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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to
Commission File Number: 001-37901
COUPA SOFTWARE INCORPORATED
(Exact name of Registrant as specified in its charter)
 
Delaware 20-4429448
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
1855 S. Grant Street
San Mateo, CA 94402
(Address of principal executive offices, including zip code)
 
(650) 931-3200
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class Trading Symbol Name of each exchange on which registered
Common Stock, par value $0.0001 per share COUP
The Nasdaq Stock Market LLC
(Nasdaq Global Select Market)
 
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).    Yes  x    No  ¨
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x Accelerated filer ¨
Non-accelerated filer ¨ Smaller reporting company
Emerging growth company
 
If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨ 
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  x
As of September 1, 2022, the Registrant had 75,930,267 shares of common stock, $0.0001 par value per share, outstanding. 





TABLE OF CONTENTS

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PART I.
Item 1.
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Item 2.
Item 3.
Item 4.
PART II.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.

i


NOTE ABOUT FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements. All statements other than statements of historical facts contained in this report, including statements regarding our future results of operations and financial position, the expected impact of various macroeconomic and geopolitical dynamics (e.g., the COVID-19 pandemic, the Russian-Ukraine conflict or rising inflation and higher interest rates) on our business, results of operations and financial condition, customer lifetime value, strategy and plans, market size and opportunity, competitive position, industry environment, potential growth opportunities, product capabilities, expected impact of business acquisitions, our expectations for future operations, our convertible senior notes, and the amount and timing of any repurchases of our common stock under our share repurchase program are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “design,” “intend,” “expect,” “could,” “plan,” “potential,” “possible,” “predict,” “seek,” “should,” “would,” “likely” 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 “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Risk Factors.”
These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. 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 Quarterly Report on Form 10-Q 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 Quarterly Report on Form 10-Q to conform these statements to actual results or to changes in our expectations.

1


PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
COUPA SOFTWARE INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
(unaudited)
July 31,
2022
January 31,
2022
Assets
Current assets:
Cash and cash equivalents
$ 527,963  $ 506,459 
Marketable securities
281,370  223,032 
Accounts receivable, net of allowances
219,522  226,191 
Prepaid expenses and other current assets
35,975  38,270 
Deferred commissions, current portion
22,801  21,096 
Total current assets
1,087,631  1,015,048 
Property and equipment, net 31,989  30,576 
Deferred commissions, net of current portion 49,166  48,562 
Goodwill 1,514,550  1,514,550 
Intangible assets, net 446,123  510,663 
Operating lease right-of-use assets 37,341  42,659 
Other assets 29,077  31,121 
Total assets
$ 3,195,877  $ 3,193,179 
Liabilities, Redeemable Non-Controlling Interests, and Stockholders’ Equity
Current liabilities:
Accounts payable
$ 8,433  $ 4,610 
Accrued expenses and other current liabilities
98,374  79,160 
Deferred revenue, current portion
477,423  468,783 
Current portion of convertible senior notes, net (Note 8)
1,747  1,639 
Operating lease liabilities, current portion
13,084  12,760 
Total current liabilities
599,061  566,952 
Convertible senior notes, net (Note 8) 2,159,683  1,614,257 
Deferred revenue, net of current portion 29,646  22,655 
Operating lease liabilities, net of current portion 24,857  31,172 
Other liabilities 46,544  52,481 
Total liabilities
2,859,791  2,287,517 
Commitments and contingencies (Note 9)
Redeemable non-controlling interests (Note 3) 18,775  12,084 
Stockholders’ equity:
Preferred stock, $0.0001 par value per share; 25,000,000 shares authorized at July 31, 2022 and January 31, 2022; zero shares issued and outstanding at July 31, 2022 and January 31, 2022
—  — 
Common stock, $0.0001 par value per share; 625,000,000 shares authorized at July 31, 2022 and January 31, 2022; 75,928,377 and 75,060,139 shares issued and outstanding at July 31, 2022 and January 31, 2022, respectively
Additional paid-in capital
1,154,891  1,778,840 
Accumulated other comprehensive income
7,333  9,643 
Accumulated deficit
(844,921) (894,912)
Total stockholders’ equity
317,311  893,578 
Total liabilities, redeemable non-controlling interests, and stockholders’ equity
$ 3,195,877  $ 3,193,179 

See Notes to Condensed Consolidated Financial Statements.

2


COUPA SOFTWARE INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
 
Three Months Ended
July 31,
Six Months Ended
July 31,
2022 2021 2022 2021
Revenues:
Subscription
$ 192,670  $ 156,230  $ 371,140  $ 296,334 
Professional services and other
18,433  23,016  36,334  49,841 
Total revenues
211,103  179,246  407,474  346,175 
Cost of revenues:
Subscription
60,808  51,398  118,937  102,423 
Professional services and other
22,501  27,822  45,200  56,524 
Total cost of revenues
83,309  79,220  164,137  158,947 
Gross profit
127,794  100,026  243,337  187,228 
Operating expenses:
Research and development
46,266  41,799  89,976  85,636 
Sales and marketing
103,215  76,279  204,168  154,122 
General and administrative
41,942  36,248  84,080  75,625 
Total operating expenses
191,423  154,326  378,224  315,383 
Loss from operations (63,629) (54,300) (134,887) (128,155)
Interest expense (3,619) (30,621) (7,095) (59,724)
Other expense, net (709) (1,983) (4,425) (1,448)
Loss before provision for (benefit from) income taxes (67,957) (86,904) (146,407) (189,327)
Provision for (benefit from) income taxes 2,641  (155) 5,392  (2,221)
Net loss (70,598) (86,749) (151,799) (187,106)
Net loss attributable to redeemable non-controlling interests (462) (517) (666) (517)
Adjustment attributable to redeemable non-controlling interests 5,133  5,235  5,609  5,235 
Net loss attributable to Coupa Software Incorporated $ (75,269) $ (91,467) $ (156,742) $ (191,824)
Net loss per share, basic and diluted, attributable to Coupa Software Incorporated
$ (0.99) $ (1.24) $ (2.08) $ (2.62)
Weighted-average number of shares used in computing net loss per share, basic and diluted
75,669  73,526  75,429  73,200 
 
See Notes to Condensed Consolidated Financial Statements.

3


COUPA SOFTWARE INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)
(unaudited)
 
Three Months Ended
July 31,
Six Months Ended
July 31,
2022 2021 2022 2021
Net loss $ (70,598) $ (86,749) $ (151,799) $ (187,106)
Other comprehensive gain (loss) in relation to defined benefit plans, net of tax (51) (213) 821  55 
Changes in unrealized loss on marketable securities and non-marketable debt securities, net of tax (183) (28) (2,769) (58)
Foreign currency translation adjustments, net of tax (128) (31) (725) (415)
Comprehensive loss $ (70,960) $ (87,021) (154,472) (187,524)
Less comprehensive loss attributable to redeemable non-controlling interests:
Net loss attributable to redeemable non-controlling interests (462) (517) (666) (517)
Foreign currency translation adjustments, net of tax, attributable to redeemable non-controlling interests (60) (11) (363) (11)
Comprehensive loss attributable to redeemable non-controlling interests (522) (528) (1,029) (528)
Comprehensive loss attributable to Coupa Software Incorporated $ (70,438) $ (86,493) $ (153,443) $ (186,996)
 
See Notes to Condensed Consolidated Financial Statements.

4


COUPA SOFTWARE INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except share amounts)
(unaudited)
 
Three Months Ended July 31, 2022
Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Total Stockholders' Equity
Shares Amount
Balance at April 30, 2022 75,541,575  $ $ 1,102,962  $ 7,635  $ (774,323) $ 336,281 
Exercise of stock options
31,975  264  —  —  265 
Stock-based compensation expense
—  —  56,336  —  —  56,336 
Vested restricted stock units
354,827  —  —  —  —  — 
Other comprehensive loss
—  —  —  (302) —  (302)
Net loss attributable to Coupa Software Incorporated, including adjustment to redeemable non-controlling interests
—  —  (4,671) —  (70,598) (75,269)
Balance at July 31, 2022 75,928,377  $ $ 1,154,891  $ 7,333  $ (844,921) $ 317,311 
Six Months Ended July 31, 2022
Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Total Stockholders' Equity
Shares Amount
Balance at January 31, 2022 75,060,139  $ $ 1,778,840  $ 9,643  $ (894,912) $ 893,578 
Cumulative adjustment due to adoption of ASU No. 2020-06 —  —  (738,892) —  201,790  (537,102)
Issuance of common stock for employee share purchase plan
161,728  —  9,973  —  —  9,973 
Exercise of stock options
89,210  959  —  —  960 
Stock-based compensation expense
—  —  108,954  —  —  108,954 
Vested restricted stock units
617,300  —  —  —  —  — 
Other comprehensive loss
—  —  —  (2,310) —  (2,310)
Net loss attributable to Coupa Software Incorporated, including adjustment to redeemable non-controlling interests
—  —  (4,943) —  (151,799) (156,742)
Balance at July 31, 2022 75,928,377  $ $ 1,154,891  $ 7,333  $ (844,921) $ 317,311 
 
See Notes to Condensed Consolidated Financial Statements.

5


COUPA SOFTWARE INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except share amounts)
(unaudited)
Three Months Ended July 31, 2021
Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Total Stockholders' Equity
Shares Amount
Balance at April 30, 2021 73,464,780  $ $ 1,617,223  $ 9,019  $ (626,163) $ 1,000,086 
Exercise of stock options
208,951  —  2,470  —  —  2,470 
Stock-based compensation expense
—  —  47,837  —  —  47,837 
Vested restricted stock units
317,735  —  —  —  —  — 
Settlement of convertible senior notes (Note 8) 146  —  —  —  —  — 
Temporary equity reclassification —  —  (8) —  —  (8)
Other comprehensive loss
—  —  —  (261) —  (261)
Net loss attributable to Coupa Software Incorporated, including adjustment to redeemable non-controlling interests
—  —  (4,718) —  (86,749) (91,467)
Balance at July 31, 2021 73,991,612  $ $ 1,662,804  $ 8,758  $ (712,912) $ 958,657 
Six Months Ended July 31, 2021
Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Total Stockholders' Equity
Shares Amount
Balance at January 31, 2021 72,753,659  $ $ 1,556,865  $ 9,165  $ (525,806) $ 1,040,231 
Issuance of common stock for acquisitions 22,370  —  —  —  —  — 
Issuance of common stock for employee share purchase plan
82,462  —  10,477  —  —  10,477 
Exercise of stock options
411,863  —  4,718  —  —  4,718 
Stock-based compensation expense
—  —  95,341  —  —  95,341 
Vested restricted stock units
664,185  —  —  —  —  — 
Settlement of convertible senior notes (Note 8) 57,073  —  (240) —  —  (240)
Temporary equity reclassification —  —  361  —  —  361 
Other comprehensive loss
—  —  —  (407) —  (407)
Net loss attributable to Coupa Software Incorporated, including adjustment to redeemable non-controlling interests
—  —  (4,718) —  (187,106) (191,824)
Balance at July 31, 2021 73,991,612  $ $ 1,662,804  $ 8,758  $ (712,912) $ 958,657 
 
See Notes to Condensed Consolidated Financial Statements.

