S-1 1 d144637ds1.htm FORM S-1 Form S-1
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Index to Financial Statements

As filed with the Securities and Exchange Commission on September 8, 2016.

Registration No. 333-            

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form S-1

REGISTRATION STATEMENT

Under

THE SECURITIES ACT OF 1933

 

 

COUPA SOFTWARE INCORPORATED

(Exact Name of Registrant as Specified in its Charter)

 

 

 

Delaware

(State or Other Jurisdiction of

Incorporation or Organization)

 

7372

(Primary Standard Industrial

Classification Code Number)

 

20-4429448

(I.R.S. Employer

Identification Number)

 

 

Coupa Software Incorporated

1855 S. Grant Street

San Mateo, CA 94402

(650) 931-3200

(Address, including zip code and telephone number, including

area code, of registrant’s principal executive offices)

 

 

Robert Bernshteyn

Chief Executive Officer

Coupa Software Incorporated

1855 S. Grant Street

San Mateo, CA 94402

(650) 931-3200

(Name, address, including zip code and telephone number, including

area code, of agent for service)

 

 

Copies to:

 

Daniel E. O’Connor, Esq.
Richard C. Blake, Esq.
Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian, LLP
1200 Seaport Blvd.
Redwood City, CA 94063
(650) 321-2400
  Jonathan Stueve, Esq.
Vice President and General Counsel
Coupa Software Incorporated
1855 S. Grant Street
San Mateo, CA 94402
(650) 931-3200
  Sarah K. Solum, Esq.
Davis Polk & Wardwell LLP
1600 El Camino Real
Menlo Park, CA 94025
(650) 752-2000

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.    ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

  Large accelerated filer¨
Non-accelerated filerx
(Do not check if a
smaller reporting company)
     Smaller reporting company¨
Accelerated filer ¨
  

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of Each Class of Securities
to be Registered
  Proposed Maximum
Aggregate Offering
Price(1)(2)
  Amount of
Registration Fee

Common Stock, $0.0001 par value

  $75,000,000.00   $7,552.50

 

(1) Estimated pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
(2) Includes the aggregate offering price of additional shares that the underwriters have the option to purchase.

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to such Section 8(a), may determine.

 

 

 


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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

PROSPECTUS (Subject to Completion)

Issued September 8, 2016

             Shares

 

LOGO

COMMON STOCK

 

 

Coupa Software Incorporated is offering          shares of its common stock. This is our initial public offering and no public market exists for our shares. We anticipate that the initial public offering price will be between $         and $         per share.

 

 

We intend to apply to list our common stock on the Nasdaq Global Market under the symbol “COUP.”

 

 

We are an “emerging growth company” as defined under the federal securities laws. Investing in our common stock involves risks. See “Risk Factors” beginning on page 14.

 

 

PRICE $                 A SHARE

 

 

 

      

Price to
Public

      

Underwriting
Discounts and
Commissions(1)

      

Proceeds to
Company

 

Per share

       $                       $                       $               

Total

     $                          $                          $                    

 

(1) See “Underwriting” for a description of the compensation payable to the underwriters.

We have granted the underwriters the right to purchase up to an additional          shares of common stock at the initial public offering price less the underwriting discount.

The Securities and Exchange Commission and any state securities regulators have not approved or disapproved of these securities, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver the shares of common stock to purchasers on                     , 2016.

 

 

 

MORGAN STANLEY   J.P. MORGAN   BARCLAYS     RBC CAPITAL MARKETS   
JMP SECURITIES         RAYMOND JAMES   

                             , 2016


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LOGO

 

HUNDREDS OF CUSTOMERS

MILLIONS OF SUPPLIERS

coupa

BILLIONS IN SAVINGS

VALUE AS A SERVICE

coupa

ADOPTION BY ALL | UNIFIED CLOUD PLATFORM | MEASURABLE BUSINESS VALUE

Explanatory note:

As used above, “Customers” refers to our customers that are transacting on Coupa’s spend management platform as of the date of this prospectus.

“Suppliers” refers to the suppliers that are transacting on Coupa’s spend management platform as of the date of this prospectus.

“Savings” refers to the cumulative amount of savings that we estimate our customers have achieved to date by using our platform, which estimate is based on various industry benchmarks and does not directly correlate to our financial results.


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LOGO

 

Avalon Health Care Group

$5,522,468

Amount of customer savings by using Coupa in the 12 months prior to the savings calculations.*

SCI

$6,660,603

Amount of customer savings by using Coupa in the 12 months prior to the savings calculations.*

STAPLES

Visibility and Control

Benefits achieved by using Coupa since March 2016 go live.

CONCENTRIX

5 WEEKS

Implemented the Coupa solution in five weeks, beginning in December 2013

MEASURABLE

BUSINESS VALUE

THE FRESH MARKET

$1,809,320

Amount of customer savings by using Coupa in the 12 months prior to the savings calculation.*

MOLINA

HEALTHCARE

360%

Improved operational efficiency by over 360% in four years of using Coupa.

NEC

$2,000,814

Amount of customer savings by using Coupa in the 12 months prior to the savings calculation.*

CapitalOne®

BUSINESS LEVER

Benefit achieved by using Coupa since June 2016 go live

COUPA

VALUE AS A SERVICE

* Savings is an estimate based on industry benchmarks and savings calculations were performed in 2015.


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LOGO

 

coupa

CLOUD PLATFORM FOR BUSINESS SPEND

Delivering measurable business value through adoption by all.


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TABLE OF CONTENTS

 

     Page  

Prospectus Summary

     1   

Risk Factors

     14   

Information Regarding Forward-Looking Statements

     39   

Market, Industry, and Other Data

     40   

Use of Proceeds

     41   

Dividend Policy

     41   

Capitalization

     42   

Dilution

     44   

Selected Consolidated Financial and Other Data

     46   

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     49   

Business

     76   

Management

     102   
 

 

 

Neither we nor the underwriters have authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses prepared by or on behalf of us or to which we have referred you. We and the underwriters take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus or in any applicable free writing prospectus is current only as of its date, regardless of its time of delivery or any sale of shares of our common stock. Our business, financial condition, results of operations and prospects may have changed since that date.

Through and including                     , 2016 (25 days after commencement of this offering), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

TRADEMARKS

Unless the context indicates otherwise, as used in this prospectus, the terms “Coupa” and “Open Business Network” and other trademarks or service marks of Coupa Software Incorporated appearing in this prospectus are the property of Coupa Software Incorporated. This prospectus contains additional trade names, trademarks, and service marks of ours and of other companies. We do not intend our use or display of other companies’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, these other companies.

INVESTORS OUTSIDE THE UNITED STATES

Neither we nor the underwriters have done anything that would permit this offering or possession or distribution of this prospectus or any free writing prospectus we may provide to you in connection with this offering in any jurisdiction where action for that purpose is required, other than in the United States. You are required to inform yourselves about and to observe any restrictions relating to this offering and the distribution of this prospectus and any such free writing prospectus outside of the United States.


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PROSPECTUS SUMMARY

This summary highlights certain information contained elsewhere in this prospectus. This summary is not complete and does not contain all of the information you should consider in making your investment decision. You should read the entire prospectus carefully before making an investment in our common stock. You should carefully consider, among other things, our consolidated financial statements and the related notes and the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus. Except as otherwise indicated herein or as the context otherwise requires, references in this prospectus to “Coupa,” “the company,” “we,” “us,” and “our” refer to Coupa Software Incorporated. Unless otherwise indicated, all data is as of or through July 31, 2016.

Mission

Our mission is to deliver “Value as a Service” by helping our customers maximize their spend under management, achieve significant cost savings and drive profitability.

Overview

We are the leading provider of a unified, cloud-based spend management platform that connects more than 460 organizations with more than 2 million suppliers globally. Our platform provides greater visibility into and control over how companies spend money. Using our platform, businesses are able to achieve real, measurable value and savings that drive their profitability. From our inception, our customers have used our platform to bring more than $250 billion of cumulative spend under management, which we estimate has resulted in more than $8 billion of customer savings to date, based on applying certain savings rates derived from industry benchmarks.

Our cloud-based platform has been designed for the modern global workforce that is mobile and expects real-time results, flexibility and agility from software solutions. We empower employees to acquire the goods and services they need to do their jobs by applying a distinctive user-centric approach that provides a mobile-enabled consumer Internet-like experience, drives widespread adoption of our platform and, therefore, significantly increases spend under management. We refer to the process companies use to purchase goods and services as spend management and to the money that they manage with this process as spend under management. Increased user adoption and spend under management drive better visibility and control of a company’s spend, resulting in greater savings and increased compliance.

Economic conditions, intense competition and the global regulatory environment are forcing businesses to find new ways to drive operational efficiencies, track processes, reduce costs, fund business growth and enhance profitability and cash flow. Therefore, managing spend has increasingly become a major strategic business imperative to help businesses achieve cost savings. Indirect spend, which refers to goods and services that support a company’s operations as opposed to direct spend that flows into the products a company manufactures, is particularly difficult to manage due to inefficient employee spending behavior and disparate systems that obstruct spend visibility.

We offer a unified, cloud-based spend management platform that is tightly integrated and delivers a broad range of capabilities that would otherwise require the purchase and use of multiple disparate point applications. The core of our platform consists of procurement, invoicing and expense management modules that form our transactional engine and capture a company’s spend. In addition, our platform offers supporting modules, including sourcing, analytics, contract management, supplier management, inventory management and storefront, that help companies further manage their spend. Moreover, through our free Coupa Open Business Network, suppliers of all sizes can easily interact with buyers electronically, thus significantly reducing paper, improving operating efficiencies and reducing costs.

 



 

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We have a strong results-driven and customer success-focused culture. Our focus is on delivering quantifiable business value to our customers by helping them maximize spend under management to achieve real, measurable value and savings. With a rapid time to deployment, typically ranging from a few weeks to several months, and an easy to use interface that shields users from complexity, our customers can achieve widespread user adoption quickly and generate savings within a short timeframe, thus benefitting from a rapid return on investment.

We benefit from powerful network effects. As more businesses subscribe to our platform, the collective spend under management on our platform grows. Greater aggregate spend under management on our platform attracts more suppliers, which in turn attracts more businesses that want to take advantage of the goods and services available through our platform, thereby creating powerful network effects. In addition, as more businesses and employees use our platform, the amount of spend under management continues to increase. This leads to more value and savings for customers and improves our ability to attract more businesses. The resulting increase in sales enables us to further invest in our platform and to improve our functionality and user interface to continue to attract more businesses and suppliers to our platform, which enhances the network effects that benefit all parties.

We have developed a rich partner ecosystem of systems integrators, implementation partners, resellers and technology partners. We work closely with several global systems integrators, including KPMG, Deloitte, Accenture, IBM, PwC and Wipro, that help us scale our business, extend our global reach and drive increased market penetration. We expect the number of our partner-led implementations to continue to increase over time, as well as sales referrals from our partners.

We have achieved rapid growth in customer adoption, cumulative spend under management and transactions conducted through our platform. We have more than 1.5 million licensed users who have driven an expansion in spend under management over time. These licensed users represent the employees among our base of more than 460 total customers who are authorized to use our solutions. Our cumulative spend under management and the transactions conducted through our platform are highlighted below:

 

LOGO

 

(1) Includes purchase orders, invoices, and expense reports processed in the period

The metrics presented above do not directly correlate to our revenue or results of operations because we do not charge our customers based on actual usage of our platform. However, we believe the

 



 

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cumulative spend under management and total transactions metrics do illustrate the adoption, scale and value of our platform, which we believe enhances our ability to maintain existing customers and attract new customers.

For our fiscal years ended January 31, 2015 and 2016, our revenues were $50.8 million and $83.7 million and our net losses were $27.3 million and $46.2 million, respectively. For the six months ended July 31, 2015 and 2016, our revenues were $34.5 million and $60.3 million and our net losses were $25.1 million and $24.3 million, respectively.

Industry Background

Managing Spend has Become a Strategic Business Imperative

Economic conditions, intense competition and the global regulatory environment are forcing businesses to find new ways to drive operational efficiencies, track processes, reduce costs, fund business growth and enhance profitability and cash flow. Therefore, managing spend has increasingly become a major strategic business imperative to help businesses achieve cost savings that will enhance a company’s operating profit as well as free up monetary resources that can be reinvested in the company.

Indirect spend, which refers to goods and services that support a company’s operations such as office supplies, furniture, electronic equipment, IT services, marketing and recruiting, as opposed to direct spend that flows into the products a company manufactures, is particularly difficult to manage due to inefficient employee spending behavior and disparate systems that obstruct spend visibility. Businesses need a solution that will help them streamline their total spend, across all divisions and employees, not just the procurement department.

Businesses Lack Visibility Into Spend and Control Over their Spend

Few businesses have full visibility into what they spend, on which products and services they spend and with which vendors they spend, which leads to an inability to control spend as a result of several issues:

 

    Businesses typically employ inefficient manual procurement, invoicing, expensing and approval processes that cannot be managed across the organization in real time.

 

    Businesses frequently utilize several fragmented systems for procurement, invoicing and expense management that do not integrate with each other and limit their ability to analyze and optimize spend.

 

    Employee adoption of traditional procurement and other related offerings has typically been limited due to cumbersome user interfaces, need for training, lack of mobile capabilities and non-integrated point applications.

 

    Inefficient processes result in “maverick spending” by employees who neglect to purchase from preferred suppliers or purchase goods and services without approval and outside of budgets, resulting in avoidable costs.

 

    Businesses often struggle to manage risk and to ensure compliance with respect to frequently changing governmental regulations and internal control policies, as well as prevent potential fraud and corruption within the procurement process.

Businesses Need a Unified Spend Management Solution that Enables Real-Time Spend Analysis

The abundance of fragmented point applications on the market today that address specific areas of spend management has resulted in increased complexity for businesses and their employees. Often employees have to access different systems or review electronic and paper files before they are able to make informed purchasing decisions. These time-consuming and non-integrated processes result in errors, frustrated employees and sub-optimal decision making with respect to spending of company resources.

 



 

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Businesses need a solution that not only provides seamless, cross-functional integration of process elements from advanced sourcing to purchase requisitioning to invoice payment, but also a single repository of data so that employees can see all the required information to make a prudent purchasing decision and to enable real-time spend analytics on this aggregated spend data.

Suppliers Want to Interact with Businesses Using a Solution that Maximizes their Revenues with Minimal Friction

Suppliers are increasingly seeking to collaborate with businesses electronically in an effort to eliminate inefficient paper-based processes, establish fast, accurate invoicing and enhance compliance. However, suppliers often face difficulty connecting to the buyers’ network technology due to incompatible systems, lengthy onboarding processes, cumbersome user interfaces and upfront or ongoing fees that are often associated with web-based business networks. As a result of the barriers related to cost, time and complexity, the supplier adoption of web-based business networks has been limited.

Advances in Technology Have Paved the Way for a Next Generation Cloud-Based Spend Management Platform

Advances in technology architectures have supported the rise of cloud-based applications that represent a compelling alternative to traditional on-premise solutions due to lower total cost of ownership, better functionality and flexibility. Cloud-based software applications with superior user interfaces and mobile capabilities have displaced legacy offerings in areas such as customer relationship management (CRM), human capital management (HCM) and IT management. However, while there are several software offerings that automate business processes related to spend management, most of these software offerings are based on on-premise technology or legacy architectures from the 1990s.

Today, advancements in cloud computing, mobile devices, storage and networking are converging to enable new capabilities previously difficult to implement. Technology is enabling the development of powerful, intricate software solutions that address users’ demands for mobility, simplicity, speed and real-time access to data. These recent trends have paved the way for a next generation cloud-based advanced spend management platform that meets the needs of modern businesses.

Legacy Offerings Do Not Meet the Needs of Businesses, Employees and Suppliers

Many automated procurement offerings that are in the market today were developed in the late 1990s. These offerings traditionally consist of either add-on modules to enterprise resource planning (ERP) software that have been organically developed or acquired, or standalone offerings that only enable automation of parts of the spend management process but do not offer holistic spend management solutions. Limitations of these legacy offerings include:

 

    insufficient or non-unified product functionality;

 

    difficult to use and access;

 

    expensive to deploy and maintain complex on-premise implementations;

 

    long time to deployment;

 

    lack of configurability;

 

    lack of independence by larger ERP vendors; and

 

    limited supplier adoption related to cost, time and complexity.

 



 

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Coupa’s Unified Cloud-Based Spend Management Platform

We offer a unified, cloud-based spend management platform that can significantly improve savings for businesses. The core of our platform consists of procurement, invoicing and expense management modules that form our transactional engine and capture a company’s spend under management. In addition, our platform offers supporting modules, including sourcing, analytics, contract management, supplier management, inventory management and storefront, that help companies further manage their spend. Moreover, through our free Coupa Open Business Network, suppliers of all sizes can easily interact with buyers electronically, thus significantly reducing paper, improving operating efficiencies and reducing costs.

Our platform provides businesses with real-time visibility into spending that is occurring company-wide and enables businesses to drive adoption of the platform and capture, analyze and control this spend, achieve real measurable value and savings and directly improve their profitability:

 

    Drive Adoption.  Our platform applies a distinctive user-centric approach that shields users from complexity and provides a mobile-enabled consumer Internet-like experience, thus enabling widespread adoption of our platform by users across the entire organization as well as suppliers.

 

    Capture.  At the core of our platform is our transactional engine that is comprised of our procurement, invoicing and expense management modules, which collectively capture spend within an organization. Given purchase orders, invoices and expense reports flow through our platform and the data is stored centrally in a clean and organized fashion, businesses are able to observe the company-wide spending activities in real time.

 

    Analyze.  Our spending analytics capabilities provide intuitive spend analysis dashboards and reports that deliver real-time analytical insights that help businesses identify problems and make better spending decisions. Real-time analytical insight is critical to helping identify savings opportunities and risks, as well as isolating problem areas in the spending process to target improvement efforts.

 

    Control.  We help our customers control and streamline their spending activity, as well as realize efficiencies that result in real savings. Our platform has extensive functionality that enables managers to prevent excessive spend and reduce spend through realizing efficiencies and cost savings associated with strategic sourcing and contract compliance.

 

    Save.  Within a short timeframe, we help our customers realize measurable value and savings by taking advantage of pre-negotiated supplier discounts, achieving contract compliance, improving process efficiencies and reducing redundant and wasteful spending, as well as enable strategic sourcing via reverse auctions in which suppliers bid down prices at which they are willing to sell their goods and services to businesses.

Key Benefits to Businesses

 

    Rapid time to value through fast deployment cycles and low cost of ownership of cloud-based model.

 

    Opportunity to achieve significant and sustainable savings that can translate into improved profitability.

 

    High employee adoption of our easy-to-use unified platform, which enables better visibility into spend.

 

    Strong supplier adoption as suppliers are motivated to join our network due to ease of enablement, flexibility and lack of supplier fees.

 



 

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    Access to extensive spending data in real time, which leads to superior decision making that can result in significant cost savings.

 

    Ability to stay agile and adapt to changes in operating and regulatory environments with our easily configurable platform.

 

    Process efficiency improvements that allow businesses to free up valuable resources and staff who can be deployed effectively elsewhere in the organization.

 

    Enhanced compliance with governmental regulations through greater auditability, documentation and control of spending activity.

Key Benefits to Employees

 

    Intuitive and simple user experience that shields users from complexity and enables adoption of our platform with minimal training.

 

    Efficiency improvements as employees are more rapidly able to procure the goods and services they need to fulfill their job responsibilities.

 

    Mobile access from anywhere in the world from any device.

 

    Convenience to employees, as our platform gathers data on historical activity and leverages the insights to help populate requests and minimize data entry.

 

    Faster reimbursement to employees due to more efficient expense management processes.

Key Benefits to Suppliers

 

    Minimal friction through lack of upfront or ongoing fees to participate in our Coupa Open Business Network.

 

    Fast registration process and flexibility to interact with customers through Coupa Supplier Portal, direct integration or simply by use of direct email.

 

    Elimination of manual processes and efficiency improvements through electronic invoicing and streamlined procurement and payment processes.

 

    Real-time visibility into invoice status, often through direct push notifications without having to log in to a portal.

 

    Seamless audit, documentation and archiving of electronic purchase orders and invoices that helps suppliers comply with changing government regulations, as well as avoid risks.

 

    Opportunity to display supplier information and catalog of products and services on the Coupa Open Business Network for existing and prospective customers.

Our Market Opportunity

Our cloud-based spend management platform unites the three core aspects of spend management—procurement, invoicing and expense management—and has the ability to manage both indirect and direct spend. The total market for direct and indirect spend management is estimated at $16.0 billion in 2016, based on research by the following industry sources. International Data Corporation (IDC) estimates that the global market for procurement and invoicing applications that automate processes related to purchasing supplies, material and services will reach $4.3 billion in 2016 and will grow to $5.3 billion by 2019. According to Technavio market research sourced from ISI Securities EMIS, the global Software-as-a-Service (SaaS)-based market for expense management will reach $2.2 billion in 2016 and will

 



 

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grow to $3.2 billion in 2018. In addition, IDC estimates that the market for supply chain management application software, which includes software related to logistics, production planning and inventory management, will reach $9.5 billion in 2016 and grow to $11.3 billion by 2019.

Our Competitive Strengths

 

    Easy and Intuitive User Interface that Enables Widespread Employee Adoption.  Our focus on an intuitive and simple user experience shields our users from complexity and results in superior employee adoption.

 

    Unified Platform With Powerful Functionality.  We offer a unified platform that is tightly integrated and delivers a broad range of capabilities to manage different types of spend that would otherwise require the purchase and use of multiple disparate point applications. By offering a unified platform with powerful functionality that integrates different modules, we deliver a comprehensive platform for customers to drive adoption, and capture, analyze and control spend across their entire company, thus significantly enhancing savings potential.

 

    Independence and Interoperability.  We are agnostic as to the ERP system and other back-end systems used by our customers and our open architecture enables interoperability with numerous software applications, back-end systems and other third-party offerings. Customers can use our application programming interfaces (APIs), flat files, commerce eXtensible Markup Language (cXML) and electronic data interchange (EDI) data formats or custom code to make seamless connections between our platform and their ERP platform, supplier or other third-party system.

 

    Powerful Network Effects.  As more businesses subscribe to our platform, the collective spend under management on our platform grows. Greater aggregate spend under management on our platform attracts more suppliers, which in turn attracts more businesses that want to take advantage of the goods and services available through our platform, thereby creating powerful network effects. In addition, as more businesses and employees use our platform, the amount of spend under management continues to increase. This leads to more savings for customers and improves our ability to attract more businesses. The resulting increase in sales enables us to further invest in our platform and to improve our functionality and user interface to continue to attract more businesses and suppliers to our platform, which enhances the network effects that benefit all parties.

 

    Cloud Platform.  We are 100% built from the ground up as a SaaS application delivered via the cloud. As a result, our total cost of ownership is low, our deployment times are short and we can seamlessly deploy the latest updates and upgrades to all our customers via our cloud-based platform.

 

    Rich Partner Ecosystem.  We have developed strong strategic relationships with a number of leading partners including global systems integrators, implementation partners, resellers and technology partners. While implementation partners such as KPMG, Deloitte, Accenture, PwC and Wipro help us scale our business by extending our global reach and drive increased market penetration, our technology partners including Dell Boomi, IBM (Emptoris) and Trustweaver extend and enhance the capabilities of our platform by facilitating integrations that can deliver a higher level of value to customers.

 

    Results-Driven Culture.  We have a relentless focus on real measurable customer success and work extensively with customers to achieve significantly improved business value in the form of savings through the use of our platform.

 

   

Higher Supplier Adoption.  We do not charge suppliers any upfront or ongoing fees to participate in our Coupa Open Business Network and offer suppliers an easy and flexible way to interact with customers with minimal friction. As a result, suppliers are motivated to join our network and adopt

 



 

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our platform, which represents a significant competitive advantage over legacy vendors that often struggle with supplier adoption.

 

    Proprietary Data Enables Superior Insights.  Our platform collects and presents spend activity data that managers can easily analyze using powerful built-in reports and dashboards. Using our proprietary data, we are able to provide benchmarking versus other companies and evaluate supplier performance that can help decision makers identify areas of improvement and realize cost savings. As the number of employees and amount of spend through our platform grows, we acquire more proprietary data that enables us to provide unique insights to our customers, thus strengthening our powerful value proposition.

Growth Strategy

Key elements of our strategy include:

 

    expand our customer base, both domestically and internationally;

 

    deepen existing customer relationships;

 

    increase direct spend under management on our platform;

 

    continue to innovate and further develop our platform; and

 

    further expand and develop our partner ecosystem.

Risks Associated With Our Business

Our business is subject to numerous risks and uncertainties including those highlighted in the section titled “Risk Factors” immediately following this prospectus summary. These risks include, among others, the following:

 

    We have a limited operating history, which makes it difficult to predict our future operating results. We have a history of cumulative losses, and we do not expect to be profitable for the foreseeable future.

 

    If we are unable to attract new customers, the growth of our revenues will be adversely affected.

 

    Because our platform is sold to large enterprises with complex operating environments, we encounter long and unpredictable sales cycles, which could adversely affect our operating results in a given period.

 

    If we fail to develop widespread brand awareness cost-effectively, our business may suffer.

 

    The markets in which we participate are intensely competitive, and if we do not compete effectively, our operating results could be adversely affected.

 

    We do not have a long history with our subscription or pricing models and changes could adversely affect our operating results.

 

    Our business depends substantially on our customers renewing their subscriptions and purchasing additional subscriptions from us. Any decline in our customer renewals would harm our future operating results.

 

    Because we recognize subscription revenues over the term of the contract, fluctuations in new sales will not be immediately reflected in our operating results and may be difficult to discern.

 

    Our reported quarterly results may fluctuate significantly.

 



 

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    We have experienced rapid growth in recent periods. If we fail to manage our growth effectively, we may be unable to execute our business plan, maintain high levels of service or adequately address competitive challenges.

If we are unable to adequately address these and other risks we face, our business, financial condition, operating results and prospects may be adversely affected.

Principal Stockholders

Our principal stockholders, executive officers and directors and their affiliates will hold approximately     % of the voting power of our outstanding capital stock following this offering. See “Principal Stockholders” beginning on page 121.

Implications of Being an Emerging Growth Company

We qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. An emerging growth company may take advantage of relief from certain reporting requirements and other burdens that are otherwise applicable generally to public companies. These provisions include:

 

    reduced obligations with respect to financial data, including presenting only two years of audited financial statements and only two years of selected financial data;

 

    an exception from compliance with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act;

 

    reduced disclosure about our executive compensation arrangements in our periodic reports, proxy statements and registration statements; and

 

    exemptions from the requirements of holding non-binding advisory votes on executive compensation or golden parachute arrangements.

We may take advantage of these provisions for up to five years or such earlier time that we no longer qualify as an emerging growth company. We would cease to be an emerging growth company if we have more than $1.0 billion in annual revenues, have more than $700 million in market value of our capital stock held by non-affiliates or issue more than $1.0 billion of non-convertible debt over a three-year period. We may choose to take advantage of some but not all of these reduced reporting burdens.

In addition, under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards. Accordingly, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

Corporate Information

We were incorporated in February 2006 in Delaware. Our principal executive offices are located at 1855 S. Grant Street, San Mateo, CA 94402, and our telephone number is (650) 931-3200. Our website address is www.coupa.com. The information on, or that can be accessed through, our website is not part of this prospectus. We have included our website address as an inactive textual reference only.

 



 

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THE OFFERING

 

Issuer

Coupa Software Incorporated

 

Shares of common stock offered

             shares

 

Shares of common stock outstanding
after this offering

             shares (             shares if the underwriters exercise their option to purchase additional shares in full)

 

Option to purchase additional shares

We have granted the underwriters the option, exercisable for 30 days from the date of this prospectus, to purchase up to              additional shares of our common stock.

 

Use of proceeds

We estimate that the net proceeds from this offering will be approximately $         million, or $         million if the underwriters exercise their option to purchase additional shares in full, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, assuming an initial public offering price of $         per share, which is the midpoint of the price range set forth on the cover page of this prospectus.

 

  The principal purposes of this offering are to increase our financial flexibility, increase our visibility in the marketplace and create a public market for our common stock. We expect to use the net proceeds from this offering for working capital and other general corporate purposes, which we currently expect will include continued investment in developing technology to support our growth, increased investment in our sales team and marketing activities, as well as overall growth in our international operations. However, we do not currently have specific planned uses of the proceeds. We may also use a portion of our net proceeds to acquire or invest in complementary products, technologies, or businesses; however, we currently have no agreements or commitments to complete any such transactions. See “Use of Proceeds” on page 41.

 

Risk factors

See “Risk Factors” beginning on page 14 and the other information included in this prospectus for a discussion of factors you should consider carefully before deciding to invest in our common stock.

 

Proposed Nasdaq symbol

“COUP”

The number of shares of common stock to be outstanding after this offering is based on 162,844,289 shares of common stock outstanding as of July 31, 2016, and excludes the following:

 

    49,583,404 shares of common stock issuable upon the exercise of options outstanding as of July 31, 2016, with a weighted average exercise price of $1.10 per share;

 

    6,719,546 shares of common stock issuable upon the exercise of options granted after July 31, 2016, with a weighted average exercise price of $3.17 per share;

 



 

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    147,885 shares of convertible preferred stock issuable upon the exercise of a warrant outstanding as of July 31, 2016, with an exercise price of $0.34 per share, that will convert into a warrant to purchase 147,885 shares of common stock upon completion of this offering;

 

    225,000 shares of common stock subject to restricted stock units outstanding as of July 31, 2016; and

 

                 shares of common stock reserved for future issuance under our equity compensation plans, consisting of 4,850,483 shares of common stock that were reserved for issuance under our 2006 Stock Plan as of July 31, 2016, and              shares of common stock reserved for issuance under the 2016 Equity Incentive Plan in effect following the completion of this offering. On the date immediately prior to the date of this prospectus, we will cease granting awards under the 2006 Stock Plan.

Unless otherwise indicated, all information in this prospectus assumes:

 

    the automatic conversion of 133,727,532 shares of our preferred stock outstanding as of July 31, 2016, into an aggregate of 138,444,056 shares of our common stock immediately prior to the closing of this offering;

 

    the filing of our amended and restated certificate of incorporation and the effectiveness of our amended and restated bylaws immediately prior to the closing of this offering;

 

    no exercise of the underwriters’ option to purchase additional shares; and

 

    no exercise or cancellation of outstanding options or vesting of restricted stock units subsequent to July 31, 2016.

