Coupa Software Incorporated (NASDAQ: COUP) Q2 2022 earnings call dated Sep. 07, 2021
Corporate Participants:
Steven Horwitz — Vice President, Investor Relations
Rob Bernshteyn — Chief Executive Officer
Tony Tiscornia — Chief Financial Officer
Analysts:
Ryan MacDonald — Needham — Analyst
Bob Napoli — William Blair — Analyst
Bradley Sills — Bank of America — Analyst
Strecker Backe — Wolfe Research — Analyst
Joe Meares — Truist — Analyst
Brian Peterson — Raymond James — Analyst
Siti Panigrahi — Mizuho — Analyst
Owen Haworth — SMBC — Analyst
Michael Turrin — Wells Fargo Securities — Analyst
Matt VanVliet — BTIG — Analyst
Joseph Vafi — Canaccord — Analyst
Hannah Rudoff — Piper Sandler — Analyst
Presentation:
Operator
Good day, ladies and gentlemen, and welcome to the Coupa Software First [Phonetic] Quarter Fiscal Year 2021 Earnings Release Conference Call. [Operator Instructions] As a reminder, this call is being recorded.
I would now like to introduce your host for today’s conference call, Mr. Steven Horwitz, VP of Investor Relations. Mr. Horwitz, you may begin your conference.
Steven Horwitz — Vice President, Investor Relations
Thank you. Good afternoon and welcome to Coupa Software’s second quarter conference call. Joining me today are Rob Bernshteyn, Coupa’s CEO; and Tony Tiscornia, Chief Financial Officer.
Our remarks today include forward-looking statements about guidance and future results of operations, strategy, market size, products, competitive position and potential growth opportunities. Our actual results may be materially different. Forward-looking statements involve risks and uncertainties and assumptions that are described in our most frequently — most recently filed 10-Q. These forward-looking statements are based on our beliefs and assumptions today and we disclaim any obligation to update any forward-looking statements. If this call is replayed after today, the information presented may not contain current or accurate information.
We also present both GAAP and non-GAAP financial measures. A reconciliation of certain of these measures is included in today’s earnings release, which you can find on our Investor Relations website. A replay of this call will also be available. Unless otherwise stated, growth comparisons are against the same period of the prior year.
With that, I will now turn the call over to Rob. Rob?
Rob Bernshteyn — Chief Executive Officer
Thanks, Steve. I hope everyone had an enjoyable and safe Labor Day weekend. Let me start with a few highlights from this quarter, our 50th quarter of execution as a business. 49% growth in calculated billings; $179 million in revenue, now more than three years of consecutive quarterly non-GAAP profitability and roughly $2.8 trillion in cumulative spend under management. This strong financial performance is highlighted by the following indicators of a steadily improving business environment.
We’re seeing sales cycles continue to move towards normalizing even if there is still a bit longer than they were before the pandemic. We’re seeing enterprise customers — companies become more engaged, as evidenced by the increased number of seven-figure deals we closed this quarter. We’re seeing global scale and improved predictability in our mid-market business. We continue to welcome new Coupa Pay customers with another quarter of achieving 30%-plus attach rates on new deals. We’re rapidly deploying our Supply Chain Design & Planning solutions and helping customers save millions in sourcing, production, raw materials and transportation costs. We’re realizing early dividends from our Japanese joint venture in the form of both pipeline and early wins. And these are just some of the recent highlights.
But with all this encouraging news about Coupa in our business, it’s clear that we are still very much living through a time when companies are operating with a heightened level of uncertainty. What we’re witnessing is the companies are doing their best to adapt to this uncertainty. Now our Coupa business spending next report that was released last week illustrates that our customers are doing just that. They’re adapting to this uncertainty.
While the BSI data shows that global order per customer activity has returned to pre-pandemic levels, the increased supplier to buyer ratio illustrates how companies are diversifying their supply base to derisk supply chain disruptions. The BSI data also shows an increasing lack of correlation between COVID case spikes and order patterns, which would imply that companies have taken the need to become more adept regarding continuity of operations. As a leader in our industry, we see our customers approaching this need for agility head-on and proudly the Coupa platform is a critical element of their strategy.
Let me share an example. Our distribution-heavy customers are running into unprecedented bottlenecks with transportation. In many cases, trucking companies haven’t been able to increase their personnel quickly enough to meet increasing demand. This forces them to figure out not only how to source the transportation, but also how to do so without paying exorbitant fees.
Our Supply Chain Design & Planning solutions are helping identify where these shortages will impact the customer ahead of time, at which point, the dynamic sourcing event can be kicked off to engage multiple suppliers, while maintaining fair prices and high quality of service. This is just one example of how continuous design and redesign is leading to significant improvements in agility by enabling our customers to create rapid digital twins of their supply chain. We’re taking technology that’s already revolutionized healthcare and the auto industry and bringing it to all BSM customers, allowing them to thrive in this time of uncertainty. In my view, this is the future of modern back-office operations. And at Coupa, the future has arrived.
