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Coupa Software (COUP)
Q3 2018 Earnings Conference Call
Dec. 4, 2017 5:00 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good day, everyone, and welcome to the Coupa Software Third-Quarter Fiscal 2018 Earnings Call. Today's call is being recorded. At this time, I would like to turn the conference over to Mr. Ryan Hutchinson. Please go ahead, sir.
Ryan Hutchinson -- Managing Director, The Blueshirt Group (Investor Relations)
Thank you. Good afternoon and welcome to Coupa's Third-Quarter Fiscal 2018 Conference Call. Joining me today are Rob Bernshteyn, Coupa's CEO, and Todd Ford, Coupa's CFO. Our remarks today include forward-looking statements about guidance and future results of operations, strategies and plans, market size, products, competitive position, and potential growth opportunities.
Our actual results may be materially different. Forward-looking statements involve risks, uncertainties, and assumptions that are described in our most recently filed Form 10-Q. These forward-looking statements are based on our beliefs and assumptions today and we disclaim any obligation to update any forward-looking statements. If this call is replayed after today, the information presented may not contain current for accurate information.
We will also be presenting both GAAP and non-GAAP financial measures. A reconciliation of non-GAAP to GAAP is included in today's release, which you can find on our Investor Relations website. A link to the replay of this call will also be available and if you prefer to access or replay via phone, you can find that information in the earnings release. Unless otherwise stated, growth comparisons are against the same period of the prior year.
With that, I'll turn the call over to Rob.
Rob Bernshteyn -- Chief Executive Officer, President and Director
Hello, everyone. Thank you for joining us today. I'd like to start today's call by thanking all the members of our Coupa community. First, thank you to our customers for your commitment to unleashing real value to your organizations.
Thank you to our strategic partners, analysts, and industry friends for sharing our vision. Thank you to our shareholders for their continued investments and support. And last but not least, thank you to my Coupa colleagues around the world for their pledge to ensure customer success, focus on results, and continually strive for excellence.
Coupa's more than 800-employees strong and we remain unwavering in our commitment to our three core values, which are vital now as they've ever been for our continued success. The first is ensuring customer success, not just focusing on customer satisfaction or desire for customer success, but ensuring tangible and measurable results for all our customers, overcoming any challenges that we may face. The second is focusing on results, setting specific, measurable, attainable, relevant, and time-bound goals and working relentlessly to achieve them. And thirdly, striving for excellence, committing to an authentic, collaborative, passionate, and high-integrity environment. Well, all our colleagues are living life without fear and feeling safe and pushing boundaries, making mistakes, learning, and improving as professionals and human beings.
Last week we had our final board meeting of the year at Coupa headquarters, along with the full management team and board member annual dinner event. I was inspired to see the camaraderie, healthy dialogue, and commitment to continue to build a very special company.
The market opportunity in the [inaudible] management market is huge and we're attacking it thoughtfully. In doing so, are continuing to execute on the strategic approach we laid out at the time of our IPO just over a year ago. Ultimately, a winning customer success-oriented culture, expanding our global brand awareness and demand generation, maintaining a disciplined growth strategy, and scaling our enterprise and midmarket go-to-market capabilities and capacity, launching innovation to drive greater share of wallet and customer add-on business, acquiring key assets to further broaden our value proposition, and expanding and developing our global partner ecosystem around Coupa.
The differentiated vision we're offering in the market can be broken down into five fundamental components. Simply explained, the letters that make up our name – COUPA. Our vision is comprehensive, open, user-centric, prescriptive, and accelerated. With every new feature we develop, acquisition we make, integration we build, and investment we set for, our intent is to bolster our offering in one or more of these areas. I recently finished up a blog series. I mentioned our last quarter's call with these vision areas. The blog can be found on the Coupa website for those who are interested.
Now, let's talk about one non-financial measure we use to track our progress -- spend under management. Last quarter we reached a key milestone, surpassing $500 billion in cumulative spend under management. This figure continues to grow at a fast pace, landing at $570 billion at the end of Q3. It's really an amazing thing. I also can't help but consider that with the colossal sum of transactional spend and the related data and information that has run through our platform, we created meaningful competitive barriers to entry. With each new data element we track, our community intelligence gets smarter, as does the value we're offering to our customers.