 



 

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SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA

The following tables set forth a summary of our historical consolidated financial data as of, and for the periods ended on, the dates indicated. The consolidated statement of operations data for the fiscal years ended January 31, 2015 and 2016, are derived from our audited consolidated financial statements included elsewhere in this prospectus. The consolidated statement of operations data for the six months ended July 31, 2015 and 2016, and the consolidated balance sheet data as of July 31, 2016, are derived from our unaudited consolidated financial statements included elsewhere in this prospectus. We have prepared the unaudited consolidated financial statements on the same basis as the audited consolidated financial statements and have included all adjustments, consisting only of normal recurring adjustments that, in our opinion, are necessary to state fairly the financial information set forth in those statements. You should read this data together with our consolidated financial statements and related notes appearing elsewhere in this prospectus and the information in “Selected Consolidated Financial and Other Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Our historical results are not necessarily indicative of our future results, and the results of operations for the six months ended July 31, 2016, are not necessarily indicative of the results to be expected for the full fiscal year or any other period. The summary consolidated financial data in this section are not intended to replace the consolidated financial statements and are qualified in their entirety by the consolidated financial statements and related notes included elsewhere in this prospectus.

 

     Year ended
January 31,
    Six months ended
July 31,
 
     2015     2016     2015     2016  
     (in thousands, except
per share data)
 

Consolidated Statements of Operations Data:

        

Revenues:

        

Subscription services

   $ 43,051      $ 75,667      $ 31,622      $ 53,155   

Professional services and other

     7,794        8,011        2,891        7,160   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     50,845        83,678        34,513        60,315   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cost of revenues:

        

Subscription services(1)

     8,813        16,804        7,545        12,079   

Professional services and other(1)

     9,911        15,107        6,233        11,420   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of revenues

     18,724        31,911        13,778        23,499   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     32,121        51,767        20,735        36,816   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

        

Research and development(1)

     11,887        22,767        10,223        15,046   

Sales and marketing(1)

     33,724        54,713        24,211        35,088   

General and administrative(1)

     13,146        19,540        11,199        10,173   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     58,757        97,020        45,633        60,307   
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (26,636     (45,253     (24,898     (23,491

Other expense, net

     (563     (568     (131     (523
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss before provision for income taxes

     (27,199     (45,821     (25,029     (24,014

Provision for income taxes

     101        335        118        291   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss and comprehensive loss

   $ (27,300   $ (46,156   $ (25,147   $ (24,305
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per share attributable to common stockholders, basic and diluted(2)

   $ (2.28   $ (2.45   $ (1.45   $ (1.06
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average number of shares used in computing net loss per share attributable to common stockholders, basic and diluted(2)

     11,965        18,818        17,376        22,882   
  

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma net loss per share attributable to common stockholders, basic and diluted(2)

     $ (0.31     $ (0.15
    

 

 

     

 

 

 

Weighted-average number of shares used in computing pro forma net loss per share attributable to common stockholders, basic and diluted(2)

       151,182          161,327   
    

 

 

     

 

 

 

Other Financial Data:

        

Non-GAAP operating loss(3)

   $ (17,818   $ (32,355   $ (15,296   $ (19,644
  

 

 

   

 

 

   

 

 

   

 

 

 

 



 

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(1) Includes stock-based compensation expense as follows:

 

     Year ended
January 31,
     Six months ended
July 31,
 
     2015      2016      2015      2016  
     (in thousands)  

Cost of revenues:

           

Subscription services

   $ 109       $ 235       $ 99       $ 265   

Professional services and other

     110         1,014         885         244   

Research and development

     337         1,236         857         625   

Sales and marketing

     433         1,347         386         911   

General and administrative

     818         6,736         5,806         1,220   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total stock-based compensation

   $ 1,807       $ 10,568       $ 8,033       $ 3,265   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(2) See Note 14 to our consolidated financial statements for an explanation of the method used to calculate basic, diluted and pro forma net loss per common share attributable to common stockholders.

 

(3) We define non-GAAP operating loss as operating loss before stock-based compensation, litigation-related costs and amortization of acquired intangible assets. For more information about our non-GAAP operating loss and a reconciliation of our non-GAAP operating loss to loss from operations, the most directly comparable financial measure calculated and presented in accordance with U.S. generally accepted accounting principles, or GAAP, see the section titled “Selected Consolidated Financial Data—Non-GAAP Financial Measures.”

 

     As of July 31, 2016  
     Actual     Pro Forma(1)      Pro Forma
As Adjusted(2)(3)
 
     (in thousands)  

Consolidated Balance Sheet Data:

       

Cash and cash equivalents

   $ 79,943      $ 79,943       $               

Working capital

     25,105        25,105      

Total assets

     129,208        129,208      

Deferred revenue, current and non-current

     72,136        72,136      

Convertible preferred stock

     164,950             

Total stockholders’ equity (deficit)

     (126,414     38,536      

 

(1) Reflects the automatic conversion of all outstanding shares of our preferred stock into an aggregate of 138,444,056 shares of common stock.

 

(2) Reflects the pro forma adjustment described in footnote (1) above and the sale by us of             shares of common stock in this offering at an assumed initial public offering price of $         per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us and the application of the net proceeds of this offering as described in “Use of Proceeds.”

 

(3) A $1.00 increase (decrease) in the assumed initial public offering price of $         per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) each of pro forma as adjusted cash and cash equivalents, working capital, total assets, and stockholders’ equity by $         million, assuming the number of shares we are offering, as set forth on the cover page of this prospectus, remains the same, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of shares we are offering. An increase (decrease) of 1,000,000 in the number of shares we are offering would increase (decrease) each of pro forma as adjusted cash and cash equivalents, working capital, total assets, and total stockholders’ equity by approximately $         million, assuming the initial public offering price per share remains the same. The pro forma as adjusted information is illustrative only, and we will adjust this information based on the actual initial public offering price, number of shares offered, and other terms of this offering determined at pricing.

 



 

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RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the risks described below, as well as the other information in this prospectus, including our consolidated financial statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” before deciding whether to invest in our common stock. The occurrence of any of the events or developments described below could materially and adversely affect our business, financial condition, results of operations and growth prospects. In such an event, the market price of our common stock could decline, and you may lose all or part of your investment. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations.

Risks Related to Our Business and Industry

We have a limited operating history, which makes it difficult to predict our future operating results.

We were incorporated in 2006 and introduced our first software module shortly thereafter and over time have invested in building our integrated platform. As a result of our limited operating history, our ability to forecast our future operating results is limited and subject to a number of uncertainties, including our ability to plan for and model future growth. We have encountered and will encounter risks and uncertainties frequently experienced by growing companies in rapidly changing industries, such as the risks and uncertainties described herein. If our assumptions regarding these risks and uncertainties (which we use to plan our business) are incorrect or change, or if we do not address these risks successfully, our operating and financial results could differ materially from our expectations and our business could suffer.

Any success that we may experience in the future will depend, in large part, on our ability to manage the risks discussed herein and to, among other things:

 

    retain and expand our customer base on a cost-effective basis;

 

    successfully compete in our markets;

 

    continue to add features and functionality to our platform to meet customer demand;

 

    increase revenues from existing customers as they add users or purchase additional modules;

 

    continue to invest in research and development;

 

    scale our internal business operations in an efficient and cost-effective manner;

 

    scale our global customer success organization to make our customers successful in their spend management deployments;

 

    help our partners to be successful in deployments of our platform;

 

    successfully expand our business domestically and internationally;

 

    successfully protect our intellectual property and defend against intellectual property infringement claims; and

 

    hire, integrate and retain professional and technical talent.

If we are unable to attract new customers, the growth of our revenues will be adversely affected.

To increase our revenues, we must add new customers, increase the number of users at existing customers and sell additional modules to current customers. As our industry matures or if competitors introduce lower cost and/or differentiated products or services that are perceived to compete with ours, our ability to sell based on factors such as pricing, technology and functionality could be impaired. As a result, we may be unable to attract new customers at rates or on terms that would be favorable or comparable to prior periods, which could have an adverse effect on the growth of our revenues.

 

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Because our platform is sold to large enterprises with complex operating environments, we encounter long and unpredictable sales cycles, which could adversely affect our operating results in a given period.

Our ability to increase revenues and achieve profitability depends, in large part, on widespread acceptance of our platform by large enterprises. As we target our sales efforts at these customers, we face greater costs, longer sales cycles and less predictability in completing some of our sales. As a result of the variability and length of the sales cycle, we have only a limited ability to forecast the timing of sales. A delay in or failure to complete sales could harm our business and financial results, and could cause our financial results to vary significantly from period to period. Our sales cycle varies widely, reflecting differences in potential customers’ decision-making processes, procurement requirements and budget cycles, and is subject to significant risks over which we have little or no control, including:

 

    customers’ budgetary constraints and priorities;

 

    the timing of customers’ budget cycles;

 

    the need by some customers for lengthy evaluations; and

 

    the length and timing of customers’ approval processes.

In the large enterprise market, the customer’s decision to use our platform may be an enterprise-wide decision and, therefore, these types of sales require us to provide greater levels of education regarding the use and benefits of our platform, which causes us to expend substantial time, effort and money educating them as to the value of our platform. In addition, because we are a relatively new company with a limited operating history, our target customers may prefer to purchase software that is critical to their business from one of our larger, more established competitors. Our typical sales cycles can range from three to nine months, and we expect that this lengthy sales cycle may continue or increase. Longer sales cycles could cause our operating and financial results to suffer in a given period.

If we fail to develop widespread brand awareness cost-effectively, our business may suffer.

We believe that developing and maintaining widespread awareness of our brand in a cost-effective manner is critical to achieving widespread acceptance of our platform and attracting new customers. For example, widespread awareness of our brand is critical to ensuring that we are invited to participate in requests for proposals from prospective customers. Our success in this area will depend on a wide range of factors, some of which are beyond our control, including the following:

 

    the efficacy of our marketing efforts;

 

    our ability to offer high-quality, innovative and error- and bug-free modules;

 

    our ability to retain existing customers and obtain new customers;

 

    the ability of our customers to achieve successful results by using our platform;

 

    the quality and perceived value of our platform;

 

    our ability to successfully differentiate our offerings from those of our competitors;

 

    actions of competitors and other third parties;

 

    our ability to provide customer support and professional services;

 

    any misuse or perceived misuse of our platform and modules;

 

    positive or negative publicity;

 

    interruptions, delays or attacks on our platform or modules; and

 

    litigation, legislative or regulatory-related developments.

 

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Brand promotion activities may not generate customer awareness or increase revenues, and, even if they do, any increase in revenues may not offset the expenses we incur in building our brand. If we fail to successfully promote and maintain our brand, or incur substantial expenses, we may fail to attract or retain customers necessary to realize a sufficient return on our brand-building efforts or to achieve the widespread brand awareness that is critical for broad customer adoption of our platform.

Furthermore, negative publicity, whether or not justified, relating to events or activities attributed to us, our employees, our partners or others associated with any of these parties, may tarnish our reputation and reduce the value of our brand. Damage to our reputation and loss of brand equity may reduce demand for our platform and have an adverse effect on our business, operating results and financial condition. Moreover, any attempts to rebuild our reputation and restore the value of our brands may be costly and time consuming, and such efforts may not ultimately be successful.

We have a history of cumulative losses, and we do not expect to be profitable for the foreseeable future.

We have incurred significant losses in each period since our inception in 2006. We incurred net losses of $27.3 million, $46.2 million and $24.3 million, respectively, in the fiscal years ended January 31, 2015 and 2016 and for the six months ended July 31, 2016. We had an accumulated deficit of $147.2 million at July 31, 2016. Our losses and accumulated deficit reflect the substantial investments we made to acquire new customers and develop our platform. We expect our operating expenses to increase in the future due to anticipated increases in sales and marketing expenses, research and development expenses, operations costs and general and administrative costs, and, therefore, we expect our losses to continue for the foreseeable future. Furthermore, to the extent we are successful in increasing our customer base, we will also incur increased losses because costs associated with acquiring customers are generally incurred up front, while subscription revenues are generally recognized ratably over the terms of the agreements, which are typically three years, although some customers commit for shorter periods. You should not consider our recent growth in revenues as indicative of our future performance. Accordingly, we cannot assure you that we will achieve profitability in the future, or that, if we do become profitable, we will sustain profitability.

The markets in which we participate are intensely competitive, and if we do not compete effectively, our operating results could be adversely affected.

The market for spend management software is highly competitive, with relatively low barriers to entry for some software or services. Our competitors include Oracle Corporation (Oracle) and SAP AG (SAP), well-established providers of spend management software, which have long-standing relationships with many customers. Some customers may be hesitant to adopt cloud-based software such as ours and prefer to purchase from legacy software vendors. Oracle and SAP are larger and have greater name recognition, much longer operating histories, larger marketing budgets and significantly greater resources than we do. These vendors, as well as other competitors, may offer spend management software on a standalone basis at a low price or bundled as part of a larger product sale. In order to take advantage of customer demand for cloud-based software, legacy vendors are expanding their cloud-based software through acquisitions and organic development. For example, SAP acquired Ariba, Inc. and Concur Technologies, Inc. Legacy vendors may also seek to partner with other leading cloud providers. We also face competition from custom-built software vendors and from vendors of specific applications, some of which offer cloud-based solutions. We may also face competition from a variety of vendors of cloud-based and on-premise software products that address only a portion of our platform. In addition, other companies that provide cloud-based software in different target markets may develop software or acquire companies that operate in our target markets, and some potential customers may elect to develop their own internal software. With the introduction of new technologies and market entrants, we expect this competition to intensify in the future.

 

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Many of our competitors are able to devote greater resources to the development, promotion and sale of their products and services. Furthermore, our current or potential competitors may be acquired by third parties with greater available resources and the ability to initiate or withstand substantial price competition. In addition, many of our competitors have established marketing relationships, access to larger customer bases and major distribution agreements with consultants, system integrators and resellers. Our competitors may also establish cooperative relationships among themselves or with third parties that may further enhance their product offerings or resources. If our platform does not become more accepted relative to our competitors’, or if our competitors are successful in bringing their products or services to market earlier than ours, or if their products or services are more technologically capable than ours, then our revenues could be adversely affected. In addition, some of our competitors may offer their products and services at a lower price. If we are unable to achieve our target pricing levels, our operating results would be negatively affected. Pricing pressures and increased competition could result in reduced sales, reduced margins, losses or a failure to maintain or improve our competitive market position, any of which could adversely affect our business.

We do not have a long history with our subscription or pricing models and changes could adversely affect our operating results.

We have limited experience with respect to determining the optimal prices and contract length for our platform. As the markets for our software subscriptions grow, as new competitors introduce new products or services that compete with ours or as we enter into new international markets, we may be unable to attract new customers at the same price or based on the same pricing model as we have used historically. Moreover, large customers, which are the focus of our sales efforts, may demand higher price discounts. As a result, in the future we may be required to reduce our prices or offer shorter contract durations, which could adversely affect our revenues, gross margin, profitability, financial position and cash flow.

Our business depends substantially on our customers renewing their subscriptions and purchasing additional subscriptions from us. Any decline in our customer renewals would harm our future operating results.

In order for us to maintain or improve our operating results, it is important that our customers renew their subscriptions when the initial contract term expires and add additional authorized users and additional spend management modules to their subscriptions. Our customers have no obligation to renew their subscriptions, and we cannot assure you that our customers will renew subscriptions with a similar contract period or with the same or a greater number of authorized users and modules. Some of our customers have elected not to renew their agreements with us, and we may not be able to accurately predict renewal rates.

Our renewal rates may decline or fluctuate as a result of a number of factors, including our customers’ satisfaction with our subscription service, our professional services, our customer support, our prices and contract length, the prices of competing solutions, mergers and acquisitions affecting our customer base, the effects of global economic conditions or reductions in our customers’ spending levels. Our future success also depends in part on our ability to add additional authorized users and modules to the subscriptions of our current customers. If our customers do not renew their subscriptions, renew on less favorable terms or fail to add more authorized users or additional spend management modules, our revenues may decline, and we may not realize improved operating results from our customer base.

Because we recognize subscription revenues over the term of the contract, fluctuations in new sales will not be immediately reflected in our operating results and may be difficult to discern.

We generally recognize subscription revenues from customers ratably over the terms of their contracts, which are typically three years, although some customers commit for shorter periods. As a result, most of the subscription revenues we report on each quarter are derived from the recognition of deferred

 

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revenue relating to subscriptions entered into during previous quarters. Consequently, a decline in new or renewed subscriptions in any single quarter will likely have only a small impact on our revenues for that quarter. However, such a decline will negatively affect our revenues in future quarters. Accordingly, the effect of significant downturns in sales and market acceptance of our platform, and potential changes in our pricing policies or rate of renewals, may not be fully apparent from our reported results of operations until future periods.

We may be unable to adjust our cost structure to reflect the changes in revenues. In addition, a significant majority of our costs are expensed as incurred, while subscription revenues are recognized over the life of the customer agreement. As a result, increased growth in the number of our customers could result in our recognition of more costs than revenues in the earlier periods of the terms of our agreements. Our subscription model also makes it difficult for us to rapidly increase our revenues through additional sales in any period, as revenues from new customers must be recognized over the applicable subscription term.

Professional services revenues are recognized as the services are performed or upon the completion of the project, depending on the type of professional services arrangement involved. Professional services engagements typically span from a few weeks to several months, which makes it somewhat difficult to predict the timing of revenue recognition for such services and the corresponding effects on our results of operations. Professional services revenues have and may continue to fluctuate significantly from period to period. In addition, because professional services expenses are recognized as the services are performed, professional services and total margins can significantly fluctuate from period to period.

Our quarterly results may fluctuate significantly and may not fully reflect the underlying performance of our business.

Our quarterly results of operations, as well as our key metrics discussed elsewhere in this prospectus, including the levels of our revenues, gross margin, profitability, cash flow and deferred revenue, may vary significantly in the future and period-to-period comparisons of our operating results and key metrics may not be meaningful. Accordingly, the results of any one quarter should not be relied upon as an indication of future performance. Our quarterly financial results and metrics may fluctuate as a result of a variety of factors, many of which are outside of our control and, as a result, may not fully reflect the underlying performance of our business. These fluctuations may negatively affect the value of our common stock. Factors that may cause these quarterly fluctuations include, without limitation, those listed herein, including:

 

    our ability to attract new customers;

 

    the addition or loss of large customers, including through acquisitions or consolidations;

 

    the timing of recognition of revenues;

 

    the amount and timing of operating expenses;

 

    network outages or security breaches;

 

    general economic, industry and market conditions, both domestically and internationally;

 

    customer renewal rates;

 

    the amount and timing of completion of professional services engagements;

 

    increases or decreases in the number of users for our platform or pricing changes upon any renewals of customer agreements;

 

    changes in our pricing policies or those of our competitors;

 

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    seasonal variations in sales of our software subscriptions, which has historically been highest in the fourth quarter of a calendar year but may vary in future quarters;

 

    the timing and success of new module introductions by us or our competitors or any other change in the competitive dynamics of our industry, including consolidation among competitors, customers or strategic partners; and

 

    the timing of expenses related to the development or acquisition of technologies or businesses and potential future charges for impairment of goodwill from acquired companies.

The profitability of our customer relationships may fluctuate.

Our business model focuses on maximizing the lifetime value of our customer relationships and we need to make significant investments in order to add new customers to grow our customer base. The profitability of a customer relationship in any particular period depends in part on how long the customer has been a subscriber on our platform. In general, the upfront costs associated with new customers are higher in the first year than the aggregate revenues we recognize from those new customers in the first year.

We review the lifetime value and associated acquisition costs of our customers, as discussed further in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Our Business Model”. The lifetime value of our customers and customer acquisition costs has and will continue to fluctuate from one period to another depending upon the amount of our net new subscription revenues (which depends on the number of new customers in a period, upsells of additional modules to existing customers and changes in subscription fees charged to existing customers), gross margins (which depends on investments in and other changes to our cost of customer support and allocated overhead), sales and marketing expenses and renewal rates (which depend on our ability to maintain or grow subscription fees from customers). These amounts have fluctuated from quarter to quarter and will continue to fluctuate in the future. We may not experience lifetime value to customer acquisition cost ratios in future years or periods similar to those we have achieved to date. Other companies may calculate lifetime value and customer acquisition costs differently than our chosen method and, therefore, may not be directly comparable.

We have experienced rapid growth in recent periods. If we fail to manage our growth effectively, we may be unable to execute our business plan, maintain high levels of service or adequately address competitive challenges.

We have recently experienced a period of rapid growth in our headcount and operations. We have also significantly increased the size of our customer base. We anticipate that we will significantly expand our operations and headcount in the near term, including internationally. This growth has placed, and future growth will place, a significant strain on our management, administrative, operational and financial infrastructure. Our success will depend in part on our ability to manage this growth effectively. To manage the expected growth of our operations and personnel, we will need to continue to improve our operational, financial and management controls and our reporting systems and procedures. Failure to effectively manage growth could result in difficulty or delays in deploying customers, declines in quality or customer satisfaction, increases in costs, difficulties in introducing new features or other operational difficulties, and any of these difficulties could adversely affect our business performance and results of operations.

If we are not able to provide successful and timely enhancements, new features and modifications for our platform and modules, we may lose existing customers or fail to attract new customers and our revenues and financial performance may suffer.

If we are unable to provide enhancements and new features for our existing modules or new modules that achieve market acceptance or that keep pace with rapid technological developments or to integrate

 

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technology, products and services that we acquire into our platform, our business could be adversely affected. The success of enhancements, new features and modules depends on several factors, including the timely completion, introduction and market acceptance of the enhancements or new features or modules. Failure in this regard may significantly impair the growth of our revenues. We have experienced, and may in the future experience, delays in the planned release dates of enhancements to our platform, and we have discovered, and may in the future discover, errors in new releases after their introduction. Either situation could result in adverse publicity, loss of sales, delay in market acceptance of our platform or customer claims, including, among other things, warranty claims against us, any of which could cause us to lose existing customers or affect our ability to attract new customers.

If our security measures are breached or unauthorized access to customer data is otherwise obtained, our platform may be perceived as not being secure, customers may reduce the use of or stop using our platform and we may incur significant liabilities.

Our platform involves the storage and transmission of our customers’ sensitive proprietary information, including their purchasing data. As a result, unauthorized access or security breaches could result in the loss of information, litigation, indemnity obligations and other liability. While we have security measures in place that are designed to protect customer information and prevent data loss and other security breaches, if these measures are breached as a result of third-party action, employee error, malfeasance or otherwise, and someone obtains unauthorized access to our customers’ data, our reputation could be damaged, we could be required to expend significant capital and other resources to alleviate the problem, our business may suffer and we could incur significant liability. Because the techniques used to obtain unauthorized access or sabotage systems change frequently and generally are not identified until they are launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. Any or all of these issues could negatively affect our ability to attract new customers, cause existing customers to elect to not renew their subscriptions, result in reputational damage or subject us to third-party lawsuits, regulatory fines or other action or liability, which could adversely affect our operating results.

If we fail to integrate our platform with a variety of third-party technologies, our platform may become less marketable and less competitive or obsolete and our operating results would be harmed.

Our platform must integrate with a variety of third-party technologies, and we need to continuously modify and enhance our platform to adapt to changes in cloud-enabled hardware, software, networking, browser and database technologies. Any failure of our platform to operate effectively with future technologies could reduce the demand for our platform, resulting in customer dissatisfaction and harm to our business. If we are unable to respond to these changes in a cost-effective manner, our platform may become less marketable and less competitive or obsolete and our operating results may be negatively affected. In addition, an increasing number of individuals within the enterprise are utilizing mobile devices to access the Internet and corporate resources and to conduct business. If we cannot continue to effectively make our platform available on these mobile devices and offer the information, services and functionality required by enterprises that widely use mobile devices, we may experience difficulty attracting and retaining customers.

We rely heavily on Amazon Web Services to deliver our platform and modules to our customers, and any disruption in service from Amazon Web Services or material change to our arrangement with Amazon Web Services could adversely affect our business.

We rely upon Amazon Web Services (AWS) to operate certain aspects of our platform and any disruption of or interference with our use of AWS could impair our ability to deliver our platform and modules to our customers, resulting in customer dissatisfaction, damage to our reputation, loss of customers and harm to our business. AWS provides a distributed computing infrastructure platform for

 

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business operations, or what is commonly referred to as a cloud computing service. We have architected our software and computer systems to use data processing, storage capabilities and other services provided by AWS. Currently, our cloud service infrastructure is run on AWS. Given this, we cannot easily switch our AWS operations to another cloud provider, so any disruption of or interference with our use of AWS would affect our operations and our business could be adversely affected.

AWS provides us with computing and storage capacity pursuant to an agreement that continues until terminated by either party. AWS may terminate the agreement without cause by providing 30 days’ prior written notice and may terminate the agreement for cause with 30 days’ prior written notice, including any material default or breach of the agreement by us that we do not cure within the 30 day period. Additionally, AWS has the right to terminate the agreement immediately with notice to us in certain scenarios such as if AWS believes providing the services could create a substantial economic or technical burden or material security risk for AWS, or in order to comply with the law or requests of governmental entities. The agreement requires AWS to provide us their standard computing and storage capacity and related support in exchange for timely payment by us. If any of our arrangements with AWS were terminated, we could experience interruptions in our software as well as delays and additional expenses in arranging new facilities and services.

We utilize third-party data center hosting facilities operated by AWS, located in various sites within North America. For international customers, we utilize third-party data center hosting facilities operated by AWS located in Dublin, Ireland and Sydney, Australia. Our operations depend, in part, on AWS’s abilities to protect these facilities against damage or interruption from natural disasters, power or telecommunications failures, criminal acts and similar events. Despite precautions taken at these data centers, the occurrence of spikes in usage volume, a natural disaster, an act of terrorism, vandalism or sabotage, a decision to close a facility without adequate notice or other unanticipated problems at a facility could result in lengthy interruptions in the availability of our platform. Even with current and planned disaster recovery arrangements, our business could be harmed. Also, in the event of damage or interruption, our insurance policies may not adequately compensate us for any losses that we may incur. These factors in turn could further reduce our revenues, subject us to liability and cause us to issue credits or cause customers to fail to renew their subscriptions, any of which could harm our business.

Privacy concerns and laws or other domestic or foreign regulations may reduce the effectiveness of our platform and adversely affect our business.

Our customers can use our platform to collect, use and store certain types of personal or identifying information regarding their employees and suppliers. Federal, state and foreign government bodies and agencies have adopted, are considering adopting or may adopt laws and regulations regarding the collection, use, storage and disclosure of personal information obtained from consumers and individuals, such as compliance with the Health Insurance Portability and Accountability Act, or HIPAA, and the recently created EU-U.S. Privacy Shield. The costs of compliance with, and other burdens imposed by, such laws and regulations that are applicable to the businesses of our customers may limit the use and adoption of our platform and reduce overall demand or lead to significant fines, penalties or liabilities for any noncompliance with such privacy laws. Furthermore, privacy concerns may cause our customers’ employees to resist providing the personal data necessary to allow our customers to use our platform effectively. Even the perception of privacy concerns, whether or not valid, may inhibit market adoption of our platform in certain industries.

All of these domestic and international legislative and regulatory initiatives may adversely affect our customers’ ability to process, handle, store, use and transmit demographic and personal information from their employees, customers and suppliers, which could reduce demand for our platform. The European Union and many countries in Europe have stringent privacy laws and regulations, which may affect our ability to operate cost effectively in certain European countries. Moreover, the scope and application of

 

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some regulations, such as the recently enacted EU-U.S. Privacy Shield, is uncertain and complying with regulations may be more costly than we currently anticipate.

In addition to government activity, privacy advocacy groups and the technology and other industries are considering various new, additional or different self-regulatory standards that may place additional burdens on us. If the processing of personal information were to be curtailed in this manner, our platform would be less effective, which may reduce demand for our platform and adversely affect our business.

The loss of one or more of our key customers could negatively affect our ability to market our platform.

We rely on our reputation and recommendations from key customers in order to promote subscriptions to our platform. The loss of any of our key customers could have a significant impact on our revenues, reputation and our ability to obtain new customers. In addition, acquisitions of our customers could lead to cancellation of our contracts with those customers or by the acquiring companies, thereby reducing the number of our existing and potential customers.

Our business could be adversely affected if our customers are not satisfied with the implementation services provided by us or our partners.

Our business depends on our ability to satisfy our customers, both with respect to our platform and modules and the professional services that are performed to help our customers use features and functions that address their business needs. Professional services may be performed by our own staff, by a third-party partner or by a combination of the two. Our strategy is to work with partners to increase the breadth of capability and depth of capacity for delivery of these services to our customers, and we expect the number of our partner-led implementations to continue to increase over time. If a customer is not satisfied with the quality of work performed by us or a partner or with the type of professional services or modules delivered, then we could incur additional costs to address the situation, the profitability of that work might be impaired and the customer’s dissatisfaction with our services could damage our ability to expand the number of modules subscribed to by that customer. In addition, negative publicity related to our customer relationships, regardless of its accuracy, may further damage our business by affecting our ability to compete for new business with current and prospective customers.

We typically provide service level commitments under our customer contracts. If we fail to meet these contractual commitments, we could be obligated to provide credits or refunds for prepaid amounts related to unused subscription services or face contract terminations, which could adversely affect our revenues.

Our customer agreements typically provide service level commitments on a monthly basis. If we are unable to meet the stated service level commitments or suffer extended periods of unavailability for our platform, we may be contractually obligated to provide these customers with service credits, or we could face contract terminations, in which case we would be subject to refunds for prepaid amounts related to unused subscription services. Our revenues could be significantly affected if we suffer unexcused downtime under our agreements with our customers. Any extended service outages could adversely affect our reputation, revenues and operating results.

Any failure to offer high-quality technical support services may adversely affect our relationships with our customers and our financial results.

Once our modules are implemented, our customers depend on our support organization to resolve technical issues relating to our modules. We may be unable to respond quickly enough to accommodate short-term increases in customer demand for support services. We also may be unable to modify the format of our support services to compete with changes in support services provided by our competitors. Increased customer demand for these services, without corresponding revenues, could increase costs and adversely affect our operating results. In addition, our sales process is highly dependent on our platform

 

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and business reputation and on positive recommendations from our existing customers. Any failure to maintain high-quality technical support, or a market perception that we do not maintain high-quality support, could adversely affect our reputation, our ability to sell subscriptions to our modules to existing and prospective customers and our business, operating results and financial position.