And speaking of future, this quarter also marked the launch of the Coupa Application Marketplace — the Coupa App Marketplace. The Coupa App Marketplace gives customers an easier and smarter way to extend the power of our platform. Without marketplace, we’re enabling quick access to solutions such as supply chain insights, supply risk analysis, IT management and much more.
Many of the solutions included are ready to use right off the virtual shelf. This is also the very first marketplace in the business spend and management space that empowers users to customize their experience, making it a more powerful tool to share information, automate workflows and conduct key tasks. We proudly have more than 70 applications onboarded already with over 20 more in the pipeline. The more customers participate, more powerful our platform will become in helping them comprehensively address their spend.
Now, as you’ve heard me say, the third wave of our strategy is powered by Community.AI. As you recall, the first wave is focused on capturing all spend comprehensively. The second is focused on optimizing every dollar spent with suite energy. And the third is amplifying community value with our platform.
For those of you new to this wave of our strategy, let me illustrate a few examples of how this third wave is already delivering for our customers. The most straightforward is via Coupa Advantage. With Coupa Advantage, we pool customer spending to provide more value through pre-negotiated contracts, giving customers access to better pricing from trusted suppliers like UPS, National Rental Car, Zoom, Staples, Home Depot, Office Depot and many, many more.
Then there is the intelligence component of Coupa of Community.AI where we pool customer data. When I say data, I’m not just referring to transactions but the combination of transactions, configurations and outcomes. This is more than just information, it’s intelligence. And it helps customers in a host of ways. One of those ways is risk mitigation. To illustrate, one of our customers recently leveraged this intelligence to discover that a particular supplier had a high error rate, which led to a more in-depth investigation. And as a result, the risky supplier was removed from a clinical drug trial.
The third component is collaboration, a pooling not of spend or data but a brainpower. As I’ve said many times, we’re not a products company, we’re a Value as a Service company. And that value is amplified because of our growing community that is getting smarter together every single day. To that end, Coupa is quickly becoming the place for spend management professionals to share insights and best practices. And because the platform embeds these opportunities for collaboration within the process of conducting transactions, this collective wisdom is at their fingertips when they are making key decisions.
For example, say you’re beginning a sourcing event on the platform, one you’ve never tried before, a context where suggestion may come up referring you to other community members who opted into sharing their experiences, who’re launching similar events at their companies. This is of course just the tip of the iceberg. These solutions will only continue to become more and more valuable as we develop the third wave of our strategy and their Community.AI vision becomes realized.
Now, let’s talk about ESG. Recently, we published our inaugural Environmental, Social and Governance Report. It talks about our focus on achieving carbon neutrality. The employee resource groups we’ve launched to support our diverse employee base and the hundreds of thousands of dollars we’ve donated towards sponsorships and charities, but we’re just one company. And as proud as we are of the work we’re doing, we’re equally proud of how we’re enabling others to do so as well. A lot of companies have made sincere commitments to ESG initiatives, but it’s not as simple as freeing your mind and the rest will follow. We believe we have a role to play by helping companies shorten the distance between intention and impact. And when thousands of customers, millions of suppliers and trillions of dollars of business spend, we’re leveraging our scale and the power of our community to enable companies to do just that.
A great example of this is CHEP, a Brambles’ company. CHEP relies upon our Supply Chain Design & Planning software to reduce waste, engage in strategic planning, save costs and create circularity, a concept that aims to eliminate waste and minimize the consumption of resources through continual re-use. The key to supporting this has been the use of flow optimization, strategies that are there to implement and assess the most efficient and environmentally friendly transportation modes and routes. Via Coupa, CHEP is significantly reducing waste, while simultaneously optimizing their logistics.
Another area of the ESG impact is meeting sustainability and diversity benchmarks. This is another area where we and our Community.AI focus are making a big difference for many of our customers. Coupa dynamically highlights suppliers that meet sustainability and diversity benchmarks and does so at the point of potential transaction. It provides real-time prescriptions so that our customers are more easily able to support their desire to engage with more minority-owned businesses and work with suppliers that are diverse and focused on sustainability.
Now switching to our core values. My colleagues and I are proud of the impact we’re making. So let me share this quarter’s Most Valuable Player awards at Coupa. Let me start with Constance Caylar, who is recognized for our first core value of ensuring customer success. Constance is adept at building positive and trusting relationships with customers. She has been particularly instrumental in helping our European customers deploy our spend analysis solutions, driving visibility and value for their organizations.
Next, Sal Alswafta was recognized for epitomizing our second core value, focusing on results. Sal has an incredible work ethic and cares deeply about getting the right result, no matter how large or small the task, from catching potential errors in a credit posting to keeping our business move fast with complex order approvals. Sal is uniquely driven and leads by example and inspires and motivates those around him.
And finally, Kyle Dowling was recognized for demonstrating our third core value, striving for excellence. There’s one example. Kyle took the initiative to organize a cross training series between our core source to contract and our contract lifecycle management teams to strengthen the knowledge within the overall group. Recently, a customer asked if they could steal Kyle away. Thankfully, Kyle chose to stay on our continued journey together.
