financial measures. A reconciliation of certain of these measures is included in today’s earnings release, which you can find on our Investor Relations website. A replay of this call will also be available. And if you prefer to access a 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 will turn the call over to Rob.

Hello, everyone and thank you for joining us today, in what is our 12th earnings call as a public company. On behalf of my Coupa colleagues and myself, I’m excited to share our strong business and financial results for the second quarter. I believe that they are further evidence that our leadership standing in business spend management is here, a position that we are excited to strengthen as well as advance as we continue executing on our vision. Financial highlights from Q2 include $95 million of total revenues, representing a trailing 12-month growth rate of 46% and also once again we were profitable on a non-GAAP basis. Todd will of course cover other financial results later in the call. Now, from a business perspective, there were a host of exciting new developments this quarter. Above all else, let me say that we have now seen a clear, meaningful advancement in the developments and cultivation of our Coupa Community. This was most evident at our Inspire Conference in Las Vegas in late June, our premier business spend management industry event. This year, Inspire was awash with a palpable new dynamic. The inspiration about our BSM vision that our colleagues and I have been advancing and asserting for many years was clearly reflected back onto us by our customers, partners and even prospective customers.

Thanks, Rob and good afternoon, everyone. The second quarter was a well-executed quarter for us. Throughout the organization, we fired on all cylinders achieving excellent financial results across the board. Total revenues for Q2 grew 54% year-over-year to $95 million. Subscription revenues for Q2 were $83 million up 51% compared to Q2 of last year. Professional services and other revenues were $11.7 million which was an uncharacteristically large quarter for us. On professional services, while the vast majority of our implementations remain partner led, in the quarter, we took a few strategic customer implementations directly for example in the federal sector. For the trailing 12 months, calculated billings were $379 million up from $252 million in the previous trailing 12-month period, representing a 50% year-over-year increase. Our strong billings performance was driven by outstanding execution across the sales organization as well as a benefit from the Exari acquisition, which I will cover in a moment. Total deferred revenue at quarter end was $189 million, up from $129 million at the end of Q2 last year, a year-over-year increase of 47%. With respect to Exari, opening deferred revenue from the acquisition was $4.7 million and revenue recognized during the quarter from the acquired deferred revenue was $1.9 million resulting in an ending acquired deferred revenue balance of $2.8 million. Let's now turn to margins and results of Operation. Driven by strong revenue performance and leverage in our model, our Q2 non-GAAP gross margin was 72.7% exceeding our previous expectations of 70% to 71%. This included professional services and other non-GAAP gross margin of 10.7% which reflects great execution by a professional services organization. We delivered non-GAAP operating income of $4.8 million as well as non-GAAP net income of $5.3 million or $0.07 per share on 70.9 million diluted shares all of which were ahead of our previous commitments. Even with the full quarter impact from Exari. Cash and investments at quarter end were $808 million up from $346 million at the end of Q1. This includes $667 million of net proceeds from convertible notes we issued in June, offset by $210 million of net cash used to purchase Exari. Operating cash flows for Q2 were $1.3 million and free cash flows were negative $2.3 million. On a trailing 12-month basis, operating cash flows was $34 million or 11% of total revenues, and free cash flows were $23 million or 7% of total revenues, after taking into account $11 million in purchases of property and equipment. Cash flows for the quarter were favorable due to a strong performance by our collection team, which drove, accelerated customer payments and improved linearity. We expect total revenues for Q3 to be between $95 million and $96.5 million. This includes subscription revenues of between $86 million and $87 million and professional services revenues and other of approximately $9.5 million. For calculated billings on a trailing 12-month basis, we expect to exit Q3 at a growth rate of approximately 45% and we expect free cash flows for Q3 to be breakeven or slightly positive. Now let's look at the expense profile for Q3. We expect Q3 non-GAAP gross margin to be approximately 71% and non-GAAP operating income to be between $3.5 million and $5.5 million. This results in a non-GAAP net income per share of between $0.05 and $0.08 on approximately 71.1 million weighted average diluted shares for the quarter. For the fiscal year ending January 31st 2020, we expect total revenues to be between $369 million to $372 million with non-GAAP gross margin in the range of 71% to 72%. We expect non-GAAP operating income for the year to be between $10 million and $13 million. We further expect non-GAAP net income per diluted share in the range of $0.11 to $0.16 based upon an estimated 70 million weighted average diluted shares for the year. To conclude, we remain focused on driving results and delivering on the commitments we have made to our stakeholders. Now we're happy to move into Q&A. Before we go into Q&A, I would ask that you limit your questions to one or two questions and we'll follow up with you at the end if we have time, as we have a long queue of people seeking to ask questions. With that, I'll hand it over to the operator.

