COUP (2020 - Q3)

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

Thank you, Nicole. Hello to everyone joining us live on this call and to those who will read the transcript. I'm excited to share that we delivered strong business and financial results for the third quarter as we continue relentlessly executing on our vision for the Business Spend Management category and further solidifying our leadership position. Financial highlights from Q3 include a $102 million of total revenues representing a trailing 12-month growth rate of 48%, and an annual run rate of more than $400 million. Also, we're yet again profitable this quarter on a non-GAAP basis. My colleague Todd will, of course, cover our strong financial results with much greater depth after my remarks. With that, I have many other exciting business updates to share with you today. So let's get after it. As many of you know, bringing a new customer into the Coupa community is a big step, but only the first step in the customer journey with us. We then quickly move to focusing on the results of getting a customer live in production, so they can begin driving meaningful value through our platform. Let me showcase this with some real metrics from a Coupa customer that went live earlier in the year. Diagnosticos da America, or DASA, the largest diagnostic medicine company in Latin America based in Brazil implemented Coupa to digitize their business spend management. Coupa has made it faster and easier for end users to procure supplies for more than 700 healthcare facilities across Brazil, a great example of the letter ‘U’ in Coupa which stands for user centricity.

Thanks Rob and good afternoon, everyone. The third quarter was another solid quarter of execution. Total revenues for Q3 grew 51% year-over-year to $102 million. Subscription revenues for Q3 were $90 million, up 49% compared to Q3 of last year. Professional services and other revenues were $11.6 million which includes the benefit of a few strategic direct services arrangements that continued into Q3. For the trailing 12-month, calculated billings were $416 million, up from $272 million in the previous trailing 12-month period, representing a 53% year-over-year increase. Total deferred revenue at quarter end was $193 million, up from $130 million at the end of Q3 of last year, a year-over-year increase of 48%. Let's now turn to margins and results of operations. Our Q3 non-GAAP gross margin was 72.1% exceeding our previous expectations of 71%. This includes subscription non-GAAP gross margin of 80.9% and professional services and other non-GAAP gross margin of 3.3%. We delivered non-GAAP operating income of $11.6 million, as well as non-GAAP net income of $14.2 million or $0.20 per share on 71.7 million diluted shares, all of which were well ahead of our previous commitments. Cash and investments at quarter end were $842 million, up from $808 million at the end of Q2. Operating cash flows for Q3 were $26 million and free cash flows were $22 million. On a trailing 12-month basis, operating cash flows were $55 million, or 16% of total revenues. And free cash flows were $43 million or 12% of total revenues after taking into account $12 million in purchases of property and equipment. Cash flows for the quarter were favorable due to strong performance by our M&A integration team, our billings team and our collections team, which drove accelerated customer payments. Now let's turn to guidance. We expect total revenues for Q4 to be between $101.5 million to $102.5 million. This includes subscription revenues of between $91.5 million and $92.5 million and professional services revenues of approximately $10 million. For calculated billings on a trailing 12-month basis, we expect to exit Q4 at a growth rate of approximately 40%. As a reminder, in Q4 of last year, we had a benefit of approximately $6 million to our calculated billings from the acquired deferred revenue from Hiperos which was on our balance sheet as of 1/31/19. For Q4 free cash flow, we expect to be breakeven to slightly positive. Now let's look at the expense profile for Q4. We expect Q4 non-GAAP gross margin to be between 70% and 71% and non-GAAP operating income to be between $3 million and $4.5 million. This results in a non-GAAP net income per share of between $0.03 and $0.06 on approximately 72 million weighted average diluted shares for the quarter. For the fiscal year ending January 31, 2020, we expect total revenues to be between $380 million to $381 million with non-GAAP gross margin of approximately 72%. We expect non-GAAP operating income for the year to be between $21 million and $23 million. We expect non-GAAP net income per diluted share in the range of $0.34 to $0.37 based upon an estimated 70 million weighted average diluted shares for the year. We will provide FY2021 guidance on our next call. But as you roll your models forward, we'd like to remind you that we recognize revenue based on the number of days in the quarter. And since there are fewer days in Q1 due to February, steady state subscription revenues are lower in Q1 compared to Q4 similarly as noted last year. That concludes our prepared remarks. As we move to Q&A, please be mindful that we have a long queue of questions. In order to accommodate everyone please limit your questions to one and we'll circle back time permitting. Now we'd be happy to begin fielding your questions. Operator?