Ultimately for us, everything comes back to executing on the strategic vision area spelled out in the letters of our company name, C-O-U-P-A, to bring the most comprehensive, open, user-centric, prescriptive and accelerated approach to the market as we partner with our community of customers to deliver them unprecedented Value as a Service.
With that, let me now hand the call over to our CFO, Tony Tiscornia.
Tony Tiscornia — Chief Financial Officer
Thanks, Rob. And good afternoon, everyone. Q2 was a great result across the board for all key financial metrics. We delivered strong top-line growth, driven by rich levels of engagement with customers and partners, strong momentum in the area of back office optimization and outstanding execution by our teams in both the enterprise and mid-market. We also delivered strong bottom line results in terms of gross margin, operating margin and cash flows. As we enter the back half of the year, we continue to be excited about our business and our focus on continuing to drive growth by unlocking incredible value for our customers, employees and partners.
With that, let’s dive right into the details of our second quarter results. Calculated billings for Q2 were $195 million, up 49% year-over-year. For the second quarter in a row and on the back of stellar sales execution, we more than doubled new business compared to the prior period. We also have seasonally strong calculated billings contribution from Supply Chain Design & Planning, formerly LLamasoft, coming in at $25 million.
Total revenue for the quarter was $179 million, up 42% year-over-year. Subscription revenue was $156 million, up 40% year-over-year. Strong new bookings and favorable linearity and the timing of deal closure contributed to our Q2 subscription revenue performance. We also delivered solid results in terms of gross margin, operating margin, cash flows and other financial metrics.
Our Q2 non-GAAP gross margin was approximately 71.5%, while non-GAAP operating income was $27 million or 15% of total revenue. Non-GAAP net income was $20 million or $0.26 per share on approximately 77 million diluted shares. These results were significantly ahead of our Q2 expectations. This can be primarily attributed to strong outperformance on the top line and faster-than-expected realization of synergies from the Supply Chain Design & Planning integration.
Q2 operating cash flows were a record $41 million and adjusted free cash flows were $37 million. Cash at quarter end was $634 million, up from $600 million a quarter ago. In terms of complementing growth with profitability, we continue to deliver strong results from a Rule of 40 prespective with the current trailing 12-month calculation of approximately 59%. As a reminder, we defined Rule of 40 as the trailing 12-month revenue growth rate, plus the trailing 12-month adjusted free cash flow margin.
Before moving on to guidance, let me show some additional color on calculated billings. As you know, we typically don’t provide a detailed breakdown of organic versus inorganic because that’s not aligned with how we run our business. Our focus is to quickly integrate our acquisitions and to go to market as a business spend management platform rather than a menu of distinct products. We also don’t monitor distinct products separately from a financial statement or P&L perspective when making decisions about our business. Rather, we leverage one set of financial and operating results.
With that said, this quarter, I’d like to provide some additional data points. We estimate that the Q2 calculated billings contribution from Supply Chain Design & Planning was approximately $25 million. This included approximately $5.5 million from professional services and about $1.5 million from term licenses. Overall, we are pleased with the migration of our supply chain customers from term license to subscription as evidenced by our reduced license revenue.
Next, last quarter marks the one year anniversary of the Coupa Treasury acquisition, formally BELLIN, which means no inorganic contribution should be considered going forward. Only a nominal contribution should be considered for Q2 as the anniversary date was in the first half of the quarter in early June.
Finally, as a reminder, the acquired deferred revenue from BELLIN in Q2 of last year was $4.2 million. This was a one-time benefit that should be backed out from last year’s calculation when calculating the compared figure for calculated billings. Based on these figures, year-over-year organic Q2 calculated billings was in excess of 30%.
With that, let’s now turn to guidance. I’ll begin by laying out some of the background. As evidenced by our financial results, our business has been reaccelerating as the pandemic wanes. However, similar to last quarter, I’d be remiss if I didn’t mention that customers and prospects continue to operate with some level of caution and that the Delta variant and other variants have some feeling uncertain about the potential impact on their business. So while we are excited about our prospects for the back half of the year, we continue to incorporate a heightened level of caution in our outlook.
With that said, I’ll now share our expectations for the third quarter and full fiscal year. We expect total Q3 revenue of $177 million to $178 million. This includes subscription revenue of $158 million to $159 million and professional services and other revenue of approximately $19 million. As we continue to execute on our strategy of migrating legacy LLamasoft term license arrangements to subscription and shifting professional services to partners, the trend for professional services and other revenue will continue to decline. And this is by design. The transition will also be a headwind in Q4 on a year-over-year compare basis as last year professional services from LLamasoft were at their height and there were still significant term licenses being recognized in our professional services and other line item.
As we’ve previously noted, despite some of the near-term financial noise, this transition is in the best interests of all our stakeholders and, most importantly, our customers. As we carry on with the transition, I encourage investors to look more towards subscription revenue results rather than our total revenue results as an indicator of growth. For calculated billings on a trailing 12-month basis, we expect to exit Q3 at a year-over-year growth rate of approximately 41%. Our estimate contemplates a significantly lower contribution from Supply Chain Design & Planning, or LLamasoft, in Q3 compared to Q2.
