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Coupa Software Incorporated (COUP)
Q3Â 2019 Earnings Call
Dec 2, 2019, 5:00 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good day, ladies and gentlemen, and welcome to the Coupa Software Third Quarter Fiscal Year 2020 Earnings Release Conference Call. At this time, all participants are in a listen-only mode. At the conclusion of our prepared remarks, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this call is being recorded.
I would now like to introduce your host for today's conference call. Ms. Nicole Noutsios, Investor Relations. Ms. Noutsios, you may begin your conference.
Nicole Noutsios -- Investor Relations
Good afternoon and welcome to Coupa Software's third quarter conference call. Joining me today are Rob Bernshteyn, Coupa's CEO and Todd Ford, Coupa's CFO.
Our remarks today include forward-looking statements about guidance and future results of operations, strategies, market size, products competitive position and potential growth opportunities. Our actual results may be materially different. Forward-looking statements involve risks, 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'll also present both GAAP and non-GAAP financial measures. A reconciliation of certain of these measures is included in today's earnings release, which you can find on our Investor Relations website. A replay of this call will also be available and if you prefer to access a replay via phone, you can find that information in the earnings release. Unless otherwise stated, growth comparisons are against the same period of the prior year.
With that, I'll turn the call over to Rob.
Rob Bernshteyn -- Chief Executive Officer
Thank you, Nicole.
Hello to everyone joining us live on this call and to those who will read the transcript. I'm excited to share that we delivered strong business and financial results for the third quarter as we continue relentlessly executing on our vision for the Business Spend Management category and further solidifying our leadership position.
Financial highlights from Q3 include $102 million of total revenues, representing a trailing 12-month growth rate of 48% and an annual run rate of more than $400 million. Also we are yet again profitable this quarter on a non-GAAP basis. My colleague Todd will of course cover our strong financial results with much greater depth after my remarks.
With that, I have many other exciting business updates to share with you today. So let's get after it.
As many of you know, bringing a new customer into the Coupa community is a big step, but only the first step in the customer journey with us. We then quickly move to focusing on the results of getting a customer live in production, so they can begin driving meaningful value through our platform. Let me showcase this with some real metrics from a Coupa customer that went live earlier in the year. Diagnosticos da America or DASA, the largest diagnostic medicine company in Latin America, based in Brazil implemented Coupa to digitize their business spend management.
Coupa has made it faster and easier for end users to procure supplies for more than 700 healthcare facilities across Brazil. A great example of the letter U in Coupa , which stands for user centricity. In only five months on Coupa, DASA has already reached 95% spend under management issuing 84% of goods PO's [Phonetic] from catalogs.
It's not uncommon for us to see this type of accelerated BSM success in our customer base. So on that note, let me highlight some Coupa customer go-lives just from Q3. Let's start with Finnair, an airline that specializes in flights between Europe and Asia. Finnair implemented Coupa in a rapid eight month deployment. With Coupa, Finnair is digitizing processes and increasing PO coverage by offering the best purchasing experiences to all employees including cabin crew members and pilots.
Next, Genesis Energy, New Zealand's largest energy retailer, recently went live with Coupa to consolidate their business spend management onto one platform. Going from multiple systems onto one platform, Genesis is reducing the duplication of activities with a solution that can scale with their growth.
Multibank a Panamanian banking and financial services firm, went live with Coupa BSM and is using Coupa to increase on contract spend and also cut its budget request cycle times in half. With Coupa, Multibank has not only increased catalog usage and streamlined workflows to allow for fully controlled, traceable and auditable budget pre-approvals, but they have also lowered the use of paper and ink, helping reduce their carbon footprints and preserve our planet.
Novo Nordisk, a multinational pharmaceutical company headquartered in Denmark, recently went live with sourcing contract management, and purchasing in the first phase of a global deployment. In fact, our European community benefited from their Accenture-hosted presentation at our recent Inspire event in London. Just a few weeks ago.
Randstad US, part of a global family of companies specializing in flexible workforce and HR services, went live with Coupa at their rapid BSM implementation. By replacing what they describe as extremely manual processes, with streamlined workflows, Randstad is increasing PO-backed spend by 70% in the first year and reducing invoice cycle times to less than five days. In addition to these efficiency gain, Randstad is expected to achieve enough savings from Coupa Advantage alone, to realize 100% ROI on their subscription costs.
Toyota Motor Corporation Australia, the country's leading automotive company, recently implemented Coupa as part of a strategic transformation initiative for spend visibility, compliance and risk reduction.
In addition to achieving greater spend management, Toyota is targeting 100% electronic purchase orders and a reduction of PO cycle times down to two days within the first six months of being live. So, as you can see, our customers are leveraging the comprehensive nature of our platform, also known as the letter C in Coupa to drive meaningful bottom line results by addressing all areas of business spend in their organization and we couldn't be more excited to see it.
Now, in terms of new customers, let me highlight just the few of our fantastic wins from the quarter, touching on all target segments. Q3 wins include, Affinity Education, Cloudflare, Deloitte Services, DFS Venture Singapore, Dimension Data, Distell, Fieldwood Energy, Immunomedics, Indigo Agriculture, Maersk Drilling, Relay Therapeutics, Saga, SambaNova Systems and Wirecard. In Q3, we welcome these and dozens of other new customers to our community.
Now, as many of you know, our success is supported by this growing Coupa community. Today, I'll share some tangible examples of how our individual customers are benefiting from our community. Let's start with Provident Financial Group, one of the UK's leading suppliers of personal credit, helping over 2.4 million customers who do not have access to mainstream lending products, get on a path to a stronger and more secure financial future.
