ITEM 1. BUSINESS
Overview
Concur Technologies, Inc. is a leading provider of integrated travel and expense management solutions for companies of all industries, sizes and geographies. Our core mission is to reduce costs for our customers and enhance the user experience for travelers, leveraging continuous innovation. Our easy-to-use cloud computing solutions help companies and their employees control costs, save time, and boost productivity by streamlining the expense management, travel procurement, itinerary management, and invoice management processes. By capturing and reporting on activity throughout the travel and expense management process, our solutions provide detailed information to help clients effectively negotiate with vendors, create budgets, and manage compliance. Our solutions adapt to individual employee preferences, while scaling to meet the needs of companies from small to large. We refer to Concur Technologies, Inc. as “Concur,” the “Company,” “us,” “we” and “our” in this Annual Report on Form 10-K.
We market our solutions primarily through our direct sales efforts and indirectly through partners, sell them primarily on a subscription basis, and deliver them through the Internet, or “cloud,” to our customers. As of September 30, 2011, we had over 10,000 customers in over 100 countries.
We were incorporated in the state of Washington in 1993 and commenced operations during 1994. We reincorporated in the state of Delaware and completed our initial public offering of common stock in 1998. Our executive offices are located at 18400 NE Union Hill Road, Redmond, WA 98052, or principal website is www.concur.com, and our telephone number is (425) 702-8808.
The Market for Our Solutions
Our solutions help companies and their employees control costs, save time, and boost productivity by streamlining the entire process of travel and expense management - from travel procurement through itinerary management to expense reporting and reimbursement. Concur’s comprehensive solutions include core offerings that enable companies to manage the travel and expense management process, plus extended services that help provide enhanced compliance, control, and visibility. In addition to helping companies manage business travel and expenses, Concur also helps clients streamline invoice management. We believe the market for our solutions is still emerging and that many businesses in the United States and elsewhere in the world still manage these processes through inefficient and manual means.
Integrated Travel and Expense Management
Historically, companies have addressed each portion of the travel and expense management process as discrete business functions. Employees generally book travel through one process, submit expenses through a different process, rely on third-party applications to manage travel itineraries, and receive reimbursement of expenses through yet another process. We believe that, by providing one integrated end-to-end travel and expense management solution, companies can realize significant cost, time and efficiency savings compared to the traditional approach of addressing each business function separately.
A fully-integrated travel procurement and expense management solution that efficiently interfaces with the systems of vendors and suppliers can result in significant customer benefits. According to a 2010 study conducted by Forrester Consulting, a fully integrated travel and expense management solution can deliver a return on investment of up to 242% over a three year period. Other benefits may include:
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lower corporate travel and entertainment costs;
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lower costs to procure travel and process expenses;
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shorter reimbursement and vendor payment cycles;
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increased centralized control of corporate spending, insight and analysis;
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improved compliance with corporate policy and external regulations, such as the Sarbanes-Oxley Act;
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enhanced visibility and actionable data that helps drive policies and buying behavior, enforce expense policies and decrease fraud; and
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time savings and increased overall productivity.
Travel Procurement
Many companies deploy an online travel booking tool to enable their employees to book business travel that complies with corporate policies, and these companies typically partner with corporate travel agencies to assist them with the travel procurement process. Online booking tools can drive significant corporate savings through reduced travel agent-assisted booking fees. They also enable companies to present employees with travel options from preferred providers. We believe that a company that deploys an online booking tool throughout the organization can reduce its travel procurement costs by ensuring that employees have access to in-policy travel options through a solution that provides visibility into buying behavior and policy compliance.
Itinerary Management
Itinerary management can be time consuming and inefficient for business travelers who book travel without the assistance of a corporate travel agency. When travelers book each aspect of a trip through different sources (such as a flight booked through one on-line travel site or directly through the airline, a hotel booked through another on-line travel site, and a car rental booked directly through a rental car company), travelers may have to manage multiple confirmations, and companies have little visibility into employee travel procurement. We believe that technology can increase efficiency for both the business traveler and the company, and provide greater visibility into the travel procurement process and associated costs. In January 2011, we acquired TripIt, a market leader in mobile trip management. TripIt offers a mobile travel service that allows travelers to organize and share travel plans. We believe that the integration of itinerary management with our travel and expense management offerings can help solve challenges along the entire travel and expense management process - from booking travel, through in-trip activities and sharing trip information, to post-trip expense management and reconciliation.
Expense Reporting
Travel and expense spending can account for over 7% of a company’s total operating expenses and generally is the second largest area of controllable spend after payroll. According to a 2011 report published by
the Aberdeen Group, the average cost to process an expense report is over $41 per manual transaction, compared to approximately $7 per fully-automated transaction. We believe that many businesses in the United States and elsewhere in the world still employ manual, paper-based expense management processes that are time-consuming, inefficient, costly and prone to error. This represents a substantial market opportunity for solutions, such as ours, that automate corporate expense reporting processes.
Invoice Management
We believe that, for many companies, up to 75% of all invoices from suppliers are in paper form. A manual, paper-based invoice management process can require a company to spend a significant amount of time handling, storing, retrieving and managing paper invoices. We believe this represents a substantial market opportunity for solutions, such as ours, that automate corporate invoice management processes, allowing companies to streamline their invoice management process and leverage imaging and workflow processes.
Additional Benefits to Customers
We believe that, as companies benefit from the automation and integration of travel and expense management processes, they will continue to seek solutions that improve, control and reduce the cost of managing employee travel and related expenses. In addition to direct cost savings, we believe that companies will seek to leverage data generated by the automated travel and expense reporting process to monitor and analyze contract compliance, and to negotiate more favorable terms with vendors. This also enables end users to benefit from the technology updates within a broad ecosystem of travel and related expenses.
In addition, we believe that our service platform is uniquely positioned to provide value to all members of the corporate travel supply chain. Through our technology and cloud services, we believe that our clients, partners, suppliers and third-party application developers will find value in leveraging our platform to address business problems, deliver services and reach new customers.
Cloud Computing
We deliver cloud computing software solutions. Cloud computing (also known as software-as-a-service, or SaaS) refers to the use of Internet-based computing, storage, and connectivity technology to deliver software applications from a centrally-hosted computing facility to end users through a web browser and the Internet. This model eliminates costs associated with installing and maintaining applications within the customer’s information technology infrastructure. As a result, cloud computing software solutions require substantially less initial and ongoing investment in software, hardware and implementation services and lower ongoing support and maintenance. These benefits are valuable to both large enterprises that seek to shift fixed information technology costs to a variable, utility model and small businesses that cannot afford the costs and risks of large upfront software application investments. We believe that providers of cloud computing software solutions also benefit significantly from this model. Because these providers typically deliver the same version of their software to all of their customers, they can focus their resources on delivering new innovations, as opposed to maintenance of older versions. In addition, because they can deploy their software solutions to large and small markets with equal effectiveness, they are able to address a much larger market than vendors of on-premises software applications.