6


COUPA SOFTWARE INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 
Six Months Ended
July 31,
2022 2021
Cash flows from operating activities
Net loss attributable to Coupa Software Incorporated $ (156,742) $ (191,824)
Net loss and adjustment attributable to redeemable non-controlling interests (Note 3) 4,943  4,718 
Net loss (151,799) (187,106)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization
71,804  73,146 
Amortization (accretion) of premium (discount) on marketable securities, net
(721) 755 
Amortization of deferred commissions
11,413  8,554 
Amortization of debt discount and issuance costs
3,596  56,262 
Stock-based compensation
108,224  94,792 
Loss on conversion of convertible senior notes
—  129 
Repayments of convertible senior notes attributable to debt discount (Note 8)
—  (517)
Other
(1,581) (3,176)
Changes in operating assets and liabilities net of effects from acquisitions:
Accounts receivable
6,414  30,444 
Prepaid expenses and other current assets
2,917  1,396 
Other assets
10,438  9,585 
Deferred commissions
(13,804) (13,394)
Accounts payable
4,146  (248)
Accrued expenses and other liabilities
11,801  5,703 
Deferred revenue
15,988  (3,432)
Net cash provided by operating activities
78,836  72,893 
Cash flows from investing activities
Purchases of marketable securities
(152,349) (72,392)
Maturities of marketable securities
88,586  69,523 
Sales of marketable securities
4,597  83,630 
Acquisitions, net of cash acquired
—  (45,766)
Purchases of other investments (2,000) (7,500)
Purchases of property and equipment
(8,241) (6,662)
Net cash (used in) provided by investing activities
(69,407) 20,833 
Cash flows from financing activities
Investment from redeemable non-controlling interests 2,111  2,223 
Repayments of convertible senior notes
—  (2,446)
Proceeds from the exercise of common stock options
959  4,727 
Proceeds from issuance of common stock for employee stock purchase plan
9,973  10,477 
Net cash provided by financing activities
13,043  14,981 
Effects of foreign currency exchange rates on cash, cash equivalents, and restricted cash (1,075) (41)
Net increase in cash, cash equivalents, and restricted cash 21,397  108,666 
Cash, cash equivalents, and restricted cash at beginning of year 510,339  327,589 
Cash, cash equivalents, and restricted cash at end of period $ 531,736  $ 436,255 
Reconciliation of cash, cash equivalents, and restricted cash to the condensed consolidated balance sheets
Cash and cash equivalents
$ 527,963  $ 432,009 
Restricted cash included in other assets
3,773  4,246 
Total cash, cash equivalents, and restricted cash $ 531,736  $ 436,255 

See Notes to Condensed Consolidated Financial Statements.

7


COUPA SOFTWARE INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 
Six Months Ended
July 31,
2022 2021
Supplemental disclosure of cash flow data
Cash paid for income taxes $ 3,193  $ 2,638 
Cash paid for interest $ 3,094  $ 3,101 
Supplemental disclosure of non-cash investing and financing activities
Property and equipment included in accounts payable and accrued expenses and other current liabilities $ 363  $ 446 
 
See Notes to Condensed Consolidated Financial Statements.

8


COUPA SOFTWARE INCORPORATED
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
Note 1. Organization and Description of Business
Coupa Software Incorporated (the “Company”) was incorporated in the state of Delaware in 2006. The Company provides a comprehensive, cloud-based business spend management (or “BSM”) platform that provides greater visibility into and control over how companies spend money. The BSM platform enables businesses to achieve savings that drive profitability. The Company is based in San Mateo, California.
The Company’s fiscal year ends on January 31.

 Note 2. Significant Accounting Policies

Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared using accounting principles generally accepted in the United States of America (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended January 31, 2022 filed with the SEC on March 16, 2022 (the “Form 10-K”). The condensed consolidated financial statements include the results of the Company, its wholly-owned subsidiaries, as well as subsidiaries in which the Company has a controlling interest. All significant intercompany transactions and balances have been eliminated during consolidation.
The condensed consolidated balance sheet as of January 31, 2022, included herein, was derived from the audited financial statements as of that date, but does not include all disclosures including certain notes required by GAAP on an annual reporting basis. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, comprehensive loss and cash flows for the interim periods, but are not necessarily indicative of the results to be expected for the full fiscal year or any other period.
There have been no changes to the significant accounting policies described in the Form 10-K for the year ended January 31, 2022, other than the adoption of accounting pronouncements as described in the “Recently Adopted Accounting Pronouncements” section below.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. On an ongoing basis, management evaluates its significant estimates including, but not limited to, the valuation of accounts receivable, the lives of tangible and intangible assets, the fair value of certain equity awards, the valuation of acquired intangible assets and the recoverability or impairment of intangible assets, including goodwill, revenue recognition, redemption value of redeemable non-controlling interests, the benefit period of deferred commissions, and provision for (benefit from) income taxes. Management bases its estimates on historical experience and on various other market-specific and relevant assumptions that management believes to be reasonable under the circumstances. Actual results could differ from those estimates and such differences could be material to the financial position and results of operations.
Foreign Currency Translation
The functional currency of the Company’s foreign operations is primarily the U.S. dollar, while a few of its subsidiaries use the local currency as their functional currency for the six months ended July 31, 2022. In cases where the Company uses a foreign functional currency, the Company translates the foreign functional currency financial statements to U.S. dollars using the exchange rates at the balance sheet date for assets and liabilities, the period average exchange rates for revenues and expenses, and the historical exchange rates for equity. The effects of foreign currency translation adjustments are recorded in other comprehensive income as a component of stockholders’ equity and the related periodic movements are presented in the condensed consolidated statements of comprehensive loss. Foreign currency transaction gains and losses are included in other expense, net, in the condensed consolidated statements of operations for the period.

9


Concentration of Risk
Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash and cash equivalents, marketable securities, and accounts receivable. Cash deposits may, at times, exceed amounts insured by the Federal Deposit Insurance Corporation and the Securities Investor Protection Corporation (“SIPC”). Marketable securities balances may, at times, also exceed SIPC limits. The Company has not experienced any losses on its deposits of cash and cash equivalents to date. Refer to Note 14, “Significant Customers and Geographic Information” for additional information on significant customers during the period.
Comprehensive Loss
Comprehensive loss is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. The Company’s comprehensive loss consists of net loss, other comprehensive gain (loss) in relation to defined benefits plans, net of tax, changes in unrealized gain (loss) on marketable debt securities and non-marketable debt securities, net of tax, and foreign currency translation adjustments, net of tax. The other comprehensive gain (loss) in relation to defined benefits plans represents net deferred gains and losses and prior service costs and credits for the defined benefit pension plans.
Fair Value Measurements
Fair value is the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Subsequent changes in fair value of these financial assets and liabilities are recognized in earnings or other comprehensive loss when they occur. When determining the fair value measurements for assets and liabilities which are required to be recorded at fair value, the Company considers the principal or most advantageous market in which the Company would transact and the market-based risk measurement or assumptions that market participants would use in pricing the assets or liabilities, such as inherent risk, transfer restrictions and credit risk.
The Company applies the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:
Level 1 - Quoted prices in active markets for identical assets or liabilities.
Level 2 - Observable inputs other than quoted price in active markets for identical assets or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 - Inputs that are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the assets or liabilities.
Revenue Recognition
The Company derives its revenues primarily from subscription fees, professional services fees and other. Revenues are recognized when control of these services are transferred to the Company’s customers in an amount that reflects the consideration expected to be entitled to in exchange for those services. Revenues are recognized net of applicable taxes imposed on the related transaction. The Company’s revenue recognition policy follows guidance from Accounting Standards Codification 606, Revenue from Contracts with Customers (Topic 606).

The Company determines revenue recognition through the following five-step framework:

Identification of the contract, or contracts, with a customer;

Identification of the performance obligations in the contract;

Determination of the transaction price;

Allocation of the transaction price to the performance obligations in the contract; and

Recognition of revenue when, or as, the Company satisfies a performance obligation.


10


Subscription Revenues
The Company offers subscriptions to its cloud-based business spend management platform, including procurement, invoicing, expense management and payment solutions. Subscription revenues consist primarily of fees to provide the Company’s customers access to its cloud-based platform, which includes routine customer support. Subscription contracts do not provide customers with the right to take possession of the software, are in general non-cancelable, and do not contain general rights of return. Generally, subscription revenues are recognized ratably over the contractual term of the arrangement, beginning on the date that the service is made available to the customer. Subscription contracts typically have a term of three years with invoicing occurring in annual installments at the beginning of each year in the subscription period.
Term-based licenses are sold as bundled arrangements that include the rights to a term license and post-contract customer support (“PCS”). Accordingly, the Company allocates the transaction price to each performance obligation. The revenues related to the amount allocated to PCS are included in subscription revenue, which are recognized ratably over the contract term beginning on the license delivery date.

Professional Services Revenues and Other
The Company offers professional services which primarily include deployment services, optimization services, and training. Professional services are generally sold on a fixed-fee or time-and-materials basis. For services billed on a fixed-fee basis, invoicing typically occurs in advance, and revenue is recognized over time based on the proportion performed. For services billed on a time-and-materials basis, revenue is recognized over time as services are performed.
Term-based licenses are sold as bundled arrangements that include the rights to a term license and PCS. Accordingly, the Company allocates the transaction price to each performance obligation. The revenues related to the amount allocated to term-based licenses are included in other revenue, which is recognized at the start of the license term when delivery is complete.

Significant Judgments
The Company’s contracts with customers often include promises to transfer multiple products and services to a customer. For these contracts, the Company accounts for individual performance obligations separately if they are distinct. Subscription services, professional services, term-based licenses, and related PCS are distinct performance obligations that are accounted for separately. In contracts with multiple performance obligations, the transaction price is allocated to separate performance obligations on a relative standalone selling price (“SSP”) basis.
The determination of SSP for each distinct performance obligation requires judgment. The Company determines SSP for performance obligations based on overall pricing objectives, which take into consideration market conditions and entity-specific factors. This includes a review of historical data related to the size of arrangements, the applications being sold, customer demographics and the numbers and types of users within the arrangements. The Company uses a range of amounts to estimate SSP for performance obligations. There is typically more than one SSP for individual products and services due to the stratification of those products and services by considerations such as size and sales regions.

Contract Balances
The timing of revenue recognition may differ from the timing of invoicing for contracts with customers. The Company records a receivable when revenue is recognized prior to invoicing. Deferred revenue primarily consists of billings or payments received in advance of revenue recognition. Subscription and fixed-fee professional services arrangements are commonly billed in advance, recognized as deferred revenue, and then amortized into revenue over time. The Company's term-based license contracts are billed annually in advance, recognized as deferred revenue, and then recognized as revenues upfront for the license component and ratably over the term license for the PCS component. However, other professional services arrangements, primarily those recognized on a time-and-materials basis, are billed in arrears following services that have been rendered. In addition, for multi-year term-based license contracts, the revenue allocated to license component is recognized upfront while the billing is on annual basis. This may result in revenue recognition greater than invoiced amounts which results in a receivable balance. Receivables represent an unconditional right to payment. As of July 31, 2022 and January 31, 2022, the balance of accounts receivable, net of the allowance for credit losses, was $219.5 million and $226.2 million, respectively. Of these balances, $10.1 million and $13.9 million represent unbilled receivable amounts as of July 31, 2022 and January 31, 2022, respectively. In addition, as of July 31, 2022 and January 31, 2022, the balance of long-term unbilled receivables was approximately $400,000 and $1.9 million, respectively, which were included in other assets on the Company's condensed consolidated balance sheet.

11


When the timing of revenue recognition differs from the timing of invoicing, the Company uses judgment to determine whether the contract includes a significant financing component requiring adjustment to the transaction price. Various factors are considered in this determination including the duration of the contract, payment terms, and other circumstances. Generally, the Company determined that contracts do not include a significant financing component. The Company applies the practical expedient for instances where, at contract inception, the expected timing difference between when promised goods or services are transferred and associated payment will be one year or less. Payment terms vary by contract type, however arrangements typically stipulate a requirement for the customer to pay within 30 days.
At any point in the contract term, the transaction price may be allocated to performance obligations that are unsatisfied or are partially unsatisfied. These amounts relate to remaining performance obligations on non-cancelable contracts which include both the deferred revenue balance and amounts that will be invoiced and recognized as revenue in future periods. As of July 31, 2022, approximately $1,424.7 million of the transaction price from contracts with customers is allocated to the remaining performance obligations. The Company expects to recognize revenue on approximately three-fourths of these remaining performance obligations within the next 24 months and the remainder thereafter. The Company applies the practical expedient to exclude remaining performance obligations that are part of contracts with an original expected duration of one year or less and contracts where revenue is being recognized under the as-invoiced method. During the three and six months ended July 31, 2022, the revenue recognized from performance obligations satisfied in prior periods was approximately $2.1 million and $2.4 million, respectively.
Accounts Receivable and Allowances for Credit Losses
The Company extends credit to its customers in the normal course of business and does not require cash collateral or other security to support the collection of customer receivables. The Company estimates the amount of uncollectible accounts receivable at the end of each reporting period and provides a reserve when needed based on an assessment of various factors including the aging of the receivable balance, historical experience, and expectations of forward-looking loss estimates. When developing the expectations of forward-looking loss estimates, the Company takes into consideration forecasts of future economic conditions, information about past events, such as historical trends of write-offs, and customer-specific circumstances, such as bankruptcies and disputes. Accounts receivable are written off when deemed uncollectible. The allowances for credit losses were not material as of July 31, 2022 and January 31, 2022.
Marketable Securities
Marketable securities consist of financial instruments such as U.S. treasury securities, U.S. agency obligations, corporate notes and bonds, commercial paper, asset backed securities and certificates of deposit. The Company classifies marketable securities as available-for-sale at the time of purchase and reevaluates such classification as of each balance sheet date. All marketable securities are recorded at estimated fair value. Credit losses related to the marketable securities are recorded in other expense, net in the condensed consolidated statements of operations through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. No credit losses related to marketable securities were recorded by the Company during the three and six months ended July 31, 2022. Any remaining unrealized losses, or any unrealized gains, for marketable securities are included in accumulated other comprehensive income, a component of stockholders’ equity.
If quoted prices for identical instruments are available in an active market, marketable securities are classified within Level 1 of the fair value hierarchy. If quoted prices for identical instruments in active markets are not available, fair values are estimated using quoted prices of similar instruments and are classified within Level 2 of the fair value hierarchy.
Other Investments
Other investments consist of non-marketable debt and equity investments in privately-held companies without readily determinable fair values in which the Company does not have a controlling interest or significant influence.
The Company records non-marketable debt investments at their estimated fair value on a recurring basis with changes in fair value recorded in accumulated other comprehensive income, a component of stockholders’ equity.
The Company elected to apply the measurement alternative for non-marketable equity securities, measuring them at cost, less any impairment, and adjustments resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.
These non-marketable debt and equity investments are included in other assets on the Company’s condensed consolidated balance sheets.