So, with that let's take a look at some key financial results for Q3. I'm proud to say that we again delivered strong results across the board, including quarterly record revenues of $47.3 million. Earlier this year we drove positive operating and free cash flows in both Q1 and Q2. I'm delighted to say that we did so again in Q3, ending the quarter with positive operating cash flows of $5.2 million and positive free cash flows $3.9 million. Year to date we've generated positive operating cash flow of $21.5 million and positive free cash flows of $18 million and we have $219 million in cash as of October 31, 2017. While we took many customers live this quarter, let me highlight Caterpillar, the world's leading manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives, who has already gone with Coupa at their first location just months after taking off the project with us earlier in the year. Now, of course, we have plenty of exciting new customer wins in Q3 as well. Toyota Financial Services, a leading provider of automotive financial services offering financial products tailored to customer and dealers, selected Coupa Source to Pay and Contract Lifecycle Management to streamline their core source-to-pay process, leveraging the power of Coupa's unified platform and suites synergy. Zurich Insurance, a leading multi-line insurer that serves its customers in global and local markets, elected Coupa Source-to-Pay and the Expense Management, replacing an incumbent solution based primarily on usability and employee adoption as well as, of course, product innovation.
Some of the other customers we added during the quarter include Razor in Asia Pacific, CrossFit, CHEP USA, Host Analytics, SoftServe, CrossCountry, TeamHealth, Bristol Hospice, Option Edge, Moovel, P.F. Chang's, Dansk Supermarked group, the largest retailer in Denmark, and many others. We're excited to partner with all these new customers and partners.
In October we hosted our annual European Spend Management Conference Coupa Inspire '17 in London. The conference featured speakers from some of the world's leading brands, both customers, and partners of Coupa, which included Airbus, IKEA, Deloitte, Accenture, Maersk, Pearson, and others. The event flowed with debate and discussion around value-based innovation and the atmosphere was simply invigorating. My Coupa colleagues and I left Inspire London with a renewed sense of energy and alignment as we look to finish what has been a very successful year thus far and prepare for next year. Next on the agenda will be Coupa Inspire San Francisco in 2018, which is slated for Q2 of next year and currently being planned.
Also in October, we announced the general availability of Coupa Open Buy with Amazon Business. This offering expands customer buying options by giving employees access to the Amazon Business marketplace. We believe this to be a game-changer, a unified catalog management, and guided buy. And just last week we announced the addition of Coupa to the AWS Marketplace where customers can now quickly discover and subscribe to Coupa's Spend Management Solutions. Overall, we're excited that we continue to expand our relationship with Amazon providing customer, key supplier, and strategic partner to Coupa.
At Inspire London we announced the general availability of Coupa Release 19. We believe Release 19 is further evidence that the Coupa platform for business spending continues to set the innovation agenda for the industry. R19 enhances the platform with more than 70 new capabilities, modernizes risk management, and redefines sourcing optimization. R19 is prescriptive, with recommendations which are identified through Coupa community intelligence. Other advancements in R19 include streamlined invoice management, enhanced user experience to suppliers connected to the platform, and increased compliance and audit capabilities. Reception thus far from our customers has been simply outstanding.
Today, I also want to take a moment to touch on our Coupa Advantage Program. Coupa Advantage offers our customers, large and small, supplier discounts which are negotiated by leveraging the billions of dollars of transactional spend running through the Coupa platform. New customers sign up for Advantage right away, free of additional charge, and start recognizing hard dollar savings right off the bat. Now, the core principle of Advantage is that a portion of proceeds generated is donated toward inspiring not-for-profit causes around the world as well funding our Coupa Cares corporate responsibility program, which is focused on three main areas – sustainability, diversity, and civic engagement. In under a year we've logged over 1,300 volunteer hours from employees around the world.
Moving on. As we laid out at the time of our IPO, we continue to invest heavily in organic development on our modern cloud platform and carefully evaluate potential acquisitions when the right opportunities present themselves. Our acquisition strategy continues to be aimed at adding key power-user application technology that we can integrate into our unified platform and/or key technology components that enhance our transactional engine. Consistent with the strategy, we have successfully executed upon a series of acquisitions over the past decade. In October, we were proud to announce our latest, Deep Relevance based here in the San Francisco Bay area. Deep Relevance uses artificial intelligence and relationship analytics to identify individual employee and collusive fraud and other suspicious transactions. The addition of Deep Relevance allows us to accelerate our vision of helping our customers reduce fraud through community intelligence. Some areas of fraud detection with this technology include conflicts of interest, bidding integrity, fraudulent invoices, inflated expense claims, duplicate expenses, and personal expenses. I'm very excited about the value of this technology and what it will bring to our customers and the expanding mode of community intelligence we're building around our unified cloud platform for business spending.
Recently, I was pleased to announce the appointment of Mark Riggs as our new chief customer officer at Coupa. Mark brings over 25 years of experience with a consistent track record of trading and scaling customer-facing teams across organizations, large and small. Mark is here to help us continue maximizing the lifetime value Coupa for our customers. We're very excited to have Mark on board. In fact, many of you will see Mark and the rest the Coupa management team next Monday, December 11, 2017, at Coupa's first ever Financial Analyst Day, which will be held at the NASDAQ Market Site in New York City. I will say, it's the perfect forum for us to give the investment community an opportunity to meet new team members on our management team, review some of our accomplishments, and most importantly, better understand our go-forward strategy as we plan to take our business to the next level. I look forward to seeing many of you there next week.
