COUP (2021 - Q1)

Good day, ladies and gentlemen, and welcome to the Coupa Software First Quarter Fiscal Year 2021 Earnings Release Conference Call. At this time, all participants are in a listen-only mode. At the conclusion of our prepared remarks, we will conduct a question-and-answer session. As a reminder, this call is being recorded. I would now like to introduce your host for today's conference call, Mr. Steven Horwitz, VP of Investor Relations, Mr. Horwitz, you may begin your conference. Steven H

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

Thank you, Stephen. Hello, everyone, and thank you for joining us. Let me start my remarks by vehemently acknowledging the racial intolerance and ensuing violence taking place across America. My colleagues and I stand committed to support of all that seek to eradicate racism, hatred and injustice, wherever it may rear its ugly head. We acknowledge that we got to start making changes as a society and as a people, and we’re committed to the cause. On a separate and key topic, let me also say that our thoughts and prayers go out to all those affected by the global Coronavirus pandemic. We thank all the brave individuals putting themselves in harm's way to help others. Now, as you'd expect, when the pandemic broke, the safety of our colleagues have to come first and that continues to be the case. Being a highly distributed global company before the shelter-in-place orders were put into effect made for a relatively smooth transition to the work from home model for our tech savvy organization. Our video conferencing usage has nearly doubled to more than three hours a day on average per colleague as we stay connected, and continue pushing the value creation that our community has come to expect from Coupa. We remain connected, focused and in positive spirits as we continue to do what we do best.