The cloud computing model effectively provides the automation of more sophisticated business processes in a more cost effective manner. It has been applied to many types of software applications, including customer relationship management, security, accounting, human resources management, and messaging, and it has been broadly adopted by many businesses in a wide variety of industries. It is particularly well-suited to delivery of applications, such as our integrated travel and expense management applications that are widely deployed within an organization and benefit from integration with a variety of internal and external data sources.
Online and Mobile
We strive to deliver business applications that are as engaging as popular consumer web applications - by incorporating features and content designed to enhance efficiency and user experience. As a result, our user interface is designed to be highly intuitive, requiring limited training for end users. As business travel is inherently mobile, we have also integrated mobile capabilities into our services to allow end users to streamline the travel and expense management process. Our service platform allows both third-party applications and data from other business systems to connect with and integrate with our solutions. This enables customers to extract more value from their existing technology investments and tap a broad ecosystem of our partners to enable effective business execution.
Our Solutions
We provide our cloud computing software solutions primarily on a subscription basis, which offers distinct advantages to customers compared to traditional software licensing. Subscription customers pay recurring usage fees, reducing the financial risk of large up-front costs and maintenance of traditional on-premises enterprise software licensing. In general, our cloud-based solutions enable companies to access and consume technology in a way that is similar to how they consume other goods and services: customers access the services they need in a cost effective and scalable manner.
We currently offer a variety of solutions to streamline the travel procurement, itinerary management, expense management and invoice management processes.
Integrated Travel Procurement and Expense Management
Our integrated travel and expense management solutions join our online travel procurement solutions with our automated expense management solutions to provide one unified end-to-end corporate travel procurement and expense management experience. Our seamless user experience is designed to encourage user adoption, enhance policy compliance and deliver visibility into corporate travel spend. Because the entire process is tightly integrated, itinerary data captured at the time of booking can automatically be matched with credit card charges incurred by employees and electronic receipts captured directly from suppliers, resulting in trusted transactions that reduce or eliminate the need for additional audits or approvals and automatically populate our expense management solutions.
Travel Procurement
Our online travel procurement solutions automate corporate travel booking and processing. We offer highly-configurable online corporate travel procurement solutions that can be tailored to a company’s specific travel policies and preferred vendors. Our travel procurement solutions enable customers to search for travel reservation data from multiple sources, including direct connections to travel service providers, and Internet-only sources, and delivers strong online procurement, reporting and agency support, making the travel procurement process quick, easy and more affordable.
Employees using our travel procurement solutions are able to set their own travel preferences while organizations set policy through technology filters to retain control. Our travel procurement solutions work with a wide variety of travel management companies, corporate credit card providers and global distribution systems (GDS). Robust business rules combined with automated pre-trip approval capabilities are designed to ensure consistent travel policy enforcement - allowing organizations to control the corporate travel procurement process.
Itinerary management
Our itinerary management solutions enable individual business travelers and their organizations to manage and share travel itinerary information. Comprehensive itinerary data can be shared among colleagues and
associates, leveraged by the organization’s ability to gain greater visibility into employee travel, and imported into other Concur solutions to provide even greater insight and control over travel and expense spend for organizations.
Expense Management
Our automated expense management solutions simplify the expense reporting process, while reducing costs and improving internal controls. We automate each step of expense reporting, from report preparation and approval to business policy compliance, reimbursement and data analysis. Our expense management solutions provide the process and information that enables management to reduce manual processing, improve internal controls, increase business policy compliance, speed up reimbursement and increase expense report accuracy. These solutions also automatically import corporate or personal credit card charges to create expense reports. Employees save significant time by creating and submitting accurate, in-policy expense reports while automation helps the entire organization be more efficient. Our expense management solutions further help clients reconcile transaction data from three trusted sources - itinerary data captured at the time of booking, corporate card charges incurred during travel, and electronic receipts captured directly from the supplier - to create a “Smart Expense”™ that is used to automatically fill in the details of the expense report as travel occurs. By capturing relevant and accurate expense data, Concur’s expense management solutions enable organizations to more easily comply with government and industry reporting regulations (e.g. Sarbanes-Oxley, Sunshine Act) and taxes (e.g. VAT, GST).
Other Solutions
We provide other value-added and extended services that leverage our integrated cloud offerings, including:
Expense Reimbursement. We offer the direct deposit of reimbursable employee expenses that are submitted and approved by drawing funds from a customer’s bank account and delivering payment to the payee’s bank account or corporate credit card utilizing standard electronic funds transfer processing networks.
Expense Report Auditing. We offer expense report auditing services to streamline the process of managing and substantiating expense receipts.
Business Intelligence. We offer business intelligence capabilities that enable customers to use captured data to analyze trends, influence budget decisions, improve forecasting and monitor for fraudulent activity.
Invoice Management. Our invoice management solution is designed to automate, simplify and reduce the costs associated with the process of entering, approving and managing the payment of vendor invoices. It enables companies to streamline payment requests, facilitating flexible approval processes and automatic updating of accounts payable systems. The combination of increased productivity and availability of valuable data for improved cost management can generate significant cost savings for our customers.
The Concur Connect Platform
Our cloud-based Concur Connect platform enables customers, partners, suppliers and third-party developers to connect to and extend our solutions with a diverse set of applications and services. Through a growing set of public facing application programming interfaces, we enable third parties to leverage our platform to enhance and extend the value of our services.
The Concur Connect platform connects suppliers from around the world to thousands of customers and end users representing over $50 billion of travel and expense related spend. It also enables application developers, including both corporate IT departments that typically develop applications for a company’s internal-use and third-party developers (businesses that create applications for other companies), to access new capabilities and
flexibility of using multiple programming languages to provide developers openness and choice. Partners and third-party developers can use the platform to leverage the benefits of a multi-tenant platform for creating applications for one or more of our clients. This enables our partners, such as travel management companies or travel suppliers, to send trip itinerary and booking information to our solutions, so our customers’ users can view it in the Concur mobile application - using our itinerary web services.
Client Services
Our client services organization offers consulting and a wide variety of extended services in connection with our integrated travel and expense management solutions.