In summary, we're very pleased with our Q3 performance. We're in a very strong position in the market as we continue to execute. To date, we've put together 34 consecutive successful quarters in a row from both the financial and business goals perspective. With Q4 upon us, we're laser-focused on finishing out the fiscal year strong.
Let me now turn the call over to Todd, who will review our Q3 financials in detail and provide our outlook for Q4 and the full fiscal year. Todd.
Todd Ford -- Chief Financial Officer
Thanks, Rob, and good afternoon, everyone. The company continues to execute, and once again delivered strong results for the quarter. Total revenues for the third quarter grew 34% year over year to $47.3 million. For Q3, subscription revenues were $42.8 million, up 39% year over year and comprised 90% of total revenue.
Our non-GAAP operating loss was $2.4 million or -5% of revenue compared to -8% in the year-ago period. Total calculated billings for the trailing 12 months ended October 31, 2017, were $195.7 million, up 37% year over year, which was up slightly from our trailing 12-month billings growth rate at the end of Q2 of 36%. Total deferred revenue at quarter-end was $97.6 million, up from $73 million in the previous year. As a reminder, we define calculated billing at the change in deferred revenue on the balance sheet for the period plus revenue recognized during the period.
Our calculated billings and deferred revenue results often fluctuate on a quarterly basis due to seasonality, the timing of renewals, and timing of annual contracted billings.
Let's now turn to operating expenses and results of operations. Our third-quarter non-GAAP gross margin was 72.6% compared to 69.4% in the same period last year. Although we continue to invest in our professional services and support organizations, we have continued to show gross margin improvement. Non-GAAP gross margin from subscriptions was 81% and non-GAAP gross margin from professional services and other was -5%. Operating expenses were in line with our expectations, and the net result of our Q3 performance with the non-GAAP net loss of $2.8 million and a loss per share of -$0.05 on 58.8 million weighted average shares. Given that we are in a net loss position, all outstanding stock options and common stock equivalence are anti-diluted and not included in the loss per share calculation.
Now let's move on to the balance sheet and cash flow. Cash at quarter-end was $219 million, up from $208 million at the end of Q2. Cash flows from operations in the third quarter were positive $5.2 million and $21.5 million year to date. Free cash flows for the third quarter were positive $3.9 million and $18 million year to date. Q3 also marks the first time that free cash flows have been positive on a trailing 12-month basis, exceeding our original expectations. Given the seasonality in our business, similar to Q4 last year we are expecting cash flows to be negative in Q4. That said, we expect operating and free cash flows to be positive for the current fiscal year. As a reminder, we define free cash flow as operating cash flow plus investing cash flows minus the impact of any cash paid for acquisition.
Now, let's turn to guidance. For the fourth quarter, we expect total revenues to be between $48.3 million and $48.8 million. This includes expected subscription revenues of between $43.8 million and $44.3 million and professional services revenues of approximately $4.5 million. We're expecting Q4 non-GAAP gross margins to be between 69% and 71%. We expect a non-GAAP loss from operations to be between $7.5 million and $9 million. We expect a non-GAAP net loss per share in the range of -$0.14 and -$0.16 per share based upon an estimated 54.7 million weighted average shares for the quarter. For the full year ending January 31, 2018, we expect total revenues to be between $181.5 million and $182 million with non-GAAP gross margins coming in near the high end of the range given for Q4 at 69% to 71%. We expect a non-GAAP loss from operations to be between $19.5 million and $21 million and we expect a non-GAAP net loss per share in the range of $0.37 to $0.39 based upon an estimated 53 million weighted average shares for the full year.
We will provide FY '19 guidance on our next call but I'd like to remind you a few things regarding Q1 of next year as you begin to roll your models forward. First, we recognize revenue based on the number of days in the quarter. As Q3 has three fewer days in the quarter due to February, our steady-state subscription revenues will be approximately 3% lower in Q1 as compared to Q4. Secondly, in Q1 of next year, the new revenue recognitions will take effect. We have not yet finalized our analysis. However, we expect some deferred revenue will need to be eliminated, which will have a corresponding impact on our Q1 revenue from calculated billings.
To conclude, our strategy remains the same. We are investing for the long term with a disciplined growth strategy to maximize market opportunity and financial results. Now, we will be happy to take your questions. Operator.
Operator
Questions and Answers:
Thank you. Ladies and gentlemen, the question-and-answer session will be conducted electronically. If you'd like to ask a question, you may do so by pressing * 1 on your telephone keypad. If you're using a speakerphone, please release your mute function [inaudible] equipment.