Thanks, Rob and good afternoon, everyone. These are certainly unprecedented times as I discuss our Q1 results and guidance for Q2 and fiscal 2021, I want to give you additional context regarding the key drivers of our business and our approach to managing through the COVID-19 pandemic. At the highest level, our strategy remains exactly the same. We manage our business to one, 30% plus annual revenue growth, two disciplined sales and marketing investments, and three, demonstrating leverage in our model as it relates to operating and cash flow margins as we continue to grow. As ever, we remain focused on resilience and long-term market leadership. Now let's dig into the details. Total revenue for Q1 grew 47% year-over-year to $119 million. Subscription revenue for Q1 was $106 million, up 45% compared to Q1 of last year, comprising 89% of total revenue. Professional services and other revenue was $13 million, which includes the benefit of a few strategic direct services engagements. Let me highlight a few items that are reflected in Q1 subscription revenue. One from a linearity perspective, new bookings were backend loaded with April being stronger than March, two renewals were strong, consistent with prior quarters. And three, there were two fewer days in Q1 versus Q4, resulting in less steady state subscription revenue being recognized this quarter compared to Q4. In Q1, we also delivered strong professional services and other revenue, demonstrating our ability to remotely implement and take new customers live, as Rob mentioned in his remarks. Calculated Billings for Q1 were $102 million up from $75 million in Q1 of last year, representing a 36% year-over-year increase. For the trailing 12-months, Calculated Billings were $496 million up from $340 million in the previous trailing 12-month period representing a 46% increase. Total deferred revenue at the end of Q1 was $244 million, up from $176 million at the end of Q1 last year, a year-over-year increase up 39%. Let's now turn to margins and results of operations, driven by our strong revenue performance in scale in our financial model, our first quarter non-GAAP gross margin was 73.6%. For operating expenses, consistent with our long-term strategy and disciplined approach, we continue to assertively hire across the business with a particular focus on sales in engineering. Although we continue to make these strategic investments in Q1, we were again able to show scale and leverage in our operating margin and free cash flow results. We delivered non-GAAP operating income of $14.9 million, as well as non-GAAP net income of $14.5 million or $0.20 per share on 71.7 million diluted shares. Similarly, cash flow results were strong for the quarter, GAAP operating cash flows for Q1 were $15.4 million and adjusted free cash flows were $22.4 million, or 19% of total revenues. As a reminder, we defined adjusted free cash flows as operating cash flows, less purchases of property and equipment, plus repayment of convertible senior notes attributable to debt discount. Q1 was our third straight quarter with more than $20 million of adjusted free cash flows. On a trailing 12-month basis, GAAP operating cash flows were $64.8 million or 15% of total revenue and adjusted free cash flows were $62.5 million, also 15% of total revenues. Cash at quarter-end was $706 million, down from $767 million last quarter. The decrease was driven by $92 million paid to settle the principal of early redemptions received for our 2023 convertible notes. Now let's turn to guidance. Before we delve into specific numbers, let me provide some high level commentary. Our business remains as agile as ever regardless of what the broader circumstances in the market may be, we will continue to execute our strategy and position Coupa to win the BSM market and drive long-term stakeholder value for quarters and years to come. With respect to guidance in particular, our current operating thesis is that the macroeconomic environment will remain challenging for at least Q2 and Q3 with things beginning to open up more broadly in Q4. We entered Q2 with a stronger pipeline than the same time last year, both on a gross basis and in terms of what we would consider to be later stage qualified pipeline. Not surprisingly, many of our customers and prospects are now operating with significant headwinds, especially those in industries highly affected by the pandemic, making it difficult to predict the timing of when deals will close. The second quarter and full-year 2021 guidance we're providing today incorporates our current assumptions with respect to the macroeconomic environment, based on information available to us at this time around new business, renewals, timing of collections, and various other inputs. Variations from these assumptions may cause our results to differ. With this as the backdrop, we expect total Q2 revenue of $118 million to $119 million, this includes subscription revenue of $107 million to $108 million and professional services revenue of approximately $11 million. We expect Q2 non-GAAP gross margin of 70% to 71% and non-GAAP income from operations of $5 million to $6.8 million, the result is a non-GAAP net income per share of $0.06 to $0.08 on approximately 73.5 million weighted average diluted shares for the quarter. On the OpEx side, please note that our sales and marketing expenses will not see the spike in Q2, typically associated with our Annual Inspire Event. Instead, we will bring our BSM community of customers, prospects, partners and employees together through a series of highly curated virtual and physical experiences over the course of the second half of this year. Furthermore, after generating in excess of $20 million of adjusted free cash flows in each of the past three quarters, we expect Q2 adjusted free cash flows to be approximately breakeven, similar to the seasonality we saw last year. When updating your models, please remember that separate from the impact of COVID-19, we have two events from Q2 of last year that impact the year-over-year compare for Q2 billings this year. One is noted last quarter some of the new customer billings which were billed in Q2 of last year were billed Q1 of this year for the terms of the contract and two the Exari acquisition that we completed in Q2 of last year. We estimate that the impact of Q2 billings from these two events is approximately $15 million. For the fiscal year-ending January 31 2021, we expect total revenues of $489 million to $491 million. This includes subscription revenue of $442 million to $444 million and professional services and other revenue of approximately $47 million. We expect non-GAAP gross margin for the year of approximately 71%. We also expect non-GAAP operating income from the year of approximately $28 million to $30 million, with non-GAAP earnings per share of approximately $0.36 to $0.38, based upon an estimated 73 million weighted average diluted shares for the year. Although as we noted last quarter, our customer collections at the end of fiscal 2020 significantly exceeded our expectations, creating a difficult year-over-year compare for us this year, we still expect adjusted free cash flows to be up year-over-year on an absolute dollar basis. To conclude, we’re clearly living in uncertain times as we focus on supporting our employees, and ensuring that all members of the Coupa community emerge from this pandemic stronger. We will continue to leverage our disciplined financial approach, the strength of our balance sheet and a focus on business resilience to position ourselves to emerge stronger when the current crisis subsides and continue to extend our market leadership position. Now, we would be happy to take your questions. Operator?

Thank you, Mr. Ford. And your first question comes from the line of Stan Zlotsky with Morgan Stanley.

Perfect, thank you so much guys and congratulations on a very nice quarter given the challenging backdrop. So from my end, you noted there were some deals that were that got pulled into the quarter and some of them, maybe they're pushed out? Are there some commonalities between the kind of deal that you're seeing being pulled in and some that are maybe getting pushed out and the ones that are getting pushed out, is it fair to characterize them as maybe closing towards the Q4 part of the year or would you expect them to start closing earlier as you start to maybe see a little bit of normalization in Q2 and Q3, and then I have a quick follow-up.

Sure, thanks Stan. I wouldn't say there’s anything's statistically significant to denote those that were slightly more pulled in those that were just slightly pulled out. I think it's very context specific, individual person specific, situation specific. But when we think of the pipeline itself, that continues to be very, very robust and continues to build and we continue to see deals moving through all stages of our pipeline. And of course as you would expect, our job would be to get these customers onto our platform as soon as humanly possible. I mean, the value that is delivering for our existing community, and some of the newer customers are able to go live even through this very difficult first quarter is real, it's measurable, it's highly referenceable and undeniable. So our goal is to get these customers onto our platform as soon as possible.

