I think you are probably right Jimbo. Something is going on with the deferred revenue from accounting from Exira and Coupa transitioning them to 606. It’s just hard to wrap my head around why Exira’s revenue is nearly half what it was in Q1. $3.7M vs $7.8M. Can a deferred revenue “haircut” do that much damage? I guess so. They didn’t explain it very well.
Here’s some snippets on this from the Q3 call now that it’s out.
Todd, just real quickly we typically don’t see high growth company has double operating profit sequentially here really strong performance.Was the doubling of op margins to 11% year driven solely by integration or are there other factors at play relative to timing of hires, obviously really strong performance. What drove that and is that sustainable?
We’ve always had a disciplined growth approach to Coupa where – not only the 30% plus growth on the top line but continuing to show operating leverage at the bottom line. And I think it’s very strategic investments when we have an incremental dollar to invest we think about it very thoughtfully. Your point on M&A is absolutely true. We’ve done actually what I would consider a very good job at integrating our acquisitions and that was part of the strong cash flows in Q3 as well. So I would expect we took some near-term hit. And if you look at Exari for example, we’re still haven’t reached steady-state run rate there because of 606 and the deferred revenue haircut.
So that will continue to improve. But by integrating the acquisitions quickly and getting them profitable and cash flow positive and being very accretive to our bottom line it also helps.
Got it. And then, Todd, just back to the outperformance on the operating line, were there any one-time items to consider or are there any kind of repeatable things that could come through over the next couple of quarters as well?
Nothing that I would necessarily call out as major item and obviously we expect margins to improve as Exari gets to steady run rate. The inorganic contribution from Exari in Q3 was $3.7 million. And as we noted last quarter, we expect that to get up to $25 million next year.
What a weird way to drop that $3.7M number, the only place it appears. On a question about the operating line. From the way it’s worded with context to the $25M(and knowing that reference was specific to revenue next year), that looks like he is saying the “Contribution” was to revenue. But, in the context of the question, it could also mean contribution to operating expenses or operating profit(loss). Especially considering how he answered the previous question about how good they are at integrating acquisitions and how that impacted cash flows.
If indeed the contribution last quarter was $2.8M and this quarter $3.7M, the impact to organic COUP growth is not too significant then. What appears to be happening is that Exari revenue is suppressed some way due to accounting changes and that those effects will sunset and Exari revenue will return closer to the previous levels.