James Wagstaff, Chief Procurement Officer of Provident knows that every penny Provident spends may ultimately lead to increased cost for Provident customers. James takes this very seriously. And to that end, he's leveraged Coupa community Intelligence to pinpoint specific opportunities to manage spend more effectively. For example, community intelligence helped James identify an opportunity to increase the percentage of invoices processed electronically. Prior to using community intelligence, James did not realize that Provident's electronic invoicing percentage was slightly significantly lower than best-in-class companies within his peer group. CI not only identified the problem, but also prescribed the letter P in Coupa, ways to increase electronic invoicing, including showing James which of these suppliers were already transacting electronically with others in the Coupa community, making it easy for him to target the right suppliers for electronic invoicing enablement. Increased electronic invoicing has freed up Provident's resources from processing manual invoices.
James and his team are targeting process efficiency savings of GBP3 for every invoice moved from manual to electronic. These efficiency savings will ultimately benefit Provident's customers who rely on Provident's credit products to build their credit and pay for important life events.
Now we're, of course, still in the very early stages of tapping into the full value that community intelligence can drive for our customers, now powered by nearly $1.5 trillion in cumulative spend under management. I am more excited than ever for all that's yet to come in this area.
Let me also highlight Coupa Source Together, an industry first program that connects members of the Coupa community to collaborate on group sourcing events, utilizing the scale of the community to match businesses that have common purchasing needs. These companies are leveraging their group buying power to attract more suppliers, negotiate better pricing and realize greater savings than they would be able to do on their own.
Since launching Source Together mid year, we have seen tremendous traction with group sourcing events globally, which have generated millions of dollars in negotiated savings. Hundreds of companies have indicated interest in participating in upcoming events. Source Together participants are capturing over 50% [Phonetic] negotiated savings across diverse categories. Recently, in just a single event, five companies came together to source IT hardware and peripherals, negotiating over $1 million in savings in three weeks.
These companies have never worked with each other before, but through Source Together they were able to collaborate and capture value in an accelerated fashion, as represented by the letter A in Coupa. Among these companies was Zocdoc, a fast-growing medical care appointment booking platform that is helping patients by reducing the wait time for doctors' appointments and incentivizing value-based care. Philip Thomas, a business spend leader at Zocdoc, was charged with building a new business spend management function, including the implementation of Coupa to help fuel Zocdoc's growth. Philip wanted to deliver a quick win to establish credibility. Through Source Together, Philip achieved a 9.1% negotiated savings on laptops, desktops keyboards, monitors and headsets that could not have been achieved with just his own company spend volume. Best of all, Zocdoc captured these savings before even going live with the full Coupa implementation. This has empowered Philip and his team to demonstrate immediate value.
Source Together strongly represents our open vision, also known as the letter O in Coupa. With an open spirit to collaboration, our community of customers is spending smarter together and we want nothing more.
Now, let's move on to Coupa pay. In Inspire London our largest and best ever European event this year, we were excited to announce American Express as a new Coupa virtual card partner. We continue to see incredible interest and strong early traction for all available pay modules, including V cards, Accelerate and invoice payments. We are still in the early stages with Pay and we look forward to updating you further on our progress in the coming quarters as more and more customers deploy and go live with these solutions.
Now let's move on to Coupa's Business Spend Index or BSI, a leading indicator of economic growth based on analyzing hundreds of billions of dollars in aggregated and anonymized business spend. Today, we published the Q4 Coupa BSI. Before going into the results, let me once again make it clear that what we're seeing in the BSI data is not indicative of the trends we're seeing in Coupa's business.
Our Q4 BSI suggests that, although sentiment has ticked up slightly overall, US businesses continue to be cautious about the economy. At an industry level, confidence in the financial services sector continues to slow quarter-over-quarter. Also, manufacturing sentiment continues to below trend, perhaps somewhat due to global trade tensions which have continued since last quarter.
This quarter, as part of the BSI, we also began looking at changes in spend for major products, services and categories -- for major product and services categories. Spend on commodities such as appliances and electrical equipment increased quarter-over-quarter, while spend on property, buildings and engineering services decreased. For a deeper dive into the Q4 BSI, I invite you to visit spendindex.com.
Now, let's move on to core values. Every quarter we are proud and excited to share examples of colleagues or customers who exemplify our three core values of ensuring customer success, focusing on results and striving for excellence. This quarter, we recognized our colleague Nihal Ahmed for ensuring customer success. Nihal is known for his meaningful deep engagement with customers and for working tirelessly across all teams to advocate for customers until they are measurably successful.
Kevin Nebel [Phonetic] was recognized for focusing on results. Kevin's colleagues acknowledged that he has created incredible value for some of the largest and most prestigious companies in the world, fueled by his commitment to getting customers the results they need versus the results they might initially think they want.
And finally, James Sweeney was recognized for striving for excellence. James's colleagues noted that when he takes on a task, he delivers the result fast and adds valuable input and prospective to make the output that much more meaningful for all parties. Huge congratulations to our colleagues Nihal, Kevin and James for this well recognized, well deserved recognition, Coupa Proud.
Now, let me touch on a few more highlights from the quarter. First off, we were honored to be named a 2019 Gartner Peer Insights Customers' Choice for procure to pay suites. In fact, Coupa was the only procure to pay platform to receive this distinction. We were also excited to be the only vendor to appear in the Customers' Choice Zone in Gartner's Peer Insights' Procure to Pay Voice of the Customer report. These accolades offer a clear endorsement from our customers that we've built a world-class platform and an inspired group of colleagues dedicated toward ensuring customer success. It's rewarding to know that our customers know how we do it.