Thank you, Mr. Ford. Your first question comes from the line of Stan Zlotsky from Morgan Stanley. Your line is now open.

Perfect. Thank you so much for your time, and congrats on a very strong result. Just wanted to get a better sense for the contribution of Exari in the quarter. Just looking through the filings at the end of March, Exari had about a little over $20 million of deferred revenue and I just want to make sure I have the numbers right. So, it sounds like coming into the quarter that -- after deferred revenue write downs that dropped to $4.7 million and then you finished at $2.8 million of deferred contribution for Exari? And then I have a quick follow-up.

Yes. Stan, that is correct. The amount that actually came on our book was $4.7 million and that takes into account the discount from the haircut to acquire deferred plus also the transition from 605 to 606, which we did in concert with the acquisition. So for the second quarter, the ARR revenue that was recognized from Exari in total was $2.8 million.

Got it. Perfect. And then, quick question on macro, we've heard from a number of companies where they're either seeing something some unevenness or maybe some hesitancy. What are you guys seeing? Because you obviously you have your business spend index throwing off various signals. But what do you actually seeing when you look at your pipeline as you go into the back half for the year? That's it for me. Thank you.

Sure. Thank very much, Stan. Now we continue to see a very strong pipeline, real good, positive conversations with prospective customers, as well as existing customers that are interested in the full Business Spend Management platform that we offer. So, quite positive from where we're looking.

Perfect. Thanks.

Your next question comes from the line of Mark Murphy from JPMorgan. Your line is now open.

Hi. Good afternoon. This is Matt Coss on behalf of Mark Murphy. Thanks very much for taking our questions. Rob, as companies build along the arc of their digital transformation, how often does Business Spend Management surface in those conversations? And then, as an appendage to that, do you perceive the market, is it a point where Coupa instead of viewed as sort of a new less well-known choice, the opposite is now true where Coupa is now sort of safer go to choice?

Sure. Thanks very much for the question. First I would say, it absolutely does surface as part of a broader digital transformation agenda. The value proposition is obviously very, very strong, and is becoming more and more of a focal point for CFOs, CIOs and what we're starting to see more and more of CEOs as well. So that's great. The second part is that it's in our best interest and it’s the right thing for our prospective customers that we surface it, even if they are not surfacing it, because the value proposition again is very strong. We can help drive profitability, compliance and thoughtful growth as well as great efficiencies with just about any company on the planet. And thirdly, I would say, it is still upon us to continue to carefully and thoughtfully develop awareness of Coupa in the world. We have a massive market measured in tens of billions of dollars that we're going after. We penetrated a very small percentage of that market in the global 2000 and Fortune 500 and certainly across all of the midmarket. So with careful, thoughtful awareness development and execution into the market we think we're on the way to developing and building a very special company.

Thank you.

Your next question comes from the line of Alex Zukin from RBC Capital Markets. Your line is now open.

Hey, guys. Thanks for taking my question. Congrats. I guess maybe just the first one. Given that you've now accelerated subscription revenue growth four quarters in a row, can you maybe talk about whether is this being driven by larger initial lands or accelerating expands within the customer base? And then, how should we be thinking about that dollar based net expansion on both the near and long-term time horizon?