We expect Q3 non-GAAP gross margin of approximately 69%. We expect Q3 non-GAAP operating income of $6 million to $7 million and non-GAAP net income $1 million to $2 million, resulting in non-GAAP net income per share of $0.01 to $0.03 on approximately 77 million diluted shares for the quarter. We expect Q3 adjusted free cash flows of approximately $10 million.
Moving on to the full-year, we expect total revenue of $706 million to $708 million. This includes subscription revenue of $616 million to $618 million and professional services and other revenue of approximately $90 million. Moving down the income statement, for fiscal ’22, we plan to continue investing in our business to capture the clear market opportunity. As a result, we expect non-GAAP gross margin of approximately 69%, non-GAAP operating income of $40 million to $41 million and non-GAAP net income of $21 million to $22 million. This results in non-GAAP net income per share of $0.27 to $0.29 on approximately 76.5 million diluted shares for the year. We reiterate our expectation that adjusted free cash flows will be up on an absolute dollar basis year-over-year for fiscal ’22.
Before wrapping up prepared remarks, we’ve got a couple of new folks joining the coverage team and I wanted to remind everyone that in Q4 of last year, we had a one-time opening deferred revenue benefit of $14.8 million for LLamasoft for calculated billings. This should be backed out of the compare period for calculated billings when we deliver Q4 results this year. We will remind you about this next quarter when we give Q4 guidance.
That concludes our prepared remarks. We’d now be happy to take your questions. Operator?
Questions and Answers:
Operator
Thank you, Mr. Ford. [Operator Instructions] We’ll take our first question from Ryan MacDonald with Needham.
Ryan MacDonald — Needham — Analyst
Hi. Thanks for taking my questions and congrats on a really strong quarter here. I guess, the first one I have is really around the calculated billings beat here. You talked about really the strength with supply chain here. I’m curious as you look at the pipeline and the increased demand there, what are you seeing in terms of mix of demand between sort of the legacy on-prem versus the subscription offerings? Thanks.
Rob Bernshteyn — Chief Executive Officer
Sure. So, well, let me say, first of all, Ryan, thanks for the nice words. This isn’t just a matter of supply chain on-prem or cloud. This is about business spend management more broadly. And so, when we look at the pipeline, we’re just seeing a great deal of enthusiasm around companies wanting to address this whole set of challenges comprehensively. Just to give you a sense for that, obviously folks on the more traditional core application side are seeing value in Supply Chain Design & Planning and vice versa. But what they’re all seeing is the overall business by management opportunity.
Now, within the Supply Chain Design & Planning area, there’s a great deal of interest and enthusiasm around the cloud version. I mean, the extensibility and flexibility and configurability of that cloud offering is really second to none. And it’s helping us lead in a whole host of deals. And now that we’re unlocking sweet synergy between that and our Coupa sourcing optimization area, it’s even more promising. So, very, very positive overall and definitely driven and inclined by a push toward the cloud solutions.
Tony Tiscornia — Chief Financial Officer
And Ryan, just to add one thing there. As you noted, we had nearly 50% calculative billings growth in total for our business. Although we did have a good contribution from LLamasoft this quarter of $25 million, when you back that out and a couple other adjustments that I noted we were still in excess of 30% organically for the business.
Ryan MacDonald — Needham — Analyst
All right. And then maybe, Tony, just as a follow-up you know it’s great to see the cost synergies coming through earlier than expected. Can you talk about a few areas where you really were able to drive some of those synergies quicker more quickly than expected? Thanks.
Tony Tiscornia — Chief Financial Officer
Yeah. I mean, of course, in our overall operating income result, there was a strong top-line first and foremost. I mean, we’ve benefited from not only double net new business again for the second quarter in a row, but also strong linearity in the quarter versus sometimes you can see more of a back end loaded quarter. On top of that, I would say, we executed incredibly well across the Board. I mean, the LLamasoft acquisition has been three quarters and running now. And this coming quarter Q3 will be our last quarter. And as far as taking advantage cost synergies with hosting with alignment of our teams, just incredibly strong execution across the Board, which I think results from experience that we have in executing on integrating acquisitions and incredible dedication by the team.
Ryan MacDonald — Needham — Analyst
Awesome. Congrats again.
Operator
Your next question is from Bob Napoli with William Blair.
Bob Napoli — William Blair — Analyst
Thank you. Hi, there.
Rob Bernshteyn — Chief Executive Officer
We can hear you. Yes, Bob.
Bob Napoli — William Blair — Analyst
Sorry about that.
Rob Bernshteyn — Chief Executive Officer
Okay.
Bob Napoli — William Blair — Analyst
Just a question on Coupa marketplace. And — I mean, you’ve added a number of products to that with a big pipeline. And how do you expect the marketplace to affect your business over the medium to long-term?
