COUP (2020 - Q4)

Good day, ladies and gentlemen, and welcome to Coupa Software Fourth Quarter and Fiscal Year 2020 Earnings Release Conference Call. As a reminder, this call is being recorded. Steven H

Thank you. Good afternoon and welcome to Coupa Software's fourth 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 opportunity. Our actual results may be materially different. Forward-looking statements involve risks and uncertainties, and assumptions that are described in our most recently filed 10-Q these forward-looking statements are based on our beliefs and assumptions today and we disclaim any obligation to update any forward-looking statements. If this call is replayed after today, the information presented may not contain current or accurate information. We also present both GAAP and non-GAAP financial measures, a reconciliation of certain of these measures is included in today's earnings release, which you can find on our Investor Relations website. A replay of this call will also be available 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 will turn the call over to Rob. Rob?

Thank you, Stephen. Hello, everyone, and thank you so much for joining us. Before we begin, let's acknowledge the topic of the coronavirus. Our thoughts and prayers are with anyone and everyone affected globally. At Coupa, our top priority has been and will continue to be ensuring the health and safety of all our colleagues, customers and partners around the globe. We're meeting daily and taking guidance from trusted health organizations such as the CDC and the World Health Organization for everyone's health and safety and implementing safeguards accordingly. As one global community, let's hope for the return to normalcy as soon as possible. As far as our business, we have and will continue to execute assertively despite any and all obstacles in our path. We're back in California after another busy year and well into a new one. Reflecting on the year on behalf of all my Coupa colleagues and myself, I'm proud to share that for our full fiscal year, we delivered a revenue growth rate of 50% and we're once again non-GAAP profitable.