Well, thanks very much Alex, for the question. I would say on the revenue side there's a couple of very interesting and frankly promising developments. Our mid-market engine is really working. Just to give you a sense for that. In Q2, we closed our largest mid-market deal in company history. I would say our enterprise business is going quite well also. In fact in enterprise we also closed one of the largest deals just in Q2. Now, in terms of global expansion, global expansion is something we continue to manage very carefully. We're very sales and marketing efficient as we go in to these new markets and we develop our way in. So it really comes back to this model that we've been working on for 42 quarters now, staying within the tight band of sales and marketing efficiency and continuing to drive topline expansion. One of the framing that you may appreciate, Alex, is just thinking about it in terms of price, speed and win/loss, the three components of driving revenue. On the price side our average ARR per logo has gone up sequentially and virtually every quarter since IPO and beyond that. And that's in total as well as by segment. In terms of speed, our speed of close has stayed relatively steady at four to six months for mid-market and call it six to 12 months for enterprise. And around win/loss I could tell you qualitatively, and I've said this in the past, that our strong sense is that our only competition here is ourselves and our ability to lead this developing market. So, as new components come online, we're there to service them. So either way you want to look at it that's what’s happening in our world.

Alex, this is Todd. With respect to renewal rate and a dollar-based expansion rates, the growth renewal rate continues to trend at 95% plus. On the dollar-based expansion it's slightly ticked up, but it’s still in the very high end range that we've historically quoted of . And I think over time, we'll be able to get that closer to and I do view that as a long-term target. Although, we've added some resources to go after the installed base, our clear focus is still on landing large new customers.

Got it. Thank you, guys. And maybe just one more on payments. You talked about the uptick that you're seeing and enthusiasm from your customer base. Can you maybe just rank order the payments opportunity in terms of what's most needle moving in the near term and in the mid-to longer-term?

Sure. I mean, all three components that we have today are all very valuable. It's seen as quite valuable by prospective customers, and the customers we've acquired they're using them. And so, clear interest in virtual cards, clear interest in accelerate and very good early interest in invoice payment. I would say my sense at the moment is that the medium to longer-term opportunity around invoice payment is probably the most interesting, because we'll be taking on a great bulk of the heavy lifting that's done in a whole host of the ERP systems as I mentioned in my prepared remarks.

Perfect. Thank you, guys. Congrats again.

Your next question comes from the line of Michael Turrin from Deutsche Bank. Your line is now open.

Hey, there. Great. Thanks. Good afternoon. You took the revenue guide for the year up significantly more than we saw this quarter. Can we just talk more about what it is you're seeing is leading that big step-up for the rest of the year?

Yes. It's really just execution across the organization we kind of spoke about in our prepared remarks, the enterprise sales team continues to execute, the mid-market team is executing, professional services team, international et cetera. So its part of the execution and results in Q2 flowing through the model and as Rob mentioned, very strong pipeline heading into the backup of the year.

That's helpful. Todd, just on margin, you also came in notably ahead there of what we were expecting and what prior guidance is calling for. Is that mostly just a function of flow through from the top line outperformance? Did anything shift there during the quarter or anything else to call out there?

Yes. Mainly topline performance as you noted.

Thanks.

Your next question comes from the line of Steve Koenig from Wedbush. Your line is now open.

Hi guys. Thanks for taking my questions and congrats on the quarter. Just two. First one is -- so on Coupa Pay, how do you guys think about the TAM which I don't think is part of your $56 billion TAM? And what kind of part of the B2B payments opportunity, kind of it's going to be addressable to you guys. And then just secondly, any color you can give us on pretty large convert you've done. Kind of how to think about what you know how you might use it for both organic and inorganic initiative?

Sure. So thanks for the questions. So I would say first off, that’s correct. That pay is not in the TAM that we've shared at previous Analyst Day as part of our calculations. We think there's a large addressable opportunity that we're working our way into. We're not spending a lot of time thinking about the full scope of what's possible. We know we're managing now 1.3 trillion in cumulative spent. So clearly there's something to go after and we're going after it thoughtfully with our customers. In terms of the proceeds of the convert, obviously as we leverage our cash, it'll be for continued growth of the business. But in terms of acquisitions we're currently in the period of what I would call, acculturation and integration as some of the companies that have become part of the Coupa journey and we'll continue to use the exact same criteria we've shared in the past around any potential acquisitions downstream.