Speaking of customers, let me showcase a few leaders from our customer community. There are people like Al Williams, the Chief Procurement Officer at Barclays, who helped Barclays achieve 92% on contract spend or Rick Quaintance, Senior Director of Procurement and Contract Management at the USO, who helped reduce invoice cycle times to 2.7 days using community benchmarking while helping US troops get the goods and services they need at all times.
And Thomas Sebastian, Global Head of Sourcing and Procurement at Zurich Insurance, who led the $27 billion insurance company achieve a 99% electronic PO environment. We call these people spendsetters and you could see a lot more of their personal stories on spendsetters.com as well as at our events and across media.
So in closing, let me say that we could not be more energized about our continued pursuit of our vision. We're committed to delivering for our one of kind Coupa community, in a truly comprehensive, open, user-centric, prescriptive and accelerated fashion. Our fourth quarter of the year and our 44th quarter of execution is well under way and we are focused on closing out the year strong.
With that, let me now hand the call over to our Chief Financial Officer, Todd Ford, who will review our Q3 financial results and provide our outlook for the fourth quarter and full fiscal year. Todd?
Todd Ford -- Chief Financial Officer
Thanks, Rob, and good afternoon everyone.
The third quarter was another solid quarter of execution. Total revenues for Q3 grew 51% year-over-year to $102 million. Subscription revenues for Q3 were $90 million, up 49% compared to Q3 of last year. Professional services and other revenues were $11.6 million, which includes the benefit of a few strategic direct services arrangements that continued into Q3.
For the trailing 12 months, calculated billings were $416 million, up from $272 million in the previous trailing 12-month period, representing a 53% year-over-year increase. Total deferred revenue at quarter end was $193 million, up from $130 million at the end of Q3 of last year, a year-over-year increase of 48%.
Let's now turn to margins and results of operations. Our Q3 non-GAAP gross margin was 72.1%, exceeding our previous expectations of 71%. This included subscription non-GAAP gross margin of 80.9% and professional services and other non-GAAP gross margin of 3.3%.
We delivered non-GAAP operating income of $11.6 million as well as non-GAAP net income of $14.2 million or $0.20 per share on 71.7 million diluted shares, all of which were well ahead of our previous commitments.
Cash and investments at quarter end were $842 million, up from $808 million at the end of Q2. Operating cash flows for Q3 were $26 million and free cash flows were $22 million. On a trailing 12-month basis, operating cash flows were $55 million or 16% of total revenues and free cash flows were $43 million or 12% of total revenues after taking into account $12 million in purchases of property and equipment. Cash flows for the quarter were favorable due to strong performance by our M&A integration team, our billings team and our collections team, which drove accelerated customer payments.
Now, let's turn to guidance. We expect total revenues for Q4 to be between $101.5 million and $102.5 million. This includes subscription revenues of between $91.5 million and $92.5 million and professional services revenues of approximately $10 million.
For calculated billings, on a trailing 12-month basis, we expect to exit Q4 at a growth rate of approximately 40%. As a reminder, in Q4 of last year, we had a benefit of approximately $6 million to our calculated billings from the acquired deferred revenue from Hiperos, which was on our balance sheet as of 01/31/19.
For Q4 free cash flow, we expect to be breakeven to slightly positive. Now, let's look at the expense profile for Q4. We expect Q4 non-GAAP gross margin to be between 70% and 71% and non-GAAP operating income to be between $3 million and $4.5 million. This results in a non-GAAP net income per share of between $0.03 and $0.06 on approximately 72 million weighted average diluted shares for the quarter.
For the fiscal year ending January 31, 2020, we expect total revenues to be between $380 million to $381 million, with non-GAAP gross margin of approximately 72%. We expect non-GAAP operating income for the year to be between $21 million and $23 million. We expect non-GAAP net income per diluted share in the range of $0.34 to $0.37, based upon an estimated 70 million weighted average diluted shares for the year.
We will provide FY '21 guidance on our next call, but as you roll your models forward, we'd like to remind you that we recognize revenue based on the number of days in the quarter and since there are fewer days in Q1 due to February, steady state subscription revenues are lower in Q1, compared to Q4 similarly, as noted last year.
That concludes our prepared remarks. As we move to Q&A, please be mindful that we have a long queue of questions. In order to accommodate everyone, please limit your questions to one and we'll circle back, time permitting.
Now, we'd be happy to begin fielding your questions. Operator?
Questions and Answers:
Operator
Thank you, Mr. Ford. [Operator Instructions] Our first question comes from Brad Sills with Bank of America Merrill Lynch. Your line is open.
Brad Sills -- Bank of America Merrill Lynch -- Analyst
Oh, hey, great. Thanks guys for taking my question. Wanted to ask about some of the add-ons. It sounds like you're seeing in some of these existing customer wins, a lot deeper penetration with the rest of the -- with the broader suite and contracts in particular, seems like it's doing well. Any comments you could parse out on the impact that Exari is having on that business, and then just maybe even more commentary on other add-on products that you're seeing with the power apps?
Rob Bernshteyn -- Chief Executive Officer
Sure, sure. Thanks. Thank you for the question. There's really two parts to answer that. We are definitely seeing real healthy progress with the power apps and it doesn't just include our advanced contract life cycle management capability. It includes our risk aware and risk assess capabilities. It includes our spend optimization capabilities and a whole host of others, but what's even more [Technical Issues].
Operator
[Operator Instructions] The backup line is live.