Sales to customers outside the United States or with international operations expose us to risks inherent in international sales.

A key element of our growth strategy is to expand our international operations and develop a worldwide customer base. The combined revenues from non-U.S. regions, as determined based on the billing address of our customers, constituted 25% and 28%, respectively, of our total revenues for the fiscal years ended January 31, 2015 and 2016, and 28% and 29%, respectively, of our total revenues for the six months ended July 31, 2015 and 2016. Operating in international markets requires significant resources and management attention and will subject us to regulatory, economic and political risks that are different from those in the United States. Because of our limited experience with international operations, our international expansion efforts may not be successful in creating additional demand for our platform outside of the United States or in effectively selling subscriptions to our platform in all of the international markets we enter. In addition, we will face risks in doing business internationally that could adversely affect our business, including:

 

    the need to localize and adapt our platform for specific countries, including translation into foreign languages and associated expenses;

 

    data privacy laws that require customer data to be stored and processed in a designated territory;

 

    difficulties in staffing and managing foreign operations and working with foreign partners;

 

    different pricing environments, longer sales cycles and longer accounts receivable payment cycles and collections issues;

 

    new and different sources of competition;

 

    weaker protection for intellectual property and other legal rights than in the United States and practical difficulties in enforcing intellectual property and other rights outside of the United States;

 

    laws and business practices favoring local competitors;

 

    compliance challenges related to the complexity of multiple, conflicting and changing governmental laws and regulations, including employment, tax, privacy and data protection laws and regulations;

 

    increased financial accounting and reporting burdens and complexities;

 

    restrictions on the transfer of funds;

 

    foreign exchange risk, as well as the risk that, because a majority of our international contracts are denominated in U.S. dollars, an increase in the strength of the U.S. dollar may make doing business with us less appealing to a non-U.S. customer;

 

    adverse tax consequences; and

 

    unstable regional and economic political conditions.

As we continue to expand our business globally, our success will depend, in large part, on our ability to anticipate and effectively manage these and other risks associated with our international sales and operations. Our failure to manage any of these risks successfully, or to comply with these laws and regulations, could harm our operations, reduce our sales and harm our business, operating results and financial condition. For example, in certain foreign countries, particularly those with developing economies, certain business practices that are prohibited by laws and regulations applicable to us, such as

 

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the Foreign Corrupt Practices Act, may be more commonplace. Although we have policies and procedures designed to ensure compliance with these laws and regulations, our employees, contractors and agents, as well as channel partners involved in our international sales, may take actions in violation of our policies. Any such violation could have an adverse effect on our business and reputation.

Some of our business partners also have international operations and are subject to the risks described above. Even if we are able to successfully manage the risks of international operations, our business may be adversely affected if our business partners are not able to successfully manage these risks.

We may face exposure to foreign currency exchange rate fluctuations.

Today, our international contracts are sometimes denominated in local currencies. However, the majority of our international costs are denominated in local currencies. Over time, an increasing portion of our international contracts may be denominated in local currencies. Therefore, fluctuations in the value of the U.S. dollar and foreign currencies may affect our operating results when translated into U.S. dollars. We do not currently engage in currency hedging activities to limit the risk of exchange rate fluctuations. However, in the future, we may use derivative instruments, such as foreign currency forward and option contracts, to hedge certain exposures to fluctuations in foreign currency exchange rates. The use of such hedging activities may not offset any or more than a portion of the adverse financial effects of unfavorable movements in foreign exchange rates over the limited time the hedges are in place. Moreover, the use of hedging instruments may introduce additional risks if we are unable to structure effective hedges with such instruments.

If the market for enterprise cloud software develops more slowly than we expect or declines, our business could be adversely affected.

The enterprise cloud software market is not as mature as the market for on-premise enterprise software, and it is uncertain whether cloud software will achieve and sustain high levels of customer demand and market acceptance. Our success will depend to a substantial extent on the widespread adoption of cloud computing in general, and of spend management services in particular. Many enterprises have invested substantial personnel and financial resources to integrate traditional enterprise software into their businesses and, therefore, may be reluctant or unwilling to migrate to cloud software. It is difficult to predict customer adoption rates and demand for our platform, the future growth rate and size of the cloud software market or the entry of competitive solutions. The expansion of the cloud software market depends on a number of factors, including the cost, performance and perceived value associated with cloud software, as well as the ability of cloud software companies to address security and privacy concerns. If other cloud software providers experience security incidents, loss of customer data, disruptions in delivery or other problems, the market for cloud software as a whole, including our platform, may be negatively affected. If cloud software does not achieve widespread adoption, or if there is a reduction in demand for cloud software caused by a lack of customer acceptance, technological challenges, weakening economic conditions, security or privacy concerns, competing technologies and products, decreases in corporate spending or otherwise, our business could be adversely affected.

To date, most of our sales have involved our procurement and invoicing modules. Our efforts to increase use of these modules and our other modules may not succeed and may reduce the growth rate of our revenues.

To date, most of our sales have involved our procurement and invoicing modules, which are our most mature modules. Any factor adversely affecting sales of these modules, including software release cycles, market acceptance, product competition, performance and reliability, reputation, price competition and economic and market conditions, could adversely affect our business and operating results. Our participation in the markets for our other modules, including expense reporting, sourcing, inventory, contracts, analytics, supplier management and storefront, is relatively new, and it is uncertain whether

 

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these areas will ever result in significant revenues for us. Further, the introduction of new modules beyond these markets may not be successful.

Large customers often demand more configuration and integration services, or customized features and functions that we do not offer, which could adversely affect our business and operating results.

Large customers may demand more configuration and integration services, which increase our upfront investment in sales and deployment efforts, with no guarantee that these customers will increase the scope of their subscription. As a result of these factors, we must devote a significant amount of sales support and professional services resources to individual customers, increasing the cost and time required to complete sales. Additionally, our platform does not currently permit customers to modify our code. If prospective customers require customized features or functions that we do not offer and that would be difficult for them to deploy themselves, then the market for our platform will be more limited and our business could suffer.

If our platform fails to perform properly, our reputation could be adversely affected, our market share could decline and we could be subject to liability claims.

Our platform is inherently complex and may contain material defects or errors. Any defects in functionality or that cause interruptions in the availability of our platform could result in:

 

    loss or delayed market acceptance and sales;

 

    breach of warranty claims;

 

    sales credits or refunds for prepaid amounts related to unused subscription services;

 

    loss of customers;

 

    diversion of development and customer service resources; and

 

    injury to our reputation.

The costs incurred in correcting any material defects or errors might be substantial and could adversely affect our operating results.

Because of the large amount of data that we collect and manage, it is possible that hardware failures or errors in our systems could result in data loss or corruption or cause the information that we collect to be incomplete or contain inaccuracies that our customers regard as significant. Furthermore, the availability or performance of our platform could be adversely affected by a number of factors, including customers’ inability to access the Internet, the failure of our network or software systems, security breaches or variability in user traffic for our platform. We may be required to issue credits or refunds for prepaid amounts related to unused services or otherwise be liable to our customers for damages they may incur resulting from certain of these events. For example, our customers access our modules through their Internet service providers. If a service provider fails to provide sufficient capacity to support our modules or otherwise experiences service outages, such failure could interrupt our customers’ access to our modules, adversely affect their perception of our modules’ reliability and reduce our revenues. In addition to potential liability, if we experience interruptions in the availability of our platform, our reputation could be adversely affected and we could lose customers.

Our errors and omissions insurance may be inadequate or may not be available in the future on acceptable terms, or at all. In addition, our policy may not cover all claims made against us and defending a suit, regardless of its merit, could be costly and divert management’s attention.

 

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If we fail to manage our technical operations infrastructure, our existing customers may experience service outages and our new customers may experience delays in the implementation of our platform.

We have experienced significant growth in the number of users, transactions and data that our operations infrastructure supports. We seek to maintain sufficient excess capacity in our operations infrastructure to meet the needs of all of our customers. We also seek to maintain excess capacity to facilitate the rapid provision of new customer implementations and the expansion of existing customer implementations. In addition, we need to properly manage our technological operations infrastructure in order to support version control, changes in hardware and software parameters and the evolution of our platform. However, the provision of new hosting infrastructure requires significant lead time. We have experienced, and may in the future experience, website disruptions, outages and other performance problems. These problems may be caused by a variety of factors, including infrastructure changes, human or software errors, viruses, security attacks, fraud, spikes in customer usage and denial of service issues. In some instances, we may not be able to identify the cause or causes of these performance problems within an acceptable period of time. If we do not accurately predict our infrastructure requirements, our existing customers may experience service outages that may subject us to financial penalties, financial liabilities and customer losses. If our operations infrastructure fails to keep pace with increased sales, customers may experience delays as we seek to obtain additional capacity, which could adversely affect our reputation and adversely affect our revenues.

Failure to adequately expand our direct sales force will impede our growth.

We will need to continue to expand and optimize our sales infrastructure in order to grow our customer base and our business. We plan to continue to expand our direct sales force, both domestically and internationally. Identifying and recruiting qualified personnel and training them in the use of our software requires significant time, expense and attention. It often takes six months or longer before our sales representatives are fully-trained and productive. Our business may be adversely affected if our efforts to expand and train our direct sales force do not generate a corresponding increase in revenues. In particular, if we are unable to hire, develop and retain talented sales personnel or if new direct sales personnel are unable to achieve desired productivity levels in a reasonable period of time, we may not be able to realize the expected benefits of this investment or increase our revenues.

Our growth depends in part on the success of our strategic relationships with third parties.

We have established strategic relationships with a number of other companies. In order to grow our business, we anticipate that we will continue to establish and maintain relationships with third parties, such as implementation partners, system integrator partners and technology providers. Identifying partners, and negotiating and documenting relationships with them, requires significant time and resources. Our competitors may be effective in providing incentives to third parties to favor their products or services or to prevent or reduce subscriptions to our services. In addition, acquisitions of our partners by our competitors could result in a decrease in the number of our current and potential customers, as our partners may no longer facilitate the adoption of our platform by potential customers.

If we are unsuccessful in establishing or maintaining our relationships with third parties, our ability to compete in the marketplace or to grow our revenues could be impaired and our operating results may suffer. Even if we are successful, we cannot assure you that these relationships will result in increased customer usage of our platform or increased revenues.

Weakened global economic conditions may harm our industry, business and results of operations.

Our overall performance depends in part on worldwide economic conditions. Global financial developments and downturns seemingly unrelated to us or the enterprise software industry may harm us. The United States and other key international economies have been affected by falling demand for a

 

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variety of goods and services, restricted credit, poor liquidity, reduced corporate profitability, volatility in credit, equity and foreign exchange markets, bankruptcies, and overall uncertainty with respect to the economy. In particular, the economies of countries in Europe have been experiencing weakness associated with high sovereign debt levels, weakness in the banking sector and uncertainty over the future of the Euro zone, including instability surrounding “Brexit,” the United Kingdom’s decision to exit the European Union. We have operations, as well as current and potential new customers, throughout most of Europe. If economic conditions in Europe and other key markets for our platform continue to remain uncertain or deteriorate further, many customers may delay or reduce their information technology spending.

The growth of our revenues and potential profitability of our business depends on demand for platform and modules generally, and spend management specifically. In addition, our revenues are dependent on the number of users of our modules. Historically, during economic downturns there have been reductions in spending on enterprise software as well as pressure for extended billing terms or pricing discounts, which would limit our ability to grow our business and negatively affect our operating results. These conditions affect the rate of enterprise software spending and could adversely affect our customers’ ability or willingness to subscribe to our platform, delay prospective customers’ purchasing decisions, reduce the value or duration of their subscriptions or affect renewal rates, all of which could harm our operating results.

Any failure to protect our intellectual property rights could impair our ability to protect our proprietary technology and our brand.

Our success and ability to compete depend in part upon our intellectual property. We primarily rely on copyright, patent, trade secret and trademark laws, trade secret protection and confidentiality or contractual agreements with our employees, customers, partners and others to protect our intellectual property rights. However, the steps we take to protect our intellectual property rights may be inadequate.

In order to protect our intellectual property rights, we may be required to spend significant resources to monitor and protect these rights. Litigation brought to protect and enforce our intellectual property rights could be costly, time-consuming and distracting to management and could result in the impairment or loss of portions of our intellectual property. Furthermore, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims and countersuits attacking the validity and enforceability of our intellectual property rights. Our failure to secure, protect and enforce our intellectual property rights could seriously adversely affect our brand and adversely affect our business.

We may be sued by third parties for alleged infringement of their proprietary rights.

There has been considerable activity in our industry to develop and enforce intellectual property rights. Our success depends upon our not infringing upon the intellectual property rights of others. Our competitors, as well as a number of other entities and individuals, may own or claim to own intellectual property relating to our industry. In the past third parties have claimed and in the future third parties may claim that we are infringing upon their intellectual property rights, and we may be found to be infringing upon such rights. For example, between March 2012 and August 2014 and between May 2014 and September 2015, we and Ariba, Inc. were involved in patent and trade secret litigation cases, each of which eventually resulted in a settlement agreement that requires us to maintain certain ongoing compliance measures that if challenged, could be costly, time-consuming and divert the attention of our management and key personnel from our business operations.

In the future, others may claim that our platform and underlying technology infringe or violate their intellectual property rights. We may be unaware of the intellectual property rights that others may claim cover some or all of our technology or services. Any claims or litigation could cause us to incur significant expenses and, if successfully asserted against us, could require that we pay substantial damages or ongoing royalty payments, prevent us from offering our services or require that we comply with other unfavorable

 

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terms. We may also be obligated to indemnify our customers and business partners or to pay substantial settlement costs, including royalty payments, in connection with any such claim or litigation and to obtain licenses, modify our platform or refund fees, which could be costly. Even if we were to prevail in such a dispute, any litigation regarding our intellectual property could be costly and time-consuming and divert the attention of our management and key personnel from our business operations.

Our platform utilizes open source software, and any failure to comply with the terms of one or more of these open source licenses could negatively affect our business.

Our platform utilizes software governed by open source licenses, which may include, by way of example, the MIT License and the Apache License. The terms of various open source licenses have not been interpreted by United States courts, and there is a risk that such licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to market our platform. By the terms of certain open source licenses, we could be required to release the source code of our proprietary software, and to make our proprietary software available under open source licenses, if we combine our proprietary software with open source software in a certain manner. In the event that portions of our proprietary software are determined to be subject to an open source license, we could be required to publicly release the affected portions of our source code, or to re-engineer all or a portion of our technologies or otherwise be limited in the licensing of our technologies, each of which could reduce or eliminate the value of our technologies and services. In addition to risks related to license requirements, usage of open source software can lead to greater risks than use of third-party commercial software, as open source licensors generally do not provide warranties or controls on the origin of the software. Many of the risks associated with usage of open source software cannot be eliminated and could negatively affect our business.

We employ third-party licensed software for use in or with our platform, and the inability to maintain these licenses or errors in the software we license could result in increased costs, or reduced service levels, which could adversely affect our business.

Our platform incorporates certain third-party software obtained under licenses from other companies. We anticipate that we will continue to rely on such third-party software and development tools from third parties in the future. Although we believe that there are commercially reasonable alternatives to the third-party software we currently license, this may not always be the case, or it may be difficult or costly to replace. In addition, integration of the software used in our platform with new third-party software may require significant work and require substantial investment of our time and resources. Also, to the extent that our platform depends upon the successful operation of third-party software in conjunction with our software, any undetected errors or defects in this third-party software could prevent the deployment or impair the functionality of our platform, delay new module introductions, result in a failure of our modules and injure our reputation. Our use of additional or alternative third-party software would require us to enter into license agreements with third parties.

If we cannot maintain our company culture as we grow, we could lose the innovation, teamwork, passion and focus on execution that we believe contribute to our success and our business may be harmed.

We believe that a critical component to our success has been our company culture, which is based on our core values of ensuring customer success, focusing on results and striving for excellence. We have invested substantial time and resources in building our team within this company culture. If we fail to preserve our culture, our ability to retain and recruit personnel and to effectively focus on and pursue our corporate objectives could be harmed. As we grow and develop the infrastructure of a public company, we may find it difficult to maintain these important aspects of our company culture. If we fail to maintain our company culture, our business may be harmed.

 

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We depend on our senior management team and the loss of our chief executive officer or one or more key employees or an inability to attract and retain highly skilled employees could adversely affect our business.

Our success depends largely upon the continued services of our key executive officers. In particular, our chief executive officer, Robert Bernshteyn, is critical to our vision, strategic direction, culture and overall business success. We also rely on our leadership team in the areas of research and development, marketing, sales, services and general and administrative functions, and on mission-critical individual contributors in research and development. From time to time, there may be changes in our executive management team resulting from the hiring or departure of executives, which could disrupt our business. We do not maintain key-man insurance for Mr. Bernshteyn or any other member of our senior management team. We do not have employment agreements with our executive officers or other key personnel that require them to continue to work for us for any specified period and, therefore, they could terminate their employment with us at any time. The loss of one or more of our executive officers or key employees could have a serious adverse effect on our business.

To execute our growth plan, we must attract and retain highly qualified personnel. Competition for these personnel is intense, especially for engineers with high levels of experience in designing and developing software for Internet-related services. We have, from time to time, experienced, and we expect to continue to experience, difficulty in hiring and retaining employees with appropriate qualifications. Many of the companies with which we compete for experienced personnel have greater resources than we have. If we hire employees from competitors or other companies, their former employers may attempt to assert that these employees or our company have breached their legal obligations, resulting in a diversion of our time and resources. In addition, job candidates and existing employees in the San Francisco Bay Area often consider the value of the stock awards they receive in connection with their employment. If the perceived value of our stock awards declines, it may adversely affect our ability to recruit and retain highly skilled employees. If we fail to attract new personnel or fail to retain and motivate our current personnel, our business and future growth prospects could be adversely affected.

We may acquire other companies or technologies, which could divert our management’s attention, result in additional dilution to our stockholders and otherwise disrupt our operations and adversely affect our operating results.

We have in the past acquired and may in the future seek to acquire or invest in businesses, products or technologies that we believe could complement or expand our platform, enhance our technical capabilities or otherwise offer growth opportunities. The pursuit of potential acquisitions may divert the attention of management and cause us to incur various expenses in identifying, investigating and pursuing suitable acquisitions, whether or not they are consummated.

In addition, we have limited experience in acquiring other businesses. If we acquire additional businesses, we may not be able to integrate the acquired personnel, operations and technologies successfully, or effectively manage the combined business following the acquisition. We also may not achieve the anticipated benefits from the acquired business due to a number of factors, including:

 

    inability to integrate or benefit from acquired technologies or services in a profitable manner;

 

    unanticipated costs or liabilities associated with the acquisition;

 

    incurrence of acquisition-related costs;

 

    difficulty integrating the accounting systems, operations and personnel of the acquired business;

 

    difficulties and additional expenses associated with supporting legacy products and hosting infrastructure of the acquired business;

 

    difficulty converting the customers of the acquired business onto our platform and contract terms, including disparities in the revenues, licensing, support or professional services model of the acquired company;

 

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    diversion of management’s attention from other business concerns;

 

    adverse effects to our existing business relationships with business partners and customers as a result of the acquisition;

 

    the potential loss of key employees;

 

    use of resources that are needed in other parts of our business; and

 

    use of substantial portions of our available cash to consummate the acquisition.

In addition, a significant portion of the purchase price of companies we acquire may be allocated to acquired goodwill and other intangible assets, which must be assessed for impairment at least annually. In the future, if our acquisitions do not yield expected returns, we may be required to take charges to our operating results based on this impairment assessment process, which could adversely affect our results of operations.

Acquisitions could also result in dilutive issuances of equity securities or the incurrence of debt, which could adversely affect our operating results. In addition, if an acquired business fails to meet our expectations, our operating results, business and financial position may suffer.

We may not be able to secure additional financing on favorable terms, or at all, to meet our future capital needs.

We have funded our operations since inception primarily through equity financings and prepayments by customers. We do not know when or if our operations will generate sufficient cash to fund our ongoing operations. In the future, we may require additional capital to respond to business opportunities, challenges, acquisitions, a decline in the level of customer prepayments or unforeseen circumstances and may determine to engage in equity or debt financings or enter into credit facilities for other reasons, and we may not be able to timely secure additional debt or equity financing on favorable terms, or at all. Any debt financing obtained by us in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. If we raise additional funds through further issuances of equity, convertible debt securities or other securities convertible into equity, our existing stockholders could suffer significant dilution in their percentage ownership of our company, and any new equity securities we issue could have rights, preferences and privileges senior to those of holders of our common stock. If we are unable to obtain adequate financing or financing on terms satisfactory to us, when we require it, our ability to continue to grow or support our business and to respond to business challenges could be significantly limited.

Our customers may fail to pay us in accordance with the terms of their agreements, necessitating action by us to compel payment.

We typically enter into multiple year, non-cancelable arrangements with customers of our services. If customers fail to pay us under the terms of our agreements, we may be adversely affected both from the inability to collect amounts due and the cost of enforcing the terms of our contracts, including litigation. The risk of such negative effects increases with the term length of our customer arrangements. Furthermore, some of our customers may seek bankruptcy protection or other similar relief and fail to pay amounts due to us, or pay those amounts more slowly, either of which could adversely affect our operating results, financial position and cash flow.

Contractual disputes with our customers could be costly, time-consuming and harm our reputation.

Our business is contract intensive and we are party to contracts with our customers all over the world. Our contracts can contain a variety of terms, including service levels, security obligations, indemnification and regulatory requirements. Contract terms may not always be standardized across our customers and can

 

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be subject to differing interpretations, which could result in disputes with our customers from time to time. If our customers notify us of a contract breach or otherwise dispute our contract, the resolution of such disputes in a manner adverse to our interests could negatively affect our operating results.

Pursuant to agreements with certain of our customers, we have placed, and in the future may be required to place, in escrow, the source code of some of our modules. Under these escrow arrangements, the source code pertaining to the modules may, in specified circumstances, be made available to our customers. This factor may increase the likelihood of misappropriation or other misuse of our modules.

Catastrophic events may disrupt our business.

Our corporate headquarters are located in San Mateo, California, and our data centers are located both in the United States and abroad. The west coast of the United States contains active earthquake zones. Additionally, we rely on our network and third-party infrastructure and enterprise applications, internal technology systems and our website for our development, marketing, operational support, hosted services and sales activities. In the event of a major earthquake, hurricane or catastrophic event such as fire, power loss, telecommunications failure, cyber-attack, war or terrorist attack, we may be unable to continue our operations and may endure system interruptions, reputational harm, delays in our product development, lengthy interruptions in our services, breaches of data security and loss of critical data, all of which could have an adverse effect on our future operating results.

Changes in laws and regulations related to the Internet or changes in the Internet infrastructure itself may diminish the demand for our platform and could have a negative impact on our business.

The future success of our business depends upon the continued use of the Internet as a primary medium for commerce, communication and business applications. Federal, state or foreign government bodies or agencies have in the past adopted, and may in the future adopt, laws or regulations affecting the use of the Internet as a commercial medium. Changes in these laws or regulations could require us to modify our modules in order to comply with these changes. In addition, government agencies or private organizations may begin to impose taxes, fees or other charges for accessing the Internet or commerce conducted via the Internet. These laws or charges could limit the growth of Internet-related commerce or communications generally and result in reductions in the demand for Internet-based software.

In addition, the use of the Internet as a business tool could be adversely affected due to delays in the development or adoption of new standards and protocols to handle increased demands of Internet activity, security, reliability, cost, ease of use, accessibility and quality of service. The performance of the Internet and its acceptance as a business tool has been adversely affected by “viruses,” “worms” and other malicious programs, and the Internet has experienced a variety of outages and other delays as a result of damage to portions of its infrastructure. If the use of the Internet is adversely affected by these issues, demand for our platform could suffer.

The forecasts of market growth included in this prospectus may prove to be inaccurate, and, even if the markets in which we compete achieve the forecasted growth, we cannot assure you our business will grow at similar rates, if at all.

Growth forecasts are subject to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate. The forecasts in this prospectus relating to the expected growth in the enterprise software applications, enterprise spend management software and SaaS markets may prove to be inaccurate. Even if these markets experience the forecasted growth described in this prospectus, we may not grow our business at similar rates, or at all. Our growth is subject to many factors, including our success in implementing our business strategy, which is subject to many risks and uncertainties. Accordingly, the forecasts of market growth included in this prospectus should not be taken as indicative of our future growth.

 

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In connection with the audit of our consolidated financial statements for fiscal 2014, a material weakness was identified in our systems, processes and internal control over financial reporting. While we remediated this material weakness in fiscal 2015, we cannot provide assurance that additional material weaknesses will not occur in the future. If we are unable to implement and maintain effective internal controls over financial reporting in the future, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock may be negatively affected.

As a public company, we will be required to maintain internal controls over financial reporting and to report any material weaknesses in such internal controls. Section 404 of the Sarbanes-Oxley Act of 2002 (the Sarbanes-Oxley Act) requires that we evaluate and determine the effectiveness of our internal controls over financial reporting and, beginning with our second annual report, provide a management report on the internal controls over financial reporting, which must be attested to by our independent registered public accounting firm to the extent we are no longer an “emerging growth company,” as defined by The Jumpstart Our Businesses Act of 2012 (the JOBS Act). If we have a material weakness in our internal controls over financial reporting, we may not detect errors on a timely basis and our financial statements may be materially misstated. We are in the process of designing and implementing the internal controls over financial reporting required to comply with this obligation, which process will be time consuming, costly and complicated.

In connection with the audit of our consolidated financial statements for the year ended January 31, 2014, a material weakness was identified in our internal control over financial reporting. A “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. The material weakness that was identified related to our lack of resources within our finance function that resulted in a lack of timely reconciliations and a number of post-closing audit adjustments. Following this identification, we hired additional finance resources to improve the timeliness of our account reconciliations and minimize the number of post-closing adjustments, which resulted in the remediation of the material weakness in connection with the audit of our consolidated financial statements for the year ended January 31, 2015. While we remediated this material weakness in fiscal 2015, we can provide no assurance that we will not have material weaknesses in the future.

If we identify material weaknesses in our internal controls over financial reporting, if we are unable to comply with the requirements of Section 404 in a timely manner, if we are unable to assert that our internal controls over financial reporting are effective or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal controls over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock could be negatively affected, and we could become subject to investigations by the SEC, stock exchange or other regulatory authorities, which could require additional financial and management resources.

We will incur significantly increased costs and devote substantial management time as a result of operating as a public company.

As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. For example, we will be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, and will be required to comply with the applicable requirements of the Sarbanes-Oxley Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act, as well as rules and regulations subsequently implemented by the SEC and the Nasdaq Global Market, including the establishment and maintenance of effective disclosure and financial controls and changes in corporate governance practices. We expect that compliance with these requirements will increase our legal and financial compliance costs and will make some activities more time consuming and costly. In addition, we expect that our management and other personnel will need to divert attention from operational and other

 

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business matters to devote substantial time to these public company requirements. In particular, we expect to incur significant expenses and devote substantial management effort toward ensuring compliance with the requirements of Section 404 of the Sarbanes-Oxley Act, which will increase when we are no longer an emerging growth company, as defined by the JOBS Act. We will need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge and maintain an internal audit function. We cannot predict or estimate the amount of additional costs we may incur as a result of becoming a public company or the timing of such costs.

We are an emerging growth company and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors.

We are an emerging growth company. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not “emerging growth companies.”

For as long as we continue to be an emerging growth company, we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies including, but not limited to, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We cannot predict if investors will find our common stock less attractive because we will rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

We will remain an emerging growth company until the earliest of (i) the end of the fiscal year in which the market value of our common stock that is held by non-affiliates exceeds $700 million as of July 31, (ii) the end of the fiscal year in which we have total annual gross revenues of $1 billion or more during such fiscal year, (iii) the date on which we issue more than $1 billion in non-convertible debt in a three-year period or (iv) the end of the fiscal year that is five years from the date of this prospectus.

We may not be able to utilize a significant portion of our net operating loss or research tax credit carryforwards, which could adversely affect our potential profitability.

We have federal and state net operating loss carryforwards due to prior period losses, which if not utilized will begin to expire in 2026 and 2017 for federal and state purposes, respectively. These net operating loss carryforwards could expire unused and be unavailable to offset future income tax liabilities, which could adversely affect our potential profitability.

In addition, under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended (the Code), our ability to utilize net operating loss carryforwards or other tax attributes, such as research tax credits, in any taxable year may be limited if we experience an “ownership change.” Such an “ownership change” generally occurs if one or more stockholders or groups of stockholders who own at least 5% of our stock increase their ownership by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period. Similar rules may apply under state tax laws. While this offering may result in an ownership change, we do not believe it will trigger any material limitation on the use of our tax attributes for purposes of Section 382 of the Code. However, future issuances of our stock could cause an “ownership change.” It is possible that an ownership change, or any future ownership change, could have a material effect on the use of our net operating loss carryforwards or other tax attributes, which could adversely affect our potential profitability.

 

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Adverse tax laws or regulations could be enacted or existing laws could be applied to us or our customers, which could increase the costs of our services and adversely affect our business.

The application of federal, state, local and international tax laws to services provided electronically is evolving. New income, sales, use or other tax laws, statutes, rules, regulations or ordinances could be enacted at any time (possibly with retroactive effect) and could be applied solely or disproportionately to services provided over the Internet. These enactments could adversely affect our sales activity due to the inherent cost increase the taxes would represent and ultimately result in a negative impact on our operating results and cash flows.

In addition, existing tax laws, statutes, rules, regulations or ordinances could be interpreted, changed, modified or applied adversely to us (possibly with retroactive effect), which could require us or our customers to pay additional tax amounts, as well as require us or our customers to pay fines or penalties and interest for past amounts. If we are unsuccessful in collecting such taxes from our customers, we could be held liable for such costs, thereby adversely affecting our operating results and cash flows.

Our reported financial results may be adversely affected by changes in accounting principles generally accepted in the United States.