Great. Thanks guys.

Your next question comes from the line of Joseph Foresi from Fitzgerald. Your line is now open.

Hi. My question is just on margins, it looks like – maybe if you could help us understand the balance between gross margins and operating margins, because it looks like gross margins might have ticked down a little bit. What would be the cause of that? And then I know you've given midterm guidance and I'm not going to ask you to change that now, but maybe give us some color on what you're expecting margins do this year and next year?

Hey, Joe, it's Todd. From gross margin perspective, we do expect that that will continue to trend toward the midterm targets. And clearly one of the things that was at play on Q2 was the integration of Exari. We took the full impact of the expense and the revenues will come in over time. And then on the operating side, it's kind of the same story as well. We took the full hit of the expense with minimal revenue contribution and I would expect those to continue to trend over time. And actually on the OpEx side, we're in pretty good shape. We had some higher G&A costs related to the acquisition, consulting fees, et cetera. And one of the things that we're working on the gross margin side to flip back up there is the rationalization, how they're hosted the different contracts that the acquired companies had and there's a quite a bit of opportunity for us to drive more skill and leverage there as we execute over the next few quarters on that front. So, I think we're well-positioned to attack the midterm targets and have the infrastructure in place to start moving towards the longer-term targets as well.

Got it. And then the second one I guess is on the professional services side. I think you mentioned there was maybe some federal contracts that you started to work on. Was that pull forward? And how should we think about that revenue this year heading into next year? Thanks.

I would look at the professional services and with respect to the federal sector in particular USPS contract as more of a one-time thing. Our strategy remains the same, to have the majority of them be partner-led, but given the significance of this initial deal on the federal sector, it made sense for us to be more involved than we would normally be worked with other deals.

Thank you.

Your next question comes from the line of Koji Ikeda from Oppenheimer. Your line is now open.

Hey, really great quarter guys. Thank you for taking my questions. Okay. So I saw on the press release the business was named as a leader in the Gartner Magic Quadrant for Coupa Pay and actually our Coupa is the highest up and furthest right on that Magic Quadrant. So congratulations on that achievement. I guess my question is if you could, curious to hear your perspective on – if there is maybe a specific part or module or maybe even a platform feature that Coupa has is really the big differentiator there that is driving that leadership positioning of the business? Thank you.

Yes. Thank you, Koji. I think what Gartner and others have recognized which we're obviously very proud of is the differentiated vision of our overall platform and it’s a reason why in every one of these earnings calls we tend to call out what the letters in Coupa stand for. These customers are looking for comprehensive solution with all the capabilities working together synergistically in a way that drives Business Spend Management value and that's the C in Coupa. They want to be able to integrate to any existing systems they have out there whether it's Oracle, SAP, a whole host of different ERP's and third-party products and they need an open platform and that's the O in Coupa. They've tired a very complex, difficult-to-use solutions that were really built for back-office professional and they want something as simple as they experience in their home purchasing environment. And the U for that purpose stands for user-centricity, something we're continually focused on. They want to learn from the community of customers that they join. We now have a massive global community, and they want to take distilled anonymized data from that community to community intelligence and get prescriptive advice and that is the P in Coupa. And lastly, they want to get the value quickly. They're tried of multiyear deployments that go nowhere and they're stuck with big bills that don't deliver results. So that stands for accelerated in Coupa. And as I've shared many times before our time to value equation is really, really strong. So these five differentiated visionaries and approaches of our company are delivering results for our customer community and we think these visionaries, they continue to deliver results for many of the customers that will be happy to attract in quarters to come.

Thanks for that, Rob. And maybe just one follow-up. I guess since the core Coupa platform is a pretty big implementation out there for all these large enterprise organizations. And I think it's safe to assume that, hey, it's a pretty big implementation too. Are you seeing any demand out there from prospects or maybe even customers that are currently in implementation just to implement it all at once? And thank you for taking my questions.