Our first question comes from Brad Sills with Bank of America Merrill Lynch. Your line is open.

Hey, great. Thanks guys for taking my question. Wanted to ask about some of the add-ons. It sounds like you are seeing in some of these existing customer wins a lot deeper penetration with the rest – with the broader suite and contracts in particular seems like it's doing well. Any comments you could parse out on the impact that Exari is having on that business and then just maybe even more commentary on other add-on products that you are seeing with the power apps.

Sure. Thanks. Thank you for the question. There's really two-part answer to that. We are definitely seeing real healthy progress with the Power apps, and it doesn't just include our advanced contract lifecycle management capability. It includes our risk aware and risk assess capabilities. It includes our spend optimization capabilities and a whole host of others. Okay. So let me continue where I left off. It sounds like we got disconnected and it wasn't on our side, it seems to be somewhere at the core. But assuming you can hear me now I'll just continue with the answer to the question. So, the two-parts are the distinct power user applications, and in all areas we're seeing very strong progress both in add-on business as well as landing net new deals that include a more comprehensive footprint upfront. But more importantly than that, which is the second part of the answer to your question, and that is that we're seeing a vision lock with our existing customers and prospective customers around a comprehensive set of capabilities for all of the vision areas around business spend management . They want all of these things working together, so that they can optimize spend, have spend control, have spend visibility, have a compliant way to manage their business to frankly drive greater and greater operational efficiency and profitability. So, it's working on both vectors and we're pretty excited about it.

Your next question comes from Terry Tillman with SunTrust. Your line is open.

Hey, guys. This is Eric Lemus on for Terry. Thanks for taking the question. I just had a question on the international markets and the overall adoption curve there. Are you seeing similar patterns to what you saw in the US with landing versus expanding?

Well, we're seeing patterns, let me answer that in two parts as well. We're seeing similar patterns. First of all, broadly right we go into a new market. We get a handful of highly referenceable customers. We get them highly successful and then they are thankfully and frankly more than willing to help us with incremental customer growth. So, we grow these businesses organically. That's how we did Europe. That's how we did Canada. That's how we're doing Latin America and South Africa and areas of Asia. Now, in terms of specific capabilities in terms of add-on or net new kind of lands, I don't think there's anything there that is a very different trend than what we've seen historically. There's this again this vision lock around comprehensive business spend management that we're seeing, and we enter that overall vision via a number of different functional dimensions. So, very-very healthy in that regard.

Your next question comes from Brent Bracelin with Piper Jaffray. Your line is open.

Thanks Rob. I'd love to get your early thoughts here on your strategic priorities for 2020. The scale of the business now is in excess of a $400 million run rate, still growing at a really robust organic clip. What are you thinking about relative to next year? Are you going to have a greater emphasis on M&A, international, kind of partner expansion, give us an early preview of kind of what you're thinking about for calendar 2020 and what that holds for the business. One quick follow-up for Todd, if I could.

Sure. Look, I appreciate the question and my answer may be a little bit boring for some of the folks that have been following us now for quite some time. I mean we've been at this for 43 quarters and in our 44th, and in many ways it's all of the above of the things you mentioned. We continue to build a really strong army of certified systems integrators all over the world. We're obviously going to continue to do that. We're going to continue to invest in our enterprise business which is showing very real strength in terms of ARR per deal growth. We are going to continue to invest in our mid-market business where we're seeing a really nice well managed, well structured, more predictable business with every quarter that we're in it. And we're going to continue to look at our product depth and breadth expansion and not resting on our laurels than any of our core products, while at the same time expanding more broadly through both organic, and if it makes sense, in acquisitive ways as well. So, it's really more of the same but doing it at a greater scale. And underneath all of that, the thing that is really the most important to myself and now nearly 2,000 colleagues around the world is to continue to evolve our culture to be the company that anyone everywhere would want to work with to help them optimize their spending, get their business spend under control, improve their profitability and be prepared for anything that could face them in uncertain economic times.