Rob Bernshteyn — Chief Executive Officer
Sure Bob. Well, thanks for the question. Look, the main purpose of the marketplace is to foster and grow the partner ecosystem around us. This business spend management opportunity is really sizable. We’ve defined market at tens of billions of dollars globally in midmarket and enterprise and across the board internationally. So, the reality that we’re going to able to hit every component and every type of use case that a customer would ever expect is not likely in the near-term. So we want to build an ecosystem around this.
And the fact that so many great emerging companies and developed companies are building on our marketplace is going to make it so much easier for our customer community to begin to subscribe to these applications and have them pre-integrated with the core Coupa platform. So, again, another way to just grow our overall ecosystem for the benefit of the customer community that we’re creating.
Bob Napoli — William Blair — Analyst
Thanks, Rob. And then, just a follow-up on the gross margin. I mean, a really nice rebound in a gross margin this quarter, but I was a little bit confused on the gross margin guide. It seemed — I was just wondering, Tony, if you could just give me a little more color around the guide for the third quarter versus the actuals for the second quarter?
Tony Tiscornia — Chief Financial Officer
Sure, Bob. Yeah, last quarter, I believe we guided in the 66% to 67% range, this quarter it’s 69% gross margin. Certainly we had a strong performance this quarter coming in at 71.5% in total. We realize that we have a massive growth opportunity ahead of us. And as we look to build scale, we want to maintain the flexibility to increase and kind of move the dollars on investments as we see fit. So we’re leaving at those degrees of freedom.
Operator
Your next question is from Brad Sills with BofA Securities.
Bradley Sills — Bank of America — Analyst
Oh, great. Hey, guys. Thanks for taking my question. Congratulations on a real nice quarter. I wanted to ask about just the environment. We’ve seen a number of back office application providers, see some uptick this quarter. You’re certainly seeing it. What are you hearing from CFOs and CIOs with regards to plans for kind of refresh and is this kind of a catch up and some pent-up demand here in pipeline would you say or is it just a function of more digital transformation accelerating as we’re getting into reopening? Thank you so much.
Rob Bernshteyn — Chief Executive Officer
Sure, Brad. I mean, my sense for it is that it is digital transformation taking hold and finally really beginning to take hold in the areas where we operate, largely in the back office. And look, just to give you a sense, I mean, just in this quarter we had more seven-figure enterprise deals certainly than last quarter. We had our first ever seven-figure deal in the mid-market this quarter, which was very interesting. And when you look at the texture of these transactions, they’re not sort of just pent-up demand unlocked. They are transformational deployments of business spend management of our business They are transformational deployments of business spend management, of our business spend management platform that is going to help these folks recognize incredible operational efficiency, the agility, they simply don’t have without these types of applications fully deployed. And so, I think it is more of the latter of the two options that you shared, but we’ll see how it plays out. But that’s what we’re feeling here, no doubt.
Bradley Sills — Bank of America — Analyst
That’s great. Thanks, Rob. And with that record quarter in these bigger deals that you mentioned, is that a function of Coupa moving up market kind of on an ongoing basis or is it more customers are committing to more components of the stack and we used to be procure plus invoice, it sounds like now you’re seeing real source traction with sourcing supplier management. How much of this is a function of just wider footprint on the initial sale and even potentially upsell acceleration here as well versus just the move up market? Thank you so much.
Steven Horwitz — Vice President, Investor Relations
Yeah. It’s a great question and I think it’s worthwhile for everyone listening to understand. This is — we don’t have a continued move upmarket. We have three really strong businesses in enterprise, in upper midmarket and midmarket, which have a really strong growth rate, have a very strong sales and marketing efficiency to them that are operating in and of themselves separately as very good strong businesses.
Having said that, all when you look at aggregate and by the way individually, the average subscription, annual subscription price point has continued to grow in all segments. Virtually every quarter now for 50 quarters Brad, which is very, very encouraging. And that is not just a move up market. That is a continued move to deliver more and more of the BSM footprint, more and more of the Value as a Service to our customers both up-front as you noted as well as for those that stay with us and add on more components. All that boils down to this digital lock we have with our customers around digitally transforming their back office operations through modern business spend management solutions.
Operator
Your next question is from Peter Levine with Evercore
Rob Bernshteyn — Chief Executive Officer
Peter if you’re speaking, we can’t hear you.
Operator
And Peter, you maybe…
Rob Bernshteyn — Chief Executive Officer
Operator?
Operator
Yeah. Okay. We’ll just move on to our next question. Your next question is from Strecker Backe with Wolfe Research.
Strecker Backe — Wolfe Research — Analyst
Hi. Thanks for taking the question here. So, kind of a two-part. You talked about the economic environment not quite back to pre-COVID levels, but can you just talk about how that’s changed over the past three months when you last gave us an update?
And then, we speak really positively about your pipeline and your late-stage pipeline, but sales cycles also not quite back yet. How are those conversion rates trending? And then, when you look to the back half of the year, how does that pipeline split between the larger enterprise prize and maybe the small medium businesses? Thank you.