Got it. And then on the Coupa Pay personally, thank you for giving us at least ballpark for the 100 customers that are now on Coupa Pay, when you look across these customers, which products are you seeing the most traction with within the Coupa Pay portfolio? And how are you thinking about from seeing these 100 customers now come up on the further refinements to the Coupa Pay modernization? Thank you.

Yes, sure and I appreciate that. What's interesting about Pay is that we're seeing it get absorbed, absorbed by our customer community a little bit, I would say in tandem with the releases of those three offerings that we took GA, so accelerate without question is a critical component that allows folks to really sort out cash flow from both the buy side and sell side. Virtual credit cards continues to be a strong player, but we're seeing very real traction now with invoice payments, which has just a whole host of components that streamline a business process, gets you out of paper, gets you out of our incumbent solutions which is very, very inflexible. So we're seeing nice adoption across the board and we're seeing it interestingly with new customers almost equally as much as we're seeing with our existing customer base that's adopting it. So really, really promising.

Thank you.

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

Thanks, gentlemen, appreciate you taking the question. So Rob, first one for you, I'm just curious on the Value As a Service narrative, when you're talking to customers, particularly over the last few months, has that changed at all? Because obviously, the ROI proposition has always been there, but the idea of analytics or changing business processes. I'm just curious, what of your customer conversations been like in terms of the Value As a Service?

Well, thanks for that question. I mean, the customer conversations have been just really humbling and rewarding on behalf of all my colleagues here, right. I mean, we've had companies tell us that they simply wouldn't have been able to get the spend control they needed to dynamically adjust, approvals in a moment's notice, they just simply would not have had that agility. Others have commented on the visibility that the platform offered them, others commented on the ability easily hot swap from one supplier to another that they identified risk with. Many complimented on the pace of their deployments, I mean we took so many customers live in Q1, and they were amazed about our ability to do that virtually in concert with our systems integrator partners. Many commented on the openness of the platform, which I was actually a little bit surprised about, but they were commenting on how they didn't have to concern themselves with certain integration points breaking as they have with older incumbent solutions. So a lot of really, really strong praise from the customer community and because of that and because obviously, the reference ability of that, it bodes well for the continued growth of our community from a prospect perspective as well.

Thanks, Rob And maybe just one more. I know historically, the focus has been much more on acquiring new logos, just where you are in the adoption curve and the opportunity, but then any update on filling back into the installed base that it sounds like that was a pretty strong quarter in that regard?

Yes, I appreciate the question. We actually have not changed our approach in any way. We continue to be following very much the same hunter mindset. But what was interesting during the quarter is we had an increase in inbound demand for some of those applications that offered the fastest return given the current situation. So things like, the ability to quickly assess supplier risk through our Risk Assess application, the ability to dynamically run a sourcing event, whether it be their Source Together, or on their own, the ability to very quickly get their arms around the contingent workforces that they're using and onboard folks on a temporary basis rather than full-time. So it was very, very interesting way to add recurring revenue for us with a much lower cost of customer acquisition relatively, but at the same time, drive greater, greater Value As a Service to our customers, which is obviously what we're all about.

Good to hear, thanks Rob.

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

Thanks for taking my question. Very impressive to see 100 Coupa Pay customer. Could you talk about the traction between the three module mainly the invoice payment modules. And also remind us the pricing model of these three different Coupa Pay and also you talked about 20% upside in average deal size that includes Coupa Pay. So did you see the similar trend this quarter?

Well, there are a number of questions there. I'm not sure I'm going to remember them all in the right order. But let me address that I think the spirit and the theme of it which is really around Coupa Pay, our approach to that market and the pricing component there. Just to give you a sense for Coupa in our history, we always want to be on the same side of the table with our customers. We see our customers as our partners. So we never want to be in a situation where we are in some way disincenting them from using our platform. So our pricing model is a combination of a subscription that's often based on kind of transaction volume, we would anticipate as well as some kind of per transaction fee. And the balance between those two is somewhat drawn, somewhat concluded based on our interactions with the customer and their willingness to embrace a greater, greater upfront fee versus a transactional fee. So that's our general approach to it. As I shared in the earlier response to question asked about Pay, all three of the modules are gaining traction in the order that we've released them and invoice payments in particular taking on a very, very significant business value proposition is really starting to get some, some meaningful traction. And as we've done with every one of our modules, we iterate three times a year in our releases, so we continue to learn from the way our customers are using these products and then make them more and more robust with every release, this is one of the reasons we continue to invest in R&D and continue to invest in our distribution.