Rob Bernshteyn -- Chief Executive Officer
Okay. So, let me continue where I left off. It sounds like we got disconnected and it wasn't on our side. It seems to be at the -- somewhere at the core, but assuming you can hear me now, I'll just continue with the answer to the question. So, the two parts are the distinct power user applications and in all areas, we're seeing very strong progress, both in add-on business as well as landing net new deals that include a more comprehensive footprint upfront, but more importantly than that, which is the second part of the answer to your question, and that is that, we're seeing a vision lock with our existing customers and prospective customers around a comprehensive set of capabilities for all of the vision areas around business finance [Phonetic]. They want all of these things working together so that they can optimize spend, of spend control, of spend visibility, have a compliant way to manage their business to frankly drive greater and greater operational efficiency and profitability. So, it's working on both vectors and we're pretty excited about it.
Brad Sills -- Bank of America Merrill Lynch -- Analyst
That's great. Thanks Rob.
Operator
Your next question comes from Terry Tillman with SunTrust. Your line is open.
Eric Lemus -- SunTrust -- Analyst
Hey, guys. This is Eric Lemus on for Terry. Thanks for taking the question. I just had a question on international markets and the overall adoption curve there. Are you seeing similar patterns of what you saw in the US with lending versus expanding?
Rob Bernshteyn -- Chief Executive Officer
Well, we're seeing patterns. Let me answer that in two parts as well. We're seeing similar patterns. First of all, broadly, right. We go into a new market, we get a handful of highly referenceable customers, we get them highly successful and then they are thankfully and frankly more than willing to help us with incremental customer growth. So, we grow these businesses organically. That's how we did Europe, that's how we did Canada, that's how we're doing Latin America and South Africa and areas of Asia. Now, in terms of specific capabilities, in terms of add-on or net new kind of lands, I don't think there's anything there that is a very different trend than what we've seen historically. There is this -- again, this vision lock around comprehensive business spend management that we're seeing and we enter that overall vision via a number of different functional dimensions. So, very, very healthy in that regard.
Eric Lemus -- SunTrust -- Analyst
Great, thanks, Rob.
Operator
Your next question comes from Brent Bracelin with Piper Jaffray. Your line is open.
Brent Bracelin -- Piper Jaffray -- Analyst
Thanks, Rob. I'd love to get your early thoughts here on your strategic priorities for 2020. The scale of the business now is in excess of a $400 million run rate, still growing at a really robust organic clip. What are you thinking about relative to next year? Are you going to have a greater emphasis on M&A, international kind of partner expansion? Give us an early preview of kind of what you're thinking about for calendar 2020 and what that holds for the business? One quick follow-up for Todd. If I could.
Rob Bernshteyn -- Chief Executive Officer
Sure, sure. Look, I appreciate the question, and my answer may be a little bit boring for some of the folks that have been following us now for quite some time. We've been at this for 43 quarters, and in our 44th, and in many ways, it's all of the above of the things you mentioned. We continue to build a really strong army of certified systems integrators all over the world. We're obviously going to continue to do that. We're going to continue to invest in our enterprise business which is showing very, very real strength in terms of ARR for deal growth. We're going to continue to invest in our mid-market business where we are seeing a really nice, well-managed, well-structured, more predictable business with every quarter that we're in it. And we're going to continue to look at our product depth and breadth expansion and not resting on our laurels than any of our core products, while at the same time expanding more broadly through both organic and if it makes sense, in acquisitive voice as well. So, it's really more of the same, but doing it at a greater scale. And underneath all of that, the thing that is -- really, the most important to myself and now nearly 2,000 colleagues around the world, is to continue to evolve our culture to be the company that anyone, everywhere would want to work with to help them optimize their spending, get their business spend under control, improve their profitability and be prepared for anything that could face them in uncertain economic times.
Brent Bracelin -- Piper Jaffray -- Analyst
Helpful color there. And then Todd just real quickly, we typically don't see high growth companies double operating profit sequentially here, really strong performance with the doubling of op margins to 11% here, driven solely by integration or are there other factors at play relative to just timing of hires, obviously, really strong performance, what drove that and is that sustainable?
Todd Ford -- Chief Financial Officer
We've always had a disciplined growth approach to Coupa where, [Indecipherable the 30% plus growth on the top line, but continuing to show operating leverage at the bottom line and I think it's very strategic investments. When we have an incremental dollar to invest we think about it very thoughtfully. Your point on M&A is absolutely true. We've done actually what I would consider a very good job at integrating our acquisitions and that was part of the strong cash flows in Q3 as well. So, I would expect and we took some near-term hit. And if you look at Exari for example, we still haven't reached steady-state run rate there because the CECL [Phonetic] effect and the deferred revenue haircut. So, that will continue to improve, but by integrating the acquisitions quickly, getting them profitable and cash flow positive and be very accretive to our bottom line also helps. So, I'd say it's a combination of strong M&A integration and just general scaling of the business in a disciplined manner.
Brent Bracelin -- Piper Jaffray -- Analyst
Helpful color. Thank you.
Operator
Your next question comes from Terry Kiwala with First Analysis. Your line is open.
Terry Kiwala -- First Analysis -- Analyst
Hey, good afternoon and congratulations. I just would want you to give a little more color on your traction in the mid-market. Are you seeing increased close rates, are you seeing -- you had spoken last quarter about significant traction and I'm just wondering about the relative contribution of that market to the outperformance versus guidance?
Rob Bernshteyn -- Chief Executive Officer
Sure, sure. I mean, I appreciate the question. I would say the most interesting point, I would think from an investor perspective around this is the level of fidelity we have in understanding that business in terms of all vectors of price, speed and win rate, right. So, we have a very good sense for the value we're able to deliver and the fair price point we can charge for that and that continues to trend upward. We have a really good sense now around the speed from awareness to close and then to deployment go-live in a best practices way and we're continuing to see a really nice trajectory around the actual win rates because we really offer something that nobody else in the marketplace has ever offered, a comprehensive fully integrated platform for all methods of spending and mid-market companies are really, really drawn to this. And you have to understand, the platform is also enabled with pre-negotiated savings that sometimes more than pay for the software subscription itself.