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Deferred Revenue
Deferred revenue consists of non-cancelable customer billings or payments received in advance of the recognition of revenue and is recognized as revenue as the revenue recognition criteria are met. The Company generally invoices its customers annually for the forthcoming year of service. Accordingly, the Company’s deferred revenue balance does not include revenue for future years of multiple year non-cancelable contracts that have not yet been billed. Of the total deferred revenue balance, subscription deferred revenue was $499.3 million and $484.1 million as of July 31, 2022 and January 31, 2022, respectively. During the three and six months ended July 31, 2022, the Company recognized revenue of $182.9 million and $308.3 million that was included in the deferred revenue balance as of April 30, 2022 and January 31, 2022, respectively. During the three and six months ended July 31, 2021, the Company recognized revenue of $141.1 million and $238.7 million that was included in the deferred revenue balance as of April 30, 2021 and January 31, 2021, respectively.
Deferred Commissions
Commissions are earned by sales personnel upon the execution of the sales contract by the customer, and commission payments are made shortly after they are earned. Commission costs can be associated specifically with subscription, professional services and license arrangements. Commissions earned by the Company’s sales personnel are considered incremental and recoverable costs of obtaining a contract with a customer. These costs are deferred and then amortized over a period of benefit of five years. The Company determined the period of benefit by taking into consideration its past experience with customers, future cash flows expected from customers, industry peers and other available information.

For commissions earned from the sale of term-based license contracts, the Company allocates the costs of commission in proportion to the allocation of transaction price of license and PCS performance obligations. Commissions associated with the license component are expensed at the time the related revenue is recognized. Commissions allocated to PCS are deferred and then amortized over five years.
The Company capitalized commission costs of $8.1 million and $8.7 million, and amortized $5.8 million and $4.4 million to sales and marketing expense in the accompanying condensed consolidated statements of operations during the three months ended July 31, 2022 and 2021, respectively. The Company capitalized commission costs of $13.8 million and $13.4 million, and amortized $11.4 million and $8.6 million to sales and marketing expense in the accompanying condensed consolidated statements of operations during the six months ended July 31, 2022 and 2021, respectively.
Redeemable Non-Controlling Interests
In March 2021, the Company established a joint venture in Japan (“Coupa K.K.”), which is a variable interest entity, obtaining a 51% controlling interest. Accordingly, the Company consolidated the financial results of the joint venture.

The agreements with the minority investors of Coupa K.K. contain redemption features whereby the interest held by the minority investors is redeemable either (i) at the option of the minority investors or (ii) at the option of the Company, both beginning on the tenth anniversary of the initial capital contribution. The balance of the redeemable non-controlling interest is reported at the greater of the initial carrying amount adjusted for the redeemable non-controlling interest's share of earnings or losses and other comprehensive income or loss, or its estimated redemption value. The resulting changes in the estimated redemption amount are recorded with corresponding adjustments against additional paid-in-capital due to the absence of retained earnings. The carrying amount of the redeemable non-controlling interests is recorded on the Company's condensed consolidated balance sheets as temporary equity.
Leases
Leases arise from contracts that convey the right to control the use of identified property or equipment for a period of time in exchange for consideration. The Company’s leasing arrangements are primarily for office space used to conduct operations.

Leases are classified at commencement as either operating or finance leases. As of July 31, 2022, all of the Company’s leases were classified as operating leases. Rent expense for operating leases is recognized using the straight-line method over the term of the agreement beginning on the lease commencement date.


13


At commencement, the Company records a lease liability at the present value of future lease payments, net of any future lease incentives to be received. Lease agreements may include options to renew the lease term, which is not included in the lease periods to calculate future lease payments unless it is reasonably certain the Company will renew the lease. The Company estimates its incremental borrowing rate (“IBR”) based on the information available at the lease commencement date in determining the present value of lease payments. In determining the appropriate IBR, the Company considers information including, but not limited to, the lease term and the currency in which the arrangement is denominated.

At commencement, the Company also records a corresponding right-of-use asset, which is calculated based on the amount of the lease liability, adjusted for any advance lease payments made and initial direct costs incurred. Right-of-use assets are subject to evaluation for impairment or disposal on a basis consistent with other long-lived assets.
As of July 31, 2022, the Company was not a material lessor in leasing arrangements or a party to material sublease arrangements.
Recent Accounting Guidance
Recently Adopted Accounting Pronouncements
In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”), which simplifies the accounting for convertible instruments. The guidance removes certain accounting models that separate the embedded conversion features from the host contract for convertible instruments, requiring bifurcation only if the convertible debt feature qualifies as a derivative under ASC 815 or for convertible debt issued at a substantial premium. The ASU removes certain settlement conditions required for equity contracts to qualify for the derivative scope exception, permitting more contracts to qualify for it. In addition, the guidance eliminates the treasury stock method to calculate diluted earnings per share for convertible instruments and requires the use of the if-converted method.

The Company adopted the new guidance effective on February 1, 2022, using the modified retrospective approach. The adoption of this new guidance resulted in an increase of $541.9 million to the total carrying value of the Convertible Notes to reflect the full principal amount of the Convertible Notes outstanding net of unamortized issuance costs, a decrease of $738.9 million to additional paid-in capital to remove the equity component separately recorded for the conversion features associated with the convertible notes, a decrease of $201.8 million to accumulated deficit, and a decrease of $4.8 million to deferred tax liabilities. The adoption of this new guidance also decreased the amount of non-cash interest expense to be recognized in future periods as a result of eliminating the debt discount associated with the equity component.

In October 2021, the FASB issued ASU No. 2021-08, Business Combinations: Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (Topic 805). The amendments in this ASU require that an acquirer recognizes and measures contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. The ASU is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years and should be applied prospectively to business combinations occurring on or after the effective date of the amendments. The Company early adopted this new guidance effective on February 1, 2022, using the prospective approach, and the adoption did not have a material impact on the Company’s condensed consolidated financial statements.



14



Note 3. Redeemable Non-Controlling Interests
In March 2021, the Company established a joint venture with Japan Cloud Computing L.P. and M30 LLC (the “Investors”) in Coupa K.K., which is a variable interest entity. This joint venture is intended to enable the Company to support the growing number of Japanese companies looking to gain greater efficiency and agility through BSM. On March 15, 2021, the Company initially contributed approximately $2.4 million in cash in exchange for a 51% controlling interest, and the Investors initially contributed approximately $2.2 million. Accordingly, the Company consolidated the financial results of the joint venture. On March 11, 2022, the Company contributed approximately $2.2 million in cash, and the Investors contributed approximately $2.1 million. The share of the loss in the joint venture attributable to the redeemable non-controlling interests was not material during both the three and six months ended July 31, 2022 and 2021, respectively.
The following table summarizes the activity in the redeemable non-controlling interest for the period indicated below (in thousands):
Three Months Ended
July 31,
Six Months Ended
July 31,
2022 2021 2022 2021
Balance at beginning of period $ 14,164  $ 2,223  $ 12,084  $ — 
Investment by redeemable non-controlling interests —  —  2,111  2,223 
Net loss attributable to redeemable non-controlling interests (462) (517) (666) (517)
Foreign currency translation adjustments, net of tax (60) (11) (363) (11)
Adjustment to redeemable non-controlling interest 5,133  5,235  5,609  5,235 
Balance at end of period $ 18,775  $ 6,930  $ 18,775  $ 6,930 

Note 4. Marketable Securities
The following is a summary of available-for-sale marketable securities, excluding those securities classified within cash and cash equivalents on the condensed consolidated balance sheets (in thousands):
 
July 31, 2022
Amortized Costs Unrealized Gains Unrealized Losses Fair Value
U.S. treasury securities $ 283,770  $ 103  $ (2,503) $ 281,370 
Total marketable securities
$ 283,770  $ 103  $ (2,503) $ 281,370 
 
January 31, 2022
Amortized Costs Unrealized Gains Unrealized Losses Fair Value
U.S. treasury securities $ 223,950  $ 23  $ (941) $ 223,032 
Total marketable securities
$ 223,950  $ 23  $ (941) $ 223,032 
 
 
As of July 31, 2022, the fair values of available-for-sale marketable securities, by remaining contractual maturity, were as follows (in thousands):
 
Due within one year $ 220,518 
Due in one year through five years 60,852 
Total
$ 281,370 

The Company’s marketable securities consist of U.S. treasury securities only. The Company views its marketable securities as available to support its current operations, therefore these marketable securities have been classified as short-term available-for-sale securities.
During the three and six months ended July 31, 2022 and 2021, there were no material gross realized gains or losses from the sale of certain available-for-sale marketable securities that were reclassified out of accumulated other comprehensive loss.

15


The Company regularly reviews the changes to the rating of its debt securities by rating agencies as well as reasonably monitors the surrounding economic conditions to assess the risk of expected credit losses. As of July 31, 2022, the unrealized losses and the related risk of expected credit losses were not significant.

Note 5. Fair Value Measurements
The following table summarizes the Company’s fair value hierarchy for its financial assets and liabilities measured at fair value on a recurring basis at July 31, 2022 (in thousands):
 
Level 1 Level 2 Level 3 Total
Cash equivalents:(1)
Money market funds
$ 116,792  $ —  $ —  $ 116,792 
Marketable securities:
U.S. treasury securities
—  281,370  —  281,370 
Other investments:
Non-marketable debt investments
—  —  2,628  2,628 
Total assets
$ 116,792  $ 281,370  $ 2,628  $ 400,790 

(1)Included in cash and cash equivalents.
The following table summarizes the Company’s fair value hierarchy for its financial assets and liabilities measured at fair value on a recurring basis at January 31, 2022 (in thousands):
 
Level 1 Level 2 Level 3 Total
Cash equivalents:(1)
Money market funds
$ 233,705  $ —  $ —  $ 233,705 
Marketable securities:
U.S. treasury securities
—  223,032  —  223,032 
Other investments:
Non-marketable debt investments
—  —  6,434  6,434 
Total assets
$ 233,705  $ 223,032  $ 6,434  $ 463,171 

(1)Included in cash and cash equivalents.
Other Investments
The Company’s non-marketable debt investments are recorded at fair value on a recurring basis. The estimation of fair value for non-marketable debt investments is based on valuation methods using an observable transaction price, if available and other unobservable inputs, including the volatility, rights, and obligations of the securities the Company holds; as a result, the Company classifies these assets as Level 3 within the fair value hierarchy.
As of July 31, 2022, the balance of non-marketable debt investments was $2.6 million. There have been no impairments to the amortized cost of the non-marketable debt investments during the three and six months ended July 31, 2022.

