Coupa Software (COUP 76.85, +4.85, +6.74%) is trading sharply higher after
reporting Q2 (Jul) results last night. Coupa is a cloud-based provider of
business spend management (BSM) software. Its platform provides clients with greater
visibility into and control over monetary spending at their companies with the
goal of empowering clients to identify and realize opportunities for saving
money.
The company’s platform helps clients to monitor many
different forms of corporate expenditure, from supply procurement to inventory
balancing to travel charges, providing capabilities suited to different types
of expenses and payments. Indirect spend -- that is, expenses related to the goods
and services that support a company’s operations, rather than a company’s
direct spend into its products -- is particularly difficult to manage due to
inefficient employee spending behavior and disparate systems that impinge on spending
visibility. The core of COUP's platform consists of procurement, invoicing, and
expense management modules that form its transactional engine and capture different
aspects of a company's spend. As more vendors use Coupa’s BSM platform, the
platform becomes more useful to clients, and the collective amount of spend
under management increases.
Furthermore, the company offers purchasing programs as well
as a system known as the Coupa Open Business Network, through which suppliers
of all sizes can interact with buyers electronically, thus significantly
reducing paper usage, improving operating efficiencies, and reducing costs.
COUP sells its product on its own, but it also works closely
with systems integrators, including KPMG, Deloitte, Accenture, IBM, PwC, and
Wipro, to drive enterprise adoption.
Turning to the Q2 (Jul) results, Coupa reported a non-GAAP
profit of $0.05/share, up nicely from a $(0.10) loss in the prior year period.
This was much better than prior guidance. COUP had guided to a non-GAAP loss of
$(0.10)-(0.08), so to see a profit was a nice surprise. Revenue rose 38.3% year/year
to $61.7 mln, which also was well above prior guidance of $56-57 mln.
Subscription revenue rose 39% year/year and 11% sequentially to $55.4 mln.
Non-GAAP operating margin improved to 6.5% from -12.9% in the prior year
period.
Coupa also issued upside guidance for Q3 (Oct) as the
company expects a non-GAAP loss of $(0.04)-(0.01) and revenue of $62-63 mln.
Coupa also acquired the technology assets of DCR Workforce, an application
provider for contingent workforce and services procurement management. The
acquisition further solidifies Coupa's vision of enabling companies to manage
all their business spend, including contingent workforce spend, within a
comprehensive BSM platform.
On the business front, Coupa added several new customers in
Q2, including Telenor, McCain Foods, Leprino Foods, US Concrete, Wabash
National, Boyd Gaming, Tencent, The NPD Group, and others. Q2 also saw the
launch of several customer go-lives. Unilever went live in North America in the
first phase of a global procurement transformation initiative. Western Europe
and Brazil are the initiative’s next planned locations as Unilever continues to
roll out its Coupa-powered Easy Buy system across the globe. Additionally, the
Co-op went live with Coupa Source to Pay and Supplier Management software in
the first phase of their deployment, addressing spend at their food depots and
support center. Now, the Co-op is planning and scoping their next phase and is
considering expanding Coupa to additional spend categories.
On the call, Coupa talked about how at the end of last year,
greater than 50% of new subscription revenue had come from offerings beyond
Coupa's core procure module. That figure has continued to increase in the first
half of this year, along with the continued increase in average deal sizes. From
a marketing perspective, Coupa just rolled out a major update of its coupa.com
website. The site now offers a modern, intuitive, and engaging experience for
visitors, and features new, rich, easy-to-digest content.
In sum, this was another very good quarter for Coupa. The
company has now posted back-to-back huge upside quarters. The surprise profit reported
this quarter was also good to see. From a broader perspective, COUP sees a lot
of growth ahead as spend management is still in the early adoption stage. COUP
says maybe 20-30% of spend is actually being managed through an IT platform.
Most of it still being managed through paper, fax, email, phone calls, and
other traditional methods. COUP
sees potential for this still budding spend management business area to
flourish into a very sizable multi-billion-dollar marketplace.