Tony Tiscornia — Chief Financial Officer
Sure. I mean, there are a lot of questions. Let me address it at the key level where I think you were going. In terms of pipeline, the pipeline appears quite healthy across segments as I look at it today. I’ll tell you without question we have a largest pipeline we’ve ever had as we enter Q3. And we’re seeing this pace of sales cycles continue to improve. They’re not quite where they were pre-pandemic, but they’re continuing to improve. And it’s a delicate thing right. I mean when we saw what the variance is the delicate thing. Things were moving a lot quicker. The variant came maybe slowed down a little bit. So it’s a little bit touch and go. But generally speaking when you kind of zoom out, big growing pipeline, faster conversions and, most importantly, this clear acknowledgement on behalf of CFOs and frankly CIOs that they need to digitally transform their back office particularly in the area of how they spend money on their business.
Operator
Your next question is from Terrell Tillman with Truist.
Joe Meares — Truist — Analyst
Hey, guys. This is Joe Meares on for Terry. Thanks for taking the questions. I really appreciate it. Just thinking in terms of international markets, what are you guys seeing in terms of propensity and willingness to buy? And how are sales and bookings comparing to the US market right now? Are you seeing more growth on the mid-market side as opposed to the enterprise side internationally?
Rob Bernshteyn — Chief Executive Officer
Also the two slices are international and then by segment. As I mentioned earlier, all segments are doing very, very well and continuing to improve and get closer and closer to pre-pandemic levels. In terms of international, our strategy has always been an organic expansion internationally. We entered Europe many years ago with a handful of folks and landed our first customers and leveraged those references to land more, more, more. And now, Europe represents a very significant portion of our business. We’re seeing the same dynamic happening in other areas of the world, in South America and parts of Asia and South Africa and other locations. So, healthy and — I wouldn’t say there are any statistically significant off-roads in any particular market that are consistent or worthy of calling out.
Maybe, Tony, you’d like to add?
Tony Tiscornia — Chief Financial Officer
Yeah. I’d just add some additional color. So, for this quarter, we’ll report 59% US revenue contribution, 41% international. We’ve kind of steadily been around that 60%-40% range for quite a bit of time now. And Rob pointed out some of our expansion in Latin America and APJ are still early. And also we’ve been seeing some good early progress with our Japanese business as a result of our joint venture.
Joe Meares — Truist — Analyst
Super helpful. And then, just a quick follow-up. Any update on the US federal government side — government side in the US?
Rob Bernshteyn — Chief Executive Officer
Sure. Probably no particularly meaningful update this quarter beyond what we shared last quarter with Fed ramp already moderate. We’ve passed many of the rigorous tests required, which was arguably the hardest part of all that. And the next steps are to complete our audit. And we’re working with a customer and a third-party assessment firm for that. And we see some real opportunity there. And we think a lot of that will likely begin to truly materialize in the back half of next year. But good progress in city state and federal, but not anything overly statistically significant to call on the call.
Operator
Your next question is from Brian Peterson with Raymond James.
Brian Peterson — Raymond James — Analyst
Congrats on the quarter, gentlemen. The upside is definitely in vogue. But Rob, just one high level one from me. It’s interesting to me that there’s always such a high ROI of the software and the platform. But you’re also hitting a very strategic dynamics, right, with supply chains and everything else. It’s beyond hard dollar savings. So, if we’re thinking about that Value as a Service framework, how much does pricing come up as part of the conversation relative to conversations prior to the pandemic? Just curious to get your thoughts there. Thank you.
Rob Bernshteyn — Chief Executive Officer
That’s a great question, Brian. Thank you. Pricing always comes up at some level in our market because some of the folks involved in championing our offerings or evaluating our offerings, their job is to create some level of a competitive environment and choose amongst options. Having said that, as you could see, with a very, very honest and fair spirit of pricing, our average annual subscriptions have gone up virtually every quarter, as I mentioned, for now 50 quarters. And that hasn’t changed in the last four to six that we’ve been experiencing the pandemic.
What customers want is, number one, high likelihood of success. We think by far we offer that better than anyone else in the market, highest likelihood of success. They want time to market. They want to get deployed quickly in an accelerated way, the A in Coupa. They want the value in the ROI to be justifiable and the price to value equation for what we offer is unlike anything I’ve seen in my 27-year career in enterprise software. So, I think we’re in a really, really good spot with that. And as long as we continue to be focused on authentic, honest conversation with our customers, being real trusted advisers to them and being maniacally-oriented toward ensuring their customer success. I think we sit in a really good spot in the market.
Brian Peterson — Raymond James — Analyst
Good to hear. Thanks, Rob.
Operator
Your next question is from Siti Panigrahi with Mizuho.
Siti Panigrahi — Mizuho — Analyst
Thanks for taking my question. Rob, I know you want to talk about BSM platform, but just wondering any color in terms of trained or attach rate of this contract management or even treasury management? And also, specifically Coupa Travel, have you seen any recovery in that part of the business?