Sure, its very thing. We have a host of different ways that we may enter. Our goal as a company is to be as frictionless as possible on the entry point. There are some customers that will implement internationally same day for everything. That's not that common, but we've seen that. More likely we see customers implement perhaps country-by-country or function-by-function or they'll take an approach where they turn everyone on, but they'll turn everyone on to a certain use case and then turn on different use cases. So we have a whole host of best practices approaches that we have in our toolkit and that we've certified our 3000 plus consultants on to go in and drive quick value for customers so they can expand as the months and quarters go by. So that's the way we're thinking about it and we're continue to see really strong traction with that approach. Thanks for the questions, Koji.

Your next question comes from the line of Brian Peterson from Raymond James. Your line is now open.

Hi. Thanks gentlemen and congrats on the strong results. So Rob, wanted to get back to your early comments on the Coupa community. That was definitely a theme we picked up out of Inspire. At a high level I'm curious where we should see that fell in terms of the financials. Is that something that should really be in kind of new customer ACV? Or is that maybe more in the revenue retention metrics? Just curious how you guys think about that? Thank you. Sure.

Sure. Thanks for the question, Brian. I think it's all of the above. First of all, we should be -- when we are seeing it in the platform, right. So the transactional platform pricing as I mentioned new ARR per logo or average ARR per logo has gone up sequentially virtually every quarter for years now and that's happened by segment, because customers are seeing the value of Community Intelligence embedded in the platforms. That's number one. Obviously, as we continue to get more and more data and the value of the community intelligence insights delivers even more high fidelity prescriptions that should be seen in retention, because we become a platform with very strong barriers to entry for anyone that would be interested in entering our space. But we also offer more and more accelerated value to existing customers because of that data. And thirdly there are certain modules which we offer that are fundamentally community intelligence driven. If you look at a module like Coupa Risk Aware, that's notifying you of supplier risk, allowing you to bring in third-party data feeds, allowing you to calibrate components of supplier risk. We're building the richest supplier master record in the world we believe and the fidelity of insight about suppliers is going to grow as well. So the answer is absolutely all of the above. And we think we're really in the early innings of something very, very special here.

Thanks Rob.

Your next question comes from the line of Ryan MacDonald from Needham. Your line is now open.

Hi, Rob and Todd. Thanks for taking my question. I guess first off on Coupa Pay. Clearly there's a lot of interest building for this solution. Rob, can you talk about sort of as you're having these discussions with prospective customers sort of what the gating factors right now to adoption are? And as you looking at sales cycles for the Coupa Pay solution, what your expectations are compared to sort of the corporate average is moving forward? Thanks.

Sure. So thanks for the questions. I wouldn't -- I don't think we have any gating factors to speak of it. I think that's the overall gating factors as a company which has continued awareness development, continuing to get our sales team, get our marketing in line, getting front of prospective customers staging deployments properly. So as you might expect once customers buy it, it takes time to go live and start doing transactions and production. So there's a little bit lag effect there, but it's progressing in a healthy way. In terms of how we how we manage it, very similarly to the all the modules we've built over time. Get them in front of customer’s hands, we continue to evolve feature function requirements to distill the things that actually matter and get them into our code line. And three times a year customers are getting greater and greater value. And I see that happening no differently with the three Coupa Pay modules we have today and a number that we have on the docket as well.

Excellent. And then just a quick follow-up for Todd. As we're looking at sort of the guidance for third quarter and the fiscal -- remainder of the fiscal year. For backing into sort of the fourth quarter OpEx numbers, looks like there's perhaps some ramp up of expense in the fourth quarter there. Is there anything outside normal seasonality that we should expect that you point out or anything related to the recent acquisitions that's being thrown in there? Thanks.

There is a piece of seasonality in there, of course, especially with respect to sales commissions and people hitting accelerators and that type of thing. But at the higher level, I would say it's more that we're aggressively investing in the business. And as we look at the runway ahead of us and what we're seeing we are investing more heavily in some of the go to market teams et cetera. So you're seeing that reflected in Q4 as well.

I would also add to that and I think it's important from an investment perspective to understand that not only are we addressing assertively investing behind this business but we're trying to do it as thoughtfully as possible every step of the way. So we want to make sure that 100% of these expenditures are both led and managed effectively and that management business purely on how much we spend. Look, spend rules everything around us. It's been doing that for over 10 years here. It's doing it thoughtfully and doing it in a way that's going to deliver results for the business.