Thanks, Rob and good afternoon everyone. We finished the year strong as we continue to deliver on the commitments we've made to our stakeholders and our strong execution is reflected in our key metrics and financial results in fiscal 2020. Total revenue for Q4 was $111 million, up 49% year-over-year and for the year, total revenue was $390 million, up 50% year-over-year. Subscription revenue was up 46% year-over-year for Q4 and up 48% for the full year. Professional services and other revenue for Q4 was $13 million, which includes the benefit of a few strategic direct services arrangements that continued in the Q4 and are now nearing completion. For fiscal year 2020, full year calculated billings were up 49% over the prior year. In Q4, calculated billings were $181 million, by far our largest ever quarter. The strong result was delivered despite a difficult year-over-year compare due to the $6 million of acquired deferred revenue from the Hiperos acquisition at the end of Q4 of fiscal 2019. Let's now turn to margins and results of operation. Our Q4 non-GAAP gross margin was 73%. This was comprised of subscription, non-GAAP gross margins of 81.2% and professional services and other non-GAAP gross margin of 10.4%. For the year, non-GAAP gross margin was 72.6%. In Q4, we delivered non-GAAP operating income of $13.3 million or 12% of revenue and non-GAAP net income was $15 million or $0.21 per share on 70.2 million diluted shares. For the year, non-GAAP operating income was $31.9 million or 8% of revenue, and non-GAAP net income was $36.6 million or $0.52 per share on 69.9 million diluted shares. Cash and investments at year-end were $767 million which included approximately $100 million paid in Q4 for Yapta. Operating cash flows in Q4 were $22 million and free cash flows were $20 million making this our second consecutive quarter over $20 million in operating and free cash flows. For the fiscal year, operating cash flows were $68 million or 17% of total revenue and free cash flows were $56 million or 14% of total revenue. Our Q4 cash flow results significantly exceeded our original expectations. This was driven by great execution across the board. In particular, I'd like to call out Rick, Elaine, Rachel, Kathy, Ariel, Andrew and Sal for their contributions for strong Q4 cash flow results. Before moving on to guidance, let me touch on Coupa Pay. As Rob noted in his remarks, we are still early on the Coupa Pay journey with invoice payments having been made generally available just a few quarters ago. We have a strong pipeline of prospects and current customers progressing through sales cycles. We added many new customers in Q4 in both enterprise and mid-market, and Coupa Pay has become a more value component of the core BSM platform. This is evidenced by the fact that in fiscal 2020 on average annual subscription fee for new business deals that included Coupa Pay were more than 20% higher versus deals that did not include Coupa Pay. Now that early Coupa Pay customers are going live transaction volumes are beginning to occur while it's still too early to draw influences from the transactional data. As Coupa Pay continues to evolve, we will share additional metrics as they become relevant and statistically significant. Now let's turn to guidance. As you consider Q1 guidance, we'd like to remind you that we recognize revenue based on the number of days in a quarter and since there are fewer days in Q1 due to February, steady state subscription revenues are seasonally lower by several million dollars in Q1 compared to Q4. For the first quarter, we expect total revenue of between $111.5 million and $112.5 million. This includes subscription revenue of between $101.5 million and $102.5 million taking to account the fewer number of days in February. And professional services revenue of approximately $10 million. Our Q1 guidance contemplates $1 million to $2 million from Coupa Travel Sabre, formerly known as Yapta. As Rob discussed, Travel Saver identify savings opportunities for customers by dynamically re-booking travel and taking a share of real life savings as revenues. While it's uncertain at this time, we expect that the coronavirus outbreak could negatively impact travel savings revenue due to a reduction in global travel activity and that was factored into our guidance. We expect Q1 non-GAAP gross margins of 70% to 71%, non-GAAP operating income of $4 million to $5.5 million and non-GAAP net income $0.06 to $0.08 per share on $72.5 million weighted average diluted shares for the quarter. Furthermore after generating in excess of $20 million in free cash flow in each of the past few quarters, we expect Q1 cash flows to be breakeven or slightly better. For calculated billings, we expect to exit Q1 with a trailing 12-month growth rate of 45%. This includes an approximate 5% pull forward from Q2 due to timing of renewals and contracted billings. As you roll your models forward for the year, please also remember that Q2 will be a difficult compare due to the Exari acquisitions we completed in Q2 last year. We now like to share our initial expectations for the fiscal year ending January 31, 2021. From a revenue visibility perspective going into the year remaining performance obligations or RPO at the fiscal - at the end of fiscal 20 with $725 million up from $499 million at the end of fiscal '19, representing a year-over-year increase of 45%. As a reminder, our RPO excludes customer contracts with a duration of one year or less, it will not incorporate any contribution from Travel Sabre as revenues are typically recognized. For the full year, we expect total revenue of $488 million to $490 million. This range assumes that professional services will be flat to slightly up year-over-year with lower contribution from direct services engagements compared to the prior year. We expect non-GAAP gross margins of 70% to 71% and non-GAAP operating income of $21 million to $23 million. As a reminder, our sales and marketing expenses spike in Q2 by approximately $3 million to $4 million due to our annual INSPIRE User conference. For the full year, we expect non-GAAP net income of $0.30 to $0.33 per share on 73.5 million weighted average diluted shares. Although our customer collections at the end of fiscal 20 significantly exceeded our expectations, we still expect operating and free cash flows to be up year-over-year on an absolute dollar basis. 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 would be happy to begin fielding your questions, operator?

The first question comes from the line of Chris Merwin.

Rob, just wanted to ask about the nature of discussions with customers at the moment. Obviously, we're in a pretty unique time here and I think - here at Coupa, you have also unique vantage point into business spend particularly for IT. So maybe can you comment at a high level about the discussions and then in particular how it relates to Coupa as it relates to sales cycles and everything else. Thanks.

Well, those conversations continue as you would expect, our value proposition is our value proposition in many ways. There is a greater focus in on controlling spend having the agility and the controls you need at this difficult time. Unfortunately, many of them are being done over phones and video conferences, but that's proving to be fairly effective for everyone. At the moment our demos are being done the same way and all of our correspondence is being done in the same way. But I'm feeling pretty good about that and as the weeks and quarter continues, we'll see if that - how that evolves.

The next question comes from the line of Michael Turrin.

Todd, any change in terms of capital allocation framework given the recent downturn in the markets. Does M&A remain a core piece of the strategy with valuations coming in here or is there any coming in here, or is there any more focus on just keeping the war chest stocks here for now?

Nothing has changed from that perspective. It's business as usual. Obviously valuations may be going down, but our M&A strategy has always been, first and foremost, is it a cultural fit time to market, buy versus build a significant input from our engineering team and clearly value as part of that component as well. But right now, I would say, our strategy there has remained the same.

The next question comes from the line of Stan Zlotsky.

Just going back to Coupa Pay for a second, what do you guys have baked in as far as contribution from Coupa Pay in your fiscal '21 revenue guidance.