Helpful color there. And then, Todd, just real quickly, we typically don't see high growth companies double operating profit sequentially here, really strong performance. Was the doubling of op margins to 11% here driven solely by integration or are there other factors at play relative to timing of hires, obviously really strong performance. What drove that and is that sustainable?

We've always had a disciplined growth approach to Coupa where -- not only the 30% plus growth on the top line but continuing to show operating leverage at the bottom line. And I think it's very strategic investments when we have an incremental dollar to invest we think about it very thoughtfully. Your point on M&A is absolutely true. We've done actually what I would consider a very good job at integrating our acquisitions and that was part of the strong cash flows in Q3 as well. So I would expect we took some near-term hit. And if you look at Exari for example, we're still haven't reached steady-state run rate there because of 606 and the deferred revenue haircut. So that will continue to improve. But by integrating the acquisitions quickly and getting them profitable and cash flow positive and being very accretive to our bottom line it also helps. So I would say it's a combination of strong M&A integration and just general scaling of the business in a disciplined manner.

Your next question comes from Terry Kiwala with First Analysis. Your line is open.

Hey, good afternoon and congratulations. I just would want you to give a little more color on your traction in the mid-market. Are you seeing increased close rates? Are you seeing, you'd spoken last quarter about significant traction and I just wondering about the relative contribution of that market to the outperformance versus guidance.

Sure. I appreciate the question. I would say the most interesting point I would think from an investor perspective around this is the level of fidelity we have in understanding that business in terms of all vectors of price, speed and win-rate, right. So we have a very good sense for the value. We are able to deliver on the fair price point. We can charge for that and that continues to trend upward. We have a really good sense now around the speed from awareness to close and then to deployment go-live in a best practices way. And we're continuing to see a very nice trajectory around the actual win rates because we really offer something that nobody else in the marketplace has ever offered. A comprehensive fully integrated platform for all methods of spending and mid-market companies have really, really drawn to this. And I have been seeing the platform has also enabled with pre-negotiated savings that sometimes more than pay for the software subscription itself. So in many ways this has become an area of the business that we can really move the dials up and down on and have a greater level of predictability and fidelity that we've never had before. And that's really exciting for us.

Your next question comes from Chris Merwin with Goldman Sachs. Your line is open.

Okay, thanks very much for taking my question. I know net expansion has been very consistent over time and on the last call I think you talked about a 120% being a long-term goal there. Now that you've started to sell the Coupa Pay module has there been any uptick to net expansion relative to that historical range? And is there any countervailing effect from larger lands in the mid-market where it sounds like there's been some really strong traction there as well? Just curious how that's been trending? Thanks.

Yes. The renewal rates and expansion rates have remained largely the same and advanced change over time we will increase them. And we do expect over time which is a longer-term target that we could get to a 120%. But from a gross renewal rate and dollar based expansion rate, I would still say they are consistent with what we reported the past few quarters.

Great. Is there anything you could share just on adoption so far for that Coupa Pay module as you started selling that?

Yes. Look, I mean there is very strong continued interest. We now have dozens of customers in that area. We had I would say a bit more traction in Q3 especially since we launched our invoice payments module that's now available. But I will also say at the same rate, it's still too early to get into specific details on attach rates. I mean it will take some time for that to continue to play out. I think what's most interesting is just the level of interest and the synergistic elements of that capability with everything else that we offer. It's just something that customers and prospective customers are very excited about. And many are already well into deploying. So it's exciting area for us.

Your next question comes from Daniel Jester with Citi. Your line is open.

Hi. Thanks for taking my question. In the prepared remarks you talked about an example of a new go-live that was got to 95% spend under management in the first, I think I heard five months since they launched. I'm wondering can you step back and generalized kind of where that is for sort of go-live more recently and maybe how that has trended? Just trying to get a sense of how quickly you knew go lives have been adopting the platform. Thanks.