Consulting
We provide industry-specific best practices and direct experience in travel and expense management. Our consulting staff meets with customers prior to deployment to review existing business processes and information technology infrastructure and provides advice on ways to improve these processes. Our consultants also configure and test our applications, integrate them with customers’ existing systems and assist with enterprise-wide deployment strategies. After deployment, our consultants continue to work with customers to identify additional opportunities to further improve their return on investment. In 2011, we significantly grew our global professional services team to support sales growth.
Extended Services
We offer a variety of extended services, such as site administration, audit and compliance services, advanced analytics, and customized integration in connection with our travel and expense management solutions.
Our Growth Strategy
Our objective is to be the leading global provider of integrated travel and expense management solutions. Our cloud computing software solutions enable organizations to control costs globally by automating and integrating management of the travel procurement, itinerary management, and expense reporting processes. Key elements of our strategy include:
Expand our customer base. We believe the market for our corporate travel and expense management services is large and under-penetrated. We will continue to increase our investments in distribution, market development and innovation in order to continue to expand our base of customers in the markets that we currently serve and the range of services we can deliver to those customers.
Expanding our global presence. We aim to become the market-leading provider of travel and expense management services in all major economies. In fiscal 2011, we established a number of new geographic locations including subsidiaries in Japan and India.
Grow the small and medium business market. We are also investing to customize solutions and to deliver our services for small and medium sized businesses on a global basis. We believe that this market has significant potential in generating incremental long-term revenue and earnings growth.
Serve the needs of the business traveler. We are focused on bringing value to business travelers while they are on their business trips - from trip planning and booking, through in-trip activities and sharing trip information, to post-trip expense reconciliation and reimbursement. This enables us to meet the requirements of individual business travelers within the context of corporate policies while fundamentally enabling the direct relationship between travel suppliers and end customers.
Utilize the Concur Connect platform. We have invested in the Concur Connect platform in order to provide our customers with a single-stop access to the broadest selection of travel content available anywhere through
any provider. With our Concur Connect platform, we provide direct connections to many major hoteliers, transportation providers, dining and other travel related services.
Partners
We work closely with strategic third parties, including travel management vendors, corporate charge card providers, payroll processors, consulting firms, travel suppliers and others, to accelerate the adoption of our solutions among a larger customer base. We focus on enabling our partners to realize new economic opportunities through the integration and distribution of our solutions. We intend to expand our network of distribution partners and increase the value that our solutions provide throughout the corporate travel, expense and vendor payment processes.
Customers
As of the fiscal year ended September 30, 2011, more than 10,000 companies in over 100 countries use our services. We serve companies of all sizes. No single customer accounted for more than 10% of our total revenues in fiscal 2011, 2010 or 2009.
Sales and Marketing
We market and sell our solutions worldwide through both direct sales organization and indirect distribution channels such as our strategic reseller and referral partners and through our website.
Direct Sales
We sell subscriptions to our services primarily through our direct sales force comprised of inside sales, which consists of personnel that sell to customers primarily by phone and field sales personnel that are primarily based in geographic territories comprising customers and prospects. We further organize our sales force into teams by specific customer segments, based on the size of our prospective customers, such as small, mid-sized and large customers to provide a higher level of service and understanding of our customers’ unique needs.
Referral and Indirect Sales
Our indirect distribution channels consist of a strategic network of partners who refer customer prospects to us and assist us in selling to these prospects. The network includes companies such as American Express, a leading issuer of corporate cards and corporate purchasing solutions and provider of travel management services, consulting firms, other travel management companies, and partners in markets where we do not have a large direct sales presence.
Marketing
Our marketing programs are designed to increase awareness of our solutions within our target markets, and to extend the competitive advantage of our integrated travel and expense management services. We engage in a variety of marketing activities to target our prospective and current customers. Our primary marketing activities include among other things:
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e-mail and direct mail campaigns;
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co-marketing strategies designed to leverage existing strategic relationships;
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search engine marketing and advertising to drive traffic to our website;
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seminars and “webinars;”
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public relations campaigns, speaking engagements and forums and industry analyst visibility initiatives;
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sponsorship of conferences and promotion of our products at trade shows targeted to accounting, finance, information technology, travel executives and small and mid-size businesses; and
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social network solutions.
We actively communicate with our existing customers to enhance customer satisfaction, gain input for future product strategy and promote the adoption of additional services and software. In addition to our standard newsletter communication and conference calls, we also sponsor regional user groups, an advisory board and an international user conference.
Product Development
Our systems development and programming organization is responsible for developing new services as well as enhancing our existing services. We believe that a technically skilled and productive software engineering organization will continue to be important for the success of our new service offerings.
We have a well-defined software development methodology that we believe allows us to deliver products that satisfy business needs and meet commercial quality expectations. Our systems development and programming group teams up with our marketing department to assess market needs and requirements. We also use independent development firms or contractors, as needed, to expand the capacity and technical expertise of our internal research and development team. From time to time, we license third-party technology that is incorporated into our solutions.
Intellectual Property Rights
Our success depends, in part, upon our proprietary technology, processes, trade secrets and other proprietary information, and our ability to protect this information from unauthorized disclosure and use.
We rely on a combination of copyright, trade secret, trademark, and patent laws, confidentiality procedures, contractual provisions and other similar measures to protect our proprietary information. For example, to protect our proprietary information, we enter into services and licensing agreements with our customers and nondisclosure agreements with certain of our employees, consultants, corporate partners, customers and prospective customers, which include restrictions on the disclosure, use and transfer of our proprietary information. We also employ various physical security measures to protect our software source codes, technology and other proprietary information. We have issued patents and a number of patent applications pending in various countries.
Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or to obtain and use information that we regard as proprietary and third parties may attempt to develop similar technology independently. We provide our traditional licensed customers with access to object code versions of our software and to other proprietary information underlying our software. Policing unauthorized use of our products is difficult, particularly because the global nature of the Internet makes it difficult to control the ultimate destination or security of software or other data transmitted. Although we are unable to determine the extent to which piracy of our software products exists, we believe that software piracy is a persistent problem. In addition, the laws of some foreign countries do not protect our proprietary rights to the extent of the laws of the United States, and we expect that it will become more difficult to monitor the use of our products as we increase our international presence. There can be no assurance that our means of protecting our proprietary rights will be adequate, or that our competitors will not independently develop similar technology. In addition, there can be no assurance that third parties will not claim infringement by us with respect to current or future products or other intellectual property rights. Any such claims could have a material adverse effect on our business, results of operations and financial condition.