Your next question comes from the line of Chris Merwin from Goldman Sachs. The line is now open.

Okay, great. Thanks for taking my questions. I want to ask about sales efficiency. It looks like that continue to improve and I know you're focusing more on mid-market. So are you able to sell those mid-market deals with the same efficiency as you are in the enterprise? Or are you just seeing really strong efficiency gains within the enterprise? Just curious what's been the main driver of the improvement in that metric? And then I had a follow-up. Thanks.

Well, look if we take mid-market standalone as I mentioned earlier the engine is absolutely working. Not only are we doing very well in terms of the size of deals but we really -- we're getting really to a place where we have component ties implementations and a flywheel there is spinning really nicely. When you look at sales and marketing costs overall which was at the start of your question. If you look at most recently our noncash sales and marketing costs as a percentage of revenue have been about 34% in both Q1 as well as Q2. So we're spending carefully against the revenue opportunity. We're also looking at the components of sales and marketing just to give you a sense of the fidelity here. So, you might find interesting that we look carefully at the ratio of sales to marketing expenditures. Incidentally that ratio has been relatively consistent for over the last 18 months. So it's a calibration of sales, its marketing, its understanding our fully loaded sales costs, as well as the components of sales, sales headcount and incentive comp, it's understanding the marketing components headcount as well as discretionary marketing spend and trying to put forth the best spend profile for the revenue opportunity that exists in the quarter and to plan ahead. And just on this call, what Todd said, and is reflected in our guidance, we continue to certainly invest behind this business. And I'll tell you, we couldn't be more excited about it and the opportunity ahead.

Okay, that's great. And then just one on Federal, are you still on track to be FedRAMP certified by the end of the year? And anything -- any commentary you could just provide on traction with some of these other federal customers as you move through sales cycles? Thanks.

Yes, absolutely. Thanks for that question. So, the pipeline continues to progress really well. The USPS deployment itself is progressing really well. In fact, in Q1, we became FedRAMP authorized and were given authority to operate at USPS on the path to broader authority for FedRAMP. So, continues to -- continue to go well with that deployment as well as pipeline, and we'll continue to inform you how that progresses without a doubt.

All right. Thanks, Rob.

To clarify, it was in Q2 that we got the authority to operate with the USPS, not Q1.

Got it. Thank you.

Your next question comes from the line of Terry Kiwala from First Analysis. Your line is now open.

Hey, good afternoon and congratulations on the quarter. You referenced the acquisition integration costs earlier and I'm just wondering whether the actual amount or the timeline is ahead, matching or behind your expectations?

Yes. So one of the things we've done with the number of acquisitions we've done over the past several years is really built out some strong muscle memory. And with respect to Exari, I would say its tracking honestly slightly ahead of schedule and our team did a really good job at integrating the team from Exari, acculturating them, spending time with them on the Coupa core values, et cetera. And as Rob mentioned, we're really only limited by our ability to execute and that really drives down to the people and getting them up to speed and from our perspective also, rightsizing the business. So, I think we're actually on track. There is still more work to be done from a non-people perspective, but we're doing quite well.

I would also add, if you kind of look at it from the way we think about internally around the metrics -- around the framework of people, technology and process, all of those are progressing very well. Our teams are now fully integrated into our overall process of everything from marketing, sales, support, operations; our technology stack is well under way. In terms of integration, as Todd called out, at the UI level, at the platform level, at the business logic level, and by far, most importantly, we think the people are really joined this journey that we've been on now for over a decade and are equally fired up to make this an incredible company in the years to come. They're all our Coupa colleagues now and we don't remotely think of them as acquired colleagues. They are all one set of Coupa colleagues, with one set of core values focused on one common vision.

Great. Thank you.

Your next question comes from the line of Terry Tillman from SunTrust Robinson Humphrey. Your line is now open.

Hey, gentlemen, congrats. And thanks for fitting me. And I had two quick questions. First, Todd, could you just give us an update though for the full year on whether ARR revenue expectation for Exari, and then, remind us for next year? And then, I had a follow-up for, Rob. Thank you.