So, in many ways, this has become an area of the business that we can really move the dials up and down on and have a greater level of predictability and Fidelity that we've never had before and that's really exciting for us.
Terry Kiwala -- First Analysis -- Analyst
Great. Thanks so much.
Operator
Your next question comes from Chris Merwin with Goldman Sachs. Your line is open.
Chris Merwin -- Goldman Sachs -- Analyst
Okay, thanks very much for taking my question. I know net expansion has been very consistent over time and on the last call, I think, you talked about a 120% being a long-term goal there. Now that you've started to sell the Coupa Pay module, has there been any uptick in net expansion relative to that historical range and is there any countervailing effect from larger lands in the mid-market or it sounds like there has been some really strong traction there as well? Just curious how that's been trending. Thanks.
Todd Ford -- Chief Financial Officer
Yeah. The renewal rates and expansion rates have remained largely the same and advanced change over time, but we'll increase them and we do expect over time, which is a longer-term target that we could get to a 120%, but from a gross renewal rate and a dollar-based expansion rate, I would still say they're consistent with what we reported the past few quarters.
Chris Merwin -- Goldman Sachs -- Analyst
Great. Is there anything you could share just on adoption so far for that Coupa Pay module as you started selling that?
Rob Bernshteyn -- Chief Executive Officer
Yeah, look, I mean there is very strong, continued interest. We now have dozens of customers in that area. We had, I would say, a bit more traction in Q3 especially since we launched our invoice payments module that's now available, but I would also say, at the same rate, it's still too early to give the specific details on the attach rates. I mean, it will take some time for that to continue to play out. I think what's most interesting is just the level of interest and the synergistic element of that capability with everything else that we offer. It's just something that customers and prospective customers are very excited about and many are already well into deploying. So, it's exciting area for us.
Chris Merwin -- Goldman Sachs -- Analyst
Great. Thanks very much.
Rob Bernshteyn -- Chief Executive Officer
Sure.
Operator
Your next question comes from Daniel Jester with Citi. Your line is open.
Daniel Jester -- Citi Group -- Analyst
Yeah, hi, thanks for taking my question. In the prepared remarks, you talked about an example of a new go-live that was -- got to 95% spend under management in the first, I think, I heard five months since they've launched. I'm wondering can you step back and generalize kind of where that is for sort of your go-lives more recently, and maybe how that has trended. Just trying to get a sense of how quickly your new go-lives had been adopting the platform? Thanks.
Rob Bernshteyn -- Chief Executive Officer
No, I really appreciate that question. It's a very interesting one for us. When we got going in this market or whatever it was over a decade ago, the reports then and they haven't changed that much by the way is on an average company to get somewhere between 45% to 50% of their spend under management and these some of these were best in class kind of companies. And our customer community is getting to levels, like the one you noted, very, very rapidly. And frankly, getting to them, especially in the long tail of spend, which is very, very difficult to get your arms around. And we are consistently perfecting our method of doing that. Obviously, the U in Coupa is user-centricity.
Our focus there is relentless. We've done some industry-first in that area of getting rid of a whole host of different clickpads and convoluted approaches to getting an individual, the most casual user to the most expert user to get the goods and services they need in front of them at the point where they need them. They can order them at the right price points compliantly and giving the company visibility to their spend. So, we continue to improve and improve with that every quarter through the learnings that we're generating with our customer community.
I anticipate that to continue to grow and our vision is to help every company in the world get a 100% of their spend management understand where it's going, have the agility to hot-swap from suppliers that are risky to those that aren't, get the best price points, manage all their commodities of spend in every format, from pre-approved to post-approved to ongoing expenditures and to pay with the right cash management for those goods and services. So, we've got a long way to go, but we're making incredible progress.
Daniel Jester -- Citi Group -- Analyst
Great. Thanks very much.
Operator
Your next question is from Ryan Macdonald with Needham. Your line is open.
Ryan Macdonald -- Needham & Company -- Analyst
Hi, good afternoon, Rob and Todd. Can you give us an update on your FedRAMP certification and how that's progressing? Is this something that we're still expecting to be on track to be completed by year end? And then just more broadly, how are you viewing the sort of the pipeline strength within the public sector? Thanks.
Rob Bernshteyn -- Chief Executive Officer
Sure, sure. So, things are going well in that area. We're getting the right stamps of approval around FedRAMP as you know supported by the United States Postal Service. Our pipeline in Federal is building up in a measured way. And we anticipate that, if you will, to build out very similarly to the way many of our other verticals are built out, from retail to financial services to pharmaceuticals to automotive and a host of others. So, that's on track and going well and sort of measured with the expectations we had going in.
Operator
Your next question is from Brian Peterson with Raymond James. Your line is open.
Brian Peterson -- Raymond James -- Analyst
Congrats, gentleman. You definitely have my respect. So Rob, just one for you on the value of the community. I think, there was a clear message out at Inspire and your comments on Source Together. It sounds like that's resonating with the customers. Yeah, I think it's pretty intuitive how that would drive customers to utilize more offerings from Coupa, but I'm curious, has that had any impact on net new logos, either through competitive bake-offs or sales cycles? Any thoughts on that?
Rob Bernshteyn -- Chief Executive Officer
I think what's interesting -- thank you for that question, Brian. I think what's very interesting in our market is that when we got going here, the vast majority of prospective customers we're engaging with were, sort of, struggling with whatever solutions that they were using, whether that'd be sort of old incumbent technology solutions or some point solutions in certain areas and it took us a long time to get to a place to really establish ourselves, establish our platform, establish referenceability. We have hundreds and hundreds of customers of all sizes now on our platform.