Generally accepted accounting principles in the United States are subject to interpretation by the Financial Accounting Standards Board (FASB), the SEC and various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported financial results for periods prior and subsequent to such change. For example, recent new standards issued by the FASB that could materially impact our financial statements include revenue from contracts with customers, certain improvements to employee share-based payment accounting and accounting for leases. We may adopt one or more of these standards retrospectively to prior periods and the adoption may result in an adverse change to previously reported results. Additionally, the adoption of these standards may potentially require enhancements or changes in our systems and will require significant time and cost on behalf of our financial management. The prescribed periods of adoption of these standards and other pending changes in accounting principles generally accepted in the United States, are further discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Recent Accounting Pronouncements.”

Risks Related to Our Initial Public Offering and Ownership of Our Common Stock

There has been no prior public market for our common stock, the stock price of our common stock may be volatile or may decline regardless of our operating performance and you may not be able to resell your shares at or above the initial public offering price.

There has been no public market for our common stock prior to our initial public offering. The initial public offering price for our common stock was determined through negotiations between the underwriters and us and may vary from the market price of our common stock following our initial public offering. If you purchase shares of our common stock in our initial public offering, you may not be able to resell those shares at or above the initial public offering price. An active or liquid market in our common stock may not develop upon closing of our initial public offering or, if it does develop, it may not be sustainable. The market price of our common stock may fluctuate significantly in response to numerous factors, many of which are beyond our control, including:

 

    overall performance of the equity markets;

 

    our operating performance and the performance of other similar companies;

 

    changes in our projected operating results that we provide to the public, our failure to meet these projections or changes in recommendations by securities analysts that elect to follow our common stock;

 

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    announcements of technological innovations, new software or enhancements to services, acquisitions, strategic alliances or significant agreements by us or by our competitors;

 

    disruptions in our services due to computer hardware, software or network problems;

 

    announcements of customer additions and customer cancellations or delays in customer purchases;

 

    recruitment or departure of key personnel;

 

    the economy as a whole, market conditions in our industry and the industries of our customers;

 

    trading activity by a limited number of stockholders who together beneficially own a majority of our outstanding common stock;

 

    the expiration of market standoff or contractual lock-up agreements;

 

    the size of our market float; and

 

    any other factors discussed in this prospectus.

In addition, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many technology companies. Stock prices of many technology companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. In the past, stockholders have filed securities class action litigation following periods of market volatility. If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our business and adversely affect our business.

Substantial blocks of our total outstanding shares may be sold into the market when “lock-up” or “market standoff” periods end. If there are substantial sales of shares of our common stock, the price of our common stock could decline.

The price of our common stock could decline if there are substantial sales of our common stock, particularly sales by our directors, executive officers, and significant stockholders, or if there is a large number of shares of our common stock available for sale. After this offering, we will have outstanding              shares of our common stock, based on the number of shares outstanding as of             . All of the shares of common stock sold in this offering will be available for sale in the public market. Substantially all of our outstanding shares of common stock are currently restricted from resale as a result of market standoff and “lock-up” agreements, as more fully described in “Shares Eligible for Future Sale.” These shares will become available to be sold 181 days after the date of this prospectus. Shares held by directors, executive officers and other affiliates will be subject to volume limitations under Rule 144 under the Securities Act of 1933, as amended, or the Securities Act, and various vesting agreements.

After our initial public offering, certain of our stockholders will have rights, subject to some conditions, to require us to file registration statements covering their shares to include their shares in registration statements that we may file for ourselves or our stockholders, subject to market standoff and lockup agreements. We also intend to register shares of common stock that we have issued and may issue under our employee equity incentive plans. Once we register these shares, they will be able to be sold freely in the public market upon issuance, subject to existing market standoff or lock-up agreements.

Morgan Stanley & Co. LLC may, in its discretion, permit our stockholders to sell shares prior to the expiration of the restrictive provisions contained in those lock-up agreements.

The market price of the shares of our common stock could decline as a result of the sale of a substantial number of our shares of common stock in the public market or the perception in the market that the holders of a large number of shares intend to sell their shares.

 

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We have broad discretion in the use of the net proceeds from our initial public offering and may not use them effectively.

We cannot specify with any certainty the particular uses of the net proceeds that we will receive from our initial public offering, but we currently expect such uses will include continued investment in developing technology to support our growth, increased investment in our sales team and marketing activities, as well as overall growth in our international operations. We will have broad discretion in the application of the net proceeds, including working capital, possible acquisitions and other general corporate purposes, and we may spend or invest these proceeds in a way with which our stockholders disagree. The failure by our management to apply these funds effectively could adversely affect our business and financial condition. Pending their use, we may invest the net proceeds from our initial public offering in a manner that does not produce income or that loses value. These investments may not yield a favorable return to our investors.

If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.

The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. If few securities analysts commence coverage of us, or if industry analysts cease coverage of us, the trading price for our common stock would be negatively affected. If one or more of the analysts who cover us downgrade our common stock or publish inaccurate or unfavorable research about our business, our common stock price would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, demand for our common stock could decrease, which might cause our common stock price and trading volume to decline.

If you purchase shares of our common stock in our initial public offering, you will experience substantial and immediate dilution.

If you purchase shares of our common stock in our initial public offering, you will experience substantial and immediate dilution in the pro forma net tangible book value per share of $         per share as of             , based on the initial public offering price of our common stock of $         per share, the midpoint of the price range on the cover page of this prospectus, because the price that you pay will be substantially greater than the pro forma net tangible book value per share of the common stock that you acquire. This dilution is due in large part to the fact that our earlier investors paid substantially less than the initial public offering price when they purchased their shares of our capital stock. You will experience additional dilution upon exercise of options to purchase common stock under our equity incentive plans, upon vesting of options to purchase common stock under our equity incentive plans, if we issue restricted stock to our employees under our equity incentive plans or if we otherwise issue additional shares of our common stock.

We do not intend to pay dividends for the foreseeable future.

We have never declared nor paid cash dividends on our capital stock. We currently intend to retain any future earnings to finance the operation and expansion of our business, and we do not expect to declare or pay any dividends in the foreseeable future. Consequently, stockholders must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment.

The concentration of our stock ownership will likely limit your ability to influence corporate matters, including the ability to influence the outcome of director elections and other matters requiring stockholder approval.

Based upon shares outstanding as of             , 2016, prior to this offering, our executive officers, directors and the holders of more than 5% of our outstanding common stock, in the aggregate, beneficially

 

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owned approximately         % of our common stock, and upon the closing of this offering, that same group, in the aggregate, will beneficially own approximately         % of our common stock, assuming no exercise by the underwriters of their over-allotment option, no exercise of outstanding options or warrants, and after giving effect to the issuance of shares in this offering. As a result, these stockholders, acting together, will have significant influence over all matters that require approval by our stockholders, including the election of directors and approval of significant corporate transactions. Corporate actions might be taken even if other stockholders, including those who purchase shares in this offering, oppose them. This concentration of ownership might also have the effect of delaying or preventing a change of control of our company that other stockholders may view as beneficial.

Delaware law and provisions in our amended and restated certificate of incorporation and amended and restated bylaws that will be in effect at the closing of our initial public offering could make a merger, tender offer or proxy contest difficult, thereby depressing the trading price of our Common stock.

Following the closing of our initial public offering, our status as a Delaware corporation and the anti-takeover provisions of the Delaware General Corporation Law may discourage, delay or prevent a change in control by prohibiting us from engaging in a business combination with an interested stockholder for a period of three years after the person becomes an interested stockholder, even if a change of control would be beneficial to our existing stockholders. In addition, our amended and restated certificate of incorporation and amended and restated bylaws that will be in effect at the closing of our initial public offering will contain provisions that may make the acquisition of our company more difficult, including the following:

 

    a classified board of directors with three-year staggered terms, which could delay the ability of stockholders to change the membership of a majority of our board of directors;

 

    the ability of our board of directors to issue shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquiror;

 

    the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of our board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors;

 

    a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders;

 

    the requirement that a special meeting of stockholders may be called only by a majority vote of our entire board of directors, the chairman of our board of directors or our chief executive officer, which could delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors;

 

    the requirement for the affirmative vote of holders of at least         % of the voting power of all of the then-outstanding shares of the voting stock, voting together as a single class, to amend the provisions of our amended and restated certificate of incorporation relating to the management of our business or our amended and restated bylaws, which may inhibit the ability of an acquiror to effect such amendments to facilitate an unsolicited takeover attempt; and

 

    advance notice procedures with which stockholders must comply to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquiror from conducting a solicitation of proxies to elect the acquiror’s own slate of directors or otherwise attempting to obtain control of us.

In addition, as a Delaware corporation, we are subject to Section 203 of the Delaware General Corporation Law. These provisions may prohibit large stockholders, in particular those owning 15% or more of our outstanding voting stock, from merging or combining with us for a certain period of time.

 

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A Delaware corporation may opt out of this provision by express provision in its original certificate of incorporation or by amendment to its certificate of incorporation or bylaws approved by its stockholders. However, we have not opted out of this provision.

These and other provisions in our amended and restated certificate of incorporation, amended and restated bylaws and Delaware law could make it more difficult for stockholders or potential acquirers to obtain control of our board of directors or initiate actions that are opposed by our then-current board of directors, including delay or impede a merger, tender offer, or proxy contest involving our company. The existence of these provisions could negatively affect the price of our common stock and limit opportunities for you to realize value in a corporate transaction.

For information regarding these and other provisions, see “Description of Capital Stock.”

Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

Our amended and restated certificate of incorporation will provide that the Court of Chancery of the State of Delaware is the exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting a breach of fiduciary duty, any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our certificate of incorporation or our bylaws or any action asserting a claim against us that is governed by the internal affairs doctrine. This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees and may discourage these types of lawsuits. Alternatively, if a court were to find the choice of forum provision contained in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions.

 

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INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

This prospectus includes forward-looking statements. All statements other than statements of historical facts contained in this prospectus, including statements regarding our future results of operations and financial position, customer lifetime value, strategy and plans, market size and opportunity, competitive position, industry environment, potential growth opportunities and our expectations for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “design,” “intend,” “expect,” “could,” “plan,” “potential,” “predict,” “seek,” “should,” “would” or the negative version of these words and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, strategy, short- and long-term business operations and objectives, and financial needs. The forward-looking statements are contained principally in “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Result of Operations” and “Business.”

These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in “Risk Factors.” Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this prospectus may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. Moreover, except as required by law, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this prospectus to conform these statements to actual results or to changes in our expectations.

You should read this prospectus and the documents that we reference in this prospectus and have filed with the Securities and Exchange Commission as exhibits to the registration statement of which this prospectus is a part with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we expect.

 

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MARKET, INDUSTRY, AND OTHER DATA

We obtained the industry, market and competitive position data used throughout this prospectus from our own internal estimates and research, as well as from industry and general publications, in addition to research, surveys and studies conducted by third parties. Internal estimates are derived from publicly-available information released by industry analysts and third-party sources, our internal research and our industry experience, and are based on assumptions made by us based on such data and our knowledge of our industry and market, which we believe to be reasonable. In addition, while we believe the industry, market and competitive position data included in this prospectus is reliable and is based on reasonable assumptions, such data involves risks and uncertainties and are subject to change based on various factors, including those discussed in “Risk Factors.” These and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties and by us.

Information based on estimates, forecasts, projections, market research, or similar methodologies is inherently subject to uncertainties, and actual events or circumstances may differ materially from events and circumstances that are assumed in this information. In some cases, we do not expressly refer to the sources from which data is derived.

Certain information in this prospectus is contained in independent industry publications. The source of these independent industry publications is provided below:

 

  1) International Data Corporation, Worldwide Semiannual Software Tracker, November 2015.

 

  2) Gartner, Forecast: Public Cloud Services, Worldwide 2013-2019 4Q15 Update, December 2015.

 

  3) Magic Quadrant for Procure to Pay Suites, Gartner, 13 June 2016.

 

  4) Technavio market research sourced from ISI Securities EMIS, Global SaaS-based Expense Management Market, December 2013.

 

  5) Accenture, Procurement BPO: You’re Missing the Point, August 2014.

The Gartner reports described herein, (the “Gartner Reports”) represent research opinion or viewpoints published, as part of a syndicated subscription service, by Gartner, Inc. (“Gartner”), and are not representations of fact. Each Gartner Report speaks as of its original publication date (and not as of the date of this prospectus) and the opinions expressed in the Gartner Reports are subject to change without notice.

 

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USE OF PROCEEDS

We estimate that the net proceeds from this offering will be approximately $             million, or $             million if the underwriters exercise their option to purchase additional shares in full, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, assuming an initial offering price of $         per share, which is the midpoint of the price range set forth on the cover page of this prospectus.

The principal purposes of this offering are to increase our financial flexibility, increase our visibility in the marketplace and create a public market for our common stock. We expect to use the net proceeds from this offering for working capital and other general corporate purposes, which we currently expect will include continued investment in developing technology to support our growth, increased investment in our sales team and marketing activities, as well as overall growth in our international operations. However, we do not currently have specific planned uses for the proceeds. We may also use a portion of our net proceeds to acquire or invest in complementary products, technologies, or businesses; however, we currently have no agreements or commitments to complete any such transactions.

Since we expect to use the net proceeds from this offering for working capital and other general corporate purposes, our management will have broad discretion over the use of the net proceeds from this offering. As of the date of this prospectus, we intend to invest the net proceeds in short-term interest-bearing investment-grade securities, certificates of deposit or government securities.

DIVIDEND POLICY

We have never declared or paid any cash dividends on our capital stock, and we do not currently intend to pay any cash dividends on our capital stock in the foreseeable future. We currently intend to retain all available funds and any future earnings to support operations and to finance the growth and development of our business. Any future determination to pay dividends will be made at the discretion of our board of directors subject to applicable laws and will depend upon, among other factors, our results of operations, financial condition, contractual restrictions and capital requirements. Our future ability to pay cash dividends on our capital stock may also be limited by the terms of any future debt or preferred securities or future credit facility.

 

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CAPITALIZATION

The following table sets forth our cash and cash equivalents and capitalization as of July 31, 2016:

 

    on an actual basis;

 

    on a pro forma basis to reflect: (i) the automatic conversion of all outstanding shares of our preferred stock into an aggregate of 138,444,056 shares of common stock; and (ii) the filing and effectiveness of our amended and restated certificate of incorporation immediately prior to the closing of this offering; and

 

    on a pro forma as adjusted basis to give effect to (i) the pro forma adjustments set forth above and (ii) the sale and issuance of              shares of our common stock by us in this offering, based upon the receipt by us of the estimated net proceeds from this offering at the assumed initial public offering price of $         per share, the midpoint of the price range set forth on the cover page of this prospectus, and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us and the application of the net proceeds from this offering as described in “Use of Proceeds.”

You should read this information together with our consolidated financial statements and related notes appearing elsewhere in this prospectus and the information set forth in “Selected Consolidated Financial and Other Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

     As of July 31, 2016  
     Actual     Pro Forma     Pro Forma
As Adjusted(1)
 
     (in thousands, except for share and
per share amounts)
 

Cash and cash equivalents

   $ 79,943      $ 79,943      $     
  

 

 

   

 

 

   

 

 

 

Convertible preferred stock, $0.0001 par value per share: 133,875,417 shares authorized, 133,727,532 shares issued and outstanding, actual; no shares authorized, issued, and outstanding, pro forma and pro forma as adjusted

   $ 164,950      $      $   

Stockholders’ equity (deficit):

      

Preferred stock, $0.0001 par value, no shares authorized, issued or outstanding, actual;              shares authorized, pro forma and pro forma as adjusted, no shares issued and outstanding, pro forma and pro forma as adjusted

                     

Common stock, $0.0001 par value, 225,000,000 shares authorized, 24,400,233 shares issued and outstanding, actual;              shares authorized, 162,844,289 shares issued and outstanding, pro forma;              shares authorized, shares issued and outstanding, pro forma as adjusted

     2        16     

Additional paid-in capital

     20,758        185,694     

Accumulated deficit

     (147,174     (147,174  
  

 

 

   

 

 

   

 

 

 

Total stockholders’ equity (deficit)

     (126,414     38,536     
  

 

 

   

 

 

   

 

 

 

Total capitalization

   $ 38,536      $ 38,536      $                
  

 

 

   

 

 

   

 

 

 

 

(1)

Each $1.00 increase (decrease) in the assumed initial offering price of $            per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) each of additional paid-in capital, total stockholders’ equity and total capitalization by approximately $            , assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting underwriting discounts and commissions and estimated

 

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  offering expenses payable by us. We may also increase or decrease the number of shares we are offering. Each increase (decrease) of 1,000,000 shares in the number of shares offered by us would increase (decrease) each of additional paid-in-capital, total stockholders’ equity and total capitalization by approximately $            , assuming that the initial public offering price to the public remains the same, and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. The pro forma as adjusted information discussed above is illustrative only and will adjust based on the actual initial price to the public and other terms of this offering determined at pricing.

The number of shares of common stock to be outstanding after this offering is based on 162,844,289 shares of common stock outstanding as of July 31, 2016, and excludes the following:

 

    49,583,404 shares of common stock issuable upon the exercise of options outstanding as of July 31, 2016, with a weighted average exercise price of $1.10 per share;

 

    6,719,546 shares of common stock issuable upon the exercise of options granted after July 31, 2016, with a weighted average exercise price of $3.17 per share;

 

    147,885 shares of convertible preferred stock issuable upon the exercise of a warrant outstanding as of July 31, 2016 with an exercise price of $0.34 per share, that will convert into a warrant to purchase 147,885 shares of common stock upon completion of this offering;

 

    225,000 shares of common stock subject to restricted stock units outstanding as of July 31, 2016; and

 

                shares of common stock reserved for future issuance under our equity compensation plans, consisting of 4,850,483 shares of common stock that were reserved for issuance under our 2006 Stock Plan as of July 31, 2016, and             shares of common stock reserved for issuance under the 2016 Equity Incentive Plan in effect following the completion of this offering. On the date immediately prior to the date of this prospectus, we will cease granting awards under the 2006 Stock Plan.

 

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DILUTION

If you invest in our common stock in this offering, your ownership interest will be immediately diluted to the extent of the difference between the assumed initial public offering price per share and the pro forma as adjusted net tangible book value per share of our common stock after this offering.

Historical net tangible book value (deficit) per share represents our total tangible assets less our liabilities and preferred stock that is not included in equity divided by the total number of shares outstanding. As of July 31, 2016, our historical net tangible book value (deficit) was approximately $(134.0) million, or $(5.49) per share. Our pro forma net tangible book value as of July 31, 2016, was approximately $31.0 million, or $0.19 per share, after giving effect to the automatic conversion of all outstanding shares of our preferred stock into an aggregate of 138,444,056 shares of common stock immediately prior to the closing of this offering.

After giving further effect to receipt of the net proceeds of our sale of             shares of common stock at an assumed initial offering price of $         per share, the midpoint of the price range set forth on the cover page of this prospectus and after deducting underwriting discounts and commissions and estimated offering expenses, our pro forma as adjusted net tangible book value as of July 31, 2016 would have been approximately $         million, or $         per share. This represents an immediate increase in pro forma as adjusted net tangible book value of $         per share to our existing stockholders and an immediate dilution of $         per share to our existing stockholders and an immediate dilution of $         per share to investors purchasing common stock in this offering.

The following table illustrates this dilution to new investors on a per share basis:

 

Assumed initial public offering price per share

      $                

Pro forma net tangible book value per share as of July 31, 2016

   $ 0.19      

Increase in pro forma net tangible book value per share attributable to new investors in this offering

     
  

 

 

    

Pro forma as adjusted net tangible book value per share immediately after this offering

     
     

 

 

 

Dilution in pro forma net tangible book value per share to new investors in this offering

      $     
     

 

 

 

If the underwriters’ option to purchase additional shares in this offering is exercised in full, the pro forma as adjusted net tangible book value would be $             per share, the increase in the pro forma net tangible book value per share for existing stockholders would be $             per share and the dilution to new investors participating in this offering would be $             per share.

Each $1.00 increase (decrease) in the assumed initial public offering price of $             per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted net tangible book value, by $             per share and the dilution per share to new investors by $             per share, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, after deducting underwriting discounts and commissions and estimated offering expenses.

We may also increase or decrease the number of shares we are offering. An increase (decrease) of 1,000,000 shares in the number of shares we are offering would increase (decrease) our pro forma as adjusted net tangible book value by approximately $             million, or $             per share, and the pro forma dilution per share to investors in this offering by $             per share, assuming that the assumed initial public offering price remains the same, and after deducting underwriting discounts and commissions and estimated offering expenses. The pro forma information discussed above is illustrative only and will

 

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change based on the actual initial public offering price, number of shares and other terms of this offering determined at pricing.

The table below summarizes, as of July 31, 2016, on the pro forma basis described above, the number of shares of our common stock, the total consideration, and the average price per share (i) paid to us by our existing stockholders and (ii) to be paid by new investors participating in this offering at an assumed initial public offering price of $         per share, the midpoint of the price range set forth on the cover page of this prospectus, before deducting underwriting discounts and commissions and estimated offering expenses payable by us.

 

     Shares Purchased     Total Consideration     Average Price
Per Share
 

Series

   Number      Percent     Amount      Percent    
     (in thousands, except share, per share and percentages)  

Existing stockholders

     162,844,289                    $                             $           

New investors

            
  

 

 

    

 

 

   

 

 

    

 

 

   

Total

        100.0   $           100.0  
  

 

 

    

 

 

   

 

 

    

 

 

   

In addition, if the underwriters’ option to purchase additional shares is exercised in full, the number of shares held by existing stockholders will be reduced to             % of the total number of shares of common stock to be outstanding upon completion of this offering, and the number of shares of common stock held by new investors participating in this offering will be further increased to             % of the total number of shares of common stock to be outstanding upon completion of the offering.

Each $1.00 increase (decrease) in the assumed initial public offering price of $             per share would increase (decrease) total consideration paid by new investors by $             and increase (decrease) the percent of total consideration paid by new investors by             %, assuming the number of shares we are offering, as set forth on the cover page of this prospectus, remains the same, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of shares we are offering. An increase (decrease) of 1,000,000 in the number of shares offered by us would increase (decrease) total consideration paid by new investors by $            , assuming that the assumed initial price to the public remains the same, and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.

See “Prospectus Summary—The Offering” for a description of those shares that are or are not reflected in the foregoing tables or discussion.

To the extent that any outstanding options are or the warrant is exercised, the RSUs are settled or new awards are granted under our equity compensation plans, new investors will experience further dilution.

 

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SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

The following selected consolidated financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes included within this prospectus. The consolidated statement of operations data for the fiscal years ended January 31, 2015 and 2016, and the consolidated balance sheet data as of January 31, 2015 and 2016, are derived from our audited consolidated financial statements and related notes included elsewhere in this prospectus. The consolidated statement of operations data for the six months ended July 31, 2015 and 2016, and the consolidated balance sheet data as of July 31, 2016, are derived from our unaudited consolidated financial statements and related notes included elsewhere in this prospectus. We have prepared the unaudited consolidated financial statements on the same basis as the audited consolidated financial statements and have included all adjustments, consisting only of normal recurring adjustments that, in our opinion, are necessary to state fairly the financial information set forth in those statements. Our historical results are not necessarily indicative of our future results, and the results of operations for the six months ended July 31, 2016, are not necessarily indicative of the results to be expected for the full fiscal year or any other period. The selected consolidated financial data in this section are not intended to replace our consolidated financial statements and the related notes, and are qualified in their entirety by the consolidated financial statements and related notes included elsewhere in this prospectus.

 

     Year ended
January 31,
    Six months ended
July 31,
 
     2015     2016     2015     2016  
     (in thousands, except per share data)  

Consolidated Statements of Operations Data:

        

Revenues:

        

Subscription services

   $ 43,051      $ 75,667      $ 31,622      $ 53,155   

Professional services and other

     7,794        8,011        2,891        7,160   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     50,845        83,678        34,513        60,315   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cost of revenues:

        

Subscription services(1)

     8,813        16,804        7,545        12,079   

Professional services and other(1)

     9,911        15,107        6,233        11,420   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of revenues

     18,724        31,911        13,778        23,499   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     32,121        51,767        20,735        36,816   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

        

Research and development(1)

     11,887        22,767        10,223        15,046   

Sales and marketing(1)

     33,724        54,713        24,211        35,088   

General and administrative(1)

     13,146        19,540        11,199        10,173   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     58,757        97,020        45,633        60,307   
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (26,636     (45,253     (24,898     (23,491

Other expense, net

     (563     (568     (131     (523
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss before provision for income taxes

     (27,199     (45,821     (25,029     (24,014

Provision for income taxes

     101        335        118        291   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss and comprehensive loss

   $ (27,300   $ (46,156   $ (25,147   $ (24,305
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per share attributable to common stockholders, basic and diluted(2)

   $ (2.28   $ (2.45   $ (1.45   $ (1.06
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average number of shares used in computing net loss per share attributable to common stockholders, basic and diluted(2)

     11,965        18,818        17,376        22,882   
  

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma net loss per share attributable to common stockholders, basic and diluted(2)

     $ (0.31     $ (0.15
    

 

 

     

 

 

 

Weighted-average number of shares used in computing pro forma net loss per share attributable to common stockholders, basic and diluted(2)

       151,182          161,327   
    

 

 

     

 

 

 

 

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(1) Includes stock-based compensation expense as follows:

 

     Year ended
January 31,
     Six months ended
July 31,
 
     2015      2016      2015      2016  
     (in thousands)  

Cost of revenues:

           

Subscription services

   $ 109       $ 235       $ 99       $ 265   

Professional services and other

     110         1,014         885         244   

Research and development

     337         1,236         857         625   

Sales and marketing

     433         1,347         386         911   

General and administrative

     818         6,736         5,806         1,220   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total stock-based compensation

   $ 1,807       $ 10,568       $ 8,033       $ 3,265   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(2) See Note 14 to our consolidated financial statements for an explanation of the method used to calculate basic and diluted and pro forma net loss per common share attributable to common stockholders.

 

     As of January 31,     As of July 31,  
     2015     2016     2016  
     (in thousands)  

Consolidated Balance Sheet Data:

      

Cash and cash equivalents

   $ 41,974      $ 92,348      $ 79,943   

Working capital

     13,278        48,601        25,105   

Total assets

     69,606        139,926        129,208   

Deferred revenue, current and non-current

     40,739        64,926        72,136   

Convertible preferred stock

     88,444        164,950        164,950   

Total stockholders’ deficit

     (72,569     (106,239     (126,414

Non-GAAP Financial Measures

In addition to our results determined in accordance with U.S. generally accepted accounting principles, or GAAP, we believe the following non-GAAP measure is useful in evaluating our operating performance. We regularly review the measure set forth below as we evaluate our business.

 

     Year ended
January 31,
    Six months ended
July 31,
 
     2015     2016     2015     2016  
     (in thousands)  

Other Financial Data:

        

Non-GAAP operating loss

   $ (17,818   $ (32,355   $ (15,296   $ (19,644

We define non-GAAP operating loss as operating loss before stock-based compensation, litigation-related costs and amortization of acquired intangible assets.

We believe non-GAAP operating loss provides investors and other users of our financial information consistency and comparability with our past financial performance and facilitates period to period comparisons of operations. We believe non-GAAP operating loss is useful in evaluating our operating performance compared to that of other companies in our industry, as this metric generally eliminates the effects of certain items that may vary for different companies for reasons unrelated to overall operating performance.

We use non-GAAP operating loss in conjunction with traditional GAAP measures as part of our overall assessment of our performance, including the preparation of our annual operating budget and quarterly forecasts, to evaluate the effectiveness of our business strategies and to communicate with our

 

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board of directors concerning our financial performance. Our definition may differ from the definitions used by other companies and therefore comparability may be limited. In addition, other companies may not publish this or similar metrics. Thus, our non-GAAP operating loss should be considered in addition to, not as substitutes for, or in isolation from, measures prepared in accordance with GAAP.

We compensate for these limitations by providing investors and other users of our financial information a reconciliation of non-GAAP operating loss to loss from operations, the related GAAP financial measure. We encourage investors and others to review our financial information in its entirety, not to rely on any single financial measure and to view non-GAAP operating loss in conjunction with loss from operations. The following table provides a reconciliation of loss from operations to non-GAAP operating loss:

 

     Year ended
January 31,
    Six months ended
July 31,
 
     2015     2016     2015     2016  
     (in thousands)  

Loss from operations

   $ (26,636   $ (45,253   $ (24,898   $ (23,491

Stock-based compensation

     1,807        10,568        8,033        3,265   

Litigation-related costs

     6,958        1,943        1,490        150   

Amortization of acquired intangible assets

     53        387        79        432   
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP operating loss

   $ (17,818   $ (32,355   $ (15,296   $ (19,644
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the “Selected Consolidated Financial and Other Data” and our financial statements and related notes included elsewhere in this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in “Risk Factors” and “Information Regarding Forward-Looking Statements” included elsewhere in this prospectus.

Overview

We are the leading provider of a unified, cloud-based spend management platform that connects more than 460 organizations with more than 2 million suppliers globally.

Our platform provides greater visibility into and control over how companies spend money. Using our platform, businesses are able to achieve real, measurable value and savings that drive their profitability; we call this “Value as a Service.” We refer to the process companies use to purchase goods and services as spend management and to the money that they manage with this process as spend under management. From our inception, our customers have used our platform to bring more than $250 billion of their spend under management, which we estimate has resulted in more than $8 billion of customer savings to date. We calculate this estimate by applying certain savings rates derived from industry benchmarks.

We offer a unified, cloud-based spend management platform that is tightly integrated and delivers a broad range of capabilities that would otherwise require the purchase and use of multiple disparate point applications. The core of our platform consists of procurement, invoicing and expense management modules that form our transactional engine and capture a company’s spend. In addition, our platform offers supporting modules, including sourcing, analytics, contract management, supplier management, inventory management and storefront, that help companies further manage their spend. Moreover, through our free Coupa Open Business Network, suppliers of all sizes can easily interact with buyers electronically, thus significantly reducing paper, improving operating efficiencies and reducing costs.

 

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Since our formation in 2006, we have invested in building an integrated platform to deliver cloud-based applications to global businesses. We believe we are enabling our industry and customers to experience a transformation from manual processes, antiquated networks and disparate point applications to our modern, unified, cloud-based solution. The amount of spend that we manage through our platform and the value and savings we enable our customers to achieve has rapidly grown over the past several years.

 

LOGO

The cumulative spend under management metrics presented above do not directly correlate to our revenue or results of operations because we do not charge our customers based on actual usage of our platform. However, we believe the cumulative spend under management metrics do illustrate the adoption, scale and value of our platform, which we believe enhances our ability to maintain existing customers and attract new customers.