Rob Bernshteyn — Chief Executive Officer
Well, we manage the business as a platform — the business spend management platform. Obviously we’re seeing more and more of our capabilities getting purchased upfront and more and more of our capabilities are getting deployed. And that for sure includes contract life cycle management and in many of the other areas that you may not be mentioning but our customers are deploying and getting value from.
In terms of travel expense, we’re continuing to deploy and sell our expense management offering. We’re in the process of building out our bookings component. But I can’t say yet in any meaningful way that travels picked up to a level where a significant boom is coming has come to our ability to sell that standalone offering or that offering being the lead for the overall BSN platform as of yet.
Tony Tiscornia — Chief Financial Officer
And Tony, just a quick follow-up. What’s the M&A contribution embedded into your guidance? Yeah. So, for our billings guide, let me give you some details on that CT. We guided to 41% exiting the quarter, which from a dollar perspective is very similar to what we guided for last quarter. It mainly boils down to one thing. Based on what we know and there are a lot of moving parts, we expect LLamasoft calculated billings to be approximately $8 million to $10 million less in Q3 compared to the $25 million that we recognize and calculated billings in Q2. So that’s the main kind of color there.
Siti Panigrahi — Mizuho — Analyst
All right. Thank you.
Operator
Your next question is from Steve Koenig with SMBC.
Owen Haworth — SMBC — Analyst
Hey, guys. This is Owen Hayworth on for Steve Koenig. Thanks for taking our questioning and congrats on the strong results. I’m wondering if you can drill into Coupa supply chain a bit more. So how are the synergies developing both on the sales side and on the product side with LLamasoft? And as we move into supply chain, can you tell us more about what the sales motion looks like there? Is it complementary to existing sales motions? Is it a separate sales motion? Are the buyers the same or the buyers different? And then lastly, considering talent brought in through the LLamasoft acquisition, what synergies do you see longer-term on the product side? And maybe how can you leverage the added AI expertise across your BSM product suite. Thank you.
Rob Bernshteyn — Chief Executive Officer
Sure. A lot of questions there. Let me try to really kind of pull them all together. But I think what you’re asking is very, very — obviously very relevant to us. So we talk about Supply Chain Design & Planning integration, we slice it not too similarly the way you did with sales, product and talent, but we look at as people, process and technology. So from the people side, we feel really good about the way we drove synergies aggressively right at the outset of that acquisition. And we faced plenty of challenges as we had expected. We find ourselves now in a pretty good spot in terms of the folks that we have onboard, the folks that we’re hiring and the fact that we’re all rowing in the same direction, which is really a testament to some incredible people in our part of Coupa who were once part of that acquired company.
On the process side, everything is already integrated, big testament to the hard work of many departments within Coupa to make that happen. But we’re operating as one company today. And then, on the technology piece, which you touched on, we have in our latest release implemented our first primary integration point, which is between the design and planning and Coupa Sourcing optimization platform. And we have customers that are deploying and utilizing that first primary synergistic integration point. We’ve also done everything on the technology side from the low level of stack and the technology stack as well as in the user experience being very, very complimentary.
And last piece that you touched on, which is some of the synergies with people. So, the sales cycle began a bit differently, it’s becoming more and more complimentary as our teams begin to work with one another and showcase overall the overall BSM vision and how these applications work together on one platform. And we have created a center of excellence around artificial intelligence that is led by a key leader from the acquisition that is now beginning to reap rewards for us that that’s been the entire footprint of the Coupa platform. So all progressing well and couldn’t be more excited about this integrated group of people we have now.
Operator
Your next question is from Michael Turrin with Wells Fargo Securities.
Michael Turrin — Wells Fargo Securities — Analyst
Hey, there. Thanks. Good afternoon. Just going back to the LLamasoft migration efforts and activity that you saw this quarter versus what you’re assuming next quarter, I just — I wanted to kind of dig in there a little bit and just try to ask around how much of that might just be general conservatism. We know you’ve talked in the past around assuming limit — assuming majority migration activity; almost entirely migration activity is driving that business in the coming year. How much of this is just similar to how you’ve historically guided versus something you saw in Q2 and anything you can add just around how the migration efforts and renewal conversations are progressing relative to maybe what you were expecting at the start of the year? Thank you.
Rob Bernshteyn — Chief Executive Officer
Sure, Michael. Thanks for the question. So, definitely we always at Coupa have a little bit of conservatism. But no, based on the inputs that we have in front of us for contracted billings, for renewals, professional services, licenses for next quarter, definitely there are some moving parts but we do see a meaningful decrease from Q2, which was $25 million moving to Q3, a bit of conservatism. But based on the numbers we’re looking at, we have decent visibility into that and that’s what we expect.
Part of that is seasonality for enterprise software. For example, for Coupa and as LLamasoft was and now is incorporated with Coupa and our business, Q1 and Q3 tend to be seasonally weak — weaker with Q2 and of course Q4 being the largest quarter seasonally. So that’s part of it. And then, part of it, as you mentioned is the continued migration. We had in Q4, when we first acquire LLamasoft for the full quarter; we had about $6.9 million of license revenue. In Q1, that was down to about 3.5 I believe. And then this quarter was 1.5. So we’re definitely making good progress on the conversions as well.