We own trademarks and registered trademarks for our various products and services and attempt to ensure we protect all necessary intellectual property rights. Concur, the Concur logo, Concur Connect, Smart Expense, TripIt, and GlobalExpense, as well as a number of other names and brands that are not referenced in this Annual
Report on Form 10-K, are trademarks or registered trademarks of Concur or its affiliates. Other names or brands appearing in this report may be claimed as the property of others. Over the past several years, we have made numerous changes in our product names. Although we own registered trademarks in the United States and have filed trademark applications in the United States and in certain other countries, we do not have assurance that our strategy with respect to our trademark portfolio will be adequate to secure or protect all necessary intellectual property.
We have issued patents and a number of patent applications pending in various countries. We have received in the past, and may receive in the future, communications from third parties claiming that we have infringed the intellectual property rights of others. The cost to defend or settle these claims could be material to our business. The outcome of any litigation is inherently uncertain. Any intellectual property claims, with or without merit, could be time-consuming and expensive to resolve, could divert management attention from executing our business plans and could require us to change our technology, change our business practices and/or pay monetary damages or enter into short- or long-term royalty or licensing agreements which may not be available in the future at the same terms or at all. In addition, many of our customer agreements require us to indemnify our customers for third-party intellectual property infringement claims, which would increase the cost to us of an adverse ruling on such a claim. Any adverse determination related to intellectual property claims or litigation could prevent us from offering our solutions to others, or could otherwise adversely affect our business.
Competition
The market for our integrated travel and expense management solutions is highly competitive and subject to rapid change. Our principal direct competition comes from independent vendors of corporate travel and expense management software and services, as well as financial institutions and enterprise resource planning software vendors that sell products similar to ours along with their suites of other products and services. We also face indirect competition from potential customers’ internal development efforts and, at times, have to overcome their reluctance to move away from existing paper-based systems.
We believe our customers consider the following factors when evaluating us against our competition:
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investment in innovation;
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speed and ease of implementation;
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product functionality;
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greater financial, technical, marketing and other resources;
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quick response time to new or emerging technologies and changes to customer requirements;
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ease of use and rates of user adoption;
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global presence;
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performance, security, scalability, flexibility and reliability of the service;
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ease of integration with existing applications;
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quality of customer support;
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availability and quality of implementation, consulting and training services; and
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name recognition and brand awareness.
While we believe that we measure favorably regarding the above factors, some of our competitors may offer services similar to ours at a greatly reduced price in order to achieve greater sales of other services. A number of our competitors also have longer operating histories; more financial, technical, marketing and other resources; greater name recognition; and more customers for their products and services than we do. Certain of our
competitors have well-established relationships with our current and potential customers, as well as with other vendors and service providers with whom we have business relationships. These competitors may also be able to respond more quickly to new or emerging technologies and changes in customer requirements, devote greater resources to the development, promotion and sale of their products, or better withstand economic downturns. In addition, we anticipate the entrance of new competitors in the future. This competitive landscape may make it difficult for us to achieve our objective of increasing the number of our customers and expanding our role in the travel supply chain.
Employees
As of September 30, 2011, we had over 1,600 full-time employees. We consider our relations with our employees to be good.
Available Information
Our Internet website address is www.concur.com. We provide free access to various reports that we file with or furnish to the SEC through our website, as soon as reasonably practicable after they have been filed or furnished. These reports include, but are not limited to, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports. Our SEC reports can be accessed through the investor relations section of our website, or through www.sec.gov. Our website also makes available printable versions of our Audit Committee charter, Compensation Committee charter, Nominating and Corporate Governance Committee charter, and Code of Business Conduct and Ethics. Information on our website does not constitute part of this Annual Report on Form 10-K or of any other report we file or furnish with the SEC. Stockholders may request copies of these documents from:
Concur Technologies, Inc.
18400 NE Union Hill Road
Redmond, WA 98052
Attention: Investor Relations
ITEM 1A.
ITEM 1A. RISK FACTORS
We operate in a dynamic and rapidly changing business environment that involves multiple risks and substantial uncertainty. The following discussion addresses risks and uncertainties that could cause, or contribute to causing, actual results to differ from expectations in material ways. In evaluating our business, investors should pay particular attention to the risks and uncertainties described below and in other sections of this report and in our subsequent filings with the SEC. These risks and uncertainties, or other events that we do not currently anticipate or that we currently deem immaterial also may affect our results of operations, cash flows and financial condition.
We depend on sales of a relatively small number of our solutions for a substantial majority of our revenues, and decreased demand for any of those solutions could substantially harm our revenues, while we may be unable to expand our service offerings successfully.
We generated 90% of our total revenues for the fiscal year ended September 30, 2011 from our travel procurement, expense management, and integrated travel procurement and expense management solutions. We expect these solutions to continue to constitute a large percentage of our total revenues even as we expand our service offerings. Our financial performance and business outlook depends on continued market acceptance of these solutions. If customers reduce or cancel their subscriptions for our solutions due to economic conditions or because our competitors (some of which have substantially greater resources than we do) develop new offerings, or if we do not keep up with technological advancements in services and software platforms, delivery models or product features, our revenues could decline. There can be no assurance that our solutions will continue to maintain current levels of market penetration or that we will maintain current levels of revenues from sales of these solutions in the future. There can also be no assurance that we will be able to introduce new solutions successfully, or that any initial interest in such solutions will result in significant revenue or long term success for us.
If the market for integrated travel and expense management services develops more slowly than we expect it to, our future revenue and profitability will be harmed.
The market for integrated travel and expense management services is developing, and it is not certain whether these services will continue to achieve market acceptance and sustain high demand. Our future revenue and profits depend on increasing customer subscriptions for integrated travel and expense management services. The market for integrated travel and expense management services may not grow, or may shrink. Our future financial performance and revenue growth depend on the willingness of enterprise customers to use integrated travel and expense management services. Many enterprises have internal resources and processes to manage corporate travel and expenses, so they may not perceive the benefit of our external integrated travel and expense management services. Privacy concerns and transition costs are also factors that may affect an enterprise’s decision to subscribe to an external solution. If enterprises do not value the benefit of integrated travel and expense services, then the market for these services will not develop at the rate that we anticipate.
Uncertain and unfavorable global economic conditions may adversely affect our business, financial condition and operating results.
Our financial performance depends, in part, on the state of the global economy, which has deteriorated in the recent past, and which remains uncertain and may deteriorate in the future. Declining levels of global economic activity typically lead to declines in corporate spending on travel, fewer travel and expense transactions, lower information technology spending, and deceased revenue for us. The core factors that affect customer usage and therefore our subscription revenue are unemployment, recession-driven attrition through business failure or acquisition, and travel budget cutbacks.