No, I really appreciate that question. It's a very interesting one for us. When we got going in this market or whatever it was over a decade ago, the reports then and they haven't changed that much by the way is that an average companies get somewhere between 45% to 55% of their spend under management. And these some of these were best-in-class kind of companies. And our customer community is getting to level like the one you noted very, very rapidly. And frankly getting to them especially in the long tail of spends which is very, very difficult to get your arms around. And we're consistently perfecting our method of doing that. Obviously, the U in Coupa is user centricity, our focus there is relentless. We've done some industry firsts in that area of getting rid of a whole host of different click pads and convoluted approaches to getting an individual, the most casual user to the most expert user to get the goods and services they need in front of them at the point where they need them, they can order them at the right price points compliantly. And giving the company visibility to their spend. So we continue to improve and improved with that every quarter through the learnings that we're generating with our customer community. I anticipate that to continue to grow in our vision is to help every company in the world get a 100% of their spend under management understand where it's going, have the agility to hot-swap from suppliers that are risky to those that aren't; get the best price points, manage all their commodities of spend in every format from pre approve to post approve to ongoing expenditures and to pay with the right cash management for those goods and services. So we've got a long way to go but we're making incredible progress.

Your next question is from Ryan MacDonald with the Needham. Your line is open.

Good afternoon, Robin and Todd. Can you give us an update on your FedRAMP certification and how that's progressing? Is this something that we're still expecting to be on track to be completed by year end? And then just more broadly how are you look moving sort of the pipeline strength within the public sector? Thanks.

Sure. So things are going well in that area. We were getting the right stamps of approval around FedRAMP as you know supported by the United States Postal Service. Our pipeline in federal is building up in a measured way. And we anticipate that vertical, if you will, to build out very similarly to the way many of our other verticals that built out. From retail to financial services to pharmaceuticals to automotive and a host of others. So that's on track and going well. And it's sort of measured with the expectations we had going in.

Your next question is from Brian Peterson with Raymond James. Your line is open.

Congrats gentlemen. You definitely have my respect. So, Rob, just one for you on the value of the community. I think there was a clear message out at Inspire and your comments on Source Together. It sounds like that's resonating with customers. I think it's pretty intuitive. How that would drive customers to utilize more offerings from Coupa, but I'm curious, has that had any impact on net new logos, either through competitive bake-offs or sales cycles? Any thoughts on that?

I think what's interesting -- thank you for that question, Brian. I think what's very interesting in our market is that when we got going here, the vast majority of prospective customers we're engaging with were, sort of, struggling with whatever solutions that they were using, whether that'd be sort of old incumbent technology solutions or some point solutions in certain areas and it took us a long time to get to a place to really establish ourselves, establish our platform, establish referenceability. We have hundreds and hundreds of customers of all sizes now on our platform. So yes, I would say, as of probably a year or so after our IPO, about two years ago or eight quarters ago, we started seeing this real pull from our community toward the innovation that we're developing for them. Our innovation around Coupa Advantage, our innovation around community intelligence, our innovation around community collaboration and now this innovation around Source Together. So there is real pull into the community for that. Now, how I could attribute that to ARR per customer, exactly, it's hard to make the attribution, but what I can tell you is, we've had 43 quarters where virtually every quarter has gone up in terms of ARR or Average Recurring Revenue per customer. So you have to believe that these innovations and our reputation and our credibility and our ability to do what we say we're going to do for every customer is playing into that in a meaningful way and we are definitely in the very early stages of leveraging this incredible power of our community to help them spend smarter together in the way that they all want to.

Your next question is from Joseph Foresi with Cantor Fitzgerald. Your line is open.

Hi. You mentioned in your prepared remarks about Coupa Pay and the progress you've made there. Any chance that we might be able to get some statistics around some of the progress you're making there, even if it's anecdotal outside of, obviously, the American Express relationship and any thoughts on sort of contribution both short and long term? Thanks.

