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Coupa Prices $700M Senior Notes, Aids Financial Flexibility

Zacks Equity Research

Coupa Software Inc. COUP recently announced the pricing of $700 million of convertible unsecured senior notes to enhance liquidity. The notes are slated to mature in 2025. The notes will be privately offered to institutional buyers qualifying under Rule 144A of the Securities Act of 1933, as amended.

The gross proceeds of $700 million include an option of additional $105 million aggregate principal amount given to the initial purchasers. Subject to customary closing conditions, the sale of these notes to initial buyers is expected to be completed on Jun 11, 2019. These notes, once placed, will be an unsecured senior liability of Coupa. The interest for which will be paid in arrears semi-annually at a rate of 0.125% per year.

The conversion rate for the notes will remain at 6.2658 shares per $1,000 principal amount of notes initially, and subject to adjustments in certain cases. The initial conversion price represents a premium of approximately 35% to the closing price of Coupa’s common stock on Jun 6, 2019, which was $118.22 per share.

The company’s prediction states that the net proceeds from this offering of notes will be around $696.3 million, after the initial purchasers optimally exercise their option, and deducted discounts, commissions and estimated offering expenses.

The company intends to utilize the net proceeds of the offering for general corporate purposes, strategic acquisitions, paying the cost of the capped call transactions and working capital.

Upon conversion, the notes are most likely to be settled in cash, shares of Coupa’s common stock or combination of the two. The notes will be redeemable, at the company’s option at any time on or after Jun 20, 2022 at a price equal to the principal amount of the notes to be redeemed, added with the accrued and unpaid interest. This choice of redemption will apply only if the last reported sale price per share of Coupa’s common stock exceeds 130% of the conversion price on each of at least 20 trading days.

Notably, the stock has returned 88.1% on a year to date basis, substantially outperforming the 26.3% rally of its industry.

Coupa’s Cash Position

As on Apr 30, 2019, Coupa had cash and cash equivalents of $346.4 million, up from $141.3 million in the previous quarter.

Cash flow from operations came in at $18.8 million during the quarter. Free cash flow was $16.1 million during the fiscal first quarter.

Bottom Line

We believe that the company has a strong balance sheet, which will help it in capitalizing on investment opportunities and pursuing strategic acquisitions, further improving growth prospects. Moreover, the senior notes offering will lower the company’s cost of capital, consequently strengthening balance sheet and supporting growth.

Zacks Rank & Key Picks

Coupa currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader technology sector are Match Group, Inc. MTCH, Universal Display Corporation OLED and Autohome Inc. ATHM, each flaunting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Match Group, Universal Display and Autohome have a long-term earnings growth rate of 15.2%, 30% and 20.9%, respectively.

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