If unfavorable economic conditions remain uncertain or worsen, our business, financial condition and operating results could be materially and adversely affected.
We face significant competition from companies with longer operating histories and greater resources than we have, and our business, financial condition and operating results will suffer if we fail to compete effectively.
Our principal direct competition comes from independent vendors of corporate travel and expense management software and services, as well as financial institutions and enterprise resource planning software vendors that sell products similar to ours along with their suites of other products and services. Some of our competitors may offer services similar to ours at a greatly reduced price to achieve greater sales of other services. Many of our competitors have longer operating histories; more financial, technical, marketing and other resources; greater name recognition; and more customers for their products and services than we do. Some of our competitors, particularly major financial institutions and enterprise resource planning software vendors, have well-established relationships with our current and potential customers, as well as with systems integrators and other vendors and service providers. Our competitors may also be able to respond more quickly to new or emerging technologies and changes in customer requirements, devote greater resources to the development, promotion and sale of their products, or better withstand economic downturns. We also compete with the internal development efforts of potential customers and, at times, have to overcome their reluctance to move away from existing paper-based systems. In addition, we anticipate the entrance of new competitors in the future. This competitive landscape may make it difficult for us to achieve our objective of increasing the number of our customers and expanding our role in the travel supply chain. Increased competition may also result in price reductions, reduced gross margins and change in market share and could have a material adverse effect on our business, financial condition and operating results.
We depend on strategic relationships with reseller and referral partners, so if we do not maintain our existing strategic relationships or enter into new strategic relationships, our revenues could decline.
We depend on strategic reseller and referral relationships to offer products and services to a larger customer base than we can reach through our current direct sales, telesales and internal marketing efforts. Some of our strategic reseller and referral partners are in early stages of operation and, accordingly, it is not certain whether our partners will be able or willing to expend the required effort and resources to market our products and services successfully or provide the volume and quality of orders and lead referrals that we expect. In addition, some of our partners have entered, and may continue to enter, into strategic relationships with our competitors. Further, many of our partners have multiple strategic relationships and they may not regard us as significant for their businesses. Our partners may terminate their respective relationships with us, pursue other partnerships or relationships, or attempt to develop or acquire products or services that compete with our products or services. Our partners also may impair our ability to enter into other desirable strategic relationships. Further, unfavorable global economic conditions may hurt our partners, making them less effective or causing them to modify or cancel their relationships with us.
If we are unable to maintain our existing strategic relationships or enter into new ones, we would have to devote substantially more resources to the distribution, sales and marketing of our products and services, which would increase our costs and decrease our earnings.
Our operating results depend on our ability to grow our subscription services.
Our costs of providing subscription services are relatively fixed in the short term, so we may not be able to adjust expenses quickly enough to offset slowdowns in subscription sales. In addition, delays in deployment of our subscription services may prevent us from recognizing subscription revenue for indeterminate periods of time, even when we have already incurred costs relating to the deployment. Further, we may experience unanticipated increases in costs associated with providing our subscription services to customers over the term of our customer contracts as a result of inaccurate internal cost projections or other factors, which may harm our operating results. If our customers cannot make payments or gain access to credit to make payments, they may be
forced to cancel existing subscriptions for our products and services. Some of our sales contracts contain cancellation provisions and, if cancelled, could result in us recognizing substantially less revenue than the aggregate value of those contracts over their terms. If customers terminate subscription agreements before the end of their respective terms, or if we are not able to renew such agreements, our operating results could be adversely affected.
We depend on our relationships with travel suppliers, so adverse changes in our existing relationships could adversely affect our business, financial condition and operating results.
An important component of our business success is our ability to maintain and develop relationships with travel suppliers. Adverse changes in existing relationships, including any impact of the economic recession on the businesses of those suppliers, could reduce the amount, quality and breadth of attractively priced travel products and services that we are able to offer, which could adversely affect our business, financial condition and operating results.
If our customers have concerns over the scalability or security of our products, they may not continue buying our products and our revenues will decline.
If customers believe that our subscription services offerings are not sufficiently scalable, do not provide adequate security for the dissemination of information over the Internet or corporate extranets, or are otherwise inadequate for Internet or extranet use or if, for any other reason, our customers decide not to accept our subscription services for use, our business will be harmed. As part of our subscription services, we receive credit card, travel booking, employee, purchasing, supplier and other financial and accounting data, through the Internet or extranets and there can be no assurance that this information will not be subject to computer break-ins, theft and other improper activity that could jeopardize the security of information handled by our products. Any such lapse in security could expose us to litigation, loss of customers, damage to our reputation, or otherwise harm our business.
In addition, any person who circumvents our security measures could steal proprietary or confidential customer information or cause interruptions in our operations. We incur significant costs to protect against security breaches, and may incur significant additional costs to alleviate problems caused by any breaches. Customers’ concerns about security could deter them from using the Internet to conduct transactions that involve confidential information, so our failure to prevent security breaches, or well-publicized security breaches affecting the Internet in general, could significantly harm our business and financial results.
Privacy concerns could result in regulatory changes that may impose additional costs and liabilities on us and limit our use of information.
Many of our travel and expense software solutions collect, store and report information regarding travel procurement and employee spending. Personal privacy has become a significant issue in the United States and many other countries where we operate. Many federal, state and foreign government bodies and agencies have imposed or are considering imposing restrictions and requirements regarding the collection, use and disclosure of personal information obtained from consumers and individuals. Changes to laws or regulations affecting privacy, if applicable to our business, could impose additional costs and liability on us and could limit our use and disclosure of such information. If we were required to change our business activities or revise or eliminate services, our business could be harmed. Privacy concerns, whether valid or not, may inhibit market adoption of our service in certain industries and foreign countries In addition, we may be subject to fines, penalties and potential litigation if we fail to comply with such regulatory restrictions and requirements.
Interruption of our operations could prevent us from delivering our products and services to our customers, which could significantly harm our business.
Because our business is primarily conducted over the Internet, it depends on our ability to protect our computer equipment and the information stored in our computer equipment, offices and hosting facilities against damage from earthquake, floods, fires, power loss, telecommunications failures, unauthorized intrusion and other events. There can be no assurance that our disaster preparedness will prevent significant interruption of our operations.