And then with respect to total pricing at the highest level, our ARR per average deal continued to go up meaningfully quarter-on-quarter which really shows the value of the platform and then with respect to Coupa Pay in particular yes the average deal sizes with Coupa Pay were greater than 20% than those without.

Thank you.

And your next question comes from the line of Raimo Lenschow with Barclays.

Hey, congratulations from me as well. Question for you guys, if you look out for like obviously everyone thinks the world is getting better. But if you think about you running the business you see from the BSI Index that things are still kind of tough out here. If you look like what are the metrics that you guys are looking at to kind of stay in tune with the client and stay in tune with the client spending. Can you talk a little bit towards that please? Thank you.

Well, that's a phenomenal question. But that one, I could give justice to it with a quick answer, we look at just about every possible operational metric that we can get our arms around the company. And we combine that with our own executive judgment and sense for the leading indicators around that. So everything from pipeline development to movement through the pipe, to speed of adoption, and go lives by customers, to the value generated from the offerings with our installed base. I mean everything you could possibly imagine. So rest assured, we're not at short of metrics here. It's having those metrics every quarter, going into them in great detail and then applying our greatest sense and judgment that gives us the ability to make those quarterly decisions around headcount expansion, investment, global reach and all the things that we do at this company.

Perfect, thank you.

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

Thanks for taking my questions and great quarter. I just had another question here on with, thank you for the disclosure on the 100 customers there and wanted to dig in a little bit more on those half of those customers, those Pay customers that were new to the company, so I would assume is the right way to think about it that does that imply that that's dual deployment of the core procurement platform and Pay at the same time? And how does the current environment change the conversation of dual deployment? And then I guess just thinking about those 100 Pay customers, overall how penetrated is Pay within those organizations?

Well, Pay is one of our transactional areas right, so procurement expenses, invoicing and Pay and what we’re amazed to see is how much of Pay is being done in very arcane ways today, everything from the paper checks that I described to bi-weekly batch payment runs with an ability to change parameters using a whole host of different rails that aren't exactly optimized for the payments process. So in many cases, we'll go into a new customer interaction where Pay will actually be the driver for the broader Business Spend Management opportunity. And in many cases, it's just one of the components. So again, we want to be able to drive as much value as quickly as possible to every one of our customers. And we're flexible enough to be in with any of the transactional components as well as any of the power applications to do so.

Got it. Thank you and one quick follow-up for Todd. I might have missed it. But could you talk about the dollar base financial rate in the quarter? Thank you for taking my question.

So on dollar bass expansion rate, historically the range has been 110 to 112. We did note last quarter that it was well above that range and it was above that range again this quarter. And that's without including Coupa Pay, still not ready to put out a new range just given the volatility of the market and things that are happening. But in general, yes we’re seeing the dollar base expansion rate go up. And with existing customers, things such as strategic sourcing and the risk where products are very important in today's environment. So we've seen more customers digging in with those products. But in general, the dollar base expansion rate continues to trend strongly.

Thanks, Todd. Thanks for taking my questions. Appreciate it.

Your next question comes from the line of Steve Koenig with Wedbush Securities.

Hi, gentlemen, thanks for taking my questions. I appreciate the fact that you guys guide prudently and you had a great quarter and you're listening your guidance, but I'm wondering if you think about what your view was three months ago versus now that the pandemic is raging and what changed? Can you give us any color with respect to the impact on revenue, whether expansion, renewals or new logos like which of those have been most impacted. And similarly on billing, any changes to billings terms here, customers not paying ability to collect. Thanks very much.

I'm going to let Todd talk about some of the financial measures. But let me just tell you thematically, it's absolutely amazing to see companies and many of the conversations I'm having really understand the priority of what we do in a way that we hadn't seen in the past. We always knew that driving Value As a Service but driving operational efficiency that focus on prudent spending, focus on mitigating supplier risk, all of that was very, very important. But much of that is really emerging right in front of them as a much broader priority for just procurement or even CFOs. It's at the CEO level. And so we're really excited to be partnering with some of these forward thinking organizations that not only want to address the current situation, but really want to set themselves up for the next three years, five years, 10 years, so they can help their company emerge as one that is not only highly, operationally efficient, thrifty and thoughtful. Well, one that's set up for long-term growth. And much of that begins to play out in our business, which obviously talk to speak to from a financial metrics perspective.