Yes. So, with respect to Exari, we haven't broken out what we expect. Obviously, we had the opening deferred revenue of $4.7 million. We recognized $1.9 million of that in Q2. And the way the waterfall works it will be slightly less than that from the deferred revenue bleed off in Q3. Obviously, the seasonality with Exari is similar to that of other software businesses and our business, where fair amount of it would be built in Q4 and then the revenue would be recognized. So, I still think it's a relatively small contribution and not something that we would break out separately at this time other than what's kind of baked into our guidance.

Okay, fair enough. And I guess, Rob, just reminiscing about your book fee to eroded a couple of years ago value-as-a-service, I guess, more than a couple of years ago. Is the product in the platform is evolving more and more? Do you see kind of that vision or aspirational goal starting to play out, where you actually get paid on value? And I know some of the products like Coupa Pay like with the invoice payment or processing that there is some potential there, but just maybe an update on how you can package and monetize your products going forward given where you are now? Thank you.

Yes. Thanks very much for the question. So, look in many ways, we are getting paid based on value delivery. And we have been for a number of years as you can see by our average ARR per customer going up and et cetera. But in terms of transactional spend, a component of value, and sharing and value, we continue to test that on the fringes. Our biggest barrier there is customer's willingness to change and adapt that type of mindset. And I think as we continue to gain market leadership, there'll be a greater willingness to engage in these types of dynamics. So, we're very open to it and we continue to test it on the fringes.

Thank you. Nice job.

Your next question comes from the line of Raimo Lenschow from Barclays. Your line is now open.

Hey, thanks for squeezing me in and congrats from me as well. And two quick questions. First, Rob, can you talk a little bit about -- now that you have these expansions to the platform and Rob was talking about like the increasing dollar net retention, can you talk about the cross-selling, where you are in terms of -- you mentioned, everything is in place, everyone feels like one company, but what do you see in terms of like customer understanding of the much broader offering there now and the sales guys kind of getting that message to the market? And then, I had one follow-up for Todd. Please.

Yes, thanks Raimo. Look, we're pretty self-deprecating here. So, we think we could always do a lot better. But I would say generally speaking, there's a pretty strong awareness among our entire sales team in terms of how to position the entire platform. And they clearly see the synergistic value of these capabilities, working together at all levels of the technology stack, and in terms of the value they deliver from a business perspective. I think that's going quite well. Everyone's been cross-trained in every capability. All of our core platform demo environments as well as production environments can be turned on with all the capabilities working together. So, we're well under way. If I had to point out a challenge for us is just simply awareness among the global, as I say 2,000, as well as we all mid-market customers -- perspective customers around the world. That's such a comprehensive open user-centric prescripted and accelerated platform is available for them to subscribe to get the kind of value that are well over 1,000 something customers are getting today.

Okay, perfect. Thanks. That's really helpful. And then can you remind us -- so, if you can have these acquired assets, your writedown deferred, are they coming back within the year or so? I guess you started recognizing revenue as the customary renews. Is that typical within a year that you get the benefits back?

Yes, I mean, it obviously depends on when we do an acquisition. So, doing an acquisition at the end of Q4 is obviously the worst time for that, right, because you have the asset for a year before you go back and rebuild it and start recognizing the revenue. But, yes, as the renewal would come up, obviously, we built it and then we can start the full revenue recognition from that.

Okay. Perfect. Thanks. Congrats from me.

Your next question comes from the line of Brent Bracelin from KeyBanc. Your lines now open.

Thank you. One for Rob and a follow-up for Todd. Rob, I wanted to go back to the Coupa BSI Index, on one hand you're seeing like some of your customers are being a little more cautious. I think you cited retail as one of those areas, financial services, but on the other hand, you're taking numbers up in the second half of the year. I guess, my question for you is this an environment, whereas people tighten up that they're willing to spend more on your software to save or walk us through how we should interpret the BSI Index and some cautionary comments there versus your own business that looks very, very strong?