In addition, we engage third party facility providers for our Web hosting facilities and related infrastructure that is essential for our subscription services. Our service to customers could be interrupted in the event of a natural disaster, by a hosting provider decision to close a facility or terminate operations or by other unanticipated problems. Similarly, we use third-party telecommunications providers for Internet and other telecommunication services. We also rely heavily on our own and third-party financial, accounting, and other data processing systems, as well as various financial institutions to perform financial services in connection with our operations and our services offerings, such as providing depository services and executing Automated Clearing House and wire transfers as part of our expense reimbursement services. Any of these third-party providers may fail to perform their obligations adequately, and any of these third-party systems may fail to operate properly or become disabled for varying periods of time, causing business interruption, system damage, or inability to process funds on behalf of our customers, which could reduce our revenue, cause us to issue credits or pay penalties, cause customers to terminate their subscriptions, cause other liability to customers, or cause regulatory intervention or damage to our reputation.
Our quarterly revenues and operating results may fluctuate, and if we fail to meet the expectations of investors or public market analysts, our stock price could decline substantially.
Our revenues and operating results may fluctuate significantly from quarter to quarter, and if they fall below the expectations of investors or public market analysts, the price of our common stock could substantially decline. Factors that might cause quarterly fluctuations in our operating results include:
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general economic and market conditions;
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the evolving demand for our solutions;
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spending decisions by our customers and prospective customers;
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our ability to manage expenses;
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the timing of new product releases;
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changes in our pricing policies or those of our competitors;
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the timing of large contracts or contract terminations;
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changes in mix of our offerings;
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the mix of sales channels through which our solutions are sold;
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costs of developing new products and enhancements;
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our ability to adequately provide software solutions on-demand;
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foreign currency fluctuations; and
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global political conditions.
Our acquisitions of, and investments in, other companies, products, or technologies may not yield expected benefits.
As part of our business strategy, from time to time we invest in or acquire complementary businesses, joint ventures, products or technologies, and we expect that we will make such investments and acquisitions in the
future. For example, our most recent acquisition occurred in July 2011, when we acquired GlobalExpense, a London-based market leader in Web-based end-to-end expense management. In March 2011, we invested in ClearTrip Inc., a leading provider of online travel services in India.
We may not realize the anticipated benefits of our acquisitions or investments to the extent that we anticipate, or at all, because acquisitions and investments involve many risks, including:
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difficulties integrating the acquired operations, personnel, technologies, products or infrastructure;
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diversion of management attention or other resources from other business operations and strategic priorities;
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unexpected difficulties encountered when we enter new markets in which we have little or no experience, or where competitors may have stronger market positions;
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potential loss of key employees;
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inability to maintain relationships with customers and partners of the acquired business;
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the difficulty of incorporating acquired technology and rights into our products and services;
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potential unknown liabilities associated with an acquired business or investment;
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unanticipated expenses related to integrating acquired technology with our existing technology;
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the impact on our results of operations due to depreciation and amortization related to acquired intangible assets, fixed assets and deferred compensation;
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potential litigation, such as claims by third parties related to intellectual property of the businesses we acquire or in which we invest;
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potential write-offs of our investments in acquired assets;
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the need to implement controls, procedures and policies appropriate for a public company at companies that prior to the acquisition lacked such controls, procedures and policies; and
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challenges caused by distance, language and cultural differences.
We may issue additional equity securities or convertible debt securities to pay for future acquisitions or investments, the issuance of which could be dilutive to our existing stockholders and affect the trading price of our securities. If any acquisition or investment is not perceived as ultimately improving our financial condition and operating results, our stock price may decline. Further, if we fail to properly evaluate and execute acquisitions or investments, our business and prospects may be seriously harmed and the value of your investment may decline.
The growth of the international component of our business subjects us to additional management challenges and incremental costs associated with foreign operations.
Our international operations are an increasingly important part of our business. Customers located outside the United States represented 14% of our total revenues in 2011. In addition, a portion of our United States revenue reflects utilization of our services outside of the United States by customers located in the United States. We expect international revenues as a percentage of our total revenues to increase. Our international operations are subject to many difficulties and incremental costs, including:
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costs to customize our products for foreign markets;
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foreign currency exchange rate risk;
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compliance with multiple, conflicting and changing governmental laws and regulations;
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different pricing environments;
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longer sales cycles;
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greater difficulty in collecting accounts receivable;
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import and export restrictions and tariffs;
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adverse tax consequences;
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potentially weaker protection for our intellectual property than in the United States and practical difficulties in enforcing our rights abroad;
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regional data privacy laws that apply to the transmission of customer data across international borders;
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Difficulties in staffing and managing foreign operations; and
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Regional economic and political conditions.
Our ability to sell our solutions into international markets will depend on our ability to develop and support solutions that incorporate the tax laws, accounting practices and currencies of applicable countries. Our international operations also involve foreign currency risks for us. Most of our revenues are denominated in United States dollars, but we believe that an increasing portion of our revenues will be denominated in foreign currencies. Unfavorable economic conditions have been accompanied by increased foreign currency exchange rate volatility. Our international revenues and expenses are currently subject to the risks of foreign currency fluctuations.
Our international operations also increase our exposure to international laws and regulations. If we are unable to comply with foreign laws and regulations, which are often complex and subject to variation and unexpected changes, we could incur unexpected costs and potential litigation. For example, the governments of foreign countries might attempt to regulate our services and products or levy sales or other taxes relating to our activities. In addition, foreign countries might impose tariffs, duties, price controls or other restrictions on foreign currencies or trade barriers, any of which could make it more difficult for us to conduct our business in international markets.
In 2009 and 2011, we acquired products and services in international markets through our acquisitions of Etap-On-Line and GlobalExpense Limited. In 2011, we also established a Japanese joint venture, Concur Japan. We intend to continue to expand our global sales and marketing activities and enter into relationships with additional international distribution partners. We are in the early stages of developing our distribution channels in markets outside the United States. We may not be able to attract and retain distribution partners that will be able to market our products effectively.
Changes in financial accounting standards or practices may cause adverse, unexpected financial reporting fluctuations and affect our reported financial results.
A change in accounting standards or practices can have a significant effect on our reported results and may even affect our reporting of transactions completed before the change is effective. New accounting pronouncements and varying interpretations of accounting pronouncements have occurred and will occur in the future. Changes to existing rules or the questioning of current practices may adversely affect our reported financial results or the way in which we conduct our business.
If we fail to maintain proper and effective internal controls, our ability to produce accurate and timely financial statements could be impaired, which could adversely affect investor views of us and the value of our common stock.
Ensuring that we have adequate internal financial and accounting controls and procedures in place so that we can produce accurate financial statements on a timely basis is a costly and time-consuming effort that needs to be re-evaluated frequently. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles. However, despite our efforts any failure to maintain or implement
required controls could cause us to fail to meet our periodic reporting obligations, or result in material misstatements in our financial information. Any such delays or restatements could cause investors to lose confidence in our reported financial information and lead to a decline in the trading price of our stock.