Yes, so there's a lot of moving parts to your question there. With respect to revenue, the single biggest impact of revenue for us has been Coupa Travel Sabre i.e. the Yapta acquisition. And if you remember back to Q1, we expected $1 million to $2 million of revenue from that business. And if you look at how we're thinking about that the rest of the year, we're basically assuming virtually no revenue contribution from that that product line. And to the extent that that Travel and Leisure market picks up for corporate businesses, that would be upside to our revenue. And if you looked at the annual revenue guide, it was obviously a bit lower than our beat for Q1. And that's really the primary driver for that. With respect to billings and payment terms, really haven't seen any difference there yet. And we have had a few customers and impacted industries ask us for extended payment terms, only a handful of those have actually gotten to my level. So in certain circumstances as good corporate citizens for companies, you would all know we've extended payment terms, 60 days, 90 days, and maybe one case that was larger than that. But so far, so good. And we'll continue to monitor that as time plays out. And then from a collections perspective, obviously, Q1 was very strong for us. And it really speaks to the value of our platform as well. We're mission critical, people need it, they see the value, and so they're willing to pay. So there have been a couple of exceptions. But actually, that was much better than what I originally thought it would be.

Cool. Thanks, guys.

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

Great, thank you for taking my question. I was just wondering, given all the thematic thoughts that you had in your prepared remarks about risk mitigation, and companies very focused on their supply chain. I'm wondering as you talk to sort of new and existing customers, how focused are they on direct procurement versus indirect procurement. And how much of an opportunity is it for you to get even further into direct procurement? Thanks.

Well, that's a great question. I mean, the conversations I had during the quarter both were absolutely right as there's a real focus on controlling all elements of their spend direct and indirect and of course, we supported them on the direct side and a whole host of use cases from complex invoice management electronically to some of those complex sourcing events imaginable to supplier risk management, to inventory management of direct, so absolutely that that is an opportunity to continue to expand upon with the existing customer base and frankly, in our platform for the growing customer base we're going to be taking on in the months, quarters and years to come.

Great, thank you.

Your next question comes from the line of Pat Walravens with JMP Securities.

Great, thank you. And let me add my congratulations. Hey, so Todd, if I look the midpoint of your guidance works out for Q2 works out about 25% growth in my model, and then Q3 and Q4 goes from 19%, 18%. And I guess you could cut that different ways. But if I look at that, is the difference between sort of those guiding growth rate and the 30%? The good way to think about the impact of what the economy is like right now, or should we be thinking about something else?

It's always been a bottoms up approach with us with respect to guidance and if you look at the underlying drivers right, if you look at professional services revenue that's been solid. We have a big pipeline of professional services, we’re showing the ability to bring customers live remotely. Renewal rates tend to be strong. The new business is obviously a key driver and if you look at our sales pipeline, from a gross and later stage it’s higher than ever. But there is the impact of COVID. And from when you look at the rest of the year, although we have a lot of positive underlying indicators, it's really hard to project what that's going to look like in the back half of the year. If you look at the revenue guidance for whether it's a quarter, or an annual basis, the vast majority well above 95% of that is already contracted, even if you assume a conservative renewal rate, a dollar based expansion rate of 100%. So, as we get more clarity throughout the rest of the year, as we've done in the past, and we will continue to update guidance accordingly. But in the near-term, we're trying to basically project what we see.

That's great, thank you. And then on the billings, you gave the color about sort of $15 million headwind. I mean, if we taking that out would billings growth be about the same as the revenue growth you guided to? I'm just trying to figure out where we put that?

Yes, so Q2 for the reasons we've just discussed is by far the most difficult quarter from a calculated billings perspective. Once again, professional services is strong, renewal rate is strong. We've even looked at renewals going on 18 months and, really don't see any risk. The unknown obviously is bankruptcies, right. So while we don't see any bankruptcy risk in today's environment, I wouldn't be surprised if something happened and once again, I don't see anything. We've looked at all of our customers. And then when you kind of roll that all together from a calculated billings perspective, I believe the trailing 12 month calculated billings will be greater than 33%, exiting Q2. But the order of magnitude of how much higher will be given the current macroeconomic environment it’s very difficult to ascertain. And then also we have the year-over impact from Exari as well, because we acquired Exari in Q2 of last year.

Yes, Okay, great, thank you.