We also estimate the amount of value and savings that our platform has generated for our customers since we launched our platform. We calculate this estimate by applying certain savings rates, including those related to processing efficiency and early payment discounts, to the amount of spend managed through our platform. These savings rates are derived from industry benchmarks.

We offer access to our platform under a Software-as-a-Service (SaaS) business model. At the time of initial deployment, our customers often make a set of common functions available to the majority of their employees, as well as incremental modules for regular employees and procurement specialists, which we refer to as power users. Therefore, we are typically able to capture most of the expected annual recurring revenue opportunity at the inception of our customer relationships, rather than targeting specific power users at the outset of the customer relationship with the intention of expanding and getting more annual recurring revenue at later stages of the customer relationship. Customers can rapidly implement our platform, with implementation periods typically ranging from a few weeks to several months. Customers also benefit from automatic software updates with virtually no downtime.

We market and sell our solutions to a broad range of enterprises worldwide. We primarily focus our selling efforts on larger enterprises. Our diverse customer base includes large, global companies and our direct sales force targets organizations with more than 1,000 employees. As of July 31, 2016, we had more than 460 customers. We have a diverse, multi-national customer base spanning various industries and no significant customer concentration. No customer accounted for more than 10% of our total revenues for the fiscal years ended January 31, 2015 or 2016 or for the six months ended July 31, 2016.

 

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We market our platform primarily through a direct sales force and also benefit from leads driven by our partner ecosystem. Our initial contract terms are typically three years, although some customers commit for shorter periods. Substantially all of our customers pay annually, one year in advance. We provide a scaled pricing model based on the number of users per module—as the number of users increases, the subscription price per user decreases. Our subscription fee includes access to our service, technical support and management of the hosting infrastructure. We generally recognize revenues from our subscription fees ratably over the contractual term of the arrangement. We do not charge suppliers who are on our platform to transact with our customers. We believe this approach helps attract more suppliers to our platform and increases the value of our platform to customers. The number of suppliers on our platform has grown to more than 2 million.

We have continued to make significant expenditures and investments for long-term growth, including investment in our platform and infrastructure to deliver new functionality and modules to meet the evolving needs of our customers and to take advantage of our market opportunity. We intend to continue to increase our investment in sales and marketing, as we further expand our sales teams, increase our marketing activities, and grow our international operations. Internationally, we currently offer our platform in Europe, Middle East and Africa (EMEA) and Asia-Pacific (APAC). The combined revenues from non-U.S. regions, as determined based on the billing address of our customers, constituted 25% and 28%, respectively, of our total revenues for the fiscal years ended January 31, 2015 and 2016, and 28% and 29%, respectively, for the six months ended July 31, 2015 and 2016. We believe there is further opportunity to increase our international revenues in absolute dollars and as a percentage of our total revenues. As a result, we are increasingly investing in our international operations and we intend to expand our footprint in international markets.

Operating in international markets requires significant resources and management attention and will subject us to regulatory, economic and political risks that are different from those in the United States. Because of our limited experience with international operations, our international expansion efforts may not be successful in creating additional demand for our platform outside of the United States or in effectively selling subscriptions to our platform in all of the international markets we enter.

As a result of the broad adoption of our platform by a growing set of customers, we have grown rapidly in recent periods, with revenues for the fiscal years ended January 31, 2015 and 2016, of $50.8 million and $83.7 million, respectively, representing year-over-year growth of 65%. For the six months ended July 31, 2015 and 2016, our revenues were $34.5 million and $60.3 million, respectively, representing an increase of 75%. Our net losses were $27.3 million and $46.2 million, respectively, for the fiscal years ended January 31, 2015 and 2016. For the six months ended July 31, 2015 and 2016, our net losses were $25.1 million and $24.3 million, respectively.

Our Business Model

Our business model focuses on maximizing the lifetime value of a customer relationship, and we continue to make significant investments in order to grow our customer base. Due to our subscription model, we recognize subscription revenues ratably over the term of the subscription period. As a result, the profitability of a customer to our business in any particular period depends in part upon how long a customer has been a subscriber on our platform. In general, the associated upfront costs with respect to new customers are higher in the first year than the aggregate revenues we recognize from those new customers in the first year. We believe that, over time, as our customer base grows and a relatively higher percentage of our subscription revenues are attributable to renewals versus new customers or upsells to existing customers, associated sales and marketing expenses and other allocated upfront costs as a percentage of revenues will decrease, subject to investments we plan to make in our business. Over the lifetime of the customer relationship, we also incur sales and marketing costs to manage the account, renew or upsell the customer to more modules and more users. However, these costs are significantly less

 

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than the costs initially incurred to acquire the customer. We calculate the lifetime value of our customers and associated customer acquisition costs for a particular year by comparing (i) gross profit from net new subscription revenues for the year multiplied by the inverse of the estimated subscription renewal rate to (ii) total sales and marketing expense incurred in the preceding year. On this basis, we estimate that for each of fiscal 2014, 2015 and 2016, the calculated lifetime value of our customers has exceeded six times the associated cost of acquiring them.

To further illustrate the economics of our customer relationships, we are providing a contribution margin analysis of the customers we acquired during the fiscal year ended January 31, 2013, which we will refer to as the 2013 Cohort. We selected the 2013 Cohort as a representative set of customers for this analysis to help investors understand the potential long-term value of our customer base, and we believe the 2013 Cohort is a fair representation of our overall customer base. We define contribution margin for a period as the subscription revenue from the customer cohort in such period less the estimated, allocated variable costs for the period associated with such revenues. The costs allocated to customers include personnel costs associated with the sales and marketing teams that acquire the customer, such as salaries, sales commissions and marketing program expenses. As the majority of our sales and marketing costs are related to the acquisition of new customers, these costs are mainly allocated to the newest cohort in a given period, with the exception of ongoing account management costs, which are estimated based on the number of account managers as a percentage of our total sales headcount. Costs allocated to customers also include the costs associated with use of our technology infrastructure and web hosting, as well as personnel costs associated with our operations and customer success teams that support the customer.

The support, technology infrastructure and web hosting expenses, in any particular period, are allocated based on the 2013 Cohort revenue as a percentage of the total subscription revenue in the period. We exclude all research and development and general and administrative expenses from this analysis because these expenses support the growth of our business generally.

 

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We define contribution margin percentage as contribution margin divided by subscription revenue associated with such cohort in a given period. We have measured the 2013 Cohort with respect to contribution margin percentage. In the fiscal year ended January 31, 2013, we recognized $4.0 million in subscription revenue from the 2013 Cohort and incurred associated costs that resulted in a negative contribution margin percentage of (249%). Since we acquired this cohort through the course of the year, less than a full year’s subscription revenue is reflected in the fiscal year ended January 31, 2013. In the fiscal years ended January 31, 2014, 2015 and 2016 we realized $9.9 million, $10.0 million and $10.1 million in subscription revenues from the 2013 Cohort with contribution margin percentages of 75%, 75% and 74%, respectively. These metrics are highlighted below:

2013 Customer Cohort Contribution Margins

$ millions

 

 

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The contribution margin of our customer cohorts will fluctuate from one period to another depending upon the number of customers remaining in each cohort, upsells of additional features and modules, and changes in customer subscription fees, as well as changes in our variable costs. We may not experience similar financial outcomes from future customers who subscribe to our platform.

The allocated expenses or relationship of subscription revenues to variable costs is not necessarily indicative of future performance and we cannot predict whether future contribution margin analyses will be similar to the above analysis. Other companies may calculate contribution margin differently than our chosen method and, therefore, may not be directly comparable. We have not yet achieved profitability, and even if our revenues exceed these variable costs over time, we may not be able to achieve or maintain profitability.

 

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Key Metrics

We review the following key metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions:

 

     As of
January 31,
     As of
July 31,
 
     2015      2016      2016  

Cumulative Spend Under Management ($ billions)

   $ 110.1       $ 189.5       $ 256.8   

Backlog ($ millions)

   $ 82.4       $ 131.8       $ 145.1   

Deferred Revenue ($ millions)

   $ 40.7       $ 64.9       $ 72.1   

Total Customers

     312         414         465   

Cumulative Spend Under Management

Cumulative spend under management represents the aggregate amount of money that has been transacted through our platform for all of our customers collectively since we launched our platform. We calculate this metric by aggregating the actual transaction data, such as invoices or purchase orders, from customers on our platform. While we do not believe this metric is directly correlated to our financial results, we believe the adoption of our platform, as evidenced by growth in cumulative spend under management, drives additional value to our customers, which will enhance our ability to acquire new customers, to increase renewals and to increase upsells due to an increase in the number of authorized users and modules per customer.

Backlog and Deferred Revenue

Backlog represents future non-cancellable amounts to be invoiced under our agreements. We generally sign multiple-year subscription contracts and invoice an initial annual amount at contract signing followed by subsequent annual invoices. At any point in the contract term, there can be amounts that we have not yet been contractually able to invoice. Until such time as these amounts are invoiced, they are not recorded in revenues, deferred revenue, accounts receivable or elsewhere in our consolidated financial statements, and are considered by us to be backlog. We expect backlog to fluctuate up or down from period to period for several reasons, including the timing and duration of customer contracts, varying billing cycles and the timing and duration of customer renewals. We reasonably expect approximately half of our backlog as of January 31, 2016, will be invoiced during the fiscal year ended January 31, 2017, primarily due to the fact that our contracts are typically three years in length.

In addition, our deferred revenue consists of amounts that have been invoiced but that have not yet been recognized as revenues as of the end of a reporting period. The majority of our deferred revenue balance consists of subscription revenues that are recognized ratably over the contractual period. Together, the sum of deferred revenue and backlog represents the total billed and unbilled contract value yet to be recognized in revenues, and provides visibility into future revenue streams. Greater than 70% of the revenues recognized during each of the fiscal years ended January 31, 2016 and 2015 were comprised of (1) the short-term deferred revenue balance at the beginning of the year, plus (2) the backlog at the beginning of the year that was recognized during that year, plus (3) renewals that occurred during the year for customers in existence at the beginning of the year.

Total Customers

We define a customer as a separate and distinct buying entity, such as a company, an educational or government institution, or a distinct business unit of a large corporation that has an active contract with us or our partner to access our services. We believe the number of total customers is a key indicator of our market penetration, growth and future revenues. Our ability to attract new customers is primarily affected

 

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by the effectiveness of our marketing programs and our direct sales force. Accordingly, we have aggressively invested in and intend to continue to invest in our direct sales force. In addition, we are continuing to pursue additional partnerships with global systems integrators and other strategic partners.

Components of Results of Operations

Revenues

We offer subscriptions to our cloud-based spend management platform, including procurement, invoicing and expense management. We derive our revenues primarily from subscription fees and professional services fees. Subscription revenues consist primarily of fees to provide our customers access to our cloud-based platform, which includes routine customer support at no additional cost. Professional service fees include deployment services, optimization services, and training.

Subscription revenues accounted for approximately 85% and 90%, respectively, of our revenues for the fiscal years ended January 31, 2015 and 2016, and 92% and 88%, respectively, of our revenues for the six months ended July 31, 2015 and 2016. Subscription revenues are a function of the number of customers, the number of users at each customer, the number of modules subscribed to by each customer, the price of our modules, and renewal rates.

Subscription fees are recognized ratably as revenues over the contract term beginning on the date the application is made available to the customer. Our new business subscriptions typically have a term of three years, although some of our customers opt for a shorter period. We generally invoice our customers in annual installments at the beginning of each year in the subscription period. Amounts that have been invoiced are initially recorded as deferred revenue and are recognized ratably over the subscription period. Amounts that have not been invoiced are not reflected in our consolidated financial statements.

Professional services revenues consist primarily of fees associated with the implementation and configuration of our subscription service. Professional services are generally sold on a fixed-fee or time-and-materials basis. Revenue for time-and-material arrangements is recognized as the services are performed. For fixed-fee and other types of arrangements, revenue is generally deferred and recognized upon the completion of the project under the completed performance method of accounting.

Our professional services engagements typically span from a few weeks to several months, which makes it somewhat difficult to predict the timing of revenue recognition for such services. The terms of our typical professional services arrangements provide that our customers pay us within 30 days of invoice. Fixed-fee services arrangements are generally invoiced in advance. We have made significant investments in our professional services business that are designed to ensure customer success and adoption of our platform. We recently accelerated our investment in expanding our professional services partner ecosystem to further support our customers. As the professional services practices of our partner firms continue to develop, we expect them to increasingly contract directly with our subscription customers and we incentivize our sales force to further this objective.

Cost of Revenues

Subscription Services

Cost of subscription services consists primarily of expenses related to hosting our service and providing customer support. Significant expenses are comprised of data center capacity costs; personnel and related costs directly associated with our cloud infrastructure and customer support, including salaries, benefits, bonuses and stock-based compensation; allocated overhead; and amortization of developed technology.

Professional Services and Other Cost of Revenues

Cost of professional services and other cost of revenues consist primarily of personnel and related costs directly associated with our professional services and training departments, including salaries,

 

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benefits, bonuses and stock-based compensation; the costs of contracted third-party vendors; and allocated overhead. These costs are generally expensed in the period incurred; therefore, the costs associated with our professional services revenues often do not align with the period in which the corresponding professional services revenues are recognized because we are currently using the completed performance method of accounting for professional services revenues under fixed fee arrangements.

Professional services associated with the implementation and configuration of our subscription platform are performed directly by our services team, as well as by contracted third-party vendors. In cases in which third party vendors invoice Coupa for services performed for our customers, those fees are accrued over the requisite service period.

Operating Expenses

Research and Development

Research and development expenses consist primarily of personnel costs of our development team, including salaries, benefits, bonuses, stock-based compensation expense and allocated overhead costs. Our cycle of frequent updates has facilitated rapid innovation and the introduction of new modules throughout our history. We have aggressively invested, and intend to continue to invest, in developing technology to support our growth. We capitalize certain software development costs that are attributable to developing new modules, features and adding incremental functionality to our platform, and amortize such costs as costs of subscription revenues over the estimated life of the new application or incremental functionality, which is two years.

Sales and Marketing

Sales and marketing expenses consist primarily of personnel and related costs directly associated with our sales and marketing staff, including salaries, benefits, bonuses, commissions and stock-based compensation. Commissions earned by our sales force that can be associated specifically with a noncancellable subscription contract are deferred and amortized over the same period that revenues are to be recognized for the related noncancellable contract. Other sales and marketing costs include promotional events to promote our brand, including our INSPIRE conferences, advertising and allocated overhead.

General and Administrative

General and administrative expenses consist of personnel costs and related expenses for executive, finance, legal, human resources, recruiting, and employee-related information technology and administrative personnel, including salaries, benefits, bonuses and stock-based compensation expense; professional fees for external legal, accounting, recruiting and other consulting services; allocated overhead costs; and legal settlements.

Other Expense, Net

Other expense, net consists primarily of the change in the fair value of our preferred stock warrants, effect of exchange rates on our foreign currency-denominated asset and liability balances, and interest income earned on our cash and cash equivalents. All translation adjustments are recorded as foreign currency gains (losses) in the consolidated statements of operations. To date, we have had minimal interest income.

Provision for Income Taxes

Provision for income taxes consists primarily of income taxes related to foreign and state jurisdictions in which we conduct business. We maintain a full valuation allowance on our federal and state deferred tax assets as we have concluded that it is not more likely than not that the deferred assets will be utilized.

 

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Results of Operations

The following tables set forth selected consolidated statements of operations data and such data as a percentage of total revenues for each of the periods indicated:

 

     Year ended
January 31,
    Six months ended
July 31,
 
     2015     2016     2015     2016  
     (in thousands)  

Revenues:

        

Subscription services

   $ 43,051      $ 75,667      $ 31,622      $ 53,155   

Professional services and other

     7,794        8,011        2,891        7,160   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     50,845        83,678        34,513        60,315   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cost of revenues:

        

Subscription services

     8,813        16,804        7,545        12,079   

Professional services and other

     9,911        15,107        6,233        11,420   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of revenues

     18,724        31,911        13,778        23,499   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     32,121        51,767        20,735        36,816   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

        

Research and development

     11,887        22,767        10,223        15,046   

Sales and marketing

     33,724        54,713        24,211        35,088   

General and administrative

     13,146        19,540        11,199        10,173   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     58,757        97,020        45,633        60,307   
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (26,636     (45,253     (24,898     (23,491

Other expense, net

     (563     (568     (131     (523
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss before provision for income taxes

     (27,199     (45,821     (25,029     (24,014

Provision for income taxes

     101        335        118        291   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss and comprehensive loss

   $ (27,300   $ (46,156   $ (25,147   $ (24,305
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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     Year ended
January 31,
    Six months ended
July 31,
 
     2015     2016     2015     2016  

Revenues:

        

Subscription services

     85     90     92     88

Professional services and other

     15        10        8        12   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     100        100        100        100   

Cost of revenues:

        

Subscription services

     17        20        22        20   

Professional services and other

     20        18        18        19   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of revenues

     37        38        40        39   

Gross profit

     63        62        60        61   

Operating expenses:

        

Research and development

     24        27        30        25   

Sales and marketing

     66        65        70        58   

General and administrative

     26        24        32        17   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     116        116        132        100   

Loss from operations

     (53     (54     (72     (39

Other expense, net

     (1     (1     (1     (1
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss before provision for income taxes

     (54     (55     (73     (40

Provision for income taxes

                            
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss and comprehensive loss

     (54 )%      (55 )%      (73 )%      (40 )% 
  

 

 

   

 

 

   

 

 

   

 

 

 

Six Months Ended July 31, 2015 and July 31, 2016

Revenues

 

     Six months ended
July 31,
        
     2015      2016      % Change  
     (in thousands)         

Subscription services

   $ 31,622       $ 53,155         68

Professional services and other

     2,891         7,160         148   
  

 

 

    

 

 

    

Total revenues

   $ 34,513       $ 60,315         75
  

 

 

    

 

 

    

Total revenues were $60.3 million for the six months ended July 31, 2016 compared to $34.5 million for the six months ended July 31, 2015, an increase of $25.8 million, or 75%. Subscription services revenues were $53.2 million, or 88% of total revenues, for the six months ended July 31, 2016, compared to $31.6 million, or 92% of total revenues, for the six months ended July 31, 2015. The increase in subscription revenues was due primarily to the addition of new customers as compared to the same period of the prior year, as the number of customers increased from 363 as of July 31, 2015, to 465 as of July 31, 2016, representing a 28% increase. Also, we experienced large deployments of our solutions during the six months ended July 31, 2016, which is reflected in the increase of our average subscription revenue per customer from $87,000 for the six months ended July 31, 2015, to $114,000 for the six months ended July 31, 2016. Professional services revenues were $7.2 million for the six months ended July 31, 2016 compared to $2.9 million for the six months ended July 31, 2015. This represents an increase of $4.3 million, or 148%, primarily due to the increased number of projects completed during the six months ended July 31, 2016 compared to the six months ended July 31, 2015. Because the majority of professional services revenues are recognized upon completion of the project, professional services revenues have and may continue to fluctuate significantly from period to period.

 

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Cost of Revenues

 

     Six months ended
July 31,
        
     2015      2016      % Change  
     (in thousands)         

Subscription services

   $ 7,545       $ 12,079         60

Professional services and other

     6,233         11,420         83   
  

 

 

    

 

 

    

Total cost of revenues

   $ 13,778       $ 23,499         71
  

 

 

    

 

 

    

Cost of subscription services was $12.1 million for the six months ended July 31, 2016, compared to $7.5 million for the six months ended July 31, 2015, an increase of $4.6 million, or 60%. The increase in cost of subscription services was primarily due to an increase of $1.5 million in employee compensation costs related to higher headcount, an increase of $1.3 million in hosting fees to accommodate customer growth, an increase of $1.0 million in amortization of capitalized software development costs and intangible assets, and an increase of $0.8 million related to allocated facilities and outside services costs driven by our overall growth.

Cost of professional services was $11.4 million for the six months ended July 31, 2016, compared to $6.2 million for the six months ended July 31, 2015, an increase of $5.2 million, or 83%. The increase in cost of professional services was primarily due to an increase of $2.7 million for work performed by subcontractors for engagements where we had contracted directly with the customer to perform the professional services, an increase of $1.8 million in employee compensation costs related to higher headcount, and an increase of $0.6 million related to allocated facilities and other costs driven by our overall growth. Most of our costs of professional services are recorded as period costs, and thus the costs are often reflected in our financial results sooner than the associated revenues.

Gross Profit

 

     Six months ended
July 31,
        
     2015      2016      % Change  
     (in thousands)         

Gross Profit

   $ 20,735       $ 36,816         78

Gross profit was $36.8 million for the six months ended July 31, 2016, compared to $20.7 million for the six months ended July 31, 2015, an increase of $16.1 million, or 78%. The increase in gross profit is the result of the increases in our subscription services revenues due primarily to the addition of new customers in the six months ended July 31, 2016. This was offset by negative professional services gross margins as our revenues related to fixed fee contracts are generally deferred and recognized upon completion of the project under the completed performance method of accounting, while the related costs are recognized as they are incurred. Gross margin percentage was 61% for the six months ended July 31, 2016, compared to 60% for the six months ended July 31, 2015.

Operating Expenses

Research and Development

 

     Six months ended
July 31,
        
     2015      2016      % Change  
     (in thousands)         

Research and development

   $ 10,223       $ 15,046         47

 

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Research and development expenses were $15.0 million for the six months ended July 31, 2016, compared to $10.2 million for the six months ended July 31, 2015, an increase of $4.8 million, or 47%. The increase was primarily due to an increase of $4.3 million in employee compensation costs related to higher headcount, an increase of $0.2 million related to consultants necessary to meet development needs until new hires were onboarded, and an increase of $0.9 million related to allocated facilities and travel costs driven by our overall growth. The increase in research and development costs has been partially offset by an increase in capitalized software development costs of $0.8 million.

Sales and Marketing

 

     Six months ended
July 31,
        
     2015      2016      % Change  
     (in thousands)         

Sales and marketing

   $ 24,211       $ 35,088         45

Sales and marketing expenses were $35.1 million for the six months ended July 31, 2016, compared to $24.2 million for the six months ended July 31, 2015, an increase of $10.9 million, or 45%. The increase was primarily due to an increase of $6.3 million in employee compensation costs related to higher headcount, an increase of $1.9 million in marketing and event costs, an increase of $1.0 million in costs due to additional travel expenses, and an increase of $1.5 million related to allocated facilities costs and other costs driven by our overall growth.

General and Administrative

 

     Six months ended
July 31,
        
     2015      2016      % Change  
     (in thousands)         

General and administrative

   $ 11,199       $ 10,173         (9 )% 

General and administrative expenses were $10.2 million for the six months ended July 31, 2016, compared to $11.2 million for the six months ended July 31, 2015, a decrease of $1.0 million, or 9%. The decrease was primarily due to $5.4 million of stock-based compensation charges during the six months ended July 31, 2015, which did not recur during the six months ended July 31, 2016. Additionally $1.3 million of litigation costs did not recur during the six months ended July 31, 2016, due to the resolution of an ongoing litigation. These decreases were partially offset by a $3.7 million increase in employee compensation costs related to higher headcount, an increase of $0.9 million for professional and outside services, and an increase of $0.7 million related to allocated facilities costs and other costs driven by our overall growth.

Years Ended January 31, 2015 and January 31, 2016

Revenues

 

     Year ended
January 31,
        
     2015      2016      % Change  
     (in thousands)         

Subscription services

   $ 43,051       $ 75,667         76

Professional services and other

     7,794         8,011         3   
  

 

 

    

 

 

    

Total revenues

   $ 50,845       $ 83,678         65
  

 

 

    

 

 

    

 

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Total revenues were $83.7 million for the fiscal year ended January 31, 2016, compared to $50.8 million for the fiscal year ended January 31, 2015, an increase of $32.9 million, or 65%. Subscription services revenues were $75.7 million, or 90% of total revenues, for the fiscal ended January 31, 2016, compared to $43.1 million, or 85% of total revenues, for the fiscal year ended January 31, 2016. The increase in subscription revenues was due primarily to the addition of new customers as compared to the prior year, as the number of customers increased from 312 as of January 31, 2015, to 414 as of January 31, 2016, representing a 33% increase. Also, we experienced large deployments of our solutions during the fiscal year ended January 31, 2016, which is reflected in the increase of our average subscription revenue per customer of $138,000 for the year ended January 31, 2015 to $183,000 for the year ended January 31, 2016. Increased add-on subscription revenue for current customers during the fiscal year ended January 31, 2016 also contributed to the year-over-year result. Professional services revenues were $8.0 million for the fiscal year ended January 31, 2016 compared to $7.8 million for the fiscal year ended January 31, 2015. This represents an increase of $0.2 million, or 3%, in professional services revenues, but also represents a decline in professional services revenues as a percentage of total revenues from 15% to 10%. During the year ended January 31, 2015, we recognized $2.1 million in professional services revenues from the completion of one specific customer contract that had been deferred from prior periods. The remainder of the decline was driven by changes in the timing of project completion for various projects for which revenue is recognized under the completed performance method of accounting.

Cost of Revenues

 

     Year ended
January 31,
        
     2015      2016      % Change  
     (in thousands)         

Subscription services

   $ 8,813       $ 16,804         91

Professional services and other

     9,911         15,107         52   
  

 

 

    

 

 

    

Total cost of revenues

   $ 18,724       $ 31,911         70
  

 

 

    

 

 

    

Costs of subscription services were $16.8 million for the fiscal year ended January 31, 2016, compared to $8.8 million for the fiscal year ended January 31, 2015, an increase of $8.0 million, or 91%. The increase in costs of subscription services was primarily due to an increase of $3.1 million in employee compensation costs related to higher headcount including an increase of $0.1 million attributable to stock-based compensation expense, an increase of $1.7 million in hosting fees due to customer growth, an increase of $1.2 million in amortization of capitalized software development costs and intangible assets, and an increase of $1.3 million related to allocated facilities and outside services costs driven by our overall growth.

Costs of professional services were $15.1 million for the fiscal year ended January 31, 2016, compared to $9.9 million for the fiscal year ended January 31, 2015, an increase of $5.2 million, or 52%. The increase in costs of professional services was primarily due to an increase of $4.5 million in employee compensation costs related to higher headcount including an increase of $0.9 million attributable to stock-based compensation expense, offset by a reduction of $0.5 million for work performed by subcontractors for engagements where we had contracted directly with the customer to perform the professional services. Most of our costs of professional services are recorded as period costs, and thus the costs may be reflected in our financial results sooner than the associated revenues.

 

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Gross Profit

 

     Year ended
January 31,
        
     2015      2016      % Change  
     (in thousands)         

Gross Profit

   $ 32,121       $ 51,767         61

Gross profit was $51.8 million for the fiscal year ended January 31, 2016, compared to $32.1 million for the fiscal year ended January 31, 2015, an increase of $19.7 million, or 61%. The increase in gross profit is the result of the increases in our subscription services revenues due primarily to the addition of new customers in the fiscal year. This was offset by negative professional services gross margins as our revenues related to fixed fee contracts are generally deferred and recognized upon completion of the project under the completed performance method of accounting, while the related costs are recognized as they are incurred. Gross margin percentage was 62% for the fiscal year ended January 31, 2016, compared to 63% for the fiscal year ended January 31, 2015.

Operating Expenses

Research and Development

 

     Year ended
January 31,
        
     2015      2016      % Change  
     (in thousands)         

Research and development

   $ 11,887       $ 22,767         92

Research and development expenses were $22.8 million for the fiscal year ended January 31, 2016, compared to $11.9 million for the fiscal year ended January 31, 2015, an increase of $10.9 million, or 92%. The increase was primarily due to an increase of $8.4 million in employee compensation costs related to higher headcount including an increase of $0.9 million attributable to stock-based compensation expense, an increase of $1.8 million related to consultants necessary to meet development needs until new hires were onboarded, and an increase of $1.3 million related to allocated facilities and travel costs driven by our overall growth. The increase in research and development costs has been partially offset by an increase in capitalized software development costs of $1.0 million.

Sales and Marketing

 

     Year ended
January 31,
        
     2015      2016      % Change  
     (in thousands)         

Sales and marketing

   $ 33,724       $ 54,713         62

Sales and marketing expenses were $54.7 million for the fiscal year ended January 31, 2016, compared to $33.7 million for the fiscal year ended January 31, 2015, an increase of $21.0 million, or 62%. The increase was primarily due to an increase of $12.8 million in employee compensation costs related to higher headcount including an increase of $0.9 million attributable to stock-based compensation expense, an increase of $3.2 million in marketing and event costs, an increase of $1.8 million in costs due to additional travel expenses and an increase of $2.4 million related to allocated facilities costs and other costs driven by our overall growth.

 

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General and Administrative

 

     Year ended
January 31,
        
     2015      2016      % Change  
     (in thousands)         

General and administrative

   $ 13,146       $ 19,540         49

General and administrative expenses were $19.5 million for the fiscal year ended January 31, 2016, compared to $13.1 million for the fiscal year ended January 31, 2015, an increase of $6.4 million, or 49%. The increase was primarily due to an increase in stock-based compensation expense of $5.9 million, which included $5.6 million of stock-based compensation charges resulting from the sale of common stock by certain employees and former employees, as well as an increase of $2.4 million in other employee compensation costs, an increase of $2.1 million in costs related to professional and outside services and an increase of $0.5 million related to allocated facilities costs driven by our overall growth. This increase was partially offset by a decrease of $5.0 million in litigation-related costs. The increase in other employee compensation costs and costs related to professional and outside services during the fiscal year ended January 31, 2016, was driven by efforts to support our overall growth.

 

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Quarterly Results of Operations

The following tables set forth selected unaudited quarterly consolidated statements of operations data for each of the eight quarters in the period ended July 31, 2016, as well as the percentage of revenues that each line item represents for each quarter. The information for each of these quarters has been prepared on the same basis as the audited annual consolidated financial statements included elsewhere in this prospectus and, in the opinion of management, includes all adjustments, which consist only of normal recurring adjustments, necessary for the fair presentation of the results of operations for these periods in accordance with GAAP. This data should be read in conjunction with our audited and unaudited consolidated financial statements and related notes included elsewhere in this prospectus. These quarterly operating results are not necessarily indicative of our operating results for a full year or any future period.