The table above does not include the Company’s non-marketable equity investments. The non-marketable equity investments are measured under the measurement alternative on a non-recurring basis. As of July 31, 2022 and January 31, 2022, the carrying value of the Company’s non-marketable equity investments was $10.9 million and $5.0 million, respectively. There have been no impairments or adjustments to the carrying amount of the equity investments during the three and six months ended July 31, 2022.

During the quarter ended April 30, 2022, the Company’s investment in a non-marketable convertible note converted to preferred stock, which is classified as a non-marketable equity investment. At the time of conversion, the Company recognized a gain of $1.3 million.

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Convertible Senior Notes
The Company has $1,380.0 million in aggregate principal amount of 0.375% convertible senior notes due in 2026 (the “2026 Notes”), $805.0 million in aggregate principal amount of 0.125% convertible senior notes due in 2025 (the “2025 Notes”) and $1.8 million in aggregate principal amount of 0.375% convertible senior notes due in 2023 (the “2023 Notes” and, together with the 2025 Notes and 2026 Notes, the “Convertible Notes”) outstanding as of July 31, 2022. Refer to Note 8, “Convertible Senior Notes” for further details on the Convertible Notes.
The estimated fair value of the 2026 Notes, 2025 Notes and 2023 Notes, based on a market approach as of July 31, 2022, was approximately $1,107.5 million, $701.1 million and $2.6 million, respectively, which represents a Level 2 valuation estimate. The estimated fair value of the 2026 Notes, 2025 Notes and 2023 Notes, based on a market approach as of January 31, 2022, was approximately $1,277.1 million, $895.0 million and $5.3 million, respectively, which represents a Level 2 valuation estimate. The estimated fair value was determined based on the estimated or actual bids and offers of the Convertible Notes in an over-the-counter market on the last trade completed prior to the end of the period.

Note 6. Property and Equipment, Net
Property and equipment consisted of the following (in thousands):
 
July 31,
2022
January 31,
2022
Furniture and equipment $ 16,980  $ 15,584 
Software development costs 63,254  55,733 
Leasehold improvements 7,577  7,193 
Construction in progress 1,200  471 
Total property and equipment
89,011  78,981 
Less: accumulated depreciation and amortization (57,022) (48,405)
Property and equipment, net
$ 31,989  $ 30,576 
 
Depreciation and amortization expense related to property and equipment, excluding software development costs, was approximately $1.4 million and $1.2 million for the three months ended July 31, 2022 and 2021, respectively and $2.8 million and $2.5 million for the six months ended July 31, 2022 and 2021, respectively.
 
Amortization expense related to software development costs was approximately $3.0 million and $2.4 million for the three months ended July 31, 2022 and 2021, respectively and $5.8 million and $4.6 million for the six months ended July 31, 2022 and 2021, respectively.
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Note 7. Goodwill and Other Intangible Assets
Goodwill
There have been no changes to the Company's goodwill balance during the three months ended July 31, 2022.
 
Other Intangible Assets
The following table summarizes the other intangible assets balances (in thousands):
 
As of
July 31, 2022 January 31, 2022
Weighted
Average
Remaining
Useful
Lives
(in Years)
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Developed technology 4.7 $ 484,510  $ (190,108) $ 294,402  $ 484,510  $ (150,910) $ 333,600 
Customer relationships 3.2 256,082  (104,361) 151,721  256,082  (79,019) 177,063 
Trademarks 0.0 2,419  (2,419) —  2,419  (2,419) — 
Total other intangible assets
$ 743,011  $ (296,888) $ 446,123  $ 743,011  $ (232,348) $ 510,663 
 
Amortization expense related to other intangible assets was approximately $31.8 million and $33.5 million for the three months ended July 31, 2022 and 2021, respectively and $64.5 million and $67.0 million for the six months ended July 31, 2022 and 2021, respectively.
 
As of July 31, 2022, the future amortization expense of other intangible assets is as follows (in thousands):
 
Year Ending January 31,
2023 (remaining six months) $ 63,571 
2024 121,994 
2025 102,849 
2026 78,559 
2027 45,157 
Thereafter
33,993 
Total
$ 446,123 
 
Note 8. Convertible Senior Notes
2026 Notes
In June 2020, the Company issued the 2026 Notes in aggregate principal amount of $1,380.0 million in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. The net proceeds from the issuance of the 2026 Notes were $1,162.3 million, net of debt issuance costs, including the underwriting discount and the cash used to purchase the capped call discussed below. The 2026 Notes have an initial conversion rate of 3.3732 shares of common stock per $1,000 principal (equivalent to an initial conversion price of approximately $296.45 per share of common stock). The interest rate is fixed at 0.375% per annum for the 2026 Notes and is payable semi-annually in arrears on June 15 and December 15 of each year, which commenced on December 15, 2020. Refer to the Company’s consolidated financial statements for the year ended January 31, 2021 for details of the issuance and accounting of 2026 Notes.
The 2026 Notes were not convertible at July 31, 2022, as none of the 2026 Notes conversion conditions were met. Accordingly, the 2026 Notes were classified as noncurrent liabilities on the condensed consolidated balance sheet as of July 31, 2022.

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The Company may redeem for cash all or any portion of the 2026 Notes, at its option, on or after June 20, 2023 and prior to the 21st scheduled trading day immediately preceding the maturity date, if the last reported sale price of the Company’s common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to 100% of the principal amount of the 2026 Notes to be redeemed, plus any accrued and unpaid interest to, but excluding, the redemption date.
2025 Notes
In June 2019, the Company issued the 2025 Notes in aggregate principal amount of $805.0 million in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. The net proceeds from the issuance of the 2025 Notes were $667.4 million, net of debt issuance costs, including the underwriting discount and the cash used to purchase the capped call, discussed below. The 2025 Notes have an initial conversion rate of 6.2658 shares of common stock per $1,000 principal (equivalent to an initial conversion price of approximately $159.60 per share of common stock). The interest rate is fixed at 0.125% per annum for the 2025 Notes and is payable semi-annually in arrears on June 15 and December 15 of each year, which commenced on December 15, 2019. The accounting for 2025 Notes was substantially consistent with the accounting for 2026 Notes as described in the Company’s consolidated financial statements for the year ended January 31, 2022. Refer to the Company’s consolidated financial statements for the year ended January 31, 2020 for details of the issuance and accounting of 2025 Notes.
The 2025 Notes were convertible from August 1, 2020 through January 31, 2022 as a result of meeting the conversion condition for the respective periods. Beginning with the three months ended January 31, 2022, the conversion condition was not met and continued to not be met during the three months ended July 31, 2022. Therefore, the 2025 Notes have not been convertible commencing on February 1, 2022 and for the six months ended July 31, 2022. Accordingly, the 2025 Notes were classified as noncurrent liabilities on the condensed consolidated balance sheet as of July 31, 2022.
As of July 31, 2022, approximately $805.0 million principal amount of 2025 Notes remained outstanding.
The Company may redeem for cash all or any portion of the 2025 Notes, at its option, on or after June 20, 2022, if the last reported sale price of the Company’s common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to 100% of the principal amount of the 2025 Notes to be redeemed, plus any accrued and unpaid interest to, but excluding, the redemption date.
2023 Notes
In January 2018, the Company issued the 2023 Notes in aggregate principal amount of $230.0 million in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. The net proceeds from the issuance of the 2023 Notes were $200.4 million, net of debt issuance costs, including the underwriting discount and the cash used to purchase the capped call, discussed below. The 2023 Notes have an initial conversion rate of 22.4685 shares of common stock per $1,000 principal (equivalent to an initial conversion price of approximately $44.51 per share of common stock). The interest rate is fixed at 0.375% per annum for the 2023 Notes and is payable semi-annually in arrears on July 15 and January 15 of each year, which commenced on July 15, 2018. The accounting for 2023 Notes was substantially consistent with the accounting for 2026 Notes as described in the Company’s consolidated financial statements for the year ended January 31, 2022. Refer to the Company’s consolidated financial statements for the year ended January 31, 2019 for details of the issuance of 2023 Notes.
The conversion condition for the 2023 Notes was initially met during the three months ended July 31, 2018, and has been met for each subsequent fiscal quarter. As a result, the 2023 Notes were convertible at the option of the holders and remained classified as current liabilities on the condensed consolidated balance sheet as of July 31, 2022. During the three and six months ended July 31, 2022, the Company received $1.8 million principal amount of conversion requests that will be settled during the subsequent quarter.
As of July 31, 2022, approximately $1.8 million principal amount of 2023 Notes remained outstanding. In addition, from August 1, 2022 to the date of this filing, the Company has not received any additional conversion requests for the remaining 2023 Notes.

19


The Company may redeem for cash all or any portion of the 2023 Notes, at its option, on or after January 20, 2021, if the last reported sale price of the Company’s common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to 100% of the principal amount of the 2023 Notes to be redeemed, plus any accrued and unpaid interest to, but excluding, the redemption date. During the six months ended July 31, 2022, the Company did not redeem any of the 2023 Notes.
The Company adopted ASU 2020-06 on February 1, 2022, using the modified retrospective approach. Prior to the adoption of the standard, in accounting for the issuance of the Convertible Notes, the Company separated each series of notes into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of similar liabilities that do not have associated convertible features. The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the par value of the Convertible Notes. This difference represented a debt discount that was amortized to interest expense over the term of the Convertible Notes using the effective interest rate method. The gross carrying amount of the equity component for the Convertible Notes was included in additional paid-in capital on the condensed consolidated balance sheets upon issuance. The effective interest rate of the liability component of the 2026 Notes, 2025 Notes and 2023 Notes were 8.83%, 7.05% and 7.66%, respectively. Additionally, the Company separated the total issuance costs incurred into liability and equity components in proportion to the allocation of the initial proceeds. Issuance costs attributable to the liability component were amortized on a straight-line basis, which approximated the effective interest rate method, to interest expense over the respective terms of the Convertible Notes. The issuance costs attributable to the equity component were netted against the equity component in additional paid-in capital.
Upon adoption of ASU 2020-06, the Company recombined the liability and equity components for each of the Convertible Notes, assuming that the instrument was accounted for as a single liability component from inception to the date of adoption. The Company similarly recombined the liability and equity components of the debt issuance costs. The Company reversed the allocation of the issuance costs to the equity component and accounted for the entire amount as debt issuance cost that will be amortized as interest expense for each of the respective terms of the Convertible Notes, with a cumulative adjustment to retained earnings on the adoption date.
The Convertible Notes consisted of the following (in thousands):
 
As of
July 31, 2022
2026 Notes 2025 Notes 2023 Notes
Liability:
Principal
$ 1,380,000  $ 804,990  $ 1,752 
Unamortized debt issuance costs (1)
(16,224) (9,083) (5)
Net carrying amount
$ 1,363,776  $ 795,907  $ 1,747 

As of
January 31, 2022
2026 Notes 2025 Notes 2023 Notes
Liability:
Principal
$ 1,380,000  $ 804,990  $ 1,752 
Unamortized debt discount and issuance costs (1)
(408,467) (162,266) (113)
Net carrying amount
$ 971,533  $ 642,724  $ 1,639 
Carrying amount of the equity component (2)
$ 501,053  $ 246,966  $ 460 
(1)Included in the condensed consolidated balance sheets within Convertible senior notes, net and amortized over the remaining lives of the convertible senior notes. The 2026 Notes and 2025 Notes were classified as noncurrent liabilities, and the 2023 Notes were classified as current liabilities.
(2)Included in the condensed consolidated balance sheets within additional paid-in capital and temporary equity.
After the adoption of ASU No. 2020-06, the effective interest rate for the 2026 Notes, 2025 Notes, and 2023 Notes was 0.68%, 0.52%, and 1.00%, respectively. As of July 31, 2022 and January 31, 2022, the if-converted value of the 2026 Notes and 2025 Notes did not exceed the principal amount. As of July 31, 2022 and January 31, 2022, the if-converted value of the 2023 Notes exceeded the principal amount by $0.8 million and $3.5 million, respectively.