Once again, that is * 1.
And your first question will come from Stan Zlotsky with Morgan Stanley.
Stan Zlotsky -- Morgan Stanley -- Analyst
Hey, guys, good afternoon and thank you so much for taking my question. Maybe just to start off, the Amazon partnership, it certainly sounds over the last couple of months that there's a lot of movement there and then we've seen from various webinars that you guys have been advertising, there's certainly a lot more marketing around the partnership. Maybe just walk us through what kind of opportunities you see there and what's the profile of a customer that you see as the target for the Amazon partnership?
Rob Bernshteyn -- Chief Executive Officer, President and Director
Thanks, Stan. Beyond what we reported in our earnings call and what I shared as part of the opening comments, there's really nothing new to formally report regarding the partnership. When we see good business opportunities, we like to take advantage of them, and we're sure Amazon thinks very much the same way. We have a great relationship with Amazon as a customer, as a supplier and we found ways to partner on a host of different initiatives like the ones that's described.
We see an opportunity for a whole host of customers across just about every company size in every vertical to take advantage of some of the synergies we're bringing to the market together.
Stan Zlotsky -- Morgan Stanley -- Analyst
Got it. And maybe just out one for Todd. The impact to Q1 from ASC 606 and I'm guessing also the broader Fiscal 19, can you just maybe, as much as you're still evaluating it, what are the puts and takes there as far as what would cause the headwind of revenue being recognized.
Todd Ford -- Chief Financial Officer
[Inaudible] beginning next year different banks with respect to DSG, professional services that may have been impacted, due to go live under the prior method but there will be an amount of revenue that gets eliminated. We think the overall impact is going to be small but if you look at it from a Q1 perspective, it could be a few million dollars and quite frankly we won't know what it is until we close Q4 but we just want to at least call it out so that there is no surprises on the earnings call.
Stan Zlotsky -- Morgan Stanley -- Analyst
And you expect most of that pressure to take place on the pro-services line, right?
Todd Ford -- Chief Financial Officer
It would also be subscription revenue from things that were calculated under different allocation methods that we have to eliminate revenue on.
Stan Zlotsky -- Morgan Stanley -- Analyst
Got it. I understand. OK, thank you very much expense.
Todd Ford -- Chief Financial Officer
Thanks, Stan.
Operator
From JP Morgan, Mark Murphy.
Mark Murphy -- JPMorgan Chase -- Analyst
Yes, thank you very much and congrats on the execution in Q3. So, Rob, the wins with Zurich and Dansk look very impressive, potentially in terms of scale. Any commentary on what percent of spend you'll have under management with these organizations? And also were they swayed by the community intelligence or the volume of data that you're bringing to the table or any of the newer AI capabilities that you've been layering in?
Rob Bernshteyn -- Chief Executive Officer, President and Director
Sure. Thanks for that question. One other thing we do that I think is quite special in this market is with every one of our customers at the exploration of identifying value for them and then going into delivering that value and optimizing that value, we set very clear measurable goals. Very often those goals are around getting a certain amount of spend on management and in some cases, a certain amount of savings targets, whatever they may be and they're very unique and specific to every one of our customers and are confidential to that customer.
But we like to use spend management as the key non-financial measure for the organization because at the end of the day, if you're not capturing that spend, you don't have an opportunity to optimize it to look for greater value propositions around it. As you've seen, our spend management numbers continue to grow faster and faster and faster. So, there's an acceleration there and it's clearly correlated to the value that's being delivered.
Mark Murphy -- JPMorgan Chase -- Analyst
OK. And then a question for you, Todd, about Deep Relevance acquisition. Do you have any metrics in terms of the number of employees or number of customers, bookings or revenue, run rate, just anything that would help us to approximate the size and scale of the organization?
Todd Ford -- Chief Financial Officer
Thanks, Mark. It's consistent with our other M&A strategy we've done. This one I would classify more as an [inaudible] smaller groups. So, nothing that I would call out from the customer revenue standpoint.
Mark Murphy -- JPMorgan Chase -- Analyst
OK. And, Todd, are we still on track for, I think, in round numbers to have a billings benefit and something like $1.5 million for Q3 and then roughly $3 million for Q4, just going back and relating to the change in the professional services rev-rec?
Todd Ford -- Chief Financial Officer
We're definitely seeing that billing headwind subside. If you were to look at Q3 in particular year over year, the professional-services revenue was down 2%. So, while we did see a slight positive impact in Q3, it wasn't as pronounced as I'd have originally anticipated but I think you'll see that turn faster in Q4.
Rob Bernshteyn -- Chief Executive Officer, President and Director
Mark, this is Rob. I want to try to answer the second part of your question because I don't think [Inaudible] addressed it. I was trying to make sure I understood you, you said Zurich Insurance, I couldn't hear you well. In terms of the value proposition for customers like Zurich and others, the P in Coupa which for "prescriptive," is the method by which we deliver the community intelligence capabilities to our customers.