Well, I'll let Todd add to my remarks on this, but I would say, look, first of all, there are great customer feedback and the desire to work with us in this area. That's unquestionable. All of the metrics that we're tracking are up into the right. Now, of course, they're building off of a small base, as you understand, but all the metrics up into the right. We are seeing meaningful traction in those modules as a stand-alone and we're also seeing it meaningfully impacting our win/loss percentage in our average ARR. So that's what I think we're -- I'd be more than want to share at this time, a very healthy part of our business emerging here.

Hey, Joe. I mean, we're really looking at metrics right now, and which metrics to present at the right time. As Rob mentioned, it is a bit early. We do have dozens and dozens of customers that are implementing Coupa Pay and we should start to see some more meaningful transactional volume, ACV volumes et cetera. And once we have a little bit more history, we'll start providing more metrics. And one of the things that Rob just highlighted is that, we are winning more often, and we're definitely winning bigger when Coupa Pay is involved from an average deal size. It's actually quite meaningful and hopefully in the near-term we'll be able to start providing some more metrics to you, but we're not ready to do so at this time.

Your next question is from Steve Koenig with Wedbush Securities. Your line is open.

Hi, guys, thanks for taking my question. I was wondering if you could maybe just give us a little color on the importance of partners to your various payment rails, how they help, and what more do you want to do with them? And since I might add, I just wondered if you had any comments on seeing new entrants like Workday and the sourcing space and how you see your differentiation across the procure to pay landscape?

Yes, sure. I appreciate the questions. So probably two distinct questions there. So one around partners. We, since the very beginning, knew that we want to build a business that allows us to focus on our core competencies and if there are other players in the world that can do things that they are very good at, we're more than inclined to partner with them. I mean, that's the O in Coupa, it stands for open. So, when you think about systems integrators, now, well over two-thirds of our deals are focused on systems integrators. The same methodology and thought process taken into the pay area. What are we great at? We are great at mass transactional platform processing of spend, done in a highly intuitive usable way that encodes best practices for a whole host of business processes. If there are players in and around our ecosystem that are focused on things that they are extremely strong at, financial services firms, other technology providers, we're more than happy to partner with them and that's exactly how we're taking it, if you look at the partnerships we've established to date. Regarding Workday and the announcement that I heard about them buying a smaller sourcing company, I will say that we're excited. We're excited for the additional validation of the category that we've been creating and cultivating now for over a decade in business spends management. And we have a lot of confidence in our buyer. Remember, our buyer is the key spender of an -- within an organization. They know how to identify value and we're more than excited to continue delivering exceptional value to them for many quarters and years to come.

Your next question is from Stan Zlotsky with Morgan Stanley, your line is open.

Hey, guys. Thank you so much for taking my question. Maybe a somewhat tactical question for Todd. On the subscription revenue line, was there anything from your deferred revenue write-downs that it may be impacted the quarter, revenue in the quarter a little bit more than in prior quarters, maybe more than you had expected and then a similar kind of one-time item. Was there anything one time in billings? Either some duration changes or also early renewals, FX, anything to help us? I just kind of triangulate these numbers.

So on the subscription revenues, if you look at the deferred revenue bleed off from Exari, it's not equally amortized. So the deferred revenue bleed off in Q2 was $1.9 million. The deferred revenue bleed off in Q3 was $1.6 million. So there was a net delta there of $600,000 from the Exari acquisition. Everything else, I would say was pretty standard. If you look at Q2 versus Q3, Q2 was very consistent linearity in booking and in Q3, we saw seasonal patterns that you would expect where August, given all the holidays. So when you look at revenue contribution in quarter, Q2 was higher, right, because that was -- it was more front loaded and Q2 was more in the second and third months, so that was a little bit of an impact from that as well. And then, the other question was with respect to -- what was it again, Stan?

If there's anything, any kind of FX or any duration changes -- billing duration changes in the quarter or anything like that, early renewals perhaps?

No. I mean, there is always a couple of renewals that come in early and that might get pushed out a month or so, but on balance, I would say there is nothing I would call out for me a one-time billings perspective and/or renewal perspective.

Your next question comes from Mark Murphy with JP Morgan. Your line is open.