Stan, this is Todd. So our guidance is very much consistent with how we've done things in the past, we look at pipeline, we look at adoption of our business spend management platform. And as we noted on the call the deals with Coupa pay had a significant increase in the average deal sizes. And so when we look at our pipeline and we kind of roll that into our guidance for the year, we look at as an one bucket. And it's not something that we're going to break out separately.

The next question comes from the line of Alex Zukin.

So I guess, Rob, maybe first if you think about holistically, I remember having a conversation where you've talked about basically prioritizing new logo acquisition over installed base selling over the last few years. I'm wondering if given the market conditions, does that start to change and then Todd maybe just help us - how do you think about the dollar based net written expansion as you scale and continue to sell Coupa Pay into the customer base?

Alex, I would say that's a wait and see on that. We will see if we shift our strategy there. At the moment it's business as usual. We haven't - we don't have any statistically significant signs in front of us. The suggest we can continue exactly the way we've been doing with logo acquisition as well as organic expansion into the core. In fact, I think this is not a bad time to tell you that in terms of the core and frankly, given the situation that's out there now, we're looking at ways to help folks particularly suppliers that don't have a great deal of cash flow may need cash flow. So what we're offering now is our customers' ability to ease Coupa digital checks at no charge through April 20. So we think these small supply cash flows could be an issue. We have speed of payments may be critical at this time. And as you know with millions of suppliers that our customers interface with, we believe it's our responsibility to try to make an impact here. So we've actually made that public at coupa.com/payments. So that's just an example of really the power of having over 100 customers transacting millions of suppliers around the world managing their business spending in our opportunity to get into that environment and drive more and more value, whether it's free in this case to support cause or whether it's needed for us to continue to grow our business via an alternate strategy that presents itself.

And Alex on the $1 based expansion and renewal rates dollar based expansion has continued to go up as people are adopting more and more of the platform with respect to payments in the impact. We do believe over time when you look at what take rate there has been of our current products and the ability to sell into the installed base. As we noted before that we think over time we can get that closer to 120%. In Q4, I will say it was meaningfully above the historical range, but just given the strength of Q4. Not at this point ready to call the new range, but the trend is definitely up.

The next question comes from the line of Peter Levine.

So, just one on the partner channel. I mean obviously they play a big role in the success that you've seen up market. So any difference in the conversation or conversations you're having with your customers versus kind of what you're paying from your partner channel. And then just any impact, I guess for Q1 from partners? Is there anything that they're seeing over the past couple of days would be great. Thank you.

I can't really comment on anything meaningful from the last couple of days, but broadly speaking, our customers continue to see us as the standard in this space. They are building very meaningful services revenue businesses around Coupa. We see more and more deals where we're being recommended as the preferred provider by multiple systems integrators and even some of the management consulting firms. That continues to be very, very healthy for us and it's encouraging given how many referenceable customers. We now have in virtually every industry and the renewal rate that we are able to deliver. So very, very encouraging, continued growth in our partnership community and the impact of that growth on the future.

Your next question comes from the line of Brad Sills.

Just wanted to ask on Coupa Pay, it sounds like you're seeing some good early success here with the uplift that you're describing. Is there any color you can provide on just cases of transaction types that you're seeing go through Coupa at this point or even verticals. Thank you very much.

Yes sure. Thank you for the question. And we're really seeing three types of transaction types and they really map pretty well to our ordering of launch of products. So the first is virtual credit card usage. We came out with that first. We're seeing good uplift in that area. It's just a no-brainer type of approach to get rid of physical cards and maintain control and minimize the need for back-office reconciliation, just an obvious no-brainer, that leverages our core competencies and our customers are adopting that swiftly. The second area is in dynamic discounting effectively. So the collaboration between a buyer and supplier around when payment is made and have made earlier perhaps made at a lower amount such that the supplier can have the cash flow needs that they need. And so we're seeing good uplift there. And then most recently with invoice payments. And I shared just one example here with Redfin but leveraging Coupa for the entire process of procure to pay the request the order the receipt, the invoice, and then ultimately the payment done in batch for invoice payments across virtually any rail. So all three are seeing good adoption and their adoption waves are coming effectively sequence, the same way in which we launched product.

The next question comes from the line of Raimo Lenschow.