20


During the three and six months ended July 31, 2022, the Company recognized $1.8 million and $3.6 million, respectively, of interest expense related to the amortization of debt issuance costs, and $1.6 million and $3.1 million, respectively, of coupon interest expense. During the three and six months ended July 31, 2021, the Company recognized $28.9 million and $56.3 million, respectively, of interest expense related to the amortization debt discount and issuance costs, and $1.5 million and $3.1 million, respectively, of coupon interest expense.
As of July 31, 2022, the remaining life of the 2026 Notes, 2025 Notes and 2023 Notes is approximately 3.9 years, 2.9 years and 0.5 years, respectively.
Capped Calls
In conjunction with the issuance of the 2026 Notes, 2025 Notes and 2023 Notes, the Company entered into capped call transactions (the “Capped Calls”) on the Company’s common stock with certain counterparties at a price of $192.8 million, $118.7 million and $23.3 million, respectively.
The Capped Calls exercise price is equal to the initial conversion price of each of the Convertible Notes, and the cap price is $503.415 per share for 2026 Notes, $295.550 per share for 2025 Notes and $63.821 per share for 2023 Notes, each subject to certain adjustments under the terms of the Capped Call transactions. If any tranche of Convertible Notes’ conversion option is exercised, the corresponding convertible note capped call will become exercisable on the same date. As of the date of filing, the Company has not exercised the Capped Calls in relation to the conversion of 2023 Notes, and the Capped Calls relating to the 2025 Notes and 2026 Notes were not exercisable.
By entering into the Capped Calls, the Company expects to reduce the potential dilution to its common stock (or, in the event the conversion is settled in cash, to reduce its cash payment obligation) in the event that at the time of conversion its stock price exceeds the conversion price.
The cost of the Capped Calls is not expected to be tax-deductible as the Company did not elect to integrate the Capped Calls into the respective Convertible Notes for tax purposes. The cost of the Capped Calls was recorded as a reduction of the Company’s additional paid-in capital in the accompanying condensed consolidated financial statements.
 
Note 9. Commitments and Contingencies
Commitments
The Company leases office space under non-cancelable operating leases with various expiration dates through February 2030. For the three months ended July 31, 2022 and 2021, lease costs in relation to long-term leases were approximately $3.9 million and $3.6 million, respectively, and $7.7 million and $7.1 million for the six months ended July 31, 2022 and 2021, respectively. For the three months ended July 31, 2022 and 2021, short-term lease costs were approximately $800,000 and $400,000, respectively, and $1.5 million and $1.0 million for the six months ended July 31, 2022 and 2021, respectively. Variable lease costs were immaterial for the three and six months ended July 31, 2022 and 2021. Certain lease agreements include options to renew or terminate the lease, which are not reasonably certain to be exercised and therefore are not factored into the determination of lease payments or the lease right-of-use asset/lease liability.
For the three months ended July 31, 2022 and 2021, cash paid for operating lease liabilities was approximately $3.9 million and $3.6 million, respectively, and $7.7 million and $7.2 million for the six months ended July 31, 2022 and 2021, respectively. For the three months ended July 31, 2022 and 2021, right-of-use assets obtained in exchange of lease obligations was approximately $1.3 million and $2.1 million, respectively, and $1.4 million and $3.0 million for the six months ended July 31, 2022 and 2021, respectively. As of July 31, 2022, the weighted-average remaining lease term was 3.3 years, and the weighted-average discount rate was 7.6%.

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As of July 31, 2022, the remaining maturities of operating lease liabilities and future purchase obligations are as follows (in thousands):
 
Year Ending January 31, Operating Lease Obligations Future Purchase Obligations
2023 (remaining six months) $ 7,828  $ 17,300 
2024 14,850  49,266 
2025 9,302  59,674 
2026 6,110  53,883 
2027 4,440  — 
Thereafter 466  — 
Total payments
42,996  $ 180,123 
Less imputed interest (5,055)
Total
$ 37,941 
The Company’s future purchase obligations in the table above primarily includes contractual purchase obligations for hosting services and other services to support the Company’s business operations.
Contingencies
On June 10, 2021, the Company was served with notice of a complaint filed in U.S. District Court for the Southern District of Florida by DCR Workforce, Inc., as plaintiff, against Coupa Software Incorporated, as defendant. The complaint alleged breach of contract and other claims, and sought various damages from the Company including 206,065 shares of the Company’s common stock. The complaint related to the Company’s purchase of DCR’s vendor management software (VMS) business in August 2018. Under the purchase agreement, the Company agreed to issue additional stock to DCR as contingent (earn-out) consideration if the VMS business achieved certain revenue-related milestones during three measurement periods that continue through December 31, 2022. The VMS business met the target for the first measurement period and DCR was issued stock. It did not meet the target for the second measurement period. After DCR was notified, it filed the complaint.
On August 4, 2021, pursuant to a forum selection provision in the purchase agreement, the district court granted the Company’s motion to transfer venue to the U.S. District Court for the Northern District of California. On October 13, 2021, the court granted the Company’s motion to dismiss in its entirety and dismissed the case with prejudice. On November 11, 2021, DCR filed a notice of appeal of the district court’s decision. Upon appeal, DCR filed their opening brief on March 24, 2022 and the Company filed its answering brief on June 30, 2022. Given the early stage of the appeal, the amount of any loss or range of loss that may occur cannot be reasonably estimated as of the date of this filing.
In addition, the Company may become involved in other legal proceedings or be subject to claims arising in the ordinary course of business. Although the results of litigation and claims cannot be predicted with certainty, the Company currently believes that the final outcome of these current matters will not have a material adverse effect on the Company’s business, operating results, financial condition or cash flows. The Company accrues estimates for resolution of legal and other contingencies when losses are probable and estimable. Regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources and other factors.
Warranties and Indemnifications
The Company’s cloud-based software platform and applications are typically warranted against material decreases in functionality and to perform in a manner consistent with general industry standards and in accordance with the Company’s online documentation under normal use and circumstances.
The Company includes service level commitments to its customers, typically regarding certain levels of uptime reliability and performance and if the Company fails to meet those levels, customers can receive credits and, in some cases, terminate their relationship with the Company. To date, the Company has not incurred any material costs as a result of such commitments.

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The Company generally agrees to defend and indemnify its customers against legal claims that the Company’s platform infringes patents, copyrights or other intellectual property rights of third parties. To date, the Company has not been required to make any payment resulting from such infringement claims and has not recorded any related liabilities. In addition, the Company has indemnification agreements with its directors and certain of its officers that require the Company to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. To date, the Company has not incurred any material costs, and not accrued any liabilities in its condensed consolidated financial statements, as a result of these obligations.

Note 10. Common Stock and Stockholders’ Equity
Common Stock
Each share of common stock has the right to one vote. The holders of the common stock are also entitled to receive dividends whenever funds are legally available and when declared by the board of directors of the Company (the “Board of Directors”), subject to the prior rights of holders of all classes of stock outstanding having priority rights as to dividends. No dividends have been declared or paid since inception.
Preferred Stock 
As of July 31, 2022, the Company had authorized 25,000,000 shares of preferred stock, par value $0.0001, of which no shares were issued and outstanding.
2016 Equity Incentive Plan
The 2016 Equity Incentive Plan (the “2016 Plan”) provides for the grant of incentive stock options, nonstatutory stock options, restricted stock, restricted stock units, stock appreciation rights and performance cash awards. The 2016 Plan replaced the Company’s 2006 Stock Plan; however, awards outstanding under the 2006 Stock Plan will continue to be governed by their existing terms. As of July 31, 2022, the Company had 12,485,746 shares of its common stock available for future issuance under the 2016 Plan.
In addition, the Company has the 2016 Employee Stock Purchase Plan (the “ESPP”). The ESPP allows eligible employees to purchase shares of common stock through payroll deductions and is intended to qualify under Section 423 of the Internal Revenue Code. The purchase price for each share of common stock purchased under the ESPP will be 85% of the lower of the fair market value per share on the first day of the applicable offering period or the fair market value per share on the applicable purchase date. As of July 31, 2022, the Company had 2,915,413 shares of its common stock available for future issuances under the ESPP. As of July 31, 2022, the total unrecognized compensation cost related to the 2016 ESPP was $17.1 million, which will be amortized over a weighted-average period of approximately 1.6 years.

Restricted Stock Units (“RSUs”)
The following table summarizes the activity related to the Company’s RSUs during the six months ended July 31, 2022:
Number of
RSUs
Outstanding
Weighted-
Average
Grant Date
Fair Value
Awarded and unvested at January 31, 2022 2,124,649 $ 184.56 
Awards granted 4,307,268 $ 101.45 
Awards vested (617,300) $ 136.32 
Awards forfeited (343,287) $ 163.35 
Awarded and unvested at July 31, 2022 5,471,330 $ 125.91 
(1)The above table includes restricted share units with market and service-based conditions.
As of July 31, 2022, there was approximately $622.6 million of total unrecognized compensation cost related to unvested restricted stock units granted to employees under the 2016 Plan. This unrecognized compensation cost is expected to be recognized over an estimated weighted-average amortization period of approximately 3.1 years.

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Performance-based and Market-based Options and Awards
 
In July 2022, the Board of Directors of the Company approved a multi-year special equity incentive grant to the Chief Executive Officer (the “2022 Special CEO Award”), which was granted in lieu of any future equity awards to the CEO until fiscal 2028. The 2022 Special CEO Award is comprised of two components: (i) an award of 585,000 performance-based restricted stock units (the “2022 CEO PSUs”), with vesting contingent on service and achievement of both performance and market conditions, and (ii) 390,000 time-based RSUs that vest over a five-year period.

The 2022 CEO PSUs are eligible to vest in six equal tranches based on achieving stock price and subscription revenue growth milestones (the “performance and market conditions”) and a three-year service-based requirement (the “service requirement”). The performance and market conditions for a particular tranche may be achieved at different points in time and in any order, but will become eligible to vest only when the service requirement and all applicable performance and market conditions for the respective tranche are met (but no earlier than three years). The performance and market conditions must be achieved by June 28, 2027 (the “Performance Period”).

The total grant date fair value of the 2022 Special CEO PSUs was determined to be approximately $26.0 million, using a Monte Carlo simulation approach. Stock-based compensation expense is recognized on a graded vesting basis over the requisite service period on a tranche-by-tranche basis, which is the longer of the explicit service period, derived service period, and implied service period, and therefore at minimum, will be recognized over the three-year minimum service requirement. Expense for each tranche is only recognized when it is probable the performance condition will be achieved which involves subjective assessment of the Company’s future financial projections.

In March 2022, the Board of Directors of the Company granted market-based restricted stock unit awards (the “2022 PSU Grant”) to certain members of management. The target number of market-based restricted stock unit awards granted was 172,814. The number of shares that could be earned will range from 0% to 200% of the target number of shares, based on the relative growth of the per share price of the Company’s common stock as compared to the Nasdaq Composite Index over the three-year performance period ending on the third anniversary of the date of grant and subject to continuous employment through such date. The fair value of the 2022 PSU Grant was determined using a Monte Carlo simulation approach. The Company amortizes the fair value of the 2022 PSU Grant using the straight-line method over the three-year performance term.

In March 2021, the Board of Directors of the Company granted market-based restricted stock unit awards (the “2021 PSU Grant”) to certain members of management. In March 2020, the Board of Directors of the Company granted market-based restricted stock unit awards (the “2020 PSU Grant”) to certain members of management. As of July 31, 2022, the three-year performance period related to the 2020 PSU Grant and 2021 PSU Grant had not been completed. Refer to the Company’s fiscal 2022 Form 10-K for further information.

In September 2016 and March 2018, certain service and market-based options were granted to the Chief Executive Officer. Refer to the Company's fiscal 2021 Form 10-K for further information. As of July 31, 2022, all market-based milestones of the stock options granted to the Chief Executive Officer were achieved.

Stock-based compensation expense recognized for performance-based and market-based awards was approximately $4.6 million and $3.7 million for the three months ended July 31, 2022 and 2021, respectively, and approximately $8.1 million and $6.2 million for the six months ended July 31, 2022 and 2021, respectively.