 

    Three months ended  
    Oct. 31,
2014
    Jan. 31,
2015
    Apr. 30,
2015
    Jul. 31,
2015
    Oct. 31,
2015
    Jan. 31,
2016
    Apr. 30,
2016
    Jul. 31,
2016
 
    (in thousands)  

Revenues:

               

Subscription services

  $ 11,661      $ 13,400      $ 14,289      $ 17,333      $ 20,757      $ 23,288      $ 25,372      $ 27,783   

Professional services and other

    2,522        1,798        1,520        1,371        2,044        3,076        3,811        3,349   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

    14,183        15,198        15,809        18,704        22,801        26,364        29,183        31,132   

Cost of revenues:

               

Subscription services

    2,284        2,843        3,550        3,995        4,280        4,979        6,050        6,029   

Professional services and other

    2,952        2,348        2,594        3,639        3,914        4,960        5,968        5,452   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of revenues

    5,236        5,191        6,144        7,634        8,194        9,939        12,018        11,481   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    8,947        10,007        9,665        11,070        14,607        16,425        17,165        19,651   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

             

Research and development

    3,008        3,950        4,431        5,792        5,965        6,579        7,840        7,206   

Sales and marketing

    8,959        10,198        10,679        13,532        14,306        16,196        15,836        19,252   

General and administrative

    1,939        2,728        2,480        8,719        3,709        4,632        5,553        4,620   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    13,906        16,876        17,590        28,043        23,980        27,407        29,229        31,078   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

    (4,959     (6,869     (7,925     (16,973     (9,373     (10,982     (12,064     (11,427

Other income (expense), net

    (114     (561     (33     (98     (63     (374     323        (846
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before provision for income taxes

    (5,073     (7,430     (7,958     (17,071     (9,436     (11,356     (11,741     (12,273

Provision for income taxes

    32        30        59        59        82        135        126        165   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss and comprehensive loss

  $ (5,105   $ (7,460   $ (8,017   $ (17,130   $ (9,518   $ (11,491   $ (11,867   $ (12,438
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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     Three months ended  
     Oct. 31,
2014
    Jan. 31,
2015
    Apr. 30,
2015
    Jul. 31,
2015
    Oct. 31,
2015
    Jan. 31,
2016
    Apr. 30,
2016
    Jul. 31,
2016
 
     (as a percentage of total revenues)  

Revenues:

                

Subscription services

     82     88     90     93     91     88     87     89

Professional services and other

     18        12        10        7        9        12        13        11   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     100        100        100        100        100        100        100        100   

Costs of revenues:

                

Subscription services

     16        19        22        21        19        19        21        19   

Professional services and other

     21        15        16        19        17        19        20        18   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of revenues

     37        34        39        41        36        38        41        37   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     63        66        61        59        64        62        59        63   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

              

Research and development

     21        26        28        31        26        25        27        23   

Sales and marketing

     63        67        67        72        63        61        54        62   

General and administrative

     14        18        16        47        16        18        19        15   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     98        111        111        150        105        104        100        100   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (35     (45     (50     (91     (41     (42     (41     (37

Other income (expense), net

     (1     (4                          (1     1        (3
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before provision for income taxes

     (36     (49     (50     (91     (41     (43     (40     (40

Provision for income taxes

                                        1               1   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss and comprehensive loss

     (36 )%      (49 )%      (50 )%      (91 )%      (41 )%      (44 )%      (40 )%      (41 )% 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     Three months ended  
     Oct. 31,
2014
    Jan. 31,
2015
    Apr. 30,
2015
    Jul. 31,
2015
    Oct. 31,
2015
    Jan. 31,
2016
    Apr. 30,
2016
    Jul. 31,
2016
 
     (in thousands)  

Other Financial Data:

                

Non-GAAP operating loss(1)

   $ (4,158   $ (5,469   $ (6,711   $ (8,585   $ (7,401   $ (9,658   $ (10,014   $ (9,630

 

(1) We define non-GAAP operating loss as operating loss before stock-based compensation, litigation-related costs and amortization of acquired intangible assets.

 

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The following table provides a reconciliation of loss from operations to non-GAAP operating loss:

 

     Three months ended  
     Oct. 31,
2014
    Jan. 31,
2015
    Apr. 30,
2015
    Jul. 31,
2015
    Oct. 31,
2015
    Jan. 31,
2016
    Apr. 30,
2016
    Jul. 31,
2016
 
     (in thousands)  

Loss from operations

   $ (4,959   $ (6,869   $ (7,925   $ (16,973   $ (9,373   $ (10,982   $ (12,064   $ (11,427

Stock-based compensation

     427        777        559        7,474        1,526        1,009        1,706        1,559   

Litigation-related costs

     360        610        642        848        327        126        123        27   

Amortization of acquired intangible assets

     14        13        13        66        119        189        221        211   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP operating loss

   $ (4,158   $ (5,469   $ (6,711   $ (8,585   $ (7,401   $ (9,658   $ (10,014   $ (9,630
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Quarterly Revenues Trends

Our quarterly revenues increased sequentially for all periods presented due primarily to increases in the number of new customers, average selling prices and expanded relationships with existing customers. In some cases, revenues for professional services decreased period over period because revenues are generally deferred and recognized upon completion of the project. Further, certain implementation projects are contracted directly between partners and end customers, certain of which projects are of greater significance than others. As a result, our professional services revenues have experienced significant volatility in the past and we expect this volatility to continue.

Quarterly Costs and Expenses Trends

Costs of subscription services generally increased across all quarters presented due primarily to the continued expansion of our technical infrastructure and increased employee headcount. Costs of professional services generally increased across the quarters presented due primarily to increased employee headcount and increased consultant costs. For the three month periods ended January 31, 2015 and July 31, 2016, costs of professional services decreased compared to the preceding three month period, as the preceding three month period included higher subcontractor costs necessary to sufficiently resource our deployment projects ongoing during those periods. Most of our costs are recorded as period costs, and thus the costs may be reflected in our financial results sooner than the associated revenues.

Our research and development costs generally increased sequentially across the quarters presented, primarily due to the addition of personnel to support expanded operations. For the three month period ended July 31, 2016, research and development costs decreased compared to the preceding three month period, as the preceding three month period included increased employee compensation and consulting costs. Sales and marketing costs generally increased sequentially across the quarters presented, primarily due to the addition of personnel, increased event costs and increased marketing campaigns to support the growth of the business. For the three month period ended April 30, 2016, sales and marketing costs decreased, primarily due to a reduction in advertising costs. This was followed by an increase in sales and marketing costs for the three month period ended July 31, 2016, mainly due to increased costs associated with our annual INSPIRE user conference. General and administrative costs increased significantly in the three months ended July 31, 2015, primarily due to stock-based compensation charges resulting from the sale of common stock by certain employees. For the three month periods ended January 31, 2016 and April 31, 2016, general and administrative costs increased primarily due to the addition of personnel to support our growth, as well as increased outside consulting services used during the periods. For the three

 

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month period ended July 31, 2016, general and administrative costs decreased compared to the previous period due to a reduction in outside consulting services used.

Our quarterly operating results may fluctuate due to various factors affecting our performance. In addition, we recognize revenues from subscription fees ratably over the term of the contract. Therefore, changes in our contracting activity in the near term may not impact changes to our reported revenues until future periods.

Liquidity and Capital Resources

As of July 31, 2016, our principal sources of liquidity were cash and cash equivalents totaling $79.9 million, which were held for working capital purposes. Our cash equivalents are comprised primarily of bank deposits and money market funds.

Since our inception, we have financed our operations primarily through private sales of equity securities. We believe our existing cash and cash equivalents will be sufficient to meet our projected operating requirements for at least the next 12 months. Our future capital requirements will depend on many factors, including our pace of growth, subscription renewal activity, the timing and extent of spend to support development efforts, the expansion of sales and marketing activities, the introduction of new and enhanced services offerings, and the continuing market acceptance of our services. We may in the future enter into arrangements to acquire or invest in complementary businesses, services and technologies, and intellectual property rights. We may be required to seek additional equity or debt financing. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital when desired, our business, operating results, and financial condition would be adversely affected.

Operating Activities

Cash used in operating activities of $7.7 million for the six months ended July 31, 2016, was primarily due to a net loss of $24.3 million, partially offset by stock-based compensation of $3.3 million, depreciation and amortization, including deferred commissions, of $4.1 million, and a change in working capital of $9.1 million. The net change in operating assets and liabilities was primarily due to a favorable change in the deferred revenue balance of $7.2 million and accounts receivable and payables, including accrued and other liabilities, of $4.4 million, partially offset by an unfavorable variance due to the increase of capitalized deferred commissions of $1.5 million and increase of prepaid and other current and long term assets, for $1.0 million.

Cash used in operating activities of $6.8 million for the six months ended July 31, 2015, was primarily due to a net loss of $25.1 million, partially offset by stock-based compensation of $8.0 million, depreciation and amortization, including deferred commissions, of $2.2 million, and a change in working capital of $8.1 million. The net change in operating assets and liabilities was primarily due to a favorable change in the deferred revenue and accounts receivable balance, offset by an unfavorable variance due to the increase of capitalized deferred commissions and prepaid and other current and long term assets.

Cash used in operating activities of $22.1 million for the fiscal year ended January 31, 2016, was primarily due to a net loss of $46.2 million, partially offset by stock-based compensation of $10.6 million and depreciation and amortization, including deferred commissions, of $5.6 million. Changes in working capital were favorable to cash flows from operations due to a change in the deferred revenue balance of $24.2 million, partially offset by an increase in accounts receivable of $8.3 million, an increase of capitalized deferred commissions of $5.4 million, and other operating assets and liabilities changes.

Cash used in operating activities of $11.9 million for the fiscal year ended January 31, 2015, was primarily due to a net loss of $27.3 million, partially offset by stock-based compensation of $1.8 million, depreciation and amortization, including deferred commissions, of $2.8 million, and a change in working

 

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capital of $10.8 million. The net change in operating assets and liabilities was primarily due to a favorable change in the deferred revenue balance, offset by an unfavorable variance in accounts receivable, since the growth in amounts due from our customers exceeded cash collections for the period.

Investing Activities

Cash used in investing activities for the six months ended July 31, 2016, of $2.5 million was primarily related to purchases of property and equipment.

Cash used in investing activities for the six months ended July 31, 2015, of $2.7 million was primarily related to $1.9 million for purchases of property and equipment, as well as $0.8 million for business acquisitions.

Cash used in investing activities for the fiscal year ended January 31, 2016, of $5.3 million was primarily related to $3.9 million for purchases of property and equipment, as well as $1.4 million for business acquisitions.

Cash used investing activities for the fiscal year ended January 31, 2015, of $2.4 million was primarily related to purchases of property and equipment.

Financing Activities

Cash used in financing activities for the six months ended July 31, 2016, of $2.2 million was due to the costs paid in connection with our planned initial public offering, partially offset by proceeds from the exercise of stock options.

Cash provided by financing activities for the fiscal year ended July 31, 2015, of $76.4 million consisted primarily of net proceeds from the issuance of Series G convertible preferred stock of $75.7 million, and $0.7 million in proceeds from the exercise of stock options and preferred stock warrants.

Cash provided by financing activities for the fiscal year ended January 31, 2016, of $77.7 million consisted primarily of net proceeds from the issuance of Series G convertible preferred stock of $75.7 million, and $2.1 million in proceeds from the exercise of stock options and preferred stock warrants.

Cash provided by financing activities for the fiscal year ended January 31, 2015, of $40.4 million consisted primarily of net proceeds from the issuance of Series F convertible preferred stock of $40.0 million, and $0.5 million in proceeds from the exercise of stock options.

Commitments and Contractual Obligations

Our principal commitments and contractual obligations consist of obligations under operating leases for office facilities. The following table summarizes our non-cancelable contractual obligations as of January 31, 2016.

 

            Payments due by period  
     Total      Less Than
1 Year
     1-3 Years      3-5 Years      More Than
5 Years
 
            (in thousands)  

Operating lease obligations

   $ 10,986       $ 3,131       $ 6,247       $ 1,608       $   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total contractual obligations

   $ 10,986       $ 3,131       $ 6,247       $ 1,608       $   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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As of July 31, 2016, our non-cancelable contractual obligations are as follows:

 

            Payments due by period  
     Total      Less Than
1 Year
     1-3 Years      3-5 Years      More Than
5 Years
 
            (in thousands)  

Operating lease obligations

   $ 10,053       $ 3,424       $ 5,979       $ 650       $   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total contractual obligations

   $ 10,053       $ 3,424       $ 5,979       $ 650       $   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

We lease our primary facility under a long-term operating lease, which expires in 2019.

Off-Balance Sheet Arrangements

Through July 31, 2016, we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities, that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Critical Accounting Policies and Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenues generated and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.

Revenue Recognition

We derive our revenues primarily from subscription services fees and professional services fees. We offer subscriptions to our cloud modules through contracts that are typically three years in length. The arrangements do not contain general rights of return. The subscription contracts do not provide customers with the right to take possession of the software supporting the modules and, as a result, are accounted for as service contracts.

We commence revenue recognition for our subscription services and professional services when all of the following criteria are met:

 

    there is persuasive evidence of an arrangement;

 

    the service has been or is being provided to the customer;

 

    collection of the fees is reasonably assured; and

 

    the amount of fees to be paid by the customer is fixed or determinable.

Subscription Services Revenues

Subscription services revenues are recognized ratably over the contractual term of the arrangement beginning on the date that the service is made available to the customer, assuming all other revenue recognition criteria have been met.

 

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Professional Services Revenues

Professional services are generally sold on a fixed-fee or time-and-materials basis. Revenues for time-and-material arrangements are recognized as the services are performed. For fixed-fee and other types of arrangements, revenues are generally deferred and recognized upon the completion of the project under the completed performance method of accounting.

Multiple Deliverable Arrangements

For arrangements with multiple deliverables, we evaluate whether the individual deliverables qualify as separate units of accounting. In order to treat deliverables in a multiple deliverable arrangement as separate units of accounting, the deliverables must have standalone value upon delivery. If the deliverables have standalone value upon delivery, we account for each deliverable separately, recognizing the respective revenues as the services are delivered. If one or more of the deliverables does not have standalone value upon delivery, the deliverables without standalone value are combined with the final deliverable within the arrangement and treated as a single unit of accounting. Revenues for arrangements treated as a single unit of accounting are generally recognized over the subscription services period, which is typically the final deliverable.

We have determined that our subscription services have standalone value, as we sell our subscriptions separately. The professional services related to our subscription services also have standalone value as numerous partners are trained to perform these professional services and these partners have a history of successfully completing significant deployments of our software platform.

When multiple deliverables included in an arrangement are separable into different units of accounting, the arrangement consideration is allocated to the identified separate units of accounting based on the relative selling price of each unit of accounting. Multiple deliverable arrangement accounting guidance provides a hierarchy when determining the relative selling price for each unit of accounting. Vendor-specific objective evidence (VSOE) of selling price, based on the price at which the item is regularly sold by the vendor on a standalone basis, should be used if it exists. If VSOE of selling price is not available, third-party evidence (TPE) of selling price is used to establish the selling price if it exists. VSOE and TPE do not currently exist for any of our deliverables. Accordingly, for arrangements with multiple deliverables that can be separated into different units of accounting, the relative selling price of each unit of accounting is based on best estimate of selling price (BESP).

We determine the BESP for deliverables based on overall pricing objectives, market conditions and entity-specific factors. This includes a review of historical data taking into consideration the size of the arrangements, the cloud applications being sold, customer demographics and the numbers and types of users within the arrangements.

Deferred Commissions

We capitalize commission costs that are incremental and directly related to the acquisition of customer contracts. Commissions are earned by sales personnel upon the execution of the sales contracts, and commission payments are made shortly after they are earned. Deferred commissions are amortized over the term of the related non-cancelable customer contract. We capitalized commission costs of $3.2 million and amortized $1.4 million to expense during the fiscal year ended January 31, 2015. We capitalized commission costs of $5.4 million and amortized $2.8 million to expense during the fiscal year ended January 31, 2016. We capitalized commission costs of $1.8 million and $1.5 million and amortized $1.1 million and $2.0 million during the six months ended July 31, 2015 and 2016, respectively.

Capitalized Software Development Costs

We capitalize certain development costs incurred in connection with software development for our cloud-based platform. Costs incurred in the preliminary stages of development are expensed as incurred.

 

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Once software has reached the development stage, internal and external costs, if direct and incremental, are capitalized until the software is substantially complete and ready for its intended use. Capitalization ceases upon completion of all substantial testing. These software development costs are recorded as part of property and equipment. Capitalized software development costs are amortized on a straight-line basis over the technology’s estimated useful life, which is two years. We capitalized software development costs of $2.1 million and amortized $1.2 million to expense during the fiscal year ended January 31, 2015. We capitalized software development costs of $3.2 million and amortized $2.2 million to expense during the fiscal year ended January 31, 2016. During the six months ended July 31, 2015 and 2016, we capitalized $1.4 million and $2.2 million, respectively, in software development costs. Amortization expense related to software development costs was approximately $1.0 million and $1.5 million for the six months ended July 31, 2015 and 2016, respectively.

Software development costs incurred in the maintenance and minor upgrade and enhancement of internal-use software are expensed as incurred.

Stock-Based Compensation

Stock-based compensation expense is measured and recognized in the financial statements based on the fair value of the awards granted. The fair value of a stock option is estimated on the grant date using the Black-Scholes option-pricing model. The fair value of an RSU is measured using the fair value of our common stock on the date of the grant. Stock-based compensation expense is recognized, net of forfeitures, over the requisite service periods of the awards, which is generally four years.

Our use of the Black-Scholes option-pricing model requires the input of highly subjective assumptions, including the fair value of our underlying common stock, expected term of the option, expected volatility of the price of our common stock, risk-free interest rates, and the expected dividend yield of our common stock. The assumptions used in our option-pricing model represent management’s best estimates. These estimates involve inherent uncertainties and the application of management’s judgment. If factors change and different assumptions are used, our stock-based compensation expense could be materially different in the future.

These assumptions and estimates are as follows:

 

    Fair Value of Common Stock. As our stock is not publicly traded, we estimate the fair value of common stock as discussed in “—Common Stock Valuations” below.

 

    Expected Term. The expected term of employee stock options represents the weighted-average period that the stock options are expected to remain outstanding. To determine the expected term, we generally apply the simplified approach in which the expected term of an award is presumed to be the mid-point between the vesting date and the expiration date of the award as we do not have sufficient historical exercise data to provide a reasonable basis for an estimate of expected term.

 

    Risk-Free Interest Rate. We base the risk-free interest rate on the yields of U.S. Treasury securities with maturities approximately equal to the term of employee stock option awards.

 

    Expected Volatility. As we do not have a trading history for our common stock, the expected volatility for our common stock was estimated by taking the average historic price volatility for industry peers based on daily price observations over a period equivalent to the expected term of the stock option awards. Industry peers consist of several public companies in our industry which are either similar in size, stage of life cycle or financial leverage.

 

    Dividend Rate. We have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future. As a result, we use a dividend rate of zero.

We must also estimate a forfeiture rate to calculate the stock-based compensation expense for our awards. Our forfeiture rate is based on an analysis of our actual forfeitures. We will continue to evaluate

 

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the appropriateness of the forfeiture rate based on actual forfeiture experience, analysis of employee turnover and other factors. Quarterly changes in the estimated forfeiture rate can have a significant impact on our stock-based compensation expense as the cumulative effect of adjusting the rate is recognized in the period the forfeiture estimate is changed. A higher revised forfeiture rate than previously estimated will result in an adjustment that will decrease the stock-based compensation expense recognized in the consolidated statement of operations. A lower revised forfeiture rate than previously estimated will result in an adjustment that will increase the stock-based compensation expense recognized in the consolidated statement of operations.

We will continue to use judgment in evaluating the assumptions related to our stock-based compensation on a prospective basis. As we continue to accumulate additional data related to our common stock, we may have refinements to our estimates, which could materially impact our future stock-based compensation expense.

Common Stock Valuations

The fair value of the common stock underlying our stock options was determined by our board of directors. The valuations of our common stock were determined in accordance with the guidelines outlined in the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation. In the absence of a public trading market, our board of directors, with input from management, exercised significant judgment and considered numerous objective and subjective factors to determine the fair value of our common stock as of the date of each option grant, including the following factors:

 

    contemporaneous valuations performed by third-party valuation firms;

 

    the prices, rights, preferences and privileges of our convertible preferred stock relative to those of our common stock;

 

    the prices of preferred stock sold by us to third-party investors in arms-length transactions;

 

    the lack of marketability of our common stock;

 

    our actual operating and financial performance;

 

    current business conditions and projections;

 

    our history and the timing of the introduction of new modules and services;

 

    our stage of development;

 

    the likelihood of achieving a liquidity event, such as an initial public offering or a merger or acquisition of our business given prevailing market conditions;

 

    the illiquidity of stock-based awards involving securities in a private company;

 

    the market performance of comparable publicly-traded companies;

 

    recent secondary stock sales transactions; and

 

    U.S. and global capital market conditions.

In valuing our common stock, the fair value of our business, or Enterprise Value, was determined using an income approach and a market approach, which are both considered highly complex and subjective valuation methodologies. The income approach estimates the fair value of a company based on the present value of our future estimated cash flows and our residual value beyond the forecast period. These future cash flows, including the cash flows beyond the forecast period for the residual value, are discounted to their present values using an appropriate discount rate, to reflect the risks inherent in our

 

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achieving these estimated cash flows. We used the guideline public company method in applying the market approach. The guideline public company method is based upon the premise that indications of value for a given entity can be estimated based upon the observed valuation multiples of comparable public companies, the equity of which is freely traded by investors in the public securities markets. The Enterprise Value determined was then adjusted to: (i) add back cash on hand and tax benefits from NOLs and (ii) remove certain long-term liabilities in order to determine an equity value, or Equity Value.

The resulting Equity Value was then allocated to the common stock using a combination of the option pricing method, or OPM, and a Probability Weighted Expected Return Method, or PWERM. The PWERM approach involves the estimation of multiple future potential outcomes for us, and estimates of the probability of each respective potential outcome. The common stock per share value determined using this approach is ultimately based upon probability-weighted per share values resulting from the various future scenarios, which include an initial public offering, merger or sale, or continued operation as a private company. Additionally, the OPM uses the preferred stockholders’ liquidation preferences, participation rights, dividend rights, and conversion rights to determine the value of each share class in specific potential future outcomes considered in the PWERM approach.

After the Equity Value is determined and allocated to the various classes of shares, a discount for lack of marketability, or DLOM, is applied to arrive at the fair value of the common stock. A DLOM is applied based on the theory that as a private company, an owner of the stock has limited opportunities to sell this stock and any such sale would involve significant transaction costs, thereby reducing overall fair market value. Our assessments of the fair value of the common stock for grant dates between the dates of the valuations were based in part on the current available financial and operational information and the common stock value provided in the most recent valuation as compared to the timing of each grant. For financial reporting purposes, we considered the amount of time between the valuation date and the grant date to determine whether to use the latest common stock valuation or a straight-line interpolation between the two valuation dates. This determination included an evaluation of whether the subsequent valuation indicated that any significant change in valuation had occurred between the previous valuation and the grant date.

Once we are operating as a public company, we will rely on the closing price of our common stock as reported on the date of grant to determine the fair value of our common stock.

Based on the assumed initial public offering price of $             per share, the midpoint of the price range set forth on the cover page of this prospectus, the aggregate intrinsic value of our outstanding stock awards as of             , 2016 was             , of which              related to vested awards and              related to unvested awards.

Quantitative and Qualitative Disclosures about Market Risk

Foreign Currency Exchange Risk

Our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the Euro and British Pound Sterling. Due to the relative size of our international operations to date, our foreign currency exposure has been fairly limited and thus we have not instituted a hedging program. We expect our international operations to continue to grow in the near term and we are continually monitoring the foreign currency exposure to determine when we should begin a hedging program. The substantial majority of our agreements have been and we expect will continue to be denominated in U.S. dollars.

Interest Rate Sensitivity

We are exposed to market risks in the ordinary course of our business. These risks primarily include interest rate sensitivities. As of July 31, 2016, we had cash and cash equivalents of $79.9 million, which

 

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consisted primarily of bank deposits and money market funds. Such interest-earning instruments carry a degree of interest rate risk; however, historical fluctuations of interest income have not been significant.

We have not been exposed nor do we anticipate being exposed to material risks due to changes in interest rates. A hypothetical 100 basis point change in interest rates during any of the periods presented would not have had a material impact on our financial statements.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09, Revenue from Contracts with Customers, which provides guidance for revenue recognition. This ASU affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of non-financial assets. This ASU will supersede the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance. This ASU also supersedes some cost guidance included in Subtopic 605-35, Revenue Recognition-Construction-Type and Production-Type Contracts. ASU No. 2014-09 is effective for public entities for annual reporting periods, and interim periods within those annual reporting periods, beginning after December 31, 2017. Early adoption is permitted for all public entities only as of annual reporting periods, and interim periods within those annual reporting periods, beginning after December 15, 2016. The guidance allows for the amendment to be applied either retrospectively to each prior reporting period presented or retrospectively as a cumulative-effect adjustment as of the date of adoption. We are currently in the process of evaluating the effect this guidance will have on our consolidated financial statements and related disclosures.

In September 2015, the FASB issued ASU No. 2015-16, Simplifying the Accounting for Measurement-Period Adjustments. The new guidance simplifies the accounting for measurement period adjustments in connection with business combinations by requiring that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. This guidance is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years, with early adoption permitted. There was no impact from the application of the new guidance in the six months ended July 31, 2016.

In April 2015, the FASB issued ASU No. 2015-05, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement (“ASU 2015-05”). ASU 2015-05 provides guidance to clarify the customer’s accounting for fees paid in a cloud computing arrangement. ASU 2015-05 was effective for us in the first quarter of the year ending January 31, 2017 with early adoption permitted. There was no impact from the application of the new guidance in the six months ended July 31, 2016.

In August 2014, the FASB issued ASU No. 2014-15, Disclosures of Uncertainties About an Entity’s Ability to Continue as a Going Concern. This standard provides guidance on how and when reporting entities must disclose going-concern uncertainties in their financial statements. The guidance is effective for us in the year ending January 31, 2017. There was no impact from the application of the new guidance in the six months ended July 31, 2016.

In November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes, related to balance sheet classification of deferred taxes. The ASU requires that deferred tax assets and liabilities be classified as noncurrent in the statement of financial position, thereby simplifying the current guidance that requires an entity to separate deferred assets and liabilities into current and noncurrent amounts. The ASU will be effective for us beginning in the first quarter of fiscal year 2018 though early adoption is permitted. We have early-adopted the ASU as of January 31, 2015 and its statement of financial position as of this date reflects the revised classification of all deferred tax assets and liabilities as noncurrent. There is no other impact on our financial statements of early-adopting the ASU.

 

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In February 2016, the FASB issued ASU 2016-02, Leases. The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. We are currently evaluating the impact of adopting ASU 2016-02 on our consolidated financial statements.

In March 30, 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, which simplifies the accounting for share-based payment transactions, including accounting for income taxes, forfeitures, and classification in the statement of cash flows. The guidance is effective for public entities for annual periods beginning after December 15, 2016 and for all other entities for annual periods beginning after December 15, 2017. Early adoption is permitted. We are evaluating the accounting, transition and disclosure requirements of the standard and cannot currently estimate the financial statement impact of adoption.

 

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BUSINESS

Mission

Our mission is to deliver “Value as a Service” by helping our customers maximize their spend under management, achieve significant cost savings and drive profitability.

Overview

We are the leading provider of a unified, cloud-based spend management platform that connects more than 460 organizations with more than 2 million suppliers globally. Our platform provides greater visibility into and control over how companies spend money. Using our platform, businesses are able to achieve real, measurable value and savings that drive their profitability. From our inception, our customers have used our platform to bring more than $250 billion of cumulative spend under management, which we estimate has resulted in more than $8 billion of customer savings to date, based on applying certain savings rates derived from industry benchmarks.

Our cloud-based platform has been designed for the modern global workforce that is mobile and expects real-time results, flexibility and agility from software solutions. We empower employees to acquire the goods and services they need to do their jobs, while significantly improving compliance with company policies in a seamless manner to employees. We do this by applying a distinctive user-centric approach that provides a mobile-enabled consumer Internet-like experience and drives widespread adoption of our platform by users in various departments, and, therefore, significantly increases spend under management. We refer to the process companies use to purchase goods and services as spend management and to the money that they manage with this process as spend under management. Increased user adoption and spend under management drive better visibility and control of a company’s spend, resulting in greater savings and increased compliance.

Economic conditions, intense competition and the global regulatory environment are forcing businesses to find new ways to drive operational efficiencies, track processes, reduce costs, fund business growth and enhance profitability and cash flow. Therefore, managing spend has increasingly become a major strategic business imperative to help businesses achieve cost savings. Indirect spend, which refers to goods and services that support a company’s operations, as opposed to direct spend that flows into the products a company manufactures, is particularly difficult to manage due to inefficient employee spending behavior and disparate systems that obstruct spend visibility.

We offer a unified, cloud-based spend management platform that is tightly integrated and delivers a broad range of capabilities that would otherwise require the purchase and use of multiple disparate point applications. The core of our platform consists of procurement, invoicing and expense management modules that form our transactional engine and capture a company’s spend. In addition, our platform offers supporting modules, including sourcing, analytics, contract management, supplier management, inventory management and storefront, that help companies further manage their spend. Moreover, through our free Coupa Open Business Network, suppliers of all sizes can easily interact with buyers electronically, thus significantly reducing paper, improving operating efficiencies and reducing costs. Our unified platform is also able to aggregate company-wide spend data and enable in-depth real-time spend analytics. Our open architecture and application programming interfaces (APIs) allow customers to integrate with several third-party software applications, including various enterprise resource planning (ERP) and financial systems, human capital management (HCM), inventory management and customer relationship management (CRM).

We have a strong results-driven and customer success-focused culture. Our focus is on delivering quantifiable business value to our customers by helping them maximize spend under management to achieve real, measurable value and savings. With a rapid time to deployment, typically ranging from a few weeks to several months, and an easy to use interface that shields users from complexity, our customers

 

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can achieve widespread user adoption quickly and generate savings within a short timeframe, thus benefitting from a rapid return on investment.