So yes, I would say, as of probably a year or so after our IPO, about two years ago or eight quarters ago, we started seeing this real pull from our community toward the innovation that we're developing for them. Our innovation around Coupa Advantage, our innovation around community intelligence, our innovation around community collaboration and now this innovation around Source Together. So, there is real pull into the community for that. Now, how I could attribute that to ARR per customer, exactly, it's hard to make the attribution, but what I can tell you is, we've had 43 quarters where virtually every quarter has gone up in terms of ARR or average recurring revenue per customer. So, you have to believe that these innovations and our reputation and our credibility and our ability to do what we say we're going to do for every customer is playing into that in a meaningful way and we are definitely in the very early stages of leveraging this incredible power of our community to help them spend smarter together in the way that they all want to.
Brian Peterson -- Raymond James -- Analyst
Thanks, Rob.
Operator
Your next question is from Joseph Foresi with Cantor Fitzgerald. Your line is open.
Joseph Foresi -- Cantor Fitzgerald -- Analyst
Hi. You mentioned in your prepared remarks about Coupa Pay and the progress you've made there. Any chance that we might be able to get some statistics around some of the progress you're making there, even if it's anecdotal outside of, obviously, the American Express relationship and any thoughts on sort of contribution both short and long term? Thanks.
Rob Bernshteyn -- Chief Executive Officer
Well, I'll let Todd add to my remarks on this, but I would say, look, first of all, there's great customer feedback and the desire to work with us in this area. That's unquestionable. All of the metrics that we're tracking are up into the right. Now, of course, they're build off of a small base, as you understand, but all the metrics up into the right. We are seeing meaningful traction in those modules as a stand-alone and we're also seeing it meaningfully impacting our win/loss percentage in our average ARR. So, that's what I think we're -- I'd be more than want to share at this time, a very healthy part of our business emerging here.
Todd Ford -- Chief Financial Officer
Hey, Joe. I mean, we're really looking at metrics right now, and which metrics to present at the right time. As Rob mentioned, it is a bit early. We do have dozens and dozens of customers that are implementing Coupa Pay and we should start to see some more meaningful transactional volume, ACV volumes etc. And once we have a little bit more history, we'll start providing more metrics. And one of the things that Rob just highlighted is that, we are winning more often, and we're definitely winning bigger when Coupa Pay is involved from an average deal size. It's actually quite meaningful and hopefully in the near-term we'll be able to start providing some more metrics to you, but we're not ready to do so at this time.
Joseph Foresi -- Cantor Fitzgerald -- Analyst
Thank you.
Operator
Your next question is from Steve Koenig with Wedbush Securities. Your line is open.
Steve Koenig -- Wedbush Securities -- Analyst
Hi, guys, thanks for taking my question. I was wondering if you could maybe just give us a little color on the importance of partners to your various payment rails, how they help, and what more do you want to do with them? And since I might add, I just wondered if you had any comments on seeing new entrants like Workday and the sourcing space and and how you see your differentiation across the procure to pay landscape?
Rob Bernshteyn -- Chief Executive Officer
Yeah, sure. I appreciate the questions. So probably two distinct questions there. So, one around partners. We, since the very beginning, knew that we want to build a business that allows us to focus on our core competencies and if there are other players in the world that can do things that they are very good at, we're more than inclined to partner with them. I mean, that's the O in Coupa, it stands for open. So, when you think about systems integrators, now, well over two-thirds of our deals are focused on systems integrators. The same methodology and thought process taken into the pay area. What are we great at? We are great at mass transactional platform processing of spend, done in a highly intuitive usable way that encodes best practices for a whole host of business processes. If there are players in and around our ecosystem that are focused on things that they are extremely strong at, financial services firms, other technology providers, we're more than happy to partner with them and that's exactly how we're taking it, if you look at the partnerships we've established to date.
Regarding Workday and the announcement that I heard about them buying a smaller sourcing company, I will say that we're excited. We're excited for the additional validation of the category that we've been creating and cultivating now for over a decade in business spend management. And we have a lot of confidence in our buyer. Remember, our buyer is the key spender of an -- within an organization. They know how to identify value and we're more than excited to continue delivering exceptional value to them for many quarters and years to come.
Steve Koenig -- Wedbush Securities -- Analyst
Awesome. Thanks.
Operator
Your next question is from Stan Zlotsky with Morgan Stanley, your line is open.
Stan Zlotsky -- Morgan Stanley -- Analyst
Hey, guys. Thank you so much for taking my question. Maybe a somewhat tactical question for Todd. On the subscription revenue line, was there anything from your deferred revenue writedowns? Though it may be impacted the quarter, this -- revenue in the quarter a little bit more than in prior quarters, maybe more than you had expected and then a similar kind of one-time item. Was there anything one time in billings or there is some duration changes or also early renewals, FX, anything to help us? I just kind of triangulate these numbers.
Todd Ford -- Chief Financial Officer
So, on the subscription revenues, if you look at the deferred revenue bleed off from Exari, it's not a equally amortized. So, the deferred revenue bleed off in Q2 was $1.9 million. The deferred revenue bleed off in Q3 was $1.6 million. So there was a net delta there of $600,000 from the Exari acquisition. Everything else, I would say was pretty standard. If you look at Q2 versus Q3, Q2 was very consistent linearity in booking and in Q3, we saw seasonal patterns that you would expect where August, given all the holidays. So, when you look at revenue contribution in quarter, Q2 was higher, right, because that was -- it was more front loaded and Q2 was more in the second and third months, so that was a little bit of an impact from that as well. And then, the other question was with respect to -- what was it again, Stan?