We're able to see across hundreds of billions of dollars of spend data and be prescriptive for them about information such as supplier risk and the like. Without question many of our customers over the course of the year recognize the value of that vision and many of them are already taking advantage of that with our latest release around community intelligence focused on profits and insights, which are aspirational benchmarks running across the company, as well as our risk-aware product which we made generally available at the last Inspire event. So, without a doubt, this is an area that continues to be of high interest for our prospective customers and one that continues to build huge barriers to entry for us in the marketplace given the hundreds of billions of dollars of data spending that we're tracking on one unified cloud platform.
Mark Murphy -- JPMorgan Chase -- Analyst
Thank you.
Operator
Next question will come from Raimo Lenschow with Barclays.
Raimo Lenschow -- Barclays -- Analyst
Hey, thanks for taking my question. First, one for you, Rob. Can you list kind of big wins like you have with Zurich now and Caterpillar and Unilever the quarters before. Can you talk about the evolution of the partner ecosystem around them because I would assume there is going to be a lot more coming that way with your success you at the moment? How happy are you with where they are and what's their progress?
Rob Bernshteyn -- Chief Executive Officer, President and Director
Well, we're not going to be happy until every primary partner at the biggest systems integrators engages with their clients and tells them to consider optimizing their spend leveraging a platform such as Coupa, and that's when we'll be able to say our goal's complete. Without a doubt will we continue to make significant progress there. All the key systems integrators of note are beginning to build practices around Coupa with real revenue targets. We'll continue to certify hundreds of consultants around the world that are equipped to implement Coupa and we think we're continuing to make progress, moving well past the early adopter stage of customers to the early majority stage, where the heart of the market lies and, as you know and we shared many times, we believe this to be a $25-billion type market that we're in the very early stages of continuing to take share in.
Raimo Lenschow -- Barclays -- Analyst
Perfect. And then the next one I had on, it looks like Caterpillar is going to be a huge installation for you guys and you mentioned parts of that already. Can you talk us through and a big account like Caterpillar, how do we have to think about a rollout of Coupa in that in terms of timing? Is it on a regional level? Is it on a business-unit level? How do we have to think about that?
Rob Bernshteyn -- Chief Executive Officer, President and Director
The way we think about it is internally and to give you some leading indicators to how we're recognized it, the way we think about internally is that we never want to be the bottleneck. We never want to be the obstacle to adoption as fast as the customer's willing to adopt us. Now, very often they'll run change management programs, procurement transformation initiatives around the Coupa deployment, but rarely are they sitting around asking, "Can you do this or that in Coupa?" or "Do we have technical constraints?" So we provide as much agility as possible to the customer and then we allow them to work in concert with business integrators to get customers deployed. The leading indicator metric of adoption, of course, is the one key non-financial measure that we share, and that is spend management, how quickly they continue to adopt.
They may adopt division by division. They may go product category by product category. They may go geography by geography. They may go business process by business process.
We want them to have the agility that they desire but to get value in an accelerated way which is, of course, the A in Coupa.
Raimo Lenschow -- Barclays -- Analyst
Yes, OK. And then last question, one for Todd. Todd, you mentioned earlier 606 in Q1 gave you some headwinds and you mentioned some on the subscription side as well on. What's driving that? You have other vendors that have some small parts of the business as on-premise solutions and hence you have a change in revenue recognition.
Is that kind of the same case for you as well or how can subscription be impacted for you guys?
Todd Ford -- Chief Financial Officer
Yeah. It's, in the whole scheme of things, very minimal and certainly, as you noted, companies that have long-term solutions are having much more a material impact from 606 but there are times, based upon BESP where different allocations are made between subscription revenue and professional-services revenue, for example, for giving professional services away for free, and it's a big implementation, you'd have to reallocate some of that subscription revenue. So, while it's a very much a quarter case for a few of those situations like that, under the new rules we will no longer be able to recognize the deferred revenue. So, it will be completely eliminated.
So, the few cases about that exist would be no longer recognized as revenue going forward.
Raimo Lenschow -- Barclays -- Analyst
OK, makes sense. Thanks for that.
Operator
From BTIG Joel Fishbein.
Joel Fishbein -- BTIG -- Analyst
My congrats as well on a fantastic [inaudible]. Rob, for you, just would love to hear how your sales ramp is ramping and also how are you doing on your sales productivity metrics.
Rob Bernshteyn -- Chief Executive Officer, President and Director
Sure. Thank you. Thank you for that question. So, when we think about the buildup of this business, we're obviously consistently looking at managing our overall sales and marketing expense and continue to scale this and utilize our discretion marketing effectively and carefully.