Can you talk a little bit of - everyone is obviously focusing on Pay but you kind of extended product portfolio quite a bit into contract lifecycle management et cetera and that always obviously driving the strength in the - can you talk a little bit about like how these expansion of the portfolio have been integrated and what you see in terms of cross selling up selling them. Thank you.

Yes, absolutely, yeah. Let me take that from two perspectives, both the business side as well as the technology side. I think what you're asking Raimo. On the technology side. We are well underway with the technical integration. The user interface is common the business logic layer has been streamlined the hosting environments are common, the interfaces between the power user application, that is CLMA, what we call contract lifecycle management advanced and our transactional engine has been enabled. And our sales team has been empowered with integrated demos integrated production instances that showcase how the completion of the contract leads to transactional purchasing activity. And that is playing out as well in our business. We are seeing more and more deals where the customer is understanding and locking arms of this around the vision of business spend management purchasing more modules upfront and setting in place it deployment path that hits the areas that are most opportune for them first and then deploys outward from there. So very, very healthy, despite any challenges that anyone would anticipate in taken on M&A, and we hope to continue to have that.

And the other thing I would say is when you look at it holistically, the other element of that is our average deal sizes continue to go up. Meaningful as more and more people are adopting the platform of our competitive leadership position extends. We saw some of our largest transactions in Q4 as well. So it's all coming together nicely.

The next question comes from the line of Terry Tillman.

Tremendous ending for the year, so a nice job on that. Maybe the question for you. Rob, is just to me as I look back over all the years we've been covering the story is this concept of Community Intelligence being kind of the secret sauce in all this is that transaction volume builds. Could you help us and investors just understand Community Intelligence going forward and you talked about like the prescriptive nature of it, people looking at the prescription, is it going to be something that just over time is part of that secret sauce and creates stickiness around the rest of all the workflow and software modules and or do you see it actually becoming a revenue engine on its own. Thank you.

So absolutely, it's already beginning impact - to impact our revenue as well because people understand the power of it, our customers understand the power of it, our community is galvanizing around it. If you're a customer, why would you go to any other information technology provider when we able to tell you what are the best practices of doing any business process related to spending in real time, and prescribe to you right there on the screen ways that you can improve. Why would you go to any other supplier when we can showcase for you areas where you have supplier risk and allow you to seamlessly hot swap from one supplier to another to avoid it particularly in these turbulent times. Why would you think about working with anybody else when you can work with us and understand your commodity areas, understand all your supply hotspots, areas where you need to improve and areas that you can optimize and save and remove risk. So with every area of our Enterprise Application, Community Intelligence is being showcased through prescriptions that appear right there for users to improve the way that they do their business spending. It's not only a huge mode on our business, but it creates a value proposition that is very, very difficult to replicate. We've been designed to build it this way from the start, we've contracted with our customers to do it in this way and we're driving a lot of value for them already. So we will continue to see this both from a defensive moat perspective as well as a meaningful continued growth and value perspective that will play out in our revenue for the quarters and years to come.

The next question comes from the line of Siti Panigrahi.

Rob, I mean this is an unprecedented time. I mean, every day, every hour of changes, situation changes. I'm wondering what - how your go-to-market strategy will change in this environment. You talked about business as usual and also it sounds the customer also accept critical employees they are working from home, how does it impact your deal closing or even implementation in this environment?

Well, let me first say very clearly sales is very important. But number one is our employee safety. That's our number one priority. Let me be clear on that. As far back as March 9, we encouraged everybody to work from home. Last Thursday, March 12th, we made it mandatory for everybody work from home. But I'll tell you we're first of all 100% cloud, the only physical things we need are windows into the Internet whether they are on phones or PCs or other access points. We are a very tech-savvy company and I've been on many, many Zoom meetings over the last seven to eight days, just two days, some with individuals in the sales team thinking about how to manage the sales account. So with our safety committee talking about an amount of some of the - some of the decisions that we're making there, some with members of the management team to think through other initiatives. So this is not the way it was maybe 5, 6, 7, 8 years ago was very hard to manage this type of process. We think we're very, very well equipped, we're very agile and we're committed to the costs. So whether it's raining outside or sleeting, there is no rain delay here, we're going to battle each and every day to build this business.

The next question comes from the line of Ryan Macdonald.