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Stock Options
The following table summarizes stock option activity under the Company’s 2006 Stock Plan and the 2016 Plan during the six months ended July 31, 2022 (aggregate intrinsic value in thousands):
 
Options Outstanding
Outstanding
Stock
Options
Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual Life
(in Years)
Aggregate
Intrinsic
Value
Balance at January 31, 2022 1,840,947  $ 23.82  4.7 $ 203,339 
Option grants —  $ —  —  $ — 
Options exercised (89,210) $ 10.75 
Options forfeited (6,192) $ 13.91 
Balance at July 31, 2022 1,745,545  $ 24.52  4.3 $ 74,276 
Exercisable at July 31, 2022 1,725,461  $ 23.71  4.3 $ 74,276 

(1)The above table includes 711,839 stock options with market and service-based conditions.
The aggregate intrinsic value of exercised options was $6.7 million and $104.0 million for the six months ended July 31, 2022 and 2021, respectively, and is calculated based on the difference between the exercise price and the fair value of the Company’s common stock as of the exercise date.
As of July 31, 2022, there was approximately $700,000 of total unrecognized compensation cost related to unvested stock options, which is expected to be recognized over an estimated weighted-average amortization period of approximately seven months.
Stock Based Compensation
The Company’s total stock-based compensation expense was as follows (in thousands):
Three Months Ended
July 31,
Six Months Ended
July 31,
2022 2021 2022 2021
Cost of revenue:
Subscription
$ 4,819  $ 3,596  $ 9,333  $ 6,901 
Professional services and other
5,375  4,357  10,227  8,255 
Research and development 14,054  11,055  26,820  21,718 
Sales and marketing 17,356  12,230  33,290  23,451 
General and administrative 14,228  16,262  28,554  34,467 
Total
$ 55,832  $ 47,500  $ 108,224  $ 94,792 
 

Note 11. Income Taxes
The Company is subject to federal and various state income taxes in the United States as well as income taxes in foreign jurisdictions in which it conducts business. The Company does not provide for federal income taxes on the undistributed earnings of its foreign subsidiaries as such earnings are reinvested indefinitely.
The Company recorded a tax provision of approximately $2.6 million and a tax benefit of approximately $0.2 million for the three months ended July 31, 2022 and 2021, respectively. The Company recorded a tax provision of approximately $5.4 million for the six months ended July 31, 2022, representing an effective tax rate of (3.68)%, which was primarily attributable to an increase in the Company’s U.S. deferred tax liability and income taxes related to foreign and state jurisdictions in which the Company conducts business.
The Company recorded a tax benefit of approximately $2.2 million for the six months ended July 31, 2021, representing an effective tax rate of 1.17%, which was primarily attributable to a reversal of a U.S. deferred tax liability, foreign excess tax benefits

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related to stock-based compensation, and remeasurement of deferred tax assets due to tax rate changes in the UK, offset by income taxes related to foreign and state jurisdictions in which the Company conducts business.
The difference between the U.S. federal statutory rate of 21% and the Company's effective tax rate in the current period presented is primarily due to a full valuation allowance related to the Company's U.S. deferred tax assets, foreign expense on the Company's profitable jurisdictions, and state tax expense.
The Company's material income tax jurisdictions are the United States (federal) and California. As a result of net operating loss carryforwards, the Company is subject to audits for tax years 2006 and onward for federal purposes and 2009 and onward for California purposes. There are tax years which remain subject to examination in various other state and foreign jurisdictions that are not material to the Company's financial statements.
The 2017 Tax Cuts and Jobs Act requires research and development expenditures incurred for the tax year beginning after December 31, 2021, to be capitalized and amortized ratably over five years for domestic research and fifteen years for international research. The mandatory capitalization requirement has no material impact to the Company's fiscal 2023 income tax provision due to the Company's tax attributes carryover and full valuation allowance position.
The final foreign tax credit (“FTC”) regulations were published in the Federal Register on January 4, 2022. There are significant changes and updates for allocation and apportionment of foreign taxes, creditability of foreign taxes and other provisions affecting FTC calculation. These provisions are generally effective for foreign taxes paid or accrued in tax years beginning on or after December 28, 2021. Due to the full valuation allowance position for the U.S. jurisdiction, the Company does not believe this provision has a material impact on its financial statements.
The Inflation Reduction Act was enacted on August 16, 2022 and includes a number of provisions that may impact the Company in the future. The Company is assessing these impacts, but does not believe they will have a material impact on the Company’s fiscal 2023 financial statements.

Note 12. Net Loss per Share
Basic net loss per share is calculated by dividing the net loss by the weighted-average number of shares of common stock outstanding during the period, without consideration for potentially dilutive securities as they do not share in losses. During periods when the Company is in a net loss position, basic net loss per share is the same as diluted net loss per share as the effects of potentially dilutive securities are antidilutive given the net loss of the Company.
The following table sets forth the computation of the basic and diluted net loss per share attributable to Coupa Software Incorporated (in thousands, except per share amounts):
 
Three Months Ended
July 31,
Six Months Ended
July 31,
2022 2021 2022 2021
Numerator:
Net loss attributable to Coupa Software Incorporated
$ (75,269) $ (91,467) $ (156,742) $ (191,824)
Denominator:
Weighted-average common shares outstanding
75,669  73,526  75,429  73,200 
Net loss per share, basic and diluted, attributable to Coupa Software Incorporated
$ (0.99) $ (1.24) $ (2.08) $ (2.62)


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Since the Company was in a loss position for all periods presented, basic net loss per share is the same as diluted net loss per share for all periods as the inclusion of all potential common shares outstanding would have been anti-dilutive. Potentially dilutive securities that were not included in the diluted per share calculations because they would be anti-dilutive were as follows:
 
As of July 31,
2022 2021
Convertible senior notes 9,738,247  9,830,793 
Options to purchase common stock 1,745,545  2,196,777 
RSUs 5,471,330  2,452,513 
Unvested common shares subject to repurchase 5,360  137,143 
Shares committed under the ESPP 124,242  75,200 
Contingent stock consideration for DCR acquisition 171,073  171,073 
Coupa K.K. redeemable non-controlling interest 207,904  — 
Total
17,463,701  14,863,499 
The number of potentially dilutive shares from the Convertible Notes are subject to adjustment up to approximately 6.2 million, 6.8 million and 52,000 shares for the 2026 Notes, 2025 Notes and 2023 Notes, respectively, if certain corporate events occur prior to the maturity date or if the Company issues a notice of redemption.

Note 13. Business Segment Information
The Company’s chief operating decision maker is the Chief Executive Officer (“CEO”). The CEO reviews the financial information presented on a consolidated basis for purposes of allocating resources and evaluating the Company’s financial performance. Accordingly, the Company has determined that it operates in a single reporting segment: cloud platform.

Note 14. Significant Customers and Geographic Information
No customer balance comprised 10% or more of total accounts receivable at July 31, 2022 or January 31, 2022.
During the three and six months ended July 31, 2022 and July 31, 2021, revenues by geographic area, based on billing addresses of the customers, were as follows (in thousands):
 
Three Months Ended
July 31,
Six Months Ended
July 31,
2022 2021 2022 2021
United States $ 131,073  $ 106,190  $ 252,601  $ 205,209 
Foreign countries 80,030  73,056  154,873  140,966 
Total revenues
$ 211,103  $ 179,246  $ 407,474  $ 346,175 
 
No single foreign country represented more than 10% of the Company’s revenues in any period. Additionally, no single customer represented more than 10% of the Company’s revenues in any period.

Note 15. Subsequent Events
In August 2022, the Board of Directors authorized a program to repurchase up to $100 million of the Company’s common stock (the “Share Repurchase Program”). Under the Share Repurchase Program, shares of common stock may be repurchased from time to time until September 1, 2023 through open market transactions in compliance with applicable securities laws. The timing, manner, price and amount of any repurchases, as well as the capital resources to fund the repurchases, are determined by the Company at its discretion and depend on a variety of factors, including legal requirements, price and economic and market conditions. Share repurchases will be funded by available cash and cash equivalents.

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Item 2. 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 our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q. As discussed in the section titled “Note About Forward-Looking Statements,” the following discussion and analysis contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, impacts on our business and general economic conditions due to the ongoing COVID-19 pandemic, the Russia-Ukraine conflict, inflationary pressures and rising interest rates, those identified below, those discussed in “Note About Forward-Looking Statements” and those discussed in the section titled “Risk Factors” under Part II, Item 1A in this Quarterly Report on Form 10-Q.
Overview
We are a leading provider of Business Spend Management (“BSM”) solutions. We offer a comprehensive, cloud-based BSM platform that has connected our customers with more than eight million suppliers globally. Our platform provides greater visibility into and control over how companies spend money, optimize supply chains, and manage liquidity. Using our platform, businesses are able to achieve real, measurable value and savings that drive their profitability.
We refer to the process companies use to purchase goods and services as business spend management and to the money that they manage with this process as spend under management. Our BSM platform delivers a broad range of capabilities that would typically require the purchase and use of multiple disparate point applications. The core of our platform consists of procurement, invoicing, expense management, and payment solutions that form the transactional engine for managing a company’s business spend. In addition, our platform offers specialized solutions targeted for power users, to help companies manage more technical and strategic areas of BSM, including areas such as strategic sourcing, contract management, contingent workforce, supplier risk management, supply chain design and planning, treasury management, and spend analysis.
We also provide purchasing programs, such as Coupa Instant Advantage, which offers access to pre-negotiated discounts from various suppliers, and Coupa Sourcing Advantage, which connects community members to engage in group sourcing events, allowing them to leverage pooled buying power to achieve better contracting terms and capture greater savings. Moreover, through our Coupa Open Business Network, suppliers of all sizes can list their goods and services, establish pricing, and interact with buyers electronically, thus significantly reducing paper, improving operating efficiencies, and reducing costs.
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 licensed employees, as well as incremental solutions for select employees and procurement specialists, whom we refer to as power users. Therefore, we are typically able to capture a majority 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 capturing 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 software updates that typically require little downtime.
We market and sell our solutions to a broad range of enterprises worldwide. We have a diverse, multi-national customer base spanning various sizes and industries and no significant customer concentration. No customer accounted for more than 10% of our total revenues for the three and six months ended July 31, 2022 and 2021, respectively.
We market our platform primarily through a direct sales force and also benefit from leveraging the referral resources of our partner ecosystem. Our initial contract terms are typically three years, although some customers commit for longer or shorter periods. The large majority of our customers pay annually, one year in advance. 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.

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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 solutions 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, the Middle East and Africa, Latin America and Asia-Pacific, including Japan. The combined revenues from non-U.S. regions, as determined based on the billing address of our customers, constituted 38% and 41% of our total revenues for each of the six months ended July 31, 2022 and 2021, respectively. 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.
We may face exposure to foreign currency exchange rate fluctuations, which could adversely affect our business, results of operations and financial condition. A portion of our revenue contracts is denominated in foreign currencies, and as a result, fluctuations in foreign currency exchange rates may cause variability in our total revenues, deferred revenues and accounts receivable. In addition, as our international operations expand, our exposure to the effects of fluctuations in currency exchange rates grows and may also cause variability in our cost of revenues, operating expenses and other operating results.
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. While we are gaining additional 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 any or all of the international markets we enter.
COVID-19 Pandemic
The extent to which the COVID-19 pandemic will continue to impact our financial condition or results of operations in future periods remains uncertain. We may experience decreased customer demand, reduced customer spend, customer bankruptcies and other non-payment situations, shorter contract duration, longer sales cycles and extended payment terms, any of which could materially adversely impact our business, results of operations and overall financial performance in future periods. The spread of COVID-19 has also caused us to modify our business practices. Working remotely has made our workforce more reliant on certain cloud-based communication and collaboration services, and any disruption to these services would likely have an adverse impact on employee productivity. The impact, if any, of these and any additional operational changes we may implement is uncertain, but changes we have implemented to date have not materially impaired and are not expected to materially impair our ability to maintain operations, including financial reporting systems, internal control over financial reporting and disclosure controls and procedures.
Recent Economic and Other Events
The Russia-Ukraine conflict and resulting sanctions and other actions against Russia and Belarus (as well as counter-actions that have been or may be taken by Russia and Belarus) have led to uncertainty and disruption in the global economy. Although the conflict has not had a direct material adverse impact on our revenues or other financial results, we are closely monitoring the events of the Russian-Ukraine conflict and its impact on Europe and throughout the rest of the world. It is not clear at this time how long the conflict will endure, or if it will escalate further, which could further compound the adverse impact to the global economy and consequently affect our results of operations.
Rates of inflation have been rising across many jurisdictions around the world, including the United States, and as a result various national central banks have adopted tighter monetary policies and implemented interest rate hikes in an attempt to combat rising inflation. For example, the Federal Reserve has increased its benchmark interest rate multiple times so far in 2022 and may do so again in the future. Rising interest rates have caused, and may continue to cause, short- and long-term borrowing costs to increase which in turn may create a more challenging environment for us (and/or our existing and prospective customers) to refinance current debt obligations or obtain new debt financing on favorable terms, if at all.
The Inflation Reduction Act was enacted on August 16, 2022 and includes a number of provisions that may impact us in the future. We are assessing these impacts, but do not believe they will have a material impact on our fiscal 2023 financial statements.
Certain other worldwide events and factors, such as international trade relations, new legislation and regulations, taxation or monetary policy changes, political and civil unrest, and inflationary pressures, among other factors, also increase volatility in the global economy.
See the section “Risk Factors” for further discussion of the possible impact of the COVID-19 pandemic, the Russia-Ukraine conflict, and rising interest rates on our business.