Michael Turrin — Wells Fargo Securities — Analyst
That’s great. Those details are super helpful. Thank you, Tony.
Operator
Your next question is from Matt VanVliet with BTIG.
Matt VanVliet — BTIG — Analyst
Yeah. Thanks for taking the question. I guess wanted to dig in a little bit on the Coupa Pay side. It sounded like another strong quarter of attach rates on new deals. But I wonder if you could update us on maybe a couple of things. One, how are you doing with existing customers looking to add that on? And then, just from a structural standpoint, is there anything limiting that to the sort of greater than 30% attach rates? You’ve talked about the last several quarters? What could be the driver to get that number significantly higher going forward? Thanks.
Rob Bernshteyn — Chief Executive Officer
Sure. Well, let me just say, Matt, to start out that our goal is not so much to attach one thing or another thing to an existing account or attach it into a new deal. Our goal first and foremost is to get vision lock with prospective customers and maintain vision lock with existing customers around the full business spend management platform. That’s what we’re planning for. So, the idea of attaching one product to another is interesting but that isn’t the driver for us. And having said that, without even a focus on attach rates, it’s encouraging to see now multiple quarters of over 30% attach rate on Coupa Pay.
We’re seeing customers themselves, you asked about deployments taking a pretty methodical approach to ramping their transactional spend, whether it be through core Coupa Invoice through the vCard’s to early payment discounts. We’re seeing customers taking multiple Coupa Pay products up and deploying them, in alignment with their digital transformation kind of staging strategy. So very, very healthy uptick in utilization of the product as well as interest in the product from the very front end as part of the overall business spend management offering. And that’s where our attention is and it’s reaping rewards for us clearly.
Matt VanVliet — BTIG — Analyst
Great. Thank you.
Operator
Your next question is from Joseph Vafi with Canaccord.
Joseph Vafi — Canaccord — Analyst
Hey, guys. Good afternoon. Thanks for taking my question. Great results. I just wanted to — just kind of drill into your — you kind of have a two-sided network that’s pretty powerful at this point. And I just wanted to explore your ability to penetrate the supplier side of the network more for those suppliers actually to become customers of the product as a buyer. And how that goes and how you’re seeing customer acquisition cost there versus perhaps looking at kind of greenfield opportunities where a potential new client is not already in the supplier network?
Rob Bernshteyn — Chief Executive Officer
Yeah. Thanks, Joe. It’s a very strategic question that you ask. And our thought process is unquestionably that we want to be the platform for B2B commerce between buyers and suppliers. And that does mean spending some energy to make sure that suppliers could easily be onboarded that their experience has the same level of usability that they’re used to from consumer applications, that they’re able to transact seamlessly with our buyers. And as you know, we’ve managed purchasing from our buyers with millions and millions of suppliers all over the world. So it absolutely behooves us to spend energy on the supply side of our platform.
We’re doing that but we’re certainly not yet doing that in a way that would lead to any specific monetization plans. Our goal is to make the buying experience as seamless as possible and make that e-commerce B2B exchange as seamless as possible currently.
Joseph Vafi — Canaccord — Analyst
Fair enough. I mean, it feels like that could be a good, maybe emerging opportunity strategically on customer acquisition. I mean, when you look at accounts payable or accounts receivable automation, we’re seeing a lot of synergies across those two.
Rob Bernshteyn — Chief Executive Officer
I appreciate it. I appreciate the perspective. Thank you, Joe.
Operator
Your next question is from Hannah Rudoff with Piper Sandler.
Hannah Rudoff — Piper Sandler — Analyst
Hi, guys. This is Hannah on for Brent Bracelin today. Thanks for taking my question. Just one for me here. I guess, how sustainable are you thinking the impressive operating margin gains during Q2 were, which really surprised to the upside, even with the ongoing LLamasoft acquisition?
Rob Bernshteyn — Chief Executive Officer
Yeah. So, thanks, Hannah, for the question. As far as our performance this quarter, the first part of it is because we have an industry leading deployment of Coupa, which allows us to visualize and control our costs incredibly well. In fact, for everyone on the call, I strongly suggest, they consider using it to benefit their companies as well. But, look, I mean of course, we had a very, very strong top line beat, first of all in the quarter. There are a few factors there, just the magnitude of new business for the quarter and also the linearity of, therefore, bleeding into revenue.
We had faster than expected synergies from the Supply Chain Design & Planning or the LLamasoft acquisition. And as we go forward, we want to leave ourselves, as I mentioned before, degrees of freedom and flexibility to invest to capture the growing market. So there’s a number of factors at play. I think that, our results this quarter did have some component of us wrapping up some pieces of the LLamasoft acquisition.
Hannah Rudoff — Piper Sandler — Analyst
Thank you.
Operator
[Operator Closing Remarks]