Rob, can you talk about sort of the mix you're seeing between enterprise in the mid-market and particularly as you've been refocusing again in terms of packaging and the go-to-market strategy for the mid-market? And as we move into fiscal '21 here, do you expect any shifts in the mixed mid-market versus enterprise given that mid-market tends to be a little bit more low touch. Thanks.

Sure. No. Thank you very much for that question. There are two very encouraging patterns that we've seen historically. Taking the enterprise first, we continue to see larger deals and more importantly from a qualitative perspective, we're seeing greater vision lock with prospects around the comprehensive business spend management footprint and the fact that we have the vast majority of that footprint already functionally well integrated and aligned with strategy for both rollout in many years to come. That's a really, really promising part of the enterprise value proposition that we're seeing unfold. As well in the mid-market about four and I would say now about 4 to 6 quarters ago I believe, we had started seeing this really nice mapping of cost of customer acquisition and the speed of that acquisition as well as the lifetime value of those customers with a really measured and nice renewal rate where we thought that we could really begin to press into that business and scale it both cost effectively, but also in a way that would be mindful of our long-term growth aspirations, that is happening. And the number of logos we're seeing in the market and the mid-market continues to increase, the quality of those logos continues to increase and the stickiness of those deployments continues to be really, really strong. So we feel really good about both the portfolio effect of having those businesses as well as the potential of both of those businesses in coming quarters and years.

The next question comes from the line of Bob Napoli.

Bob Napoli from William Blair. The question on just supply chains and what you're seeing day to day in supply chains and where if anywhere that you were seeing concerns in US supply chains. And if I could on just on business mix. A few years ago procurement was 80% of your business. Today, I think it's only about a third. What do you think that mix will look like five years from now with procurement and invoice pay et cetera. Thank you.

Sure. So let me take the second question first. So procurement actually now represents 25% of the business - the recurring business in the last quarter. So as we continue - we are seeing it fan out more and more widely as more and more modules and capabilities are offered to our customers. I can't necessarily predict to you what that number will be a few years out, but I would absolutely anticipate with customers buying the broader suite that the numbers of procurement and every incremental module as a percentage will decrease, but the overall pie will obviously get larger and larger, larger. From a supply chain perspective, they are very early data and it's probably not material enough to get into on this call. But I note a number of our customers most recently source and procure safety equipment, protective equipment, sanitization equipment face masks and other needs, very, very quickly so they could address their obvious concerns. So our platform allow for that and our community can now come together with source together activities to get these things sourced at their doorstep very, very quickly.

The next question comes from the line of Daniel Jester.

So it sounds like from the sales perspective, you've done a lot on the virtualization to keep to keep the business going. I'm just wondering, it might be a little bit early, but given your success in managing the disruption, does that change how you view sort of the opportunity for business travel management? Is this as good an opportunity today as it was maybe six months ago. And just, is there anything else you can do to sort of help your customers from that perspective through this time? Thanks.

Well, I'm not sure I fully understand the question. Are you referring to the Yapta acquisition and travel? Are you referring more broadly to business spend management?

I think for travel, specifically, given that you've done pretty good job yourself so far, managing through the - if travel restrictions become more substantial, our companies notice and they can get through this through more virtualization we travel at do as you see as good an opportunity here in the future. Thanks.

Yes, absolutely. I'm not sure the opportunity changes that much for the longer term. I mean, as you know our story here at Coupa has been playing the long game for, as I mentioned, well over a decade and that's where we're playing. If they're going to be - there is going to be less travel in a given quarter or there is going to be a lot more in a given quarter, we will be there to help our customers manage that have agility in changing that, recognize savings and re-planning their travel as they need to be, but it's the longer opportunity that we're focused on, regardless of travel gyrations on a given quarter or even given the current content.

The next question comes from the line of Koji Ikeda.

Question for you Rob, sorry to date you here, but you joined the company over a decade ago in 2009 during the peak of the Great Recession. I'm curious to hear your thoughts on how Coupa shared back in those days. I mean I totally get that the business was much smaller to more of the mid-market versus enterprise that we see today. But spend management really cost savings as an initiative must have been top of mind about organizations back then. So I guess what I'm getting at is from a high level, any thoughts there would be helpful to better understand the end market mindset for tools like Coupa in volatile times that we're seeing right now. Thanks for taking my question.