So, there's a lot of aspects that go into developing this business. One is of course how many reps are on the ground for coverage, but of course the regional pipeline metrics, our discretion marketing elements, the systems integrator pool, which is I think Raimo was asking about, how would we continue to develop our brand, how are we aligning our top talent and training our talent from a sales training program perspective, the marketing collateral we're creating, the product maturity that we're driving. So, in balancing all those [inaudible] that we continue to feel better and better about the team openings on the ground and the expenditures we're putting in place to maximize the opportunity, all against three pillars of our business. So, absolutely a continued area of investment and focus for the business and we continue to mature.
Joel Fishbein -- BTIG -- Analyst
Great. Thank you.
Operator
Next, we'll hear from Ross MacMillan with RBC Capital Markets.
Ross MacMillan -- RBC -- Analyst
Thanks so much and my congrats as well. One for Robb, first of all. When I look at your spend under management metric, I think that's up $270 billion when I look at the incremental in the last year and that's actually much larger than your big competitor that also discloses a business network incremental spend under management number. So, you know you're smaller, you're growing that number at a faster rate, I guess, is the point.
And I was just curious as to getting your perspective on how much of that is just your success in kind of core procure to pay or how diversified is that number becoming? So, I think of the time of the IPO, you were about 90% procure to pay but I was curious to get a sense of how that's evolving. Thanks.
Rob Bernshteyn -- Chief Executive Officer, President and Director
Thanks for those comments and the question. It absolutely continues to diversify. When we look at our capability mix the customers are subscribing to quarter over quarter, I think looking back as far as 34 quarters, it continues to broaden. So, with the value as a service that we're offering is really what customers are buying.
They're not buying a module. They're not buying a product. They're buying a subscription to value and that value continues to get broader as well as richer with every release we come out with three times a year. We're also learning how to implement the solution more effectively.
We're doing it in an accelerated way. So, I think all of those capabilities that we're developing are part of why this spend management number continues to grow at such a fast pace.
Ross MacMillan -- RBC -- Analyst
Is it possible to talk to how big those other and all procurement pieces are within the mix yet or should we keep our powder dry for the Analyst Day?
Rob Bernshteyn -- Chief Executive Officer, President and Director
Yeah, I was just going to suggest we were actually planning to share some of that information at Analyst Day. So look forward to giving you more color on that.
Ross MacMillan -- RBC -- Analyst
Great. And maybe just one follow-up for Todd. You've given us a TTM gross and net dollar-based retention rate. Historically, I wondered if you had those numbers?
Todd Ford -- Chief Financial Officer
Yeah, it's remained virtually exactly the same for the past three quarters. So, no real new updates there. It's trending basically for the last three quarters.
Ross MacMillan -- RBC -- Analyst
Thanks so much and congratulations.
Todd Ford -- Chief Financial Officer
Thanks, Ross.
Operator
From Raymond James, Brian Peterson.
Brian Peterson -- Raymond James -- Analyst
Hi, thanks and congratulations for the quarter, guys. So, maybe just a high-level perspective. If we think about the data opportunity that's in front of you currently, with the $570 billion in spend, I'm curious how you think about that. Are you thinking that that's going to actually evolve into a monetization strategy or are you guys early enough in the growth opportunity where that will be more about acquiring new customers this quarter?
Rob Bernshteyn -- Chief Executive Officer, President and Director
It's a great question. Look, ultimately, that was sharing in the early question, we're offering these customers value as a service. So, the more data we have and more community intelligence we develop, and the more use cases with which we elevate that community intelligence so that at the point of need, it's being given to the particular user or the particular customer for them to make a business decision, the more value we're going to offer and for that incremental value we hope to be paid fairly and we anticipate being paid fairly. So, we'll look for different ways to bring these capabilities out as part of the subscription but there's no question they drive a great deal of value and that as well as the network effect that's created in this marketplace, the leverage of buy-side aggregation that we've created through Coupa Advantage and community intelligence, we think we're building significant barriers to entry for anyone else entering the market, but most importantly, we're able to drive more and more value for customers for the near term and the long term.
Brian Peterson -- Raymond James -- Analyst
Got it. Thanks, Rob. And, Todd, maybe one for you real quick just on the gross margin guidance. The 69% to 71%, it's down a little bit sequentially.
Any moving parts you want to highlight there? Thanks.
Todd Ford -- Chief Financial Officer
Just continued investments in all areas of professional services and the support organization and then and then in Q4 different groups may have bonuses and payments associated with contribution margin. So, nothing that I would call out as significant in that guide.
Rob Bernshteyn -- Chief Executive Officer, President and Director
Operator, next question.
Operator
And that will come from Pat Walravens with JMP Securities.