We benefit from powerful network effects. As more businesses subscribe to our platform, the collective spend under management on our platform grows. Greater aggregate spend under management on our platform attracts more suppliers, which in turn attracts more businesses that want to take advantage of the goods and services available through our platform, thereby creating powerful network effects. In addition, as more businesses and employees use our platform, the amount of spend under management continues to increase. This leads to more savings for customers and improves our ability to attract more businesses. The resulting increase in sales enables us to further invest in our platform and to improve our functionality and user interface to continue to attract more businesses and suppliers to our platform, which enhances the network effects that benefit all parties.

 

 

LOGO

We have developed a rich partner ecosystem of systems integrators, implementation partners, resellers and technology partners. We work closely with several global systems integrators, including KPMG, Deloitte, Accenture, IBM, PwC and Wipro, that help us scale our business, extend our global reach and drive increased market penetration. We have trained more than 720 consultants to date who offer or implement spend management solutions powered by Coupa. We expect the number of our partner led implementations to continue to increase over time, as well as sales referrals from our partners.

 

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We have achieved rapid growth in customer adoption, cumulative spend under management and transactions conducted through our platform. We have more than 1.5 million licensed users who have driven an expansion in spend under management over time. These licensed users represent the employees among our base of more than 460 total customers who are authorized to use our solutions. Our cumulative spend under management and the transactions conducted through our platform are highlighted below:

 

LOGO

 

(1) Includes purchase orders, invoices, and expense reports processed in the period

The metrics presented above do not directly correlate to our revenue or results of operations because we do not charge our customers based on actual usage of our platform. However, we believe the cumulative spend under management and total transactions metrics do illustrate the adoption, scale and value of our platform, which we believe enhances our ability to maintain existing customers and attract new customers.

For our fiscal years ended January 31, 2015 and 2016, our revenues were $50.8 million and $83.7 million, respectively. Our net losses were $27.3 million and $46.2 million, respectively, for the fiscal years ended January 31, 2015 and 2016. For the six months ended July 31, 2015 and 2016, our revenues were $34.5 million and $60.3 million and our net losses were $25.1 million and $24.3 million, respectively.

Industry Background

Managing Spend has Become a Strategic Business Imperative

Economic conditions, intense competition and the global regulatory environment are forcing businesses to find new ways to drive operational efficiencies, track processes, reduce costs, fund business growth and enhance profitability and cash flow. Therefore, managing spend has increasingly become a major strategic business imperative to help businesses achieve cost savings that will enhance a company’s operating profit as well as free up monetary resources that can be reinvested in the company.

Businesses have two major categories of spend: direct and indirect. While direct spend refers to goods and services that are incorporated into products that a company manufactures, indirect spend refers to categories of goods and services that support a company’s business processes and are consumed by internal stakeholders. Indirect goods examples include office supplies, furniture, electronic equipment and consumables, while indirect services examples include telecommunication services, catering,

 

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transportation, lodging, marketing, consulting, information technology (IT) services, recruiting and temporary contract labor.

Indirect spend on goods and services is often more difficult to manage because of cumbersome, inefficient processes or disparate point applications used by different departments that lead to a lack of full spending visibility and inefficient spending behavior among employees. Businesses need a solution that will help them streamline their total spend, across all divisions and employees, not just the procurement department.

Businesses Lack Visibility Into Spend and Control Over their Spend

According to a 2014 report on indirect spend management published by Accenture, few businesses have full visibility into what they spend, on which products and services they spend and with which vendors they spend. Many businesses lack ways to track indirect spend and as a result typically control only 51% of their indirect spend according to the report. This lack of visibility, which leads to an inability to control spend, is due to several issues:

 

    Manual and Inefficient Processes.  Businesses typically employ inefficient manual procurement, invoicing, expensing and approval processes that cannot be managed across the organization in real time. Employees are overwhelmed by manual processes and need to dig through significant amounts of data to find problem areas and process approvals.

 

    Fragmented Systems That Limit Ability to Analyze And Optimize Spend.  Businesses face different types of spend within their organizations: pre-approved spend, which refers to procurement of goods and services that is authorized by individual managers or predefined policies in advance of purchasing; post-approved spend, which refers to employee business expenses that are reimbursed subsequent to the expenditure; and unapproved spend, which denotes ongoing spend such as invoices for utilities or unauthorized spend by employees. In order to manage the different types of spend, businesses frequently utilize several point applications for procurement, invoicing, expense management and other functions. These point applications do not always integrate with each other, which makes it difficult to access, organize and analyze aggregated spend data across systems and to provide a Chief Procurement Officer, Chief Financial Officer or other decision maker with the analytics they need to optimize spend.

 

    Lack of Employee Adoption of Existing Tools.  Employee adoption of traditional procurement and other related offerings has typically been limited due to cumbersome user interfaces, need for training, lack of mobile capabilities and non-integrated point applications. Employees become frustrated because non-integrated and complex systems lead to delays and errors, resulting in inefficiencies, lost productivity and an inability to timely purchase the right goods or services that the employee needs to get his or her job done. This lack of employee adoption makes it more difficult for businesses to achieve visibility of aggregated spend and to influence employee spend behavior.

 

    Maverick Spending.  In many cases, because processes related to procurement, invoicing, expense management or inventory management are cumbersome, time-consuming and have unclear policies and guidelines, employees engage in “maverick spending” neglecting to purchase from preferred suppliers or purchasing without approval and outside of budgets. This maverick spending results in purchasing of goods and services at unfavorable prices or duplicative spending on previously purchased items stocked in inventory.

 

    Lack of Compliance.  Businesses often struggle to manage risk, to ensure compliance with respect to frequently changing governmental regulations and internal control policies (such as archiving, approval history and tax compliance) and to prevent potential fraud and corruption within the procurement process.

 

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Businesses Need a Unified Spend Management Solution that Enables Real-Time Spend Analysis

The abundance of fragmented point applications on the market today that address specific areas of spend management has resulted in increased complexity for businesses and their employees.

Often employees have to access different systems or review electronic and paper files before they are able to make informed purchasing decisions. For example, employees need to check inventory to find out if the desired item is available, look through paper contract files to determine whether fixed prices with preferred suppliers have been negotiated, and review internal spreadsheets to identify whether the item is within budget. Subsequently, an employee typically accesses procurement software to make a purchasing order and receives an invoice after the item has been delivered. For the invoice to be validated, the quantities, price per unit and other terms appearing on the vendor’s invoice have to be compared to the information on the purchase order and to the quantities actually received. This is often a manual process, with the information dispersed across siloed systems, electronic files and paper files. In addition, spend behavior and adherence to internal policies cannot be analyzed easily since the transaction data is not stored in a central depository. These time-consuming and non-integrated processes result in errors, frustrated employees and sub-optimal decision making with respect to spending of company resources.

Businesses need a solution that not only provides seamless, cross-functional integration of process elements from advanced sourcing to purchase requisitioning to invoice payment, but also a single repository of data so that employees can see all the required information to make a prudent purchasing decision and to enable real-time spend analytics on this aggregated spend data.

Suppliers Want to Interact with Businesses Using a Solution that Maximizes their Revenues with Minimal Friction

Suppliers are increasingly seeking to collaborate with businesses electronically in an effort to eliminate inefficient paper-based processes, establish fast, accurate invoicing, and minimize errors that can cause disputes and delays resulting in lost revenues. In addition, the ability to transact electronically helps suppliers more easily comply with government regulations pertaining to the auditability and documentation of transactions as well as taxation, thus reducing risks. Suppliers often face difficulty connecting to the buyers’ network technology due to incompatible systems, lengthy onboarding processes and cumbersome web portals and web catalog features that are difficult to use. At the same time, suppliers are reluctant to pay access or membership fees often associated with web-based business networks given the increased cost of doing business for little perceived incremental value. As a result of the barriers related to cost, time and complexity, the supplier adoption of web-based business networks has been limited.

Advances in Technology Have Paved the Way for a Next Generation Cloud-Based Spend Management Platform

Advances in technology architectures have supported the rise of cloud computing. Mission-critical applications can be delivered reliably, securely and cost-effectively to customers over the Internet, without the need to purchase supporting hardware, software or ongoing maintenance. The lower total cost of ownership, better functionality and flexibility of cloud applications represents a compelling alternative to traditional on-premise solutions. In a December 2015 report, Gartner, Inc. indicated that it expects total cloud spending to increase from $204 billion worldwide in 2016 to $318 billion in 2019.

At the same time, with the widespread adoption of mobile devices and the use of consumer-oriented web and mobile applications that simplify and accelerate day-to-day activities, employees now expect their organizations to embrace more easy to use, intuitive, fast and collaborative business applications that are accessible anytime, anywhere and from a wide range of mobile devices.

As a result, cloud-based software applications with superior user interfaces and mobile capabilities have increasingly displaced legacy offerings in areas such as CRM, HCM and IT management. However, while there are several software offerings that automate business processes related to spend management,

 

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most of these software offerings are based on on-premise technology or legacy architectures from the 1990s.

Today, advancements in cloud computing, mobile devices, storage and networking are converging to enable new capabilities previously difficult to implement. Technology is enabling the development of powerful, intricate software solutions that address users’ demands for mobility, simplicity, speed and real-time access to data. These recent trends have paved the way for a next generation cloud-based advanced spend management platform that meets the needs of modern businesses.

Legacy Offerings Do Not Meet the Needs of Businesses, Employees and Suppliers

Many automated procurement offerings that are in the market today were developed in the late 1990s. These offerings traditionally consist of either add-on modules to ERP software that have been organically developed or acquired, or standalone offerings that only enable automation of parts of the spend management process but do not offer holistic spend management solutions. Limitations of these legacy offerings include:

 

    Insufficient or Non-Unified Product Functionality.  Many vendors offer point applications that solve a specific business problem. Others have acquired different product suites that do not seamlessly integrate with each other. Many legacy offerings do not offer a comprehensive cloud-based spend management solution that provides procurement, invoicing and expense management, as well as sourcing, inventory management, contract management and other supporting modules in a single unified platform. In addition, some legacy offerings lack auditability and fail to provide effective functionality to promote compliance with business policies and governmental regulations.

 

    Difficult to Use and Access.  Legacy offerings lack a modern, easy to navigate user interface and were not originally designed to be accessed from multiple devices, including mobile devices. These offerings require a significant amount of user training.

 

    Expensive to Deploy and Maintain Complex On-Premise Implementations.  Several legacy offerings have traditionally been deployed on-premise, requiring substantial investments in IT infrastructure in order to implement, upgrade and maintain these offerings.

 

    Long Time to Deployment.  Legacy software implementations often can take several years to be deployed given the complexity of the software and training requirements. In addition, long upgrade cycles often result in outdated versions of applications running across different departments within organizations, making it difficult for businesses to respond to changes in their competitive and regulatory environments.

 

    Lack of Configurability.  Businesses also face challenges in configuring their legacy systems to meet their specific needs, as well as integrating them with third-party software applications. Due to their rigid architectures, legacy offerings are often inflexible and cannot be easily customized to meet customers’ business requirements so that businesses are often forced to adapt their business processes to the capabilities of the software.

 

    Lack of Independence.  Some legacy offerings are provided by vendors that have significant operations selling ERP systems or professional services. These vendors are naturally incentivized to promote their own ERP systems as opposed to providing seamless interoperability with a variety of ERP and other back-end systems that may exist in a customer environment. As a result, product implementation cycles can be long, costly and require significant training, support and services.

 

   

Limited Supplier Adoption.  Many legacy systems come with built-in barriers to supplier adoption, including participation or transaction fees (usually to continue to receive orders on contracts they already had), which leads to friction as suppliers face an increased cost of doing business. In addition to the supplier network fees, suppliers often face difficulty connecting to the buyers’

 

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network technology as a result of incompatible systems, lengthy onboarding processes and cumbersome web portals and web catalog features that can be difficult to use. Therefore, over time many legacy systems experience diminished supplier participation and involvement, resulting in manual and inefficient processes.

 

    Pricing Models Discourage Adoption.  Some legacy software providers charge businesses based on the number of processes or transactions the users complete. These pricing mechanisms, however, may disincentivize the use of the software technology instead of promoting it, thereby undermining adoption.

Coupa’s Unified Cloud-Based Spend Management Platform

We offer a unified, cloud-based spend management platform that can significantly improve savings for businesses. The core of our platform consists of procurement, invoicing and expense management modules that form our transactional engine and capture a company’s spend. In addition, our platform offers supporting modules, including sourcing, analytics, contract management, supplier management, inventory management and storefront, that help companies further manage their spend. Moreover, through our free Coupa Open Business Network, suppliers of all sizes can easily interact with buyers electronically, thus significantly reducing paper, improving operating efficiencies and reducing costs.

Our platform provides businesses with real-time visibility into spending that is occurring company-wide and enables businesses to drive adoption of the platform and capture, analyze and control this spend, achieve real, measurable value and savings and directly improve their profitability:

 

    Drive Adoption.  Our platform engages employees across the organization, not just in the procurement department. Our platform applies a distinctive user-centric approach that shields users from complexity and provides a mobile-enabled consumer Internet-like experience, thus enabling widespread adoption of our platform by employees as well as suppliers. By simplifying and automating various processes, our platform draws employees to purchase goods and services or expense items through the platform and attracts suppliers that want to seamlessly connect with buyers, thus significantly increasing spend that is flowing through the platform and can be managed.

 

    Capture.  Our transactional engine captures and has visibility into spend across an organization—pre-approved, post-approved and unapproved spend. The procurement module streamlines purchasing requisition and purchase order processes, allowing businesses to track and manage purchases in real time. Once approved, employee purchase orders are automatically sent to suppliers for fulfillment and invoicing. The invoicing module makes it easy for suppliers to send electronic invoices, while customers can easily configure invoice approval and matching rules so that invoices can be processed with little effort from the accounts payable team. Moreover, our expense management module that leverages mobile capabilities empowers employees to create expense reports on-the-go with minimal data entry requirements. Given purchase orders, invoices and expense reports flow through our platform and the data is stored centrally in a clean and organized fashion, businesses are able to observe the company-wide spending activities in real time.

 

    Analyze.  Our spending analytics capabilities provide intuitive spend analysis dashboards and reports that deliver real-time analytical insights that help businesses identify problems and make better spending decisions. Real-time analytical insight is critical to helping identify savings opportunities and risks, as well as isolating problem areas in the spending process to target improvement efforts.

 

   

Control.  We help our customers control and streamline their spending activity, as well as realize efficiencies that result in real savings. For example, our contracts module makes negotiated contracts available across the organization, so that employees purchase from preferred suppliers and comply with negotiated rates. Through our sourcing module, customers can invite suppliers to real-time bidding and thus control how much they spend on goods and services. With our platform,

 

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customers can easily configure business rules that enable managers to approve or reject employee spending requests, as well as prevent excessive spend through built-in functionality that enables employees to review their spending against budget in real time. In addition, through intelligent features that benchmark employees’ spending, our platform incentivizes more frugal and responsible spending behavior and drives business expense compliance.

 

    Save.  Within a short timeframe, we help our customers realize measurable value and savings by taking advantage of pre-negotiated supplier discounts, achieving contract compliance, improving process efficiencies and reducing redundant and wasteful spending, as well as enable strategic sourcing via reverse auctions in which suppliers bid down prices at which they are willing to sell their goods and services to businesses.

The modules of our unified platform are tightly integrated with each other. For example, our sourcing module can alert a manager that a contract in place for a product is about to expire. We can recommend that the manager conduct a reverse auction and invite a few preferred suppliers. After the auction, the business is awarded to a supplier pending contractual agreement. Through our contract module and our recent acquisition of Contractually, the manager is able to negotiate the details and agree on service level agreements before executing the contract. The supplier can take advantage of our storefront capabilities to make their product catalog available to the buyer via our Coupa Open Business Network. Next, the manager is able to either procure the product and receive an e-invoice from the supplier or expense the product while adhering to the negotiated contract terms, all via our transactional engine with procurement, invoicing and expense modules. In addition, our platform would prompt any employee trying to procure or expense the same product that a new contract with discounted rates from a preferred supplier is available, thereby driving behavioral change. Our inventory module helps the company track the product quantity stored in company warehouses and offices so that employees do not re-order items already in inventory. Our supplier management module helps a manager track the performance of the supplier in delivering the product on time and in meeting quality requirements. Lastly, our analytics module can help managers review spending trends associated with this specific product and analyze data on a per geography, per office location or even employee cost center level.

Key Benefits to Businesses

 

    Rapid Time to Value and Low Cost of Ownership.  Our cloud-based model allows customers to quickly access and deploy our platform without the need to install and maintain costly infrastructure hardware and software necessary for on-premise deployment. This enables our customers to achieve fast time to value, with deployment times typically ranging from a few weeks to several months, compared to significantly longer deployment times for legacy offerings. In addition, we can seamlessly update our platform via the cloud and customers do not have to pay for expensive upgrades. The ease of use of our platform enables business users to quickly learn and use our platform without the need for expensive IT involvement for configuration and training.

 

    Significant Savings Opportunity.  Our platform enables businesses to achieve significant and sustainable savings that can translate into improved profitability. Our customers often start realizing benefits in a matter of days or weeks. For example, by taking advantage of automated order and invoice processing, early payment discounts, effective contract management and strategic sourcing, typical customers have achieved savings of 1% to 10% of their annual spend under management. Customers can achieve even higher savings through our Coupa Advantage program that leverages the collective buying power of hundreds of our global customers to pre-negotiate discounts and favorable contract terms with top suppliers.

 

   

High Employee Adoption Enables Better Visibility into Spend.  Employee adoption is critical to the success of any company-wide roll-out of a spend management solution. The ease of use of our unified platform enables high adoption across users whether they are users in the procurement and

 

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finance department or employees in other departments. High employee adoption is the key to bringing more spend under management, which in turn leads to better spend visibility, increased compliance and auditability, tighter control and measurable value and savings.

 

    Higher Supplier Adoption.  Traditional procurement systems typically exhibit low supplier adoption due to barriers associated with cost, time and complexity, thus reducing the spend captured through the system. Complex, fee-based networks often engage only the largest suppliers with high transaction volumes and fail to attract smaller, local suppliers that may account for a substantial portion of an organization’s spend. With our platform, customers achieve strong supplier adoption as suppliers are motivated to join our network due to ease of enablement, flexibility and lack of supplier fees. As a result, customers benefit from better long-term relationships with suppliers of all sizes, realize process efficiencies, bring more spend under management and achieve higher savings.

 

    Real-Time and Rich Data Leads to Superior Decision Making.  Our platform aggregates spend data from disparate sources and translates the data into easy-to-understand yet powerful dashboards and reports, thus offering real-time visibility into a company’s spend and key process data. Chief Financial Officers and Chief Procurement Officers can utilize our analytics and reporting capabilities to review spend data by geography, by department, by supplier, by product or service or other relevant metrics. In addition, we provide benchmarking versus other companies and an ability to evaluate supplier performance that can help decision makers evaluate areas of improvement and make decisions that can lead to significant cost savings. We also identify opportunities for early payment discounts that lead to further cost savings for our customers.

 

    Agility.  Our unified spend management platform is designed for leading global businesses seeking highly flexible software that allows them to embrace changes in their operating and regulatory environments. Our configuration model allows customers to configure complex business rules and adapt our applications to meet their specific and changing requirements without having to write custom code or use expensive consultants. For example, our users can quickly and easily change the approval workflow processes that underlie their Coupa applications to support changes to delegation of authority in response to the organic growth of their business, acquisitions or different operating conditions.

 

    Efficiency.  Our platform can automate approval request processes that meet certain pre-defined rules set up by businesses, without the need to obtain additional approvals. For those requests that require additional approvals, we enable push notifications for decision makers who can approve or reject purchases quickly on their mobile devices or by pressing an icon within an e-mail, without the need to log in to any website or other software applications. This simplifies the lives of managers and leads to significant process efficiencies within the company as employees can quickly get the goods and services they need to be productive. Efficiency improvements with respect to placing procurement orders, as well as invoice and expense report processing, allow businesses to free up valuable resources and staff who can be deployed effectively elsewhere in the organization.

 

    Enhanced Compliance.  We drive enhanced compliance for businesses by providing greater spend visibility and control, effective approval processes and effortless spend documentation. Our solution offers enhanced auditability of spend with streamlined approval workflows and integrated archiving and documentation features. Our unique configurability enables customers to stay agile and respond quickly to changing government regulations.

Key Benefits to Employees

 

   

Consumer Internet-Like Experience Encourages Use of Platform.  Our focus on an intuitive and simple user experience shields users from complexity and enables adoption of our platform by users with minimal training. As opposed to legacy systems that cause employee frustration and resistance, our

 

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web interface and mobile application provide employees with a user experience that is similar to that provided by consumer Internet leaders. As a result, employees are incentivized to use the platform more frequently since they are easily and quickly able to purchase or expense goods and services they require. Our applications are designed to minimize the number of steps needed to perform a task, thus simplifying the jobs of employees and their managers. Our platform can be pre-configured for a variety of personas within an organization, such as for Finance, Procurement, IT or Accounts Payable roles who each have different responsibilities and use cases. Those personas are only presented with the functionality needed for their role, thus removing unnecessary complexity and driving user adoption of the platform. In addition, we have the capability to automate expense approvals below a certain threshold, to save managers time and allow them to focus on expenses that truly need their attention.

 

    Efficiently Acquire Goods and Services Needed to Fulfill Job Responsibilities.  Complex software applications, needing to use multiple systems, inefficient approval processes and lack of knowledge regarding how to obtain approvals can lead to frustrating delays for employees. Using our spend management platform, employees are more efficiently able to procure the goods and services they need, while the complexities of compliance, budgeting, making sure existing stock items are not re-ordered, making sure approved vendors are used, are addressed by our platform in the background without needing to involve the employee.

 

    Mobility.  Our platform delivers an end user experience that can be accessed from anywhere in the world from any mobile device with an easy to use and intuitive user interface. Our platform is compatible with a number of mobile operating systems, including iOS (both iPhone and AppleWatch) and Android (including Blackberry support).

 

    Convenience.  Our platform leverages insights it gathers regarding procurement patterns and helps populate requests. As an example, if a lab technician frequently orders certain supplies, our platform makes it easy to populate their order to enable a more efficient shopping experience. As another example, our mobile app allows employees to capture receipts via their mobile device and eliminates the need to carry paper receipts for expense reimbursement. We also enable voice entry of expense items.

 

    Faster Reimbursement.  More efficient processes for expense management lead to faster reimbursement for employees.

Key Benefits to Suppliers

 

    No Upfront or Ongoing Fees.  Suppliers can join and transact on our Coupa Open Business Network for no fee, thus minimizing friction when interacting with businesses using our platform and reducing the cost of doing business. In addition, by connecting with a large number of buyers seamlessly through a single platform, suppliers can sell more volume, thus maximizing their revenues.

 

    Speed and Flexibility.  Suppliers can quickly register and connect with customers who invite them to the platform. Suppliers have the flexibility to choose whether they want to connect through the Coupa Supplier Portal or integrate directly through commerce eXtensible Markup Language (cXML) or electronic data interchange (EDI). They can also use Coupa Supplier Actionable Notifications, which are smart e-mail tools through which suppliers can transact with no registration required.

 

    Eliminate Manual Processes.  Our platform enables suppliers to eliminate manual invoicing and saves costs and improves efficiency by offering electronic invoicing to their customers. In addition, we help avoid errors and streamline the procurement and payment process.

 

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    Real-Time Visibility into Invoice Status.  Suppliers can use our platform to quickly get updates on invoice payment and processing status to manage and plan their finances, often through direct push notifications without having to log in to a portal.

 

    Enhanced Compliance.  Seamless audit, documentation and archiving of electronic purchase orders and invoices helps suppliers comply with changing government regulations, as well as avoid risks.

 

    Manage Profile and Online Catalog.  Suppliers have an opportunity to profile themselves on the Coupa Open Business Network and make their catalog of products and services available online not only for existing customers but also for prospective customers.

Our Market Opportunity

Our unified, cloud-based spend management platform unites the three core aspects of spend management—procurement, invoicing and expense management—and has the ability to manage both direct and indirect spend. The total market for indirect and direct spend management is estimated at $16.0 billion in 2016, based on research by the following industry sources. International Data Corporation (IDC) estimates that the global market for procurement and invoicing applications that automate processes related to purchasing supplies, material and services will reach $4.3 billion in 2016 and will grow to $5.3 billion by 2019. According to Technavio market research sourced from ISI Securities EMIS, the global Software-as-a-Service (SaaS)-based market for expense management will reach $2.2 billion in 2016 and will grow to $3.2 billion in 2018. In addition, IDC estimates the market for supply chain management application software, which includes software related to logistics, production planning and inventory management, will reach $9.5 billion in 2016 and grow to $11.3 billion in 2019.

We believe that the market for unified spend management is largely untapped. For indirect spend alone, we estimate that the world’s largest 5,000 companies spend approximately $13 trillion. Based on industry benchmarks, we believe the annual savings opportunity is approximately 5% of total indirect spend or $650 billion per year. For the fiscal year ended January 31, 2016, we estimate that our customers have achieved approximately $2.89 billion in savings using our platform. We believe that the total number of companies addressable by our solution amounts to more than 187,000, which represents the number of worldwide companies with more than 500 employees, as estimated by the Capital IQ database. We believe we have a significant opportunity to continue to attract new customers and increase our sales by helping customers increase their spend under management, benefit from the value we create and realize significant cost savings.

Our Competitive Strengths

 

    Easy and Intuitive User Interface that Enables Widespread Employee Adoption.  We deliver a user experience that is similar to the experience delivered by leading consumer Internet sites. Our focus on an intuitive and simple user experience shields our users from complexity and enables adoption of our platform by users with minimal training. Our applications are designed for use by the entire workforce, including senior managers and non-finance employees.

 

    Unified Platform With Powerful Functionality.  We offer a unified platform that is tightly integrated and delivers a broad range of capabilities to manage pre-approved spend, post-approved spend and unapproved spend that would otherwise require the purchase and use of multiple disparate point applications, such as procurement, invoicing, expense management, sourcing and contract management applications. By offering a unified platform with powerful functionality that integrates different modules, we deliver a comprehensive platform for customers to see, analyze and control spend across their entire company, thus significantly enhancing savings potential. In addition, our platform has the same user interface across all of our modules and users can go to the same front-end to fulfill their needs. This enables users to have a consistent experience and to only have to learn to use the platform once.

 

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    Independence and Interoperability.  We are exclusively focused on spend management software that increases savings for our customers. We are agnostic as to the ERP system and other back-end systems used by our customers and our open architecture enables interoperability with numerous software applications, back-end systems and other third-party offerings. Customers can use our API, flat files, cXML and EDI data formats or custom code to make seamless connections between our platform and their ERP platform, supplier or other third party-system. Millions of API transactions run through the platform on a daily basis. In addition, we work with a variety of services partners and are not incentivized to increase the size of our professional services business, which enables us to work with partners with whom our customers want us to work.

 

    Powerful Network Effects.  As more businesses subscribe to our platform, the collective spend under management on our platform grows. Greater aggregate spend under management on our platform attracts more suppliers, which in turn attracts more businesses that want to take advantage of the goods and services available through our platform, thereby creating powerful network effects. In addition, as more businesses and employees use our platform, the amount of spend under management continues to increase. This leads to more savings for customers and improves our ability to attract more businesses. The resulting increase in sales enables us to further invest in our platform and to improve our functionality and user interface to continue to attract more businesses and suppliers to our platform, which enhances the network effects that benefit all parties.

 

    Architected from the Ground up as a Cloud Platform.  We are 100% built from the ground up as a SaaS application delivered via the cloud. We did not transition a legacy offering to the cloud and we do not offer hybrid options. As a result, our total cost of ownership is low, our deployment times are short, and we can seamlessly deploy the latest updates and upgrades to all our customers via our cloud-based platform. We have partnered with Amazon Web Services (AWS) to ensure scalability and that we always have the computing power required to support our spend management platform and ensure rapid response times. We have delivered superior performance and reliability, with historical uptime consistently in excess of 99.9%.

 

    Rich Partner Ecosystem.  We have developed strong strategic relationships with a number of leading partners including global systems integrators, implementation partners and technology partners. We have partnerships with several global systems integrators, including KPMG, Deloitte, Accenture, IBM, PwC and Wipro, who help us scale our business, extend our global reach and drive increased market penetration. We have trained hundreds of consultants who offer and implement spend management solutions powered by our platform. We expect the number of our partner led implementations to continue to increase over time, as well as sales referred from our partners. We also have more than 30 technology partners including Dell Boomi, IBM (Emptoris) and Trustweaver. These alliances extend and enhance the capabilities of our platform by enabling us and the third parties to create integrations that can deliver a higher level of value to customers.

 

    Results-Driven Culture.  We have a relentless focus on real measurable customer success and work extensively with customers to achieve significantly improved business value in the form of savings through the use of our platform. We assist customers in identifying key performance indicators and utilize benchmark analysis with anonymized customer data from our cloud platform to help them measure their relative spend optimization performance against the overall market. We help businesses improve employee adoption, increase spend under management, bring suppliers on board and measure ourselves on how we can help businesses maximize their savings.

 

    Higher Supplier Adoption.  We do not charge suppliers any upfront or ongoing fees to participate in our Coupa Open Business Network and offer suppliers an easy and flexible way to interact with customers with minimal friction. As a result, suppliers are motivated to join our network and adopt our platform, which represents a significant competitive advantage over legacy vendors that often struggle with supplier adoption.

 

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    Proprietary Data Enables Superior Insights.  We aggregate all of a company’s transactions in a master data store that processes and automatically classifies it to provide clean, complete and cohesive data that can be immediately analyzed. Managers can use powerful built-in reports and dashboards to analyze spending behavior, find bottlenecks in workflows and view granular reports by commodity, supplier, location, cost center. In addition, we provide benchmarking versus other companies and an ability to evaluate supplier performance that can help decision makers evaluate areas of improvement and make decisions that can lead to significant cost savings. As the number of employees and amount of spend through our platform grows, we acquire more proprietary data that enables us to provide unique insights to our customers, thus strengthening our powerful value proposition.

Growth Strategy

Key elements of our strategy include:

Expand Global Customer Base.  We believe that there is a substantial opportunity for us to continue to increase the size of our customer base across a broad range of industries and companies. We estimate that our customer base of more than 460 customers represents less than 1% of the approximately 100,000 businesses worldwide with greater than 1,000 employees according to industry sources. As of July 31, 2016, we had offices in 12 countries and plan to expand our operations in Asia, Latin America and Australia. We plan to continue to invest in our sales force and strategic resellers to grow our customer base, both domestically and internationally.