Sure. No. Thank you, thank you for the question. I would say that the priority of business spend agility and spend control tends to get elevated on the list of digital transformation initiatives even though they weren't called that back in 2009, but IT initiatives, let's say in times like these. Having said that, of course for every technology provider there is some wind in the face of technology providers in addressing those with customers. But we're in a very different position than we were 10 years ago we're the undisputed industry leader in this area, we have a proven set of reference customers all over the world across every major industry and we believe that as the priority of some of the things we're focused on is raised on the list of initiatives, we should be able to gain ground from that especially with the massive moat we have in Community Intelligence and the spirit and culture that we've built here over the last decade.

The next question comes from the line of Mark Murphy.

The spend categories that you mentioned relating to Coronavirus, very helpful and appreciate it. The ones that are increasing sounds like very small categories. I think you mentioned standardizing equipment, rubber gloves. The ones that are decreasing sound like enormous categories where I think you called out business travel and durable goods, so I'm just trying to understand what was the inference there or how is that netting out in terms of the growth of your spend under management?

Well, I'm not sure yet how it's going to net out on growth on spend management, because the data shared there is really just four weeks of data right, the February data around the project of personal protective equipment, sanitizing equipment and things of that nature, but you are right, it is concerning. If you look at something, I'll give you another statistic. We look at something like property building and engineering services, these are the types of things that are more long-term type investments. And if you look at this February year-over-year, we saw a 62.1% decrease in spend in that area. So it is concerning and when we get to next quarter, we'll have another quarter of spend data and we'll have a better sense for it, we will report it on SpendIndex.com, but I think you raised a very, very important point.

The next question comes from the line of Steve Koenig.

Just kind of a follow-up from the prior question. So I get asked by investors sometimes about how is Coupa sensitive or not sensitive to business spend trends and so you have your index and you've been indicating what you're seeing there recently, but can you just, I know you don't have transactional fees for suppliers like does, but what is your sensitivity to business spend trends and how would you characterize any linkage there are or lack thereof? Thank you.

Sure. Well, I think part of that actually ties into pricing strategy. Our theory for the entire time has been to sit and - try to sit on the exact same side of the table with our customers. We don't charge a transactional fee for the amount of spend that they're running through the system. Sometimes, we've been criticized for that. At the same rate, the value proposition is much more than a percentage of spend, it's the ability to control that spend, it's the ability to route that spend to preferential suppliers, it is the ability throughout that spent in non-risky suppliers, its ability to stop that spent from happening on a mobile phone by clicking reject with the click of a button. So we think that a cloud-based platform like ours that is offered in the value as a service subscription approach for customers is a very, very thoughtful way for them to get this visibility control and agility that many of them didn't even know they needed until they are faced with times where they realize they don't have it. And because of that, it's our belief that given on certain times these areas become a greater priority. And as per the prior question, we've experienced that the decade ago, but we experienced it in a very, very different position of size, growth and proven leadership and we think that in this environment, we are better positioned to deliver for our customers in the environment.

The next question comes from the line of Brent Bracelin.

One for Rob and one for Todd if I could. Rob as you just think about the changing environment I clearly appreciate the long game approach you have, completely appreciate the business's usual approach, but if I look at what part of the business could be at risk, the one thing that stands out to me is the implementation time. This is a BSM software platform that can be implemented over a six to eight month timeframe. Is that the right way to quantify the risk in the short run is potentially the risk of longer implementations. Is that right way to frame. And then one quick follow-up for Todd.

That's a very thoughtful question and obviously something that we're thinking about as we are with all areas of our business. I would say that the ability to do these implementations virtually is absolutely there. In fact many of the implementations that we do across a host of our customers are done completely virtually. Having said that, people like to see people and if there are situations where implementations are slowed down because of the customers' desire to do that, we'll manage our way through it. But I think we will be first to showcase our number one core value which is ensuring customer success and it can be done over the web and it can be done over email and it can be done over phone calls, we will be able to do it. As I mentioned earlier, our team is very tech-savvy and we have a lot of experience in doing it that way. So while there might be a bit of a headwind, we'll work our way through that, to the best of our ability.