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

Hey guys, good afternoon, thanks for taking my call. On Pay, once again, I was wondering if you could provide kind of any update on new payment rails that have been added, trends in payment volume and existing customers and how much take rate based revenue or take rate based really, take rate based revenue is being derived from the Pay model. Thanks.

Sure, so let me just give a little bit of background on the depth of functionality that is managed around invoice payments themselves, because there we're taking on a very significant set of capabilities and rails, they're traditionally being done either on paper manually or part of a very arcane, older system. So in order to get heavy volume in take rate transactions, you need to be able to accommodate some of those key capabilities at a level that is at least the 80:20 that a customer would expect. So you would anticipate deployments to happen first of all, sales to happen first, deployments to happen second, and then transaction volume to accelerate in that order. All three of those measures, all three of those phases of the lifecycle interacting with our customers are taking place. And in conversations with those customers in the pre-sales process, we're finding the right mix that's good for us as well as fair for the customer themselves, the balance of what component of the offering will be captured in the subscription value that's derived and what component will be captured via the take rate. And we will continue to flex those and modulate those. So we get the mix just right, as we look to scale as well beyond 100 customers to 1000s of customers obviously, in the quarters and years to come.

Thanks very much.

And your next question comes from the line of Michael Turrin with Wells Fargo.

Thanks. Good afternoon. We've seen other companies in software have a more difficult time sustaining pace in billings and or free cash flow trajectory here more recently. Is there any additional commentary you can add around how you're able to deliver upside on both sides of the equation here in this environment Q1 and then on the expectation for free cash flow closer to breakeven in Q2, maybe how much of that is related to general season patterns you've seen versus incremental impacts from the current environment? Thanks.

So I think from a financial model perspective, one, we've always been very disciplined in how we deploy new capital, how we look at revenue billings, how we guide, we typically always tried to guide from the perspective of working our way up from the worst case scenario possible and really focused on execution. I've always said this is an execution play. And if we don't deliver the midterm and long-term targets that we've committed, that I would likely get on a call like this and say we just simply didn't execute. And the pace of execution here. Even though it's been in a COVID environment has been stunning. And Rob mentioned a number of minutes on Zoom and that type of thing, but we're engaged and we have productivity metrics on the sales side, so we can see how many e-mails are being sent, how many meetings are being sent, and then just the quality of the pipeline, so I think it's a combination of being financially disciplined. The way we execute and then with respect to free cash flows that you were mentioning, three straight quarters are greater than $20 million. If you look at the free cash flows generated in Q2 of last year with the low point of the year and Q1 is typically the lowest quarter from a calculated billings perspective and then that bleeds into Q2 collections, et cetera. So I think it's just been very disciplined and thoughtful across all of those dimensions.

That's helpful. Thanks, nice start to the year.

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

Yes, thanks guys for taking the question. Congrats on deal with adversity in a stellar way. I guess maybe just two quick ones from me, Rob maybe the first one, I want to kind of go a little deeper on a comment you made in the script about reaching out beyond your current customers where you were able to actually leverage your supplier network, even for non-customers, when you think about the Coupa vision, the product direction in a post-COVID world, can you talk about what you see as initiatives that might accelerate or that you might accelerate or defer to solve some of these new pain points for customers?

Sure, sure. Thank you, Alex. I appreciate the question. One of the things that sometimes gets lost in the prepared remarks even in these conversations, just the power of this incredible community that we're building. Just give you one example of the kinds of things our team is working on, many companies are going to start to re-enter or beginning to re-enter and virtually all of them need certain indirect supplies to make that happen. So we're actually negotiating product bundles by industry, to have certain using our Source Together capabilities, so that customers of all sizes within our community can leverage centralized contracts for everything they need to re-enter. You can imagine non-healthcare organizations needing surgical masks and hand sanitizers and disinfectant wipes, gloves, KN95 masks, sublimated masks, so all these things and creating packages for healthcare organizations that will include things like IR thermometers, and isolation gowns and things of that nature. So we're taking the power of this community, and driving incredible volumes to suppliers that are able to deliver for that community at fair pricing that's delivered rapidly. That could be very, very agile with their business. And for me, that's an incredible power that goes well beyond any feature function we could ever build in our platform, it's the power of the community that we're developing. And that's really just one example of the tip of the iceberg of what this community is able to do and will be able to do in the future.