Deepen Existing Customer Relationships.  We plan to deepen our relationships with existing customers by driving additional employee adoption, selling to additional departments and divisions of the company and increasing spend under management. As we demonstrate value in the form of measurable value and savings, we may have opportunities to upsell additional modules and capture additional value from our existing customers.

Increase Direct and Services Spend Under Management on our Platform.  Most of our spend management has historically focused on indirect spend. We have expanded our capabilities to offer spend management solutions that address direct spend and plan to increase direct spend transacted via our platform. We believe that we can build out our platform to successfully address direct spend in the future and achieve similar success as we have demonstrated in the indirect spend market. In addition, we plan to expand our services procurement capabilities to better cover contingent labor spending.

Continue to Innovate and Further Develop our Cloud Platform and Open Business Network.  We have made significant investments in research and development and plan to continue extending the functionality and breadth of our applications in the future. We plan to continue our rapid innovation cycle.

Further Expand and Develop our Partner Ecosystem.  We intend to further develop our existing partner ecosystem by establishing agreements with more systems integrators and implementation partners to provide broader customer and geographic coverage. We plan to continue our strategy of working with partners that will source and implement spend management opportunities that can be powered by our software.

 

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Our Platform’s Capabilities

Our unified, cloud-based spend management platform includes the following capabilities:

 

 

LOGO

Coupa’s Transactional Engine

The core of our platform is our transactional engine, which is comprised of the following modules:

 

    Procurement.  Our procurement module enables customers to strategically establish spend policies and approval rules to govern company spending. The application provides a consumerized e-commerce shopping experience so that employees can easily and quickly find the goods and services they need to do their jobs. Our procurement module streamlines purchasing requisition and purchase order processes, allowing businesses to track and manage purchases in real time, thus reducing time and cost. Upon approval of an employee request, purchase orders are automatically sent to suppliers for fulfillment and invoicing. Benchmark data allows customers to spot process inefficiencies, while configuration ease enables businesses to effortlessly adjust business processes to meet continually changing business requirements.

 

    Invoicing.  Our invoicing module enables customers to improve cash management through the effective management of supplier invoices via embedded dashboards and work queues that prioritize invoices with early payment discount opportunities. Customers may quickly configure invoice approval and matching rules so invoices can be routed without accounts payable team member effort and cost. Easy, no-cost means for suppliers to create electronic invoices that comply with government regulations allow businesses to eliminate paper and further reduce their invoice processing costs, all while reducing invoice payment fraud risk.

 

   

Expense Management.  Our expense management module enables customers to gain control of the expenses incurred by employees. Innovative mobile capabilities such as GPS and geo-location make it easy for travelers to create expense reports on-the-go so businesses gain real-time expense

 

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visibility. Frugal meter capabilities automatically assess the appropriateness of employee charges based on the customer’s configured business processes. Seamless connectivity to credit card providers feed charges into our expense management module for added visibility and reporting ease.

Supporting Modules

Our platform offers the following supporting modules that help companies further manage their spend:

 

    Sourcing.  Our sourcing module enables customers to find the best suppliers for the goods or services they need to run their businesses. Customers easily create sourcing events containing the specifics of their business needs and invite suppliers to participate. Suppliers are able to review and bid effortlessly and without any fees to participate. Collaboration capabilities enable employees to review bids and provide feedback that is automatically compiled and scored.

 

    Inventory.  Our inventory module enables customers to manage spending by effectively managing physical goods and virtual licenses. Employees searching for goods see inventory on hand balances in the search results, which eliminates redundant spending. Embedded dashboards facilitate the move of inventory from warehouse to warehouse and predict item shortages so inventory managers can easily manage goods and licenses. The application automates fulfillment and keeps inventory in sync through regular cycle counts, discrepancy reports, and asset tags.

 

    Contracts.  Our contracts module enables customers to operationalize contracts and make them easily available for purchasing by employees across the organization. Contract compliance increases savings as employees make purchases using negotiated rates. Real-time contract enforcement and spend visibility is provided through embedded dashboards at both the contract and summary level. Full text search capabilities and automatic alerts remind employees to review contracts prior to expiration or auto-renewal dates.

 

    Supplier Management.  Our supplier management module enables customers to collect supplier information required to manage and pay their suppliers. Customers can quickly create unlimited data collection web forms using a drag and drop interface. Web forms may be tailored for country specific rules or supplier types. To make data collection easy, web forms are embedded as part of the natural business processes for procurement and invoicing. Real-time dashboards and reports show supplier data freshness and upcoming expirations.

 

    Analytics.  Our analytics module provides managers a large set of built-in reports and dashboards that allow users to see spending activity, find bottlenecks in workflows, analyze granular data by commodity, supplier, location and cost center, and drill-down into the spend transactions. We have created more than one hundred out-of-the-box reports covering some of the most important business metrics, such as unified spend for purchase orders, invoices or expense reports, spend trends over time, spend by commodity, supplier and contract; however, users can also create new metrics, reports and dashboards with our intuitive user interface, as well as include external data like corporate and travel expenses or integrate with third-party systems, to get a holistic view of their spend patterns.

 

    Storefront.  Our storefront module enables customers with a third-party procurement system to use our consumerized catalog search experience so employees can easily and quickly find the goods and services they need to do their jobs. Our storefront module works with third party procurement systems that support open catalog interface or cXML for catalog integration.

Coupa Open Business Network

Our Coupa Open Business Network instantly connects businesses and suppliers without any setup or transaction fees, providing businesses with a platform that is accessible to suppliers of all sizes—even those

 

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typically ignored by fee-based closed networks—to drive success. Suppliers have a variety of options to connect with businesses including:

 

    Coupa Supplier Portal.  This portal is a free tool for suppliers to easily do business with our customers. The Supplier Portal lets suppliers manage content and settings on a customer-by-customer basis, including managing company information, setting up purchase order transmission preferences, creating and managing online catalogs, managing procurement orders and invoices across multiple customers and gaining visibility to the status of invoices.

 

    Coupa Supplier Actionable Notifications.  These notifications enable suppliers to receive HTML purchaser orders and convert these purchase orders into invoices right from the procurement order e-mail, which represents the easiest way to submit electronic invoices through our platform.

 

    Direct Connection via cXML and EDI.  Our platform supports various communication formats such as cXML or EDI for suppliers that want to automate their invoicing through a tighter integration with our platform.

 

    Direct E-mail.  Suppliers can choose to send PDF invoices simply through e-mail.

By using our Coupa Open Business Network, companies can become compliant with government mandates, increase profitability and reduce costs by driving electronic transactions from purchase order through e-invoice and payment visibility. Our Coupa Open Business Network user interface is easy to navigate and requires little to no training for suppliers to instantly manage transactions. Businesses are able to interact with thousands of suppliers already using our Supplier Portal, onboard new suppliers in minutes, integrate directly or simply use our smart e-mail tools. Businesses can also use the Coupa Open Business Network to layer on top of their existing technology, including third-party systems such as Oracle iProcurement, SAP SRM and others. All options are available to suppliers in a fee free model, with no supplier paid fees for signup or transactions. Suppliers of all sizes benefit, as they are able to join the networked economy without changing their technology or spending money on transaction fees.

Coupa Advantage

Coupa Advantage is a program available for all of our customers and leverages the collective buying power of more than 460 organizations and $250 billion in cumulative spend under management. This program helps drive immediate savings by offering pre-negotiated contracts with top suppliers across multiple categories and making that content available immediately in our environment. A portion of the savings generated from the Coupa Advantage program are donated to support humanitarian efforts by select charities, thus seamlessly embedding corporate social responsibility into B2B commerce and encouraging and enabling suppliers and their customers to give back to society.

Our Customers

As of July 31, 2016, we served more than 460 customers doing business in more than 100 countries and our platform was offered in more than 20 languages. We define a customer as a separate and distinct buying entity, such as a company, an educational or government institution, or a distinct business unit of a large corporation that has an active contract with us or our partner to access our platform.

Our customers include leading businesses in a diverse set of industries, including healthcare and pharmaceuticals, retail, financial services, manufacturing, and technology, amongst others. No individual customer represented more than 10% of revenues in the fiscal years ended January 31, 2015 or 2016 or for the six months ended July 31, 2016.

 

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The following table shows a representative list of our customers by industry category:

 

 

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Note: Each customer listed in the table above generated revenue of at least $50,000 for Coupa during the fiscal year ended January 31, 2016.

Customer Case Studies

Avalon Health Care Group

Situation:  Avalon, a premier provider of post acute and long-term medical care, needed to improve control of their business spend. The healthcare system was going through a challenging time and Avalon’s profit margins were reduced to less than 1%; however, only 40% of the company’s spend was being actively managed. They did not believe that legacy systems would afford them the ability to make better spend decisions at the time of the purchase. They felt that an easy to learn, intuitive system that would drive savings for the company and get employees back to patient care instead of back office processing was critical.

Solution and Benefits:  Avalon selected Coupa because the platform provided employees the real time budget visibility required to make informed decisions at the time of purchase. In addition, the Coupa Open Business Network replaced an alternate supplier network that charged supplier fees. Coupa Spend Management was first provided to Avalon in January 2012. Avalon reported the following benefits:

 

    Realization of significant business savings of over $5,000,000* in the 12 months prior to the date of savings calculation.

 

    Automated invoice processing that reduced Accounts Payable department invoice processing resources by over 70% and reduced typical time to approve purchase requests by 88% (from 48 hours to 8 hours).

 

    Delivered real-time budget visibility at time of purchase request while providing contract compliance that increased company savings.

 

    Achieved additional spend control through the adoption of Coupa Expenses, which was deployed in a rapid implementation of three weeks.

 

    Consolidated financial processes across contract, procurement, invoicing and expense management, which delivered spend visibility across 60 locations.

 

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The Fresh Market

Situation:  The Fresh Market is a chain of gourmet supermarkets based in Greensboro, North Carolina. The company operates 168 stores in 27 states across the United States. The company lacked control and visibility into its distributed spend. An improved purchase and invoice system was needed that would require little to no employee training and one that would allow employees to stay on the sales floor instead of working on back office functions.

Solution and Benefits:  The Fresh Market selected Coupa contracts, invoicing and procurement to consolidate spending and increase controls across their distributed grocery locations and improve accounts payable processes. Coupa Spend Management was first provided to The Fresh Market in April 2012. The Fresh Market reported the following benefits:

 

    Realization of significant business savings of over $1,000,000* in the 12 months prior to the date of savings calculation.

 

    Reduced overpayments to suppliers through fully automated purchase order, receipt, and invoice matching.

 

    An estimated 65% reduction in time required to create purchase requests, freeing up grocery related staff to return to sales floor.

 

    Reduced typical invoice approval time from weeks to hours resulting in improved supplier relations.

Molina Healthcare, Inc.

Situation:  Molina, a Fortune 500 company, provides managed health care services under the Medicaid and Medicare programs and through the state insurance marketplaces. The company was expanding rapidly through acquisition and needed a centralized procurement solution. This would replace the functions being handled within individual business units and give the company consolidated visibility to sourcing, contracts, budgets, purchasing and invoicing.

Solution and Benefits:  Molina selected Coupa contracts, invoicing and procurement to better leverage spending across the organization for increased savings. Coupa’s subscription-based SaaS delivery model played a significant part in Molina’s decision to choose Coupa over other solutions that required more resources to manage and maintain while decreasing supplier participation due to supplier fees and supplier contracts. Coupa was first provided to Molina in September 2011. Molina reported the following benefits:

 

    Improved operational efficiency by over 360% since September 2011.

 

    Decreased risk through spend visibility and contract compliance.

 

    Processed 3x the invoice volume with only 17% accounts payable headcount growth.

 

    Mobile capability usage that reduced requisition approval times to under 48 hours on average.

NEC Europe Ltd.

Situation:  NEC Europe is a subsidiary of NEC Corporation, a leader in the integration of IT network technologies that benefit businesses and people around the world. The company faced a challenge to improve visibility and control of its European operation’s spending. The requirements for a new system were better controls and a more complete understanding of how NEC was spending money. In addition, the solution would need to be consistent with its IT strategy to put as much into the cloud as possible to reduce IT and total ownership costs.

Solution and Benefits:  NEC Europe selected Coupa to enable better control and report on spend throughout Europe. The solution was chosen for its current feature set, rapid innovation cycles and

 

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commitment to customer success. NEC utilized Coupa capabilities across procurement, contracts, invoicing and sourcing to gain spend visibility and contract compliance. Coupa’s cloud-based, configurable technology provided enterprise-class operations, helping free up IT from expensive and unnecessary customization projects. Coupa was first provided to NEC Europe in December 2012. NEC Europe reported the following benefits:

 

    Realization of significant business savings of over $2,000,000* in the 12 months prior to the date of savings calculation.

 

    Rapid implementation with full integration to its ERP within 3 months of project start and results within weeks of implementation.

 

    Improved reporting of purchasing spend with visualization of expenditures on a daily, weekly, or monthly basis and full self-service spend report creation and scheduling.

 

    More than 50% reduction in typical time to approve purchase requests.

Service Corporation International

Situation:  Service Corporation International, the largest provider of deathcare products and services in North America, employs over 25,000 people in more than 2,000 locations across the US, Canada and Puerto Rico. Business spending was distributed across individual locations and visibility to all spend from a centralized location was lacking. The workforce also required a solution which would require little training and offer full mobility in order to support their on the go work style. In addition, the localized business model required hundreds of thousands of small to medium sized suppliers with little technology savvy to connect and work with SCI electronically.

Solution and Benefits:  Service Corporation International selected Coupa contracts, invoicing and procurement to get visibility of spending across their entire organization. The Coupa Open Business Network provided a no cost to supplier model that allowed suppliers to do business with SCI quickly and via email interface. In addition, Coupa’s 100% mobile solutions allowed 99% of SCIs employee base to process all purchases and approvals through Coupa while on the go, allowing employees to get back to family care instead of back office functions. Coupa was first provided to Service Corporation International in February 2012. Service Corporation International reported the following benefits:

 

    Realization of significant business savings of over $6,000,000* in the 12 months prior to the date of savings calculation.

 

    Increased early payment discount capture rate and reduced overpayments to suppliers through full electronic invoice automation.

 

    Processed 100% of direct and indirect spend through the Coupa platform, with approximately $1 billion in spend under management over the first 12 months of system use.

 

    Negotiated additional supplier contract savings in sourcing events (saving over $390,000 in first sourcing event alone).

 

* The foregoing calculations in the case studies were completed by the customers and Coupa using previous 12 month (from date of calculation) Coupa platform spend throughput applied against industry benchmark data. Measurement is of effectiveness and efficiency gained through spend processing using Coupa.

Concentrix, a Wholly Owned Subsidiary of SYNNEX

Situation:  In 2013, IBM and SYNNEX announced an agreement in which SYNNEX would acquire IBM’s worldwide customer care services business for $505 million. The acquisition would be combined with Concentrix, a wholly owned subsidiary of SYNNEX. As such, Concentrix might use and pay for IBM’s

 

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existing spend management platform or evaluate and select a new spend management platform. Concentrix considered rapid implementation and broad global capabilities to support the Concentrix’s worldwide operations to be key requirements.

Solution and Benefits:  Concentrix selected Coupa as the platform that offered rapid implementation, global functionality with broad suite offerings for procurement, invoicing, expenses, and contracts, and could scale as the business grew both organically and through future acquisitions. Coupa was first provided to Concentrix in December 2013. Concentrix reported the following benefits:

 

    Realization of several million dollars in business savings since the implementation.

 

    Achieved fast implementation, with an implementation covering 29 internal entities in 20 countries only five weeks from the effective date of its contract with Coupa.

 

    Demonstrated agility through extending use of Coupa platform as Concentrix integrated IBM’s $1.2 billion CRM BPO Business.

 

    Rapid end user and supplier adoption of new business processes covering expenses, procurement and invoices, which resulted in document processing savings, increased efficiencies and improved supplier relationships.

Capital One

Situation:  Capital One, an American financial services holding company specializing in credit cards, home loans, auto loans, banking and savings products, established a corporate initiative in 2015 to digitize its source-to-pay process. While Capital One’s customer-facing applications had long been known for their intuitive design and ease of use, its back office operations were still heavily manual and complex. Understanding that both external and internal customers expect and deserve the same degree of speed, digital capability and innovation, Capital One sought a solution that would transform its business processes in three ways: (i) to seamlessly integrate upstream and downstream functions from sourcing to invoicing; (ii) to provide a very intuitive, easily adopted system for tens of thousands of employees and suppliers; and (iii) to digitize routine and manual processes to increase efficiency and quality.

Solution and Benefits:  Capital One selected Coupa as its platform for business spend, including expense management, sourcing, procurement, invoicing, contract management and spend analytics in September 2015. From a product standpoint, Capital One determined that Coupa’s unified cloud platform and open business network provided the required end-to-end integration across all facets of its procurement value chain, while the user-centric design would speed adoption and minimize training time. It also sought a partner that would challenge established practices, and it valued Coupa’s track record of innovation. Capital One is in the initial phases of its U.S. rollout and plans to expand internationally next year. Its goals for the global initiative include:

 

    100% of spend captured in Coupa and 100% of purchases orders sent electronically.

 

    90% of addressable spend going through approved contracts.

 

    99% of invoices received electronically.

 

    80% of invoicing resources focused on strategic activities.

Staples

Situation:  Staples, a leading office supply company with more than 1,900 stores worldwide in 25 countries, is engaged in a procurement digital transformation process that is designed to generate savings on its approximately $3,000,000,000 of non-merchandise spend, which savings can then be reinvested into several strategic corporate growth initiatives. A key element of this transformation was selecting and deploying a global procure-to-pay system. The lack of such a system had previously limited its visibility and control over much of its spending and had been overloading its accounts payable department.

 

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Solution and Benefits:  The evaluation team at Staples sought a cloud-based business spend platform that was more flexible and less expensive than traditional enterprise systems and would be easily and widely adopted by employees and suppliers. It concluded that Coupa was the most user-friendly of all the procure-to-pay systems it evaluated, and Staples accordingly implemented Coupa as the single platform for all its non-merchandise procurement in the United States and Europe in June 2015. In Europe, Staples plans to use Coupa to provide a unified view into its spend across many different ERP systems. Initial results from its deployment include:

 

    Digitalization of all purchasing contracts into a single system for complete visibility, including paper-based contracts that had been sitting in “desk drawers” or were otherwise hidden from view.

 

    Increased collaboration and communication between its teams in procurement, accounts payable, finance and global technology – what Staples considered an “unexpected benefit” of the Coupa implementation.

 

    Increased employee self-service, reducing the strain on its limited procurement resources.

 

    Expanded adoption of digital purchase and invoice processes by its smaller suppliers.

Procter & Gamble

Situation:  Procter & Gamble (P&G), a global leader in consumer packaged goods with operations in approximately 70 countries worldwide, desired to automate and reduce complexity in its source-to-pay process. Its existing infrastructure, which included multiple customized instances of legacy offerings, had become inefficient and difficult to maintain, which resulted in increased business costs.

Solution and Benefits:  In June 2015, P&G selected Coupa as the spend management platform to modernize and replace its existing sourcing, procurement, invoicing and contracts systems and to digitize its corporate spending processes. Its evaluation criteria focused on three business goals: (i) improving services to stakeholders (through a better user experience), (ii) creating process efficiencies (with a unified, transparent end-to-end platform) and (iii) reducing the overall cost of its solution support (by consolidating and simplifying systems). P&G went live on the Coupa spend management platform in February 2016. Since that time, the platform has expanded to cover all of its planned users across the United States and its worldwide suppliers. P&G plans to continue its rollout and be live with over 50,000 users across the majority of countries in which they operate by the middle to end of calendar 2017.

Our Culture and Employees

Our product development, employee behavior, performance reviews and interactions with customers are all driven by three guiding principles:

 

    ensure customer success;

 

    focus on results; and

 

    strive for excellence.

We know that building and maintaining a remarkable culture benefits our customers and employees, who together make up the Coupa community. This strong focus on customer success, as defined by measurable business results, serves as the foundation for the successful execution of our strategy and, as a result, is critical for our growth agenda.

As of July 31, 2016, we employed 590 people. We also engage temporary employees and consultants. None of our employees is represented by a labor union. We have not experienced any work stoppages, and we consider our relations with our employees to be very good.

 

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Sales and Marketing

We sell our software applications through our direct sales organization and our partner program, Coupa Partner Connect. Our direct sales team is global and comprised of inside sales and field sales personnel who are organized by geography, account size and application type.

We generate customer leads, accelerate sales opportunities and build brand awareness through our marketing programs, including such programs with our strategic relationships. For example, we have joint marketing programs and sponsorship agreements with KPMG, Accenture and Wipro.

Our principal marketing programs include:

 

    use of our website to provide application and company information, as well as learning opportunities for potential customers;

 

    field marketing events for customers and prospective customers;

 

    territory development representatives who respond to incoming leads to convert them into new sales opportunities;

 

    participation in, and sponsorship of, user conferences, executive events, trade shows and industry events;

 

    customer programs, including regional user group meetings;

 

    integrated marketing campaigns, including direct e-mail, online web advertising, blogs and webinars;

 

    public relations, analyst relations and social media initiatives;

 

    cooperative marketing efforts with partners, including joint press announcements, joint trade show activities, channel marketing campaigns and joint seminars; and

 

    our annual INSPIRE user conference, which is held over two and a half days to connect customers, disseminate best practices, and reinforce our brand among existing and new customers.

Partnerships and Strategic Relationships

As a core part of our strategy, we have developed an ecosystem of partners to extend our sales capabilities and coverage, to broaden and complement our application offerings and to provide a broad array of services that lie outside of our primary areas of focus.

Our partnerships increase our ability to grow and scale quickly and efficiently and allow us to maintain greater focus on executing against our strategy.

 

    Advisory and Referral Partners.  Our Advisory and Referral partners provide global, national and regional expertise in spend management, procurement and expense management. They help organizations through operational transformation by leveraging process, best practices and new technology. These partners may refer customer prospects to us and assist us in selling to them. In return, we typically pay these partners a percentage of the first-year subscription revenue generated by the customers they refer.

 

   

Implementation Partners.  In order to offer the full breadth of implementation services, change management, and strategic consulting services to our customers, we work with leading global and boutique consulting firms. We work closely with global leaders such as KPMG, Deloitte, Accenture, IBM, PwC and Wipro, as well as with boutique service providers that focus primarily on delivering implementation services for our applications, like The Hackett Group, Armanino, Xoomworks and Shelby Group. Our strategy is to enable the majority of our projects to be led by implementation partners with additional specialized support from us. Our implementation partners are highly

 

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skilled and trained by our team. When working with implementation partners, we are typically in a “co-sell” arrangement where we will sell our subscription directly to the customer and our partner will sell its implementation services directly to the customer.

 

    Reseller Partners.  Our reseller partners enhance our customer impact and extend our global presence with integrated technologies, applications, business process outsourcing (BPO) services and region-specific offerings. All of our reseller partners have been trained to demonstrate and promote our applications suites. Our reseller channel ranges from large, global players like IBM, to regional resellers in new markets and territories. Our reseller partners typically purchase our software solutions from us and resell them, integrated with their offerings to provide additional value to their customers.

 

    Technology Partners.  Our technology partners provide market-leading technology, complementary products and infrastructure-related services that power and extend our suite of cloud-based spend management applications. Our technology partners span a wide range of solutions providers including Dell Boomi, IBM (Emptoris) and Trustweaver that enhance the capabilities of our platform by facilitating integrations that can deliver a higher level of value to customers.

Technology Infrastructure and Operations

The technologies used to build our platform and modules are native cloud and designed to scale to millions of users. We utilize a modern technology stack to take advantage of advancements in web-design, open source technologies, scalability and security. We have implemented industry-standard security practices to help us protect our servers and our customers’ critical information.

We have partnered with AWS to provide the hardware and infrastructure to support our spend management platform. With this partnership, we are able to easily scale the service during peak load periods, allowing us to continuously add users and customers without significant downtime or lead-time to procure new capacity. We also have the ability to offer our solutions globally across different physical locations, with hosting currently available in the U.S., Ireland and Australia.

Research and Development

Our ability to compete depends in large part on our continuous commitment to research and development and our ability to rapidly introduce new applications, technologies, features and functionality. Our research and development organization is responsible for the design, development, testing and certification of our applications. We focus our efforts on developing new applications and core technologies and further enhancing the usability, functionality, reliability, performance and flexibility of existing applications.

Research and development expenses were $11.9 million, $22.8 million and $15.0 million for the fiscal years ended January 31, 2015 and 2016 and for the six months ended July 31, 2016, respectively.

Competition

We believe the overall market for spend management software is highly competitive, marked by rapid consolidation, fragmented and rapidly evolving due to technological innovations. We have been recognized as a technology and market leader. For the second consecutive year, we have been recognized as a leader in Gartner’s 2016 Magic Quadrant for Procure-to-Pay Suites™ research report. Gartner evaluated full-suite procure-to-pay solutions from 12 different software vendors on 15 criteria, and recognized Coupa in the Leaders quadrant based on its ‘‘ability to execute’’ and ‘‘completeness of vision.’’ This year Coupa is positioned the highest for ability to execute.

 

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Our competitors fall into the following categories:

 

    Large enterprise software vendors such as Oracle Corporation and SAP AG that predominantly focus on database and ERP software solutions. SAP acquired both Ariba, Inc. and Concur Technologies, Inc. in 2012 and 2014, respectively, to form the core of their cloud offerings that compete with us.

 

    Niche software vendors that either address only a portion of the capabilities we provide or predominantly focus on narrow industry verticals.

We believe the principal competitive factors in our market include the following:

 

    focus on customer success;

 

    ability to deliver measurable value and savings;

 

    ability to offer a unified spend management platform;

 

    ease of use;

 

    widespread adoption by users;

 

    time to deployment;

 

    cloud-based architecture;

 

    total cost of ownership;

 

    configurability and agility;

 

    rich reporting capabilities;

 

    product extensibility and ability to integrate with other technology infrastructures;

 

    independence; and

 

    adoption by suppliers.

We believe that we compare favorably on the basis of these factors. However, many of our competitors have greater financial, technical and other resources, greater name recognition and larger sales and marketing budgets; therefore, we may not compare favorably with respect to some or all of the factors above.

Source: Gartner, Magic Quadrant for Procure-to-Pay Suites, 13 June 2016

Gartner does not endorse any vendor, product or service depicted in its research publications, and does not advise technology users to select only those vendors with the highest ratings or other designation. Gartner research publications consist of the opinions of Gartner’s research organization and should not be construed as statements of fact. Gartner disclaims all warranties, expressed or implied, with respect to this research, including any warranties of merchantability or fitness for a particular purpose.

Intellectual Property

We rely on a combination of trade secrets, patents, copyrights and trademarks, as well as contractual protections, to establish and protect our intellectual property rights. While we have obtained or applied for patent protection for some of our intellectual property, we do not believe that we are materially dependent on any one or more of our patents. We require our employees, consultants and other third parties to enter into confidentiality and proprietary rights agreements and control access to software, documentation and other proprietary information.

 

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We pursue the registration of domain names, trademarks and service marks in the United States and in various jurisdictions outside the United States. We also actively seek patent protection covering inventions originating from our company.

We control access to and use of our proprietary technology and other confidential information through the use of internal and external controls, including contractual protections with employees, contractors, customers, and partners, and our software is protected by U.S. and international intellectual property laws. Our policy is to require employees and independent contractors to sign agreements assigning to us any inventions, trade secrets, works of authorship, developments and other processes generated by them on our behalf and agreeing to protect our confidential information. In addition, we generally enter into confidentiality agreements with our vendors and customers. We also control and monitor access to, and distribution of our software, documentation and other proprietary information.

Despite our efforts to protect our proprietary technology and our intellectual property rights, unauthorized parties may attempt to copy or obtain and use our technology to develop applications with the same functionality as our applications. Policing unauthorized use of our technology and intellectual property rights is difficult. In addition, we intend to expand our international operations, and effective protection of our technology and intellectual property rights may not be available to us in every country in which our software or services are available.

We and others in our industry have been, and we expect that we will continue to be, subject to third-party infringement claims as the number of competitors grows and the functionality of applications in different industry segments overlaps. Moreover, many of our competitors and other industry participants have been issued patents and/or have filed patent applications, and have asserted claims and related litigation regarding patent and other intellectual property rights. From time to time, third parties, including certain of these companies, have asserted patent, copyright, trademark, trade secret and other intellectual property rights within the industry. Any of these third parties might make a claim of infringement against us at any time.

Legal Proceedings

From time to time, we are party to litigation and subject to claims incident to the ordinary course of business. As our growth continues, we may become party to an increasing number of litigation matters and claims. The outcome of litigation and claims cannot be predicted with certainty, and the resolution of these matters could materially affect our future results of operations, cash flows or financial position. We are not presently party to any legal proceedings that in the opinion of management, if determined adversely to us, would individually or taken together have a material adverse effect on our business, operating results, financial condition or cash flows.

Regulatory

The legal environment of cloud-based businesses is evolving rapidly in the United States and elsewhere. The manner in which existing laws and regulations are applied in this environment, and how they will relate to our business in particular, both in the United States and internationally, is often unclear. For example, we sometimes cannot be certain which laws will be deemed applicable to us given the global nature of our business, including with respect to such topics as data privacy and security, taxation and intellectual property ownership and infringement.

Our customers, and those with whom they communicate using our applications, upload and store customer data onto our platform. This presents legal challenges to our business and operations, such as rights of privacy or intellectual property rights related to the content loaded onto our platform. Both in the United States and internationally, we must monitor and comply with a wide variety of laws and regulations regarding the data stored and processed on our platform as well as the operation of our business.

 

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In particular, data privacy and security with respect to the collection of personally identifiable information (PII) continues to be the focus of worldwide legislation and regulation. In recent years, there have been a number of well-publicized data breaches involving the unauthorized use and disclosure of individuals’ PII.

Many states have responded to these incidents by enacting laws requiring holders of personal information to maintain safeguards and to take certain actions in response to a data breach, such as providing prompt notification of the breach to affected individuals and state officials or amending existing laws to expand compliance obligations. Federal laws are also under consideration that may create additional compliance obligations and penalties. In the European Union, where companies must meet specified privacy and security standards, the Data Protection Directive and data protection laws of each of the European Member countries require comprehensive information privacy and security protections for consumers with re