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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 solutions and more users. However, these costs are significantly less 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 2022 and 2021, the calculated lifetime value of our customers has exceeded six times the associated cost of acquiring them. Other companies may calculate lifetime value and customer acquisition costs differently than our chosen method and, therefore, may not be directly comparable.
Recent Business Developments
During April and May 2022, we hosted our annual BSM community conference Inspire that returned to an in-person event after two years. The conferences were held in both North America and EMEA, welcoming a significant number of attendees and awarding its community of partner and customers to recognize leaders revolutionizing BSM.
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 July 31,
2022 2021
Cumulative spend under management (in billions) $ 3,860.8  $ 2,803.7 
Remaining performance obligations (in millions) $ 1,424.7  $ 1,114.5 
Deferred revenue (in millions) $ 507.1  $ 359.2 
Trailing twelve months calculated billings (in millions) $ 934.4  $ 752.9 
Trailing twelve months subscription calculated billings (in millions) $ 856.6  $ 659.2 
Customers with annualized subscription revenue above $100,000 1,519  1,230 
 
Cumulative Spend Under Management
Cumulative spend under management represents the aggregate dollar value of transactions through our core platform for all of our customers collectively since we launched our core platform. We define our core platform for purposes of this metric as our procurement, invoicing and expense management modules. We calculate this metric by aggregating the actual transaction data for purchase orders, invoices and expenses from customers using our core platform. Cumulative spend under management does not include spending data or transactions associated with modules from acquired companies. We regularly review our process for calculating this metric and periodically make adjustments to improve its accuracy. We believe that any such adjustments are immaterial unless otherwise stated.
The cumulative spend under management metric presented above does not directly correlate to our revenue or results of operations because we do not generally charge our customers based on actual usage of our core platform. However, we believe the cumulative spend under management metric does illustrate the adoption, scale and value of our platform, which we believe enhances our ability to maintain existing customers and attract new customers.

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Remaining Performance Obligations and Deferred Revenue
Remaining performance obligations represent the amount of consideration allocated to unsatisfied performance obligations related to non-cancelable contracts, which includes both the deferred revenue balance and amounts that will be invoiced and recognized as revenue in future periods. In calculating the remaining performance obligation amount, we elected to apply the two expedients under the revenue standard to exclude remaining performance obligations amounts related to contracts that are twelve months or less and contracts where revenue is being recognized under the as-invoiced method.
We generally execute multiple year subscription contracts for our platform and invoice an initial amount at contract signing followed by subsequent annual invoices. At any point in the contract term, there might be amounts that are not due for billing yet. These amounts are not recorded in our condensed consolidated financial statements, and are considered to be part of the remaining performance obligations amount.
The remaining performance obligations amount is intended to provide visibility into future revenue streams. We expect remaining performance obligations to fluctuate up or down from period to period for several possible reasons, including amounts, timing, and duration of customer contracts, timing of contract renewals, timing of billing cycles for each order, as well as fluctuations in foreign currency exchange rates.
Our deferred revenue consists of non-cancelable amounts that have been invoiced but not yet 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 related contractual period. 
Trailing Twelve Months Calculated Billings
Trailing twelve months calculated billings represents total revenues recognized during the period of consecutive twelve months ended July 31, 2022 and July 31, 2021 plus the change in deferred revenue for each of those same periods. Trailing twelve month calculated billings is comprised of subscription contracts with existing customers (including renewal contracts and add-on contracts), subscription contracts with new customers, term-based license contracts, and contracts for professional services, training and other revenues.
The trailing twelve months calculated billings is intended to provide information about our subscription revenue growth over time, and can typically be seen as an early indicator of trends in revenue growth. While trailing twelve months calculated billings can increase as our revenues grow, it may fluctuate up or down from period to period for several reasons, including amounts, timing, and duration of customer contracts, timing of contract renewals, timing of billing cycles for each order, as well as fluctuations in foreign currency exchange rates.
Trailing Twelve Months Subscription Calculated Billings
Trailing twelve months subscription calculated billings represents total subscription revenues recognized during the period of consecutive twelve months ended July 31, 2022 and July 31, 2021 plus the change in subscription deferred revenue for each of those same periods. Trailing twelve month subscription calculated billings is comprised of subscription contracts with existing customers (including renewal contracts and add-on contracts), and subscription contracts with new customers.
The trailing twelve months subscription calculated billings is intended to provide information about our subscription revenue growth over time, and can typically be seen as an early indicator of trends in revenue growth. While trailing twelve months subscription calculated billings can increase as our subscription revenues grow, it may fluctuate up or down from period to period for several reasons, including amounts, timing, and duration of customer contracts, timing of contract renewals, timing of billing cycles for each order, as well as fluctuations in foreign currency exchange rates.

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Customers with Annualized Subscription Revenue Above $100,000
We define customers with annualized subscription revenue above $100,000 as the total number of customers that contributed subscription revenues in excess of $25,000 during the relevant fiscal quarter, which corresponds to $100,000 on an annualized basis. For purposes of this metric, we generally define a customer as a separate and distinct entity (such as a company or an educational or government institution), a distinct business unit of a large corporation or a partner organization, in each case that has a distinctive active contract with us to access our services. Most of the subscription revenue we recognize each quarter is attributable to customers that accounted for more than $25,000 of that revenue during the quarter, and our sales and marketing strategy focuses heavily on the acquisition of customers that have the potential to contribute at least $100,000 in subscription revenues annually. Accordingly, we believe that this metric is a useful tool to aid investors in understanding a key factor that drives changes in our subscription revenues from period to period and in assessing trends in our growth, penetration of our core customer market, and our overall performance. Because the dollar threshold is tied to the actual revenue recognized during a particular quarter, customers that we acquired midway through or at the end of the quarter may not yet be included in this count, even if they have placed orders representing more than $100,000 in annual subscription revenue. 
Components of Results of Operations
Revenues
We primarily offer subscriptions to our cloud-based BSM platform, including procurement, invoicing and expense management and pay. We derive our revenues primarily from subscription fees, professional services fees and other.

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. Term-based licenses are sold as bundled arrangements that include the rights to a term license and post-contract customer support (“PCS”). Accordingly, we allocate the transaction price to each performance obligation. The revenues related to the amount allocated to PCS are included in subscription revenue, which are recognized ratably over the contract term beginning on the license delivery date. Professional services fees and other include deployment services, optimization services, training, and revenues allocated to license component for the sales of term-based licenses. Subscription revenues are a function of renewal rates, the number of customers, the number of users at each customer, the number of solutions subscribed to by each customer, and the price of our solutions.

Generally, 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 customers commit for longer or shorter periods. 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 will be invoiced and recognized as revenue in future periods are reflected as remaining performance obligations within the notes to our condensed consolidated financial statements.

Professional services revenues and other consist primarily of fees associated with the implementation and configuration of our subscription service and revenues allocated to the license component for sales of term-based licenses. Professional services are generally sold on a time-and-materials or fixed-fee basis. Revenue for both time-and-material and fixed-fee arrangements are recognized over-time as the services are performed. We have the ability to reasonably measure progress towards completion of the professional services arrangements. For fixed-fee and time-and-material arrangements, we recognize revenue on the basis of performed hours relative to the total estimated hours to complete satisfaction of the professional service arrangement. For the license component from the sales of term-based licenses, we recognize revenues at the start of the license term when delivery is complete.

Our professional services engagements typically span from a few weeks to several months. For this reason, our professional services revenues may fluctuate significantly from period to period. The terms of our typical professional services arrangements provide that our customers pay us within 30 days from the invoice date. 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 are continuing to invest 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.

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Cost of Revenues

Subscription
Cost of subscription 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 acquired developed technology and capitalized software development costs.

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, benefits, bonuses and stock-based compensation; the costs of contracted third-party vendors, amortization of acquired developed technology; and allocated overhead. These costs are generally expensed in the period incurred.

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 us 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 solutions 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 solutions and features and adding incremental functionality to our platform, and we amortize such costs as costs of subscription revenues over the estimated life of the new application or incremental functionality, which is typically three 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 are considered incremental costs for obtaining a non-cancelable subscription contract are deferred and amortized over a period of benefit that we have determined to be five years. For commissions earned from the sale of term-based license contracts, we allocate the costs of commission in proportion to the allocation of the transaction price of license and PCS performance obligations. Commissions associated with the license component are expensed at the time the related revenue is recognized. Commissions allocated to PCS are deferred and then amortized over five years. Other sales and marketing costs include promotional events to promote our brand, including our Inspire conferences, web advertising, television media, events, allocated overhead and amortization of customer relationships and trademark.

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

Interest Expense
Interest expense consists primarily of interest expense associated with our outstanding convertible senior notes.

Other Expense, Net
Other expense, net consists primarily of interest income earned on our investments in marketable securities and cash and cash equivalents, gain or loss on our non-marketable equity investments, gain or loss on conversion of convertible senior notes, in addition to the effects of exchange rates on our foreign currency-denominated asset and liability balances which are recorded as foreign currency gains (losses) in the condensed consolidated statements of operations. 


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Provision for (Benefit From) Income Taxes
The provision for income taxes is primarily related to an increase in our U.S. deferred tax liability and income taxes related to foreign and state jurisdictions in which we conduct business. We maintain a full valuation allowance on net deferred tax assets of our U.S. entities as we have concluded that it is not more likely than not that the deferred assets will be utilized.

Results of Operations
The following tables set forth selected condensed consolidated statements of operations data and such data as a percentage of total revenues for each of the periods indicated:
 
Three Months Ended
July 31,
Six Months Ended
July 31,
2022 2021 2022 2021
(in thousands, except percentages)
Revenues:
Subscription $ 192,670  91  % $ 156,230  87  % $ 371,140  91  % $ 296,334  86  %
Professional services and other 18,433  23,016  13  36,334  49,841  14 
Total revenues 211,103  100  179,246  100  407,474  100  346,175  100 
Cost of revenues:
Subscription 60,808  28  51,398  29  118,937  29  102,423  30 
Professional services and other 22,501  11  27,822  16  45,200  11  56,524  16 
Total cost of revenues 83,309  39  79,220  44  164,137  40  158,947  46 
Gross profit 127,794  61  100,026  56  243,337  60  187,228  54 
Operating expenses:
Research and development 46,266  22  41,799  23  89,976  22  85,636  25 
Sales and marketing 103,215  49  76,279  43  204,168  50  154,122  44 
General and administrative 41,942  20  36,248  20  84,080  21  75,625  22 
Total operating expenses 191,423  91  154,326  86  378,224  93  315,383  91 
Loss from operations (63,629) (30) (54,300) (30) (134,887) (33) (128,155) (37)
Interest expense (3,619) (2) (30,621) (17) (7,095) (2) (59,724) (18)
Other expense, net (709) —  (1,983) (1) (4,425) (1) (1,448)
Loss before provision for (benefit from) income taxes (67,957) (32) (86,904) (48) (146,407) (36) (189,327) (55)
Provision for (benefit from) income taxes 2,641  (155) —  5,392  (2,221) (1)
Net loss (70,598) (33) (86,749) (48) (151,799) (37) (187,106) (54)
Net loss attributable to redeemable non-controlling interests (462) —  (517) —  (666) —  (517) — 
Adjustment attributable to redeemable non-controlling interests 5,133  5,235  5,609  5,235 
Net loss attributable to Coupa Software Incorporated $ (75,269) (36) % $ (91,467) (51) % $ (156,742) (38) % $ (191,824) (55) %