Yes, thank you for taking my question. Much appreciated. Rob, regarding the Business Spend Index, I guess, I'm curious in aggregate, do you look at it and say that it's healthier or that it's softer than it was one year ago. And based on some of your commentary around that, does it support the idea of a gradual recovery in overseas activity, heading into early next year with some softening in the US? Is that what you were trying to describe there?

Yes, thanks, Mark. We didn't break it out geographically, but you can see the breakdown overall quarter-over-quarter and year-over-year on spendindex.com, and actually go in and look at it by vertical as well as spend some time, maybe, actually looking at the spend categories as well, which I think this quarter is not only new, but a pretty interesting indicator of certain things. I will tell you when we did the spend index last quarter, there was a slight uptick in overall sentiment, but there are certain industries that are showing very interesting signs. I called out two of them in my prepared remarks in financial services, as well as in manufacturing. In other industries like, let's say, the high-tech industry, which includes software and hardware and all elements of high technology companies, sentiment remains fairly stable, but there are slight upticks and downticks in the components such as time to approve spend, approval rates, average spend per person, data such as number of RFIs that are going out in aggregate across the world, and number of orders that are -- or percent of orders that are actually on contract. So I invite you to spend some time on spendindex.com to get the full picture of it because I think just a few words really don't do justice to the insight that the BSI provides.

Hey, Rob, just to clarify, when you say there is a slight uptick in overall sentiment, is that -- are you dollar weighting that by customer and by industry or is it -- is it based on aggregate dollar volume or is it based on the number of customers?

That is based on an index that has components, which include average spend per employee, which is the one component. You don't have to average -- you don't have to dollar-cost average. It's average spend per employee, based on time for approval. So from the point when someone makes a request to the point that the purchase sort of goes out in aggregate, across obviously, hundreds of billions of dollars in spend is based on the approval rates. In other words, have rejections of spend increased or have they decreased to show a sentiment to what will be happening next quarter. However, these types of components, we've never had a leading indicator of. We never -- we typically see spend that already happens. We never have had a chance to see spend that got rejected that would have otherwise never pass-through. We've never had the opportunity to understand how long it's taking companies in aggregate to make spend decisions. All of these are indicated as part of the overall index and the uptick is on the overall index itself. So if you look at the total number on the index, the index itself has a slight uptick across all industries and geographies in our Q4 report.

Your next question is from Peter Levine with Evercore. Your line is open.

Right. Thanks, Rob and Todd, for taking my question here. So on payments, assuming majority -- well, at least your larger customers already using a payment solution, can customers or will customers use multiple vendors to ticket sold take payments and the conversations that you're having with your larger customers, that already have a solution in place, how do you initiate those conversations here? How do they play out? Thanks.

Sure, sure. Thank you for the question. There is component to the answer because we now have three products in the pay area. And so, the answer to that question is different by product. If you look at the virtual card area, that's been an area that's been very difficult for companies to adopt because it wasn't very usable. You didn't have a point in time virtual credit card number that you could apply to a pre-approved spend with a given supplier and that have all that reconciliation done in the back end. We've done it in a very unique way. And so, we're taking spend that was largely maverick and on corporate cards and sort of on expense reports and pulling it into a controlled environment and we're getting real pull for that among the customer base. When you look at dynamic discounting or elements of Coupa Accelerate, there, we have a whole host of companies that are not really managing their early payment discounts effectively. They're not taking advantage of the ability to pay earlier, but pay less. And in some cases, suppliers are not getting the opportunity to get paid earlier for their own cash flow needs. We're helping in that collaborative environment. And then the invoice payments area, look, we're best-in-class in procure to okay to pay, if you will, and to complete the cycle, you have to actually run the payments capability. Now we're seeing customers pulling some of those capabilities out of their ERP systems and into Coupa, which is a big opportunity for us. There's a lot of flexibility in having all that in one environment, be able to kick off batch payment runs across any rail internationally. So by product -- it's different by product, but in all area, there's very real interest and there's real value to add to companies who are doing these things in ways that are frankly just subpar.

Your next question is from Siti Panigrahi with Mizuho. Your line is open.