That's super powerful, and maybe Todd or Rob, I'm not going to ask you saw conservatism in your guidance, because it appears to be that you're fairly, fairly good there. But I want to ask you maybe a more high level question, which is you see these COVID trends, you see these sales cycles. You talked about pipelines being great, you talked about engagement levels being great, maybe better than April, April being better than March presumably May be better than April. At what point, I guess at what productivity capacity do you feel like you’re operating now from a go-to-market perspective? And talk about, if you start trend lining these normalization rates, where do we, when do we get back to a normal productive capacity at the rate at the current trend line?

Yes, there's a lot baked into that question, Alex. I mean, you touched on what we saw and I would say middle of March, the very beginning of April, which was this acute moment where people were almost caught in the headlights, if you will. But after that, a real quick reemergence to priorities and us being a very key priority of that. One of our three pillars for the business is sales and marketing efficiency. And so we look at that every quarter. And we want to make sure that we're both well equipped for the needs, our goals around distribution, but at the same time, not overstepping our opportunity in a way that that some companies do. So we're going to continue manage that very, very carefully every quarter and calibrate and we built in a whole host a different scenario analysis that we've done to make sure that we continue to thread that needle carefully. We feel like we're in a really good position now, not only for the medium term, but really for the longer-term to capitalize on not only winning this Business Spend Management multi-10s of billion dollar market opportunity, but delivering for customers in a way that they would never want to leave and would only want to add more and more capabilities on our platform.

And Alex from an engagement perspective, and if you look at the hiring we did in Q1, we brought on quite a few quota carrying sales reps. And that's really with an eye towards the back half of the year and going into next year to make sure that we’re ideally positioned to be resilient and exit this crisis in full-on mode. And the part where we or I would get a little bit more nervous is if you don't see these people being able to get up to speed, acculturated and start to build pipeline. And then the other interesting dynamic is when deals are pushing right, we've done a lot of analytics around this, most of them are pushing for weeks and months, not several quarters. So we do believe that when the world comes back to “Normal”, we’ll be very well positioned. And you did have, as Rob mentioned early on, especially in North America, the deer in the headlights, okay, I'm triage I got to get my head around things and Europe is being a little bit better positioned, because planning for Brexit, et cetera. And we're seeing that already right. Europe is coming back online faster as well. And North America is kind of getting through the triage. And you see some glimmers of hope right, like things appear to be opening up. But we all know that that could change on a dime as well. So we're trying to be balanced, but yet really position ourselves for resilience so that when the market is there, we've got the feet on the street, we've got the pipeline and then we kind of catch-up from where we left-off when things turn.

Your next question comes from the line of Terry Tillman with SunTrust Robinson Humphrey.

Yes, I really appreciate you all fitting in and congrats from me as well. I'll just make it simple and just one question. With the global size, they got to figure out how to keep their people busy and working so they don't have to cut job and you got to look at what's discretionary and what's going to really be a strong ROI seems like you all really set up well in board, global engagement. So what I would love to hear Rob is just, are you getting more of a seat at the table with the global size? Or is there any kind of KPIs or anything to talk about maybe how amid all this uncertainty, maybe there's greater engagement. I just would love any perspective on that. Thank you.

Your perspective is spot on. I mean, the level of interest from the system's integrated community except especially the top firms to wrap services around what we're offering has been really exceptional. It's a real uptick that we saw in Q1 around that because the priority of what we're offering is not only exceptionally high in ROI but requires a mindset shift amongst so much of the core market from being paper based and not having the controls and visibility to their spending. So we saw a very nice uptick there, very encouraging uptick there in the first quarter, and we'd anticipate that to continue to build upon absolutely.

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

Great, thanks for squeezing me in here. Maybe just for the customers deferring decision. I mean, obviously I'll surprise anyone at this point. But is that just a matter of business confidence or some sort of, we're used to sort of kind of managing budgets. And can you talk a little bit about whether or not that conversation is different if you're discussing procurement, travel expense, or even Pay and so that’s just pretty similar across the street?

Yes, semantically when that arose, and the times that it did, it was largely because of this acute phase that I described where folks are figuring out how to get online, how to navigate the health and safety of their employees, how to think through their own public companies, their own quarterly kind of metrics and things of that nature. There was just simply this acute phase but early signs of emergence from that acute phase as well as early data that we saw in April suggests that our value proposition is very much at the very top of the list when that reemergence happens and that’s also seen in the growth of our pipeline at various stages as well as the closures that we saw as soon as that acute phase sort of subsided.

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