Pal Walravens -- JMP Securities -- Analyst
Oh, great. Thank you and congratulations, you guys. Rob, I guess I'm wondering big picture as Workday and SAP and Oracle are all starting to really push moving financial to the cloud, does that create a tailwind?
Rob Bernshteyn -- Chief Executive Officer, President and Director
Well, look, as I've said many times on the earnings calls, and as I witness almost on a daily basis working with prospects and customers, we think although this is a large-size market and there will always be plenty of players, ultimately the only competition here is ourselves. The opportunity is very real. We're not a financial applications ERP provider. We're a spend-management provider that work very seamlessly with just about any ERP system that's out there.
So, we think long-term we have this big market opportunity to build into. And so, as you know, we're being very thoughtful about how we manage across all three pillars – our revenue growth, our sales and marketing efficiency, and how we're scaling our operating margins and [inaudible] markets. So, we're going to continue to be very thoughtful about that. We know that there are options for folks to consider but for many of the ones that sign on with us, it's becoming more and more of the early majority stage and they're signing up for a future, modern cloud-based spend-management solution that can work seamlessly with any of the companies you just named.
Pal Walravens -- JMP Securities -- Analyst
Okay. And where are we going to end up on this sort of machine learning AI journey? What's your vision? Not 10 years out but two or three years from now what would you like to be able to do that you can't do today?
Rob Bernshteyn -- Chief Executive Officer, President and Director
Well, look, one area of our vision is worth talking about is that the best UI is no UI and the way that goes deeper is simply [inaudible]. If the machine can handle the processing work, can make the decision, the machine should do that and should only interface with the human being in areas where they themselves can have some sort of value. So, there is a whole host of permutations where that comes up to the surface. The need to do data entry is going to be removed in a lot of places through machine learning as we're doing with our invoice [inaudible] capabilities as one example of that.
The need to process a lot of spend data offsite somewhere for lower costs can be automated through machine learning capabilities to drive spend analysis and will give you a deep understanding of categories you ought to focus on, opportunities for savings, opportunities for value. Those are just two examples. So, consistently thinking about ways where we can remove repeated tasks that drive end-user proactive sort of interaction with our system to areas that we can streamline for them through machine-learning capabilities. And the biggest opportunity, I would say, of all and the one that you know we're clearly focused on is around overall community intelligence data.
So leveraging the sanitized distilled insights from transactional data happening around the world daily, millions of transactions, hundreds of billions of dollars of spend information can help each customer get smarter and smarter about the way their organizations spend money and drive value and that's what we're trying for without a doubt.
Pal Walravens -- JMP Securities -- Analyst
Awesome. Thank you.
Operator
From Northland Capital Markets, Robert Breza.
Robert Breza -- Northland Capital -- Analyst
Hi. Thanks for fitting me in. Rob, maybe just a big-picture question. If you think about the business model margins, you're at 800 employees now.
How do you think about devising the go-forward employee headcount? I specifically want to really get some insight from you with the customers that you mentioned on the international side versus North America. How are you thinking about the investments going forward just from a headcount perspective? Thanks.
Rob Bernshteyn -- Chief Executive Officer, President and Director
Sure. So, more than that, it's obviously across every function in our business and we manage the business annually. We also manage the business quarterly. From sales and marketing investment perspective, we've committed to staying within a tight band of sales and marketing efficiency and we've stayed within that band now for 34 quarters, but as we continue to build up our recurring revenue base, we invest accordingly.
In areas where we feel overly efficient, perhaps in some of the deeper markets where we're beginning to get good penetration, that pays for some of our broader investment that might be less efficient in the shorter term but pay off in the longer term. An example will be our mid-market business, some of our international areas, some of our federal attempts to date. So, that's how we think about that one. As we go out we look at [inaudible] results, we look at ways to manage carefully our operating infrastructure through Amazon.
As we think about margins, we think about our services capability and the kind of oversight we need of internal services consultants, and the type of ecosystem we need to build out there, systems integrators, to drive value for customers. And then moving on down to support, where we want to make sure that we can maintain all of our [inaudible] customers given the level of support that they need internationally, always looking for areas to be more thrifty, [inaudible] bring those resources to bear in places like Reno and Dublin and Pune. And last but certainly not least, we're always looking at development and thinking carefully about how we can bring on the type of talent that can not only help us push the platform but not going too fast and just having people idle and not knowing exactly how to contribute and not going too slowly such as we miss the opportunity to develop the breadth that we want to this platform longer term. But rest assured, on a quarterly and annual basis, the team and I sit down and think cheerfully how we manage this money and I think a good result that has been how thoughtful we've been with the money that we spent.
I'm proud to say that to date we've created much more recurring revenue in the amount of money we've earned since the date of our inception and we plan to be and I continue to be as thoughtful about it in the quarters to come.