Our business is subject to changing regulations regarding corporate governance and public disclosure that will increase both our costs and the risk of noncompliance.
As a public company, we incur significant legal, accounting and other expenses, and these compliance expenses are expected to increase over time. For example, the Dodd-Frank Wall Street Reform and Consumer Protection Act and rules subsequently implemented or to be implemented by the SEC and The NASDAQ Stock Market include new disclosure and corporate governance requirements on public companies. Our management and other personnel are required to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations increase our legal and financial compliance costs and will make some activities more time-consuming and costly. If we do not adequately comply with applicable laws and regulations applicable to public companies, we could be subject to liability, increased compliance costs, regulatory inquiries or litigation.
Our lengthy sales cycle could cause our operating results to vary significantly.
Our sales cycle, which is the time between initial contact with a potential customer and the ultimate sale, is often lengthy and unpredictable. Our potential customers typically commit significant resources to an evaluation of available alternatives and require us to expend substantial time, effort and money educating them about the value of our offerings. As a result, we have limited ability to forecast the timing and size of specific sales. In addition, customers may delay their purchases from one quarter to another as they wait for new product enhancements. Customers may delay their purchases for even longer periods due to their inability to assess and forecast future business activity, impaired purchasing ability or other economic factors. Any delay in completing, or failure to complete, sales in a particular quarter or year could harm our business and could cause our operating results to vary significantly.
If we do not successfully develop or introduce new products or enhancements to existing products, or successfully integrate acquired products and services with our offerings, we may lose existing customers or fail to attract new customers and our financial performance and revenue growth may suffer.
Our financial performance and revenue growth depends upon the successful development, introduction and customer acceptance of new and enhanced versions of our software solutions and on our ability to integrate products and services that we acquire into our existing and future solutions. We have experienced delays in the planned release dates of enhancements to our solutions and we have discovered errors in new releases after their introduction. Either situation could result in adverse publicity, loss of sales, delay in market acceptance of our products and services, or customer claims, including, among other things, warranty claims against us, any of which could cause us to lose existing customers or affect our ability to attract new customers. If we do not deliver new product versions, upgrades or other enhancements to existing products and services on a timely and cost-effective basis, we may lose existing customers or may not be able to attract new customers. We are also continually seeking to develop new offerings. However, we remain subject to all of the risks inherent in product development, including unanticipated technical or other development problems, which could result in material delays in product introduction and acceptance or significantly increased costs. There can be no assurance that we will be able to develop new solutions successfully, or to introduce and gain market acceptance of new solutions in a timely manner.
If our products and services do not keep pace with technological change, our sales could decline and our business could be harmed.
We must continually modify and enhance our software solutions to keep pace with changes in hardware and software platforms, database technology, electronic commerce technical standards and other items. As a result, uncertainties related to the timing and nature of new product announcements or introductions, or modifications by vendors of operating systems, back-office applications and browsers and other Internet-related applications, could cause our sales to decline and harm our business.
We rely on third-party software and services that may be difficult to replace.
We license or purchase software and services provided by third parties to offer some of our services and software offerings. Such third-party software and services may not continue to be available on commercially reasonable terms, if at all. The loss or inability to maintain our rights to use any of these software or services could result in delays in the sale of our services or software offerings until equivalent technology is either developed by us, or, if available, is identified, licensed and integrated, which could harm our business.
Our stock price has experienced high volatility, may continue to be volatile and may decline.
The trading price of our common stock has fluctuated widely in the past and may do so in the future, as a result of many factors. In particular, the stock market as a whole has experienced extreme price and volume fluctuations that affected the market price of many technology companies in ways that may have been unrelated to those companies’ operating performance. Factors that could cause our stock price to fluctuate include:
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general and industry-specific business, economic and market conditions;
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the announcement of a merger or acquisition;
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fluctuations in our actual and anticipated operating results;
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changes in our earnings estimates, or other information published by analysts;
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failing to achieve revenue or earnings expectations;
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volatility inherent in prices of technology company stocks;
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adverse publicity; and
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the volume of trading in our common stock, including sales upon exercise of outstanding options.
Securities class action litigation has often been brought against companies that experience periods of volatility in the market prices of their securities. Securities class action litigation could result in substantial costs and a diversion of our management’s attention and resources.
If we fail to attract and retain qualified personnel, our business could be harmed.
Our success depends in large part on our ability to attract, motivate and retain highly qualified personnel. Competition for such personnel is intense and there can be no assurance that we will be successful in attracting, motivating and retaining key personnel. Many of our competitors have greater financial and other resources than us for attracting experienced personnel. We also compete for personnel with other software vendors and consulting and professional services companies. Further, changes in applicable stock exchange listing standards relating to obtaining stockholder approval of equity compensation plans could make it more difficult or expensive for us to grant options to employees in the future. We rely on our direct sales force to sell our services and software in the marketplace. We anticipate increasing our direct sales force. There is significant competition for direct sales personnel with the advanced sales skills and technical knowledge we need. If we were not able to hire or retain competent sales personnel our business would suffer. In addition, by relying primarily on a direct sales model, we may miss sales opportunities that might be available through other sales channels, such as
domestic and international resellers and strategic referral arrangements. Any inability to hire and retain salespeople or any other qualified personnel, or any loss of the services of key personnel, would harm our business.
Our ability to protect our intellectual property is limited and we have been or may be sued by third parties for alleged infringement of their proprietary rights.
Our success depends, in part, upon our proprietary technology, processes, trade secrets and other proprietary information and our ability to protect this information from unauthorized disclosure and use. We rely on a combination of patent, copyright, trade secret and trademark laws, confidentiality procedures, contractual provisions and other similar measures to protect our proprietary information. We have issued patents and have patent applications pending in various countries. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or to obtain and use information that we regard as proprietary and third parties may attempt to develop similar technology independently. Policing unauthorized use of our products is difficult, particularly because the global nature of the Internet makes it difficult to control the ultimate destination or security of software or other data transmitted. While we are unable to determine the extent to which piracy of our software products exists, software piracy can be expected to be a persistent problem. In addition, the laws of some foreign countries do not protect our proprietary rights to as great an extent as do the laws of the United States and we expect that it will become more difficult to monitor use of our products as we increase our international presence. There can be no assurance that our means of protecting our proprietary rights will be adequate, or that our competitors will not independently develop similar technology. In addition, there can be no assurance that third parties will not claim infringement by us with respect to current or future products or other intellectual property rights. We have received in the past, and may receive in the future, communications from third parties claiming that we have infringed the intellectual property rights of others. The cost to defend or settle these claims could be material to our business. The outcome of any litigation is inherently uncertain. Any intellectual property claims, with or without merit, could be time-consuming and expensive to resolve, could divert management attention from executing our business plans and could require us to change our technology, change our business practices and/or pay monetary damages or enter into short- or long-term royalty or licensing agreements which may not be available in the future at the same terms or at all. In addition, many of our customer agreements require us to indemnify our customers for third-party intellectual property infringement claims, which would increase the cost to us of an adverse ruling on such a claim. Any adverse determination related to intellectual property claims or litigation could prevent us from offering our solutions to others, or could otherwise have a material adverse effect on our business, financial condition and operating results. In addition, over the past several years, we have made numerous changes in our product names. Although we own registered trademarks in the United States and have filed trademark applications in the United States and in certain other countries, we cannot assure you that our strategy with respect to our trademark portfolio will be adequate to secure or protect all necessary intellectual property.