Thanks for taking my question. You have been delivering accelerating revenue growth, but as you look at -- look into 2020 growth opportunity, Rob, so one of the things that you are more excited about, is it more on the -- some of the geography or is it more certain business segments or verticals or products anything -- any color would be helpful?

Yes. No, sure. Thank you for that. Look, I mean, again, it may be not be -- maybe a little bit of a boring answer, but it's in all of those areas, continued expansion around our product depth and breadth, continued expansion geographically, continued expansion with our global systems integrators, continuing to work with each individual customer to drive more and more value for them and we do this across -- along a very simple model that we've followed now for a very long time, which is a model that calls for greater than 30% top line growth in a sustainable way, a very balanced expenditure on sales and marketing to achieve that type of growth and then continued scale to the bottom line in terms of our gross margins and operating margins and the cash flow that you're seeing coming off of this business. So with those guardrails in mind, we push on all vectors of the business to drive value for our customers and doing so, one customer at a time. So they have the opportunity to keep them forever and continue to grow more and more value for them as we continue our relationship.

Your next question is from Koji Ikeda with Oppenheimer. Your line is open.

Hi, this is Chad Schoening on for Koji. Thanks for taking the question. In the past, you guys have talked about Asia-Pac kind of be an area of focus. I'd be curious to hear just an update on sales productivity or business momentum in the region there. Any color or just helpful anecdotes there would be great. Thanks.

Yes, no, sure. It's a definitely a growth area for us. We're doing some very interesting deals in Japan, for example, retail and financial services in Singapore, really good volume and healthy business developing in Australia and a whole host of other customer sort of hot areas for us in Asia-Pac. So very real interest and very real growth for us that really mimics many of the other regions we've entered over time, obviously, most notably Europe and various countries across Europe, and we plan to continue that in the quarters to come.

Your next question is from Alex Zukin with RBC. Your line is open.

Hey, guys. Thanks for taking the question. Rob, so maybe just the first one on Coupa Pay. I know it's been hit on a couple of times, but you mentioned the three different respective modules. I'm just curious, as you're seeing the adoption within your customer base; can you talk to which of the modules is coming along faster from an adoption perspective? And maybe just looking at over the next, call it, 12 to 18 months, where do you expect -- where are you most excited? Or where could the most impact come from with respect to those three different modules with Coupa Pay?

Sure. Thanks, Alex. It's a little bit difficult to answer that question in the sense that we didn't launch all three at the same time. We launched vcard first, and then Accelerate and most recently invoice pay. And all three have gone in a sort of measured growth pattern, one after the other. But the second part of your question in terms of most excited, I think invoice pay is an incredibly big opportunity for us. I mean it is just being done in a very sub-par way today. There is lack of agility in that area. There is a lack of efficiency in how that's being handled and it really calls for being pulled into a centralized business spend management function and out of a whole host of different back end ERP systems where it's sort of being locked. That's what we're hearing from our customers and I've -- we're being quite optimistic about the growth in that area in coming quarters.

Got it. And then, Todd, just back to the outperformance on the operating line, were there any one-time items to consider or are there any kind of repeatable things that could come through over the next couple of quarters as well?

Nothing that I would necessarily call out as major item and obviously we expect margins to improve as Exari gets to steady run rate. The inorganic contribution from Exari in Q3 was $3.7 million. And as we noted last quarter, we expect that to get up to $25 million next year. We also in the gross margin line, we've had additional amortization of capped up in the back half of the year due to more Coupa Pay products being released, most notably the invoice payments products. So previously, this was a benefit to gross margins, and now to come through in the next few quarters. And there are also some costs that are non-recurring in nature that as we continue to consolidate and optimize the hosting architectures of companies acquired. So, if we move them onto our, what we would consider more efficient platforms, there are some one-time costs in the cost of sale. Besides that, we have still been -- a sort of the hiring and we hired quite a few people in Q3. We'll update the headcount numbers at the end of Q4, but you'll see some additional impact in Q4, which is reflected in guidance as those people that came on board have a full quarter of expense. End of Q&A

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