And then, Todd here as we think about the guide, you're guiding to 25%, 26% growth which is what we essentially had modeled for the business prior to the global outbreak of the virus here. You did talk about share cutting the Yapta Travel Saver kind of business. Did you hear cuts in other parts of the business on the BSM or Coupa Pay side because of the coronavirus at this point. The close rate assumptions that you're using are on the same that you used last quarter?

First, let me say, Brent all of our guidance has been developed using the same methodologies we've used in the past and are looking at all the key drivers that drive our model and as you would expect, we're obviously monitoring developments with the coronavirus very closely as the situation continues to unfold. And if you look over the past several years from a guidance perspective, we've tended to put a mid '20s and then update that as we've continued to execute. And I guess one of the other things that's maybe even more important highlight is that we have annual plans and we modulate based upon what we're seeing and recently we've had kind of hire - literally our largest new hire sales boot camp and then we modulate on a quarterly basis and if you look at the deferred revenue in RPO and we have very high visibility into this initial guide and the free cash flows inability to generate free cash flow. So there is the ability to sustain is very strong on a go-forward basis.

The next question comes from the line of Brian Peterson.

Glad to hear the team is safe in back in Cali. So Todd, just wanted to hit on the OpEx for fiscal year '21. I know there some acquired company expenses in that, but anything you could share around investment intensity maybe where you guys are spending there? And a follow-up was, was Yapta a big factor in the net customer adds in the fourth quarter? Thank you.

Yes. Now with respect to the customer adds, very minimal impact there. With respect to the operating expense, as I mentioned, we modulate that on a quarterly basis. But if you look at the investments for the upcoming year clearly continuing to invest in our support team and professional services given the number of new customers and significant implementations that are currently going on. And we're going to continue to invest in R&D. And one of the things we have done is we have now two technology centers in India, one in Pune and one in Hyderabad, so we're still adding a lot of people, but it may not show up in the expense as much. And then clearly, of all the category still investing heavily in sales and marketing and G&A is starting to show some scale, but we've got more room to do there and we'll modulate that as the year progresses, as we do every year.

The next question comes from the line of Joseph Foresi.

Another question for Todd. If the numbers start to show up a little bit lighter because of all the friction in the economy, what area, would you be most likely to address from a spend perspective for maybe a pullback and how do you do you kind of look at the numbers or think about the numbers, from that perspective? I guess I'm basically asking what's the financial downside scenario that you might be implementing? Thanks.

Yes. At the highest level, I mean we're always looking at all of the key business processes whether it's lead to cash, whether it's new product introductions where there it's post deal support and then some of the surrounding infrastructure around that and literally we look at each one of those on a quarterly basis. You know where to invest more maybe pull back a little bit, but at this time, it's way premature to one make that call or to indicate what it might be because it's not something we've looked at yet.

I would add that if we feel at any point that we can make a new hire productive we have the ability to control hires at the individual level. All hire still roll up to me and I approve them individually. So we have controls in place for that. Equally, we have controls around all of our spending, through our own my Coupa implementation. So we feel like we have arms squarely on the steering wheel and navigating through whatever lies in front of us.

Our final question comes from the line of Patrick Walravens.

So Rob, looking back in '08, I think you had spelled success factors and I pulled out one of my old notes, so the billings growth rate for success factors, April '08 was over 100% and then it went 68%-52%, 2%, negative 6% in Q1 of '09. I guess my question is, when do you know that things are really starting to go downhill and then, when do you know when they're getting better?

That's an extremely, extremely difficult question. Pat that can't be answered very briefly, I think it's one of the things that history typically states or some of the best CEOs, or some of the more typical one. So we take that very, very seriously and try very, very hard to see around corners as much as humanly possible. I would also tell you that the way we've built this business over the last 10 years has been very, very mindful is not run it so hot, if something presents itself in front of us, it will burn us up. We've been very, very mindful, and the talent depth, in the culture, in the system, in the customer base, in the value we're delivering for that. So we think we're sitting in a good position from which to try to see around corners and you have our commitment as a management team to do exactly that no matter what presents itself in front of us in coming months, and in coming quarters.

I will now turn it back over for closing remarks.

Thank you. Thank you for joining us here for the fourth quarter earnings call. As we said the replay is available on the website, you can get the information for a telephonic replay in the press release and we look forward to speaking to you next quarter. Thank you.

This concludes the conference for today. We thank you all for joining us. You may now disconnect.