Sure. Well, thank you for that question. So just to level set BSI for those that are kind of new to it, it's just based on hundreds of billions of dollars of pure transactional data. And we think it's a real leading indicator versus a lagging indicator, because we've done some heavy testing, including historical regression analysis against other indices and markers before rolling this out. And just to give you a sense of why we think it's a leading indicator, look -- we're looking at average spend -- rate of spend -- average rate of spend approval. So how long does it take to get something approved within the company? What is the -- how often are spend rejected, spend that we never even see hit the economic environment, because it was rejected through our platform. And also looking at things like average spend per person. So, we think it's a strong leading indicator. Now, when we look at our business separately from that, as I mentioned, we see a good strong pipeline. We are having great conversations -- positive conversations with prospects, as well as existing customers. So how do you kind of map these two together? Well, what I'd say to you is, as Coupa, we may not yet be at the scale where our sheer, brute force execution can't overcome any potential economic headwinds. Only time will tell whether that's the case or not. And secondly, I do think that profitability doesn't go out of style. You have companies that are using very antiquated systems and paper-based processes for doing the fundamentals around Business Spend Management. So that's how I would put those two together.

Helpful. And then just, Todd, as a follow-up, a couple of numbers on Exari. I think you mentioned $2.8 million is one number in the quarter and then that $1.9 million. So, what was the subscription component of Exari in the quarter? And then as a follow-up to that, if I just think about the subscription growth profile here, you're now three straight quarters of over 45% growth. Is there any sort of balance between kind of Geo or large enterprise or mid-market, what would you say is kind of driving that sustained momentum, even if I back out kind of the $2.8 million of Exari? But I want to make sure that's the right number. Thanks.

Yes. So the ARR from Exari in Q2 was $2.8 million, which includes the $1.9 million amortization of the acquired deferred revenue number. And when you look at the subscription growth rate, to your question, it really is execution across the board. Our revenue from international went up slightly during the quarter, but nothing I would call out. The mid-market, as Rob mentioned, is really starting to hit on all cylinders. And as you noted, we closed our largest deal there. So average deal size is getting bigger, more recognition. And we've talked about this before, but I think when we went public roughly three years ago now, we were viewed as maybe the risky choice, and I think that's changed with the awareness in the market, the advocacy of our customer base, the FIs bringing us into their installed base. So I really can't point to one thing as to what's driving it.

Todd, thank you.

Your next question comes from the line of Brad Sills from Bank of America Merrill Lynch. Your line is now open.

Great. Hi guys. Thanks for taking my question here. I wanted to ask about power apps. I know the focus is primarily on landing accounts and you've done great there, sounds like across midmarket and big enterprise. But are you seeing any change in momentum and would you call it any specific application maybe where you're seeing you know stronger attach on the initial sale or even the renewal where you are, you know focusing on some of that renewal expansion activity.

Sure. That's a great question, Brad. I mean, when -- I wouldn't say we're seeing anything statistically significant in that area. The key for us is to enter with our customers in a way that we could drive the fastest value and overcome the greatest areas of resistance to change that they might be dealing with. That might be via spend sourcing optimization, that might be via spend analytics, that might be via advanced contract life cycle management approaches or contingent workforce. But we typically like to see customers engage in the transactional application areas. First, because that's where the greatest amount of value to be recognized is almost instantaneously when their employees across the world begin to spend against contracted rates that either we brought to the table or they brought to the table through their own negotiations. So it continues to be that type of approach and it feels very healthy.

That's great. Thanks, Rob. And then one more if I may just please on Coupa Pay, how would you characterize BSI channel? You're readiness here, are you feeling like you're getting the message out to the BSI channel, is it resonating and just general channel readiness for Coupa Pay? Thank you.

I would say we're in the early innings of that and we need to continue to work, do a better job in that area. I think you call out a very interesting point that we're aware of. And I don't think we're -- where we will be in coming quarters. It's still quite early, but it does sort of parallel the way we've launched other modules in the years past. Each quarter, we get broader and broader reach, awareness, certification, deployment, value realization and then referenceability, renewal and more customers. So it's very similar to past trajectories.

That's great. Thanks so much. Rob.

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