Stan Zlotsky -- Morgan Stanley -- Analyst
If there's anything, any kind of FX or any duration changes -- billing duration changes in the quarter or anything like that, early renewals perhaps?
Todd Ford -- Chief Financial Officer
No. I mean, there is always a couple of renewals that come in early and that might get pushed out a month or so, but on balance, I would say there is nothing I would call out for me a one-time billings perspective and/or renewal perspective.
Stan Zlotsky -- Morgan Stanley -- Analyst
Okay, perfect. Thank you so much.
Operator
Your next question comes from Mark Murphy with JP Morgan. Your line is open.
Mark Murphy -- JP Morgan -- Analyst
Yes, thank you for taking my question. Much appreciated. Rob, regarding the Business Spend Index, I guess, I'm curious in aggregate, do you look at it and say that it's healthier or that it's softer than it was one year ago. And based on some of your commentary around that, does it support the idea of a gradual recovery in overseas activity, heading into early next year with some softening in the US? Is that what you were trying to describe there?
Rob Bernshteyn -- Chief Executive Officer
Yeah, thanks, Mark. We didn't break it out geographically, but you can see the breakdown overall quarter-over-quarter and year-over-year on spendindex.com, and actually go in and look at it by vertical as well as spend some time, maybe, actually looking at the spend categories as well, which I think this quarter is not only new, but a pretty interesting indicator of certain things. I will tell you when we did the spend index last quarter, there was a slight uptick in overall sentiment, but there are certain industries that are showing very interesting signs. I called out two of them in my prepared remarks in financial services, as well as in manufacturing.
In other industries like, let's say, the high-tech industry, which includes software and hardware and all elements of high technology companies, sentiment remains fairly stable, but there are slight upticks and downticks in the components such as time to approve spend, approval rates, average spend per person, data such as number of RFIs that are going out in aggregate across the world, and number of orders that are -- or percent of orders that are actually on contract. So, I invite you to spend some time on spendindex.com to get the full picture of it because I think just a few words really don't do justice to the insight that the BSI provides.
Mark Murphy -- JP Morgan -- Analyst
Hey, Rob, just to clarify, when you say there is a slight uptick in overall sentiment, is that -- are you dollar weighting that by customer and by industry or is it -- is it based on aggregate dollar volume or is it based on the number of customers?
Rob Bernshteyn -- Chief Executive Officer
That is based on an index that has components, which include average spend per employee, which is the one component. You don't have to average -- you don't have to dollar-cost average. It's average spend per employee, based on time for approval. So from the point when someone makes a request to the point that the purchase sort of goes out in aggregate, across obviously, hundreds of billions of dollars in spend is based on the approval rates. In other words, have rejections of spend increased or have they decreased to show a sentiment to what will be happening next quarter. However, these types of components, we've never had a leading indicator of. We never -- we typically see spend that already happens. We never have had a chance to see spend that got rejected that would have otherwise never pass-through. We've never had the opportunity to understand how long it's taking companies in aggregate to make spend decisions. All of these are indicated as part of the overall index and the uptick is on the overall index itself. So, if you look at the total number on the index, the index itself has a slight uptick across all industries and geographies in our Q4 report.
Mark Murphy -- JP Morgan -- Analyst
Okay, understood. Thank you.
Operator
Your next question is from Peter Levine with Evercore. Your line is open.
Peter Levine -- Evercore ISI -- Analyst
Right. Thanks, Rob and Todd, for taking my question here. So on payments, assuming majority -- well, at least your larger customers already using a payment solution, can customers or will customers use multiple vendors to ticket [Indecipherable] payments and the conversations that you're having with your larger customers, that already have a solution in place, how do you initiate those conversations here? How do they play out? Thanks.
Rob Bernshteyn -- Chief Executive Officer
Sure, sure. Thank you for the question. There is components to the answer, because we now have three products in the pay area. And so, the answer to that question is different by product. If you look at the virtual card area, that's been an area that's been very difficult for companies to adopt because it wasn't very usable. You didn't have a point in time virtual credit card number that you could apply to a pre-approved spend with a given supplier and that have all that reconciliation done in the back end. We've done it in a very unique way. And so, we're taking spend that was largely maverick and on corporate cards and sort of on expense reports and pulling it into a controlled environment and we're getting real pull for that among the customer base.
When you look at dynamic discounting or elements of Coupa Accelerate, there, we have a whole host of companies that are not really managing their early payment discounts effectively. They're not taking advantage of the ability to pay earlier, but pay less. And in some cases, suppliers are not getting the opportunity to get paid earlier for their own cash flow needs. We're helping in that collaborative environment. And then the invoice payments area, look, we're best-in-class in procure to OK to pay, if you will, and to complete the cycle, you have to actually run the payments capability. Now, we're seeing customers pulling some of that capabilities out of their ERP systems and into Coupa, which is a big opportunity for us. There's a lot of flexibility in having all that in one environment, be able to kick off batch payment runs across any rail internationally. So by product -- it's different by product, but in all area, there's very real interest and there's real value to add to companies who are doing these things in ways that are frankly just sub-par.
Peter Levine -- Evercore ISI -- Analyst
Thank you.
Operator
Your next question is from Siti Panigrahi with Mizuho. Your line is open.
Siti Panigrahi -- Mizuho -- Analyst
Thanks for taking my question. You have been delivering accelerating revenue growth, but as you look at -- look into 2020 growth opportunity, Rob, so one of the things that you are more excited about, is it more on the -- some of the geography or is it more certain business segments or verticals or products anything -- any color would be helpful?