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Three Months Ended July 31, 2022 and July 31, 2021
Revenues
 
Three Months Ended
July 31,
2022 2021 % Change
(in thousands)
Subscription $ 192,670  $ 156,230  23  %
Professional services and other 18,433  23,016  (20) %
Total revenues
$ 211,103  $ 179,246  18  %
 
Total revenues were $211.1 million for the three months ended July 31, 2022 compared to $179.2 million for the three months ended July 31, 2021, an increase of $31.9 million, or 18%. Subscription revenues were $192.7 million, or 91% of total revenues, for the three months ended July 31, 2022, compared to $156.2 million, or 87% of total revenues, for the three months ended July 31, 2021. This increase in absolute dollars was predominantly driven by the increase in the number of customers with annualized subscription revenue above $100,000, which was 1,519 as of July 31, 2022, compared to 1,230 as of July 31, 2021. Professional services and other revenues were $18.4 million for the three months ended July 31, 2022 compared to $23.0 million for the three months ended July 31, 2021. The decrease of $4.6 million, or 20%, was primarily due to migration from Coupa-led implementations to partner-led implementations.
Cost of Revenues
 
Three Months Ended
July 31,
2022 2021 % Change
(in thousands)
Subscription $ 60,808  $ 51,398  18  %
Professional services and other 22,501  27,822  (19) %
Total cost of revenues
$ 83,309  $ 79,220  %
 
Cost of subscription was $60.8 million for the three months ended July 31, 2022 compared to $51.4 million for the three months ended July 31, 2021, an increase of $9.4 million, or 18%. The increase in cost of subscription was primarily due to an increase of $3.7 million in employee compensation costs related to higher headcount, including stock-based compensation costs, an increase of $3.2 million in amortization of developed technology assets related to acquisitions, an increase of $0.8 million in hosting fees to accommodate increased customer spend, an increase of $0.6 million in third party services, such as contractors and consulting fees, and an increase of $1.1 million in other costs driven by our overall growth.
Cost of professional services and other was $22.5 million for the three months ended July 31, 2022 compared to $27.8 million for the three months ended July 31, 2021, a decrease of $5.3 million, or 19%. The decrease in cost of professional services was primarily due to a decrease of $4.3 million in amortization of developed technology assets, and a decrease of $1.0 million in employee compensation costs as a result of migrating implementation services that we directly led to those led by our implementation partners.

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Gross Profit
 
Three Months Ended
July 31,
2022 2021 % Change
(in thousands)
Gross profit $ 127,794  $ 100,026  28  %
 
Gross profit was $127.8 million for the three months ended July 31, 2022, compared to $100.0 million for the three months ended July 31, 2021, an increase of $27.8 million, or 28%. The increase in gross profit was primarily due to the acquisition of new customers with annualized subscription revenue above $100,000. Gross margin was 61% for the three months ended July 31, 2022, compared to 56% for the three months ended July 31, 2021. The increase in gross margin was primarily due to the overall growth in total revenues coupled with the rationalization in cloud hosting expenses.
Operating Expenses
Research and Development
 
Three Months Ended
July 31,
2022 2021 % Change
(in thousands)
Research and development $ 46,266  $ 41,799  11  %
 
Research and development expenses were $46.3 million for the three months ended July 31, 2022 compared to $41.8 million for the three months ended July 31, 2021, an increase of $4.5 million. The increase was primarily due to an increase of $5.1 million in employee compensation costs, including stock-based compensation costs, partially offset by a decrease of $0.6 million in other costs.
Sales and Marketing
 
Three Months Ended
July 31,
2022 2021 % Change
(in thousands)
Sales and marketing $ 103,215  $ 76,279  35  %
 
Sales and marketing expenses were $103.2 million for the three months ended July 31, 2022 compared to $76.3 million for the three months ended July 31, 2021, an increase of $26.9 million, or 35%. The increase was primarily due to an increase of $20.5 million in employee compensation costs related to higher headcount, including stock-based compensation costs, an increase of $3.6 million in travel costs, an increase of $1.9 million in marketing events, and from an increase of $0.9 million in other costs driven by our overall growth.
General and Administrative
 
Three Months Ended
July 31,
2022 2021 % Change
(in thousands)
General and administrative $ 41,942  $ 36,248  16  %
 
General and administrative expenses were $41.9 million for the three months ended July 31, 2022 compared to $36.2 million for the three months ended July 31, 2021, an increase of $5.7 million, or 16%. The increase was primarily due to a non-recurring prior year benefit of $1.6 million as a result of a reversal of allowances for credit losses, an increase of $1.4 million in third party services, such as recruiting expenses and legal service fees, an increase of $0.9 million in employee compensation costs related to higher headcount, including stock-based compensation costs, and an increase of $1.8 million in travel costs and in other costs driven by our overall growth.

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Interest Expense
 
Three Months Ended
July 31,
2022 2021 % Change
(in thousands)
Interest expense $ 3,619  $ 30,621  (88) %
 
Interest expense was $3.6 million for the three months ended July 31, 2022 compared to $30.6 million for the three months ended July 31, 2021. The decrease in interest expense was primarily due to lower non-cash interest expense related to eliminating the amortization of debt discount associated with our convertible notes as a result of the adoption of ASU 2020-06. Refer to Note 8, “Convertible Senior Notes” and the description under the heading “Recent Accounting Guidance” in Note 2, “Significant Accounting Policies” of the notes to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for more information.
Other Expense, Net
 
Three Months Ended
July 31,
2022 2021 % Change
(in thousands)
Other expense, net $ (709) $ (1,983) (64) %
 
Other expense, net was $0.7 million for the three months ended July 31, 2022 compared to $2.0 million for the three months ended July 31, 2021. The fluctuation of $1.3 million was primarily due to an increase of $0.8 million in interest income from our short-term investments, and from $0.5 million in fluctuations related to foreign currency exchange rates.
Provision for (Benefit from) Income Taxes
 
Three Months Ended
July 31,
2022 2021 % Change
(in thousands)
Provision for (benefit from) income taxes $ 2,641  $ (155) NM

The provision for income taxes was $2.6 million for the three months ended July 31, 2022 compared to a tax benefit of $0.2 million for the three months ended July 31, 2021. The provision for income taxes for the three months ended July 31, 2022 was primarily related to an increase in our U.S. deferred tax liability and income taxes related to foreign and state jurisdictions in which we conduct business. We maintain a full valuation allowance on net deferred tax assets of our U.S. entities as we have concluded that it is unlikely that these deferred income tax assets will be utilized. The benefit from income taxes for the three months ended July 31, 2021 was primarily related to the reversal of a U.S. deferred tax liability, foreign excess tax benefits related to stock-based compensation, and remeasurement of deferred tax assets due to tax rate changes in the U.K., offset by income taxes related to foreign and state jurisdictions in which the Company conducts business.

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Six Months Ended July 31, 2022 and July 31, 2021
 
Revenues
 
Six Months Ended
July 31,
2022 2021 % Change
(in thousands)
Subscription $ 371,140  $ 296,334  25  %
Professional services and other 36,334  49,841  (27) %
Total revenues
$ 407,474  $ 346,175  18  %
 
Total revenues were $407.5 million for the six months ended July 31, 2022 compared to $346.2 million for the six months ended July 31, 2021, an increase of $61.3 million, or 18%. Subscription revenues were $371.1 million, or 91% of total revenues, for the six months ended July 31, 2022, compared to $296.3 million, or 86% of total revenues, for the six months ended July 31, 2021. This increase in absolute dollars was predominantly driven by the increase in the number of customers with annualized subscription revenue above $100,000, which was 1,519 as of July 31, 2022, compared to 1,230 as of July 31, 2021. Professional services and other revenues were $36.3 million for the six months ended July 31, 2022 compared to $49.8 million for the six months ended July 31, 2021. The decrease of $13.5 million, or 27%, was primarily due to the migration from certain term-based licenses to subscription services.
Cost of Revenues
 
Six Months Ended
July 31,
2022 2021 % Change
(in thousands)
Subscription $ 118,937  $ 102,423  16  %
Professional services and other 45,200  56,524  (20) %
Total cost of revenues
$ 164,137  $ 158,947  %
 
Cost of subscription was $118.9 million for the six months ended July 31, 2022 compared to $102.4 million for the six months ended July 31, 2021, an increase of $16.5 million, or 16%. The increase in cost of subscription was primarily due to an increase of $7.4 million in amortization of developed technology assets related to acquisitions, an increase of $6.3 million in employee compensation costs related to higher headcount, including stock-based compensation costs, an increase of $1.2 million in third party services, such as contractors and consulting fees, an increase of $0.8 million in software costs to manage our platform, and an increase of $0.8 million in other costs driven by our overall growth.
Cost of professional services was $45.2 million for the six months ended July 31, 2022 compared to $56.5 million for the six months ended July 31, 2021, an decrease of $11.3 million, or 20%. The decrease in cost of professional services was primarily due to a decrease of $8.9 million in amortization of developed technology assets, and a decrease of $2.4 million in employee compensation costs as a result of migrating implementation services that we directly led to those led by our implementation partners.
Gross Profit
 
Six Months Ended
July 31,
2022 2021 % Change
(in thousands)
Gross profit $ 243,337  $ 187,228  30  %
 
Gross profit was $243.3 million for the six months ended July 31, 2022, compared to $187.2 million for the six months ended July 31, 2021, an increase of $56.1 million, or 30%. The increase in gross profit was primarily due to the acquisition of new customers with annualized subscription revenue above $100,000. Gross margin was 60% for the six months ended July 31, 2022, compared to 54% for the six months ended July 31, 2021. The increase in gross margin was primarily due to the overall growth in total revenues coupled with the rationalization in cloud hosting expenses.

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Operating Expenses
Research and Development
 
Six Months Ended
July 31,
2022 2021 % Change
(in thousands)
Research and development $ 89,976  $ 85,636  %
 
Research and development expenses were $90.0 million for the six months ended July 31, 2022 compared to $85.6 million for the six months ended July 31, 2021, an increase of $4.4 million, or 5%. The increase was primarily due to an increase of $4.4 million in employee compensation costs, including stock-based compensation costs, an increase of $0.9 million in travel costs, partially offset by a decrease of $0.9 million in other costs for research and development activities.
Sales and Marketing
 
Six Months Ended
July 31,
2022 2021 % Change
(in thousands)
Sales and marketing $ 204,168  $ 154,122  32  %
 
Sales and marketing expenses were $204.2 million for the six months ended July 31, 2022 compared to $154.1 million for the six months ended July 31, 2021, an increase of $49.9 million, or 32%. The increase was primarily due to an increase of $36.0 million in employee compensation costs related to higher headcount, including stock-based compensation costs, an increase of $6.5 million in travel costs, an increase of $5.4 million in marketing events, primarily driven by our annual Inspire conferences that returned to an in-person event after two years, and an increase of $2.0 million in other costs driven by our overall growth.
General and Administrative
 
Six Months Ended
July 31,
2022 2021 % Change
(in thousands)
General and administrative $ 84,080  $ 75,625  11  %
 
General and administrative expenses were $84.1 million for the six months ended July 31, 2022 compared to $75.6 million for the six months ended July 31, 2021, an increase of $8.5 million, or 11%. The increase was primarily due to a non-recurring prior year benefit of $3.1 million as a result of a reversal of allowances for credit losses, an increase of $3.3 million in third party services, such as recruiting expenses and legal service fees, an increase of $2.1 million in travel costs and an increase in other costs driven by our overall growth.

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Interest Expense
 
Six Months Ended
July 31,
2022 2021 % Change
(in thousands)
Interest expense $ 7,095  $ 59,724  (88) %
 
Interest expense was $7.1 million for the six months ended July 31, 2022 compared to $59.7 million for the six months ended July 31, 2021. The decrease in interest expense was primarily due to lower non-cash interest expense related to eliminating the amortization of debt discount associated with our convertible notes as a result of the adoption of ASU 2020-06. Refer to Note 8, “Convertible Senior Notes” and the description under the heading “Recent Accounting Guidance” in Note 2, “Significant Accounting Policies” of the notes to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for more information.
Other Expense, Net
 
Six Months Ended
July 31,
2022 2021 % Change
(in thousands)
Other expense, net $ (4,425) $ (1,448)