Robert Breza -- Northland Capital -- Analyst
That was great. Thank you very much.
Operator
From Cantor Fitzgerald, Joseph Foresi.
Mike Reed -- Cantor Fitzgerald -- Analyst
Hi, guys. This is Mike Reed on for Joe. I appreciate you taking our question. I had a question.
If there was any more detail maybe on the international outlook performance demand outside of the big wins in Europe this period?
Rob Bernshteyn -- Chief Executive Officer, President and Director
I would say as far as the time of this earnings call it's nothing material that would be worthy of your attention and focus on. I wouldn't say that there's something happening internationally that would be elevated to our earnings call transcript or big marquee account that we want to showcase at the moment. Having said that, we placed certain bets and we've seen some good pipeline traction and some good closures in certain markets that we believe we can build off of. When we look back to the way we build Europe, which now supports nearly 30% of our current revenue base, we began very carefully by landing key marquee accounts, making them highly referenced in each country, and building off of that, and we're taking a very similar strategy to the other markets around the world.
Mike Reed -- Cantor Fitzgerald -- Analyst
All right, thanks. And then on R19, is there any new capability that you want to call out specifically and are there any more releases coming up soon?
Rob Bernshteyn -- Chief Executive Officer, President and Director
Sure. So, we're committed to three times a year releases, three releases per year. We obviously share the details of those at our Inspire event. We also do a whole host of channels through which we communicate with our customers and prospects, which is webinars and our online customer community.
Latest release on R19 has more than 70 new feature capabilities. Our community voted on hundreds of feature capabilities, from which we distilled about 70. And I would say, the highest level they hit across three different dimensions of our strategy. One is continuing to go deeper in key modules.
The second is continuing to go wider to enhance the breadth of our application set. And thirdly, to do something that's innovative and never been done before in our market, and you're seeing many of those coming through community intelligence broadly but also on each functional module area. I wish I had the time to share with you everything that we've done there but certainly at Analyst Day we'll cover more of that, show a demonstration and go much deeper.
Mike Reed -- Cantor Fitzgerald -- Analyst
Great. Thanks, guys.
Operator
And once again, everyone, it is * 1 to ask a question. We'll go to Ken Wayne with First Analysis.
Ken Wayne -- First Analysis -- Analyst
Great. Thanks for taking my question and congratulations on a strong quarter. Just wondering if you offer just any commentary on where you might see potential functionality gaps in the Coupe suite currently?
Rob Bernshteyn -- Chief Executive Officer, President and Director
Well, I'll tell you that the concept of a gap is something that is in my mind very much driven by feature-based selection process, and I think that's the way customers chose software in the late '90s was largely driven by how many features you have and the more features you had, the more likely you were to be chosen. We discovered a decade later there wasn't a lot of features that matter to whether or not you go live and get value. It was more about how deep the capabilities were, how usable those capabilities were, and, most importantly, how much they were tied to the measurable value drivers that your customer's actually trying to get. So, our focus doesn't begin with getting to feature and function parity of incumbent solution providers.
Our focus is on "How do we get customers an accelerated way to recognize the measurable value and be able to build off of that value in the years to come?" And the strategy we chose is very straightforward. We want to nail all the transactional areas of spend in a collectively exhaustive way -- procurement, invoice management, and expense management. Once we get a company's spend under management and transactional flow is growing and hundreds of millions of dollars are going through collectively, we then have the ability to get them more power-user capability to optimize that spend flow. And that's the areas that we've been focusing on particularly over the last three or four years in both a build and acquire manner, and I can tell you that many of our customers, particularly those in the early adopter stage and moving to early majority, understand that on this platform they'll be able to get the full breadth of capabilities for driving spend, and that is very much in line with we're [Inaudible] for here.
Ken Wayne -- First Analysis -- Analyst
Perfect. Thanks and congratulations again.
Operator
And that concludes the question-and-answer session and today's conference. Thank you for your participation. You may now disconnect.
Duration: 49 minutes
Call Participants:
Ryan Hutchinson -- Managing Director, The Blueshirt Group (Investor Relations)
Rob Bernshteyn -- Chief Executive Officer, President and Director
Todd Ford -- Chief Financial Officer
Stan Zlotsky -- Morgan Stanley -- Analyst
Mark Murphy -- JPMorgan Chase -- Analyst
Raimo Lenschow -- Barclays -- Analyst
Joel Fishbein -- BTIG -- Analyst
Ross MacMillan -- RBC -- Analyst
Brian Peterson -- Raymond James -- Analyst
Pal Walravens -- JMP Securities -- Analyst
Robert Breza -- Northland Capital -- Analyst
Mike Reed -- Cantor Fitzgerald -- Analyst
Ken Wayne -- First Analysis -- Analyst
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