Rob Bernshteyn -- Chief Executive Officer
Yeah. No, sure. Thank you for that. Look, I mean, again, it may be not be -- maybe a little bit of a boring answer, but it's in all of those areas, continued expansion around our product depth and breadth, continued expansion geographically, continued expansion with our global systems integrators, continuing to work with each individual customer to drive more and more value for them and we do this across -- along a very simple model that we've followed now for a very long time, which is a model that calls for greater than 30% top line growth in a sustainable way, a very balanced expenditure on sales and marketing to achieve that type of growth and then continued scale to the bottom line in terms of our gross margins and operating margins and the cash flow that you're seeing coming off of this business. So, with those guardrails in mind, we push on all vectors of the business to drive value for our customers and doing so, one customer at a time. So, they have the opportunity to keep them forever and continue to grow more and more value for them as we continue our relationship.
Siti Panigrahi -- Mizuho -- Analyst
Thank you.
Operator
Your next question is from Koji Ikeda with Oppenheimer. Your line is open.
Oppenheimer -- Analyst
Hi, this is [Indecipherable] on for Koji. Thanks for taking the question. In the past, you guys have talked about Asia-Pac kind of be an area of focus. I'd be curious to hear just an update on sales productivity or business momentum in the region there. Any color or just helpful anecdotes there would be great. Thanks.
Rob Bernshteyn -- Chief Executive Officer
Yeah, no, sure. It's a definitely a growth area for us. We're doing some very interesting deals in Japan, for example, retail and financial services in Singapore, really good volume and healthy business developing in Australia and a whole host of other customer sort of hot areas for us in Asia-Pac. So, very real interest and very real growth for us that really mimics many of the other regions we've entered over time, obviously, most notably Europe and various countries across Europe, and we plan to continue that in the quarters to come.
Oppenheimer -- Analyst
Thanks. That's helpful.
Operator
Your next question is from Alex Zukin with RBC. Your line is open.
Alex Zukin -- RBC Capital Markets -- Analyst
Hey, guys. Thanks for taking the question. Rob, so maybe just -- the first one on Coupa Pay. I know it's been hit on a couple of times, but you mentioned the three different respective modules. I'm just curious as you're seeing the adoption within your customer base, can you talk to which of the modules is coming along faster from an adoption perspective and maybe just looking at over the next, call it, 12 months to 18 months, where do you expect -- where you're most excited or where could the most impact come from with respect to those three different modules with Coupa Pay?
Rob Bernshteyn -- Chief Executive Officer
Sure, sure. Thanks, Alex. It's a little bit difficult to answer that question in the sense that we didn't launch all three at the same time. We launched V card first then Accelerate and most recently invoice pay. And all three have gone in a sort of measured growth pattern, one after the other. but the second part of your question in terms of most excited, I think invoice pay is an incredibly big opportunity for us. I mean, it is just being done in a very sub-par way today. There is lack of agility in that area. There is a lack of efficiency in how that's being handled and it really calls for being pulled into a centralized business spend management function and out of a whole host of different back end ERP systems where it's sort of being locked. That's what we're hearing from our customers and I've -- we're being quite optimistic about the growth in that area in coming quarters.
Alex Zukin -- RBC Capital Markets -- Analyst
Got it. And then, Todd, just back to the outperformance on the operating line, were there any one-time items to consider or are there any kind of repeatable things that could come through over the next couple of quarters as well?
Todd Ford -- Chief Financial Officer
Nothing that I would necessarily call out as major item and obviously we expect margins to improve as Exari gets to steady run rate. The inorganic contribution from Exari in Q3 was $3.7 million. And as we noted last quarter, we expect that to get up to $25 million next year. We also, in the gross margin line, we've had additional amortization of capped up in the back half of the year due to more Coupa pay products being released, most notably the invoice payments products. So previously, this was a benefit to gross margins, and now to come through in the next few quarters. And there are also some costs that are non-recurring in nature that as we continue to consolidate and optimize the hosting architectures of companies acquired. So, if we move them onto our, what we would consider more efficient platforms, there are some one-time costs in the cost of sale. Besides that, we have still been -- a sort of the hiring and we hired quite a few people in Q3. We'll update the headcount numbers at the end of Q4, but you'll see some additional impact in Q4, which is reflected in guidance as those people that came on board have a full quarter of expense.
Alex Zukin -- RBC Capital Markets -- Analyst
Perfect, thank you guys. Congrats again.
Operator
[Operator Closing Remarks]
Duration: 60 minutes
Call participants:
Nicole Noutsios -- Investor Relations
Rob Bernshteyn -- Chief Executive Officer
Todd Ford -- Chief Financial Officer
Brad Sills -- Bank of America Merrill Lynch -- Analyst
Eric Lemus -- SunTrust -- Analyst
Brent Bracelin -- Piper Jaffray -- Analyst
Terry Kiwala -- First Analysis -- Analyst
Chris Merwin -- Goldman Sachs -- Analyst
Daniel Jester -- Citi Group -- Analyst
Ryan Macdonald -- Needham & Company -- Analyst
Brian Peterson -- Raymond James -- Analyst
Joseph Foresi -- Cantor Fitzgerald -- Analyst
Steve Koenig -- Wedbush Securities -- Analyst
Stan Zlotsky -- Morgan Stanley -- Analyst
Mark Murphy -- JP Morgan -- Analyst
Peter Levine -- Evercore ISI -- Analyst
Siti Panigrahi -- Mizuho -- Analyst
Oppenheimer -- Analyst
Alex Zukin -- RBC Capital Markets -- Analyst