Provisions in our charter documents and Delaware law could discourage, delay or prevent a change in control of Concur.
Provisions of our certificate of incorporation and bylaws, and of Delaware General Corporation Law, may discourage, delay or prevent a change of control of Concur. For example:
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our Board of Directors may, without stockholder approval, issue shares of preferred stock with special voting or economic rights;
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our stockholders do not have cumulative voting rights and, therefore, each of our directors can only be elected by a majority of our votes cast at a stockholder meeting;
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a special meeting of stockholders may only be called by a majority of our Board of Directors, the Chairman of our Board of Directors, or our Chief Executive Officer;
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our stockholders may not take action by written consent;
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our Board of Directors is divided into three classes, only one of which is elected each year;
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we require advance notice for nominations for election to the Board of Directors or for proposing matters that can be acted upon by stockholders at stockholder meetings; and
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we are subject to Section 203 of the Delaware General Corporation Law, which, under certain circumstances, may make it more difficult for a person who would be an “Interested Stockholder,” as defined in Section 203, to effect various business combinations with us for a three-year period. Our amended and restated certificate of incorporation and amended and restated bylaws do not exclude us from the restrictions imposed under Section 203.
In addition, the fundamental changes provisions of our outstanding senior convertible notes due in 2015 may delay or prevent a change in control of Concur, because those provisions allow note holders to require us to repurchase the notes upon the occurrence of a fundamental change.
We have increased our indebtedness.
In April 2010, we completed an offering of $287.5 million aggregate principal amount of our senior convertible notes due in 2015, as a result of which we incurred approximately $287.5 million principal amount of new indebtedness that we may be required to repurchase at maturity in 2015 or upon the occurrence of fundamental changes. There can be no assurance that we will be able to repay this indebtedness when due, or that we will be able to refinance this indebtedness on acceptable terms or at all. In addition, this indebtedness could, among other things:
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make it difficult for us to pay other obligations;
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make it difficult to obtain favorable terms for any necessary future financing for working capital, capital expenditures, debt service requirements or other purposes;
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require us to dedicate a substantial portion of our cash flow from operations to service the indebtedness, reducing the amount of cash flow available for other purposes; and
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limit our flexibility in planning for and reacting to changes in our business.
Conversion of our senior convertible notes will dilute the ownership interest of existing stockholders.
The conversion of some or all of our outstanding senior convertible notes due in 2015 will dilute the ownership interest of existing stockholders to the extent we deliver newly-issued shares of common stock upon conversion. Holders of such notes may convert them on or after January 15, 2015, until the close of business on the second scheduled trading day immediately preceding the maturity date of such notes. We expect to satisfy our conversion obligation by delivering cash and potentially shares of common stock. Prior to January 15, 2015, conversion of such notes is subject to satisfaction of certain conditions. Any sales in the public market of shares of common stock issued upon conversion of such notes could adversely affect trading prices of our common stock. In addition, the existence of such notes may encourage short selling by market participants because the conversion of such notes could be used to satisfy short positions, or anticipated conversion of such notes into shares of our common stock could depress the price of our common stock.
The note hedges and warrants may adversely affect the value of our common stock.
In connection with our offering of senior convertible notes due in 2015, we entered into note hedges covering approximately 5 million shares of our common stock. We also sold warrants to acquire up to approximately 5.5 million shares of our common stock at an initial strike price of $73.29. The note hedges are intended to reduce the potential economic dilution to our common stock upon conversion of the senior convertible notes. However, the warrants could have a dilutive effect, if the market price per share of our common stock exceeds the strike price of the warrants. The counterparties to our note hedges and warrants are likely to enter into or unwind various derivatives with respect to our common stock, or purchase or sell shares of our common stock or other securities linked to or referencing our common stock in secondary market transactions prior to the maturity of the senior convertible notes. These activities could adversely affect the value of our common stock.
ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2.
ITEM 2. PROPERTIES
Our principal administrative, sales, marketing and research and development facility is located in Redmond, Washington and consists of 100,000 square feet of office space held under a lease that expires on May 31, 2013. We have an option to renew this lease for an additional five years. As of September 30, 2011, we also leased office space in the United States in the states of Arizona, California, Georgia, Illinois, Massachusetts, Texas and Virginia, and internationally in Australia, China (Hong Kong), Czech Republic, France, Germany, India, Italy, Mexico, Netherlands, Philippines, Singapore, and the United Kingdom.
We believe that our facilities are adequate for our current and near-term needs, and that we will be able to locate additional facilities as needed.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
On April 6, 2010, Concur Technologies, Inc. was named as one of 41 defendants in a purported patent infringement lawsuit, captioned CEATS, Inc. v. Continental Airlines, Inc., et al., in the United States District Court for the Eastern District of Texas. The complaint alleged infringement by Concur of six patents generally related to seat selection and reservation systems under the Patent Laws of the United States of America, 35 U.S.C. §§ 1 et seq., including 35 U.S.C. § 271(a), (b), (c), and/or (f). In November 2011, Concur reached a settlement with the plaintiff, which was not material to Concur’s business or financial position, and the matter has been dismissed.
On April 29, 2011, TripIt LLC, successor-in-interest to TripIt, Inc. and a subsidiary of Concur Technologies, Inc., was named as a defendant in a purported patent infringement lawsuit, captioned ArrivalStar S.A. and Melvino Technologies Limited v. Encore Forwarding, Inc. et al., in the United States District Court for the Southern District of Florida. The complaint alleged infringement by TripIt of eight patents on account of “Get SMS Travel Alerts’ programs/products/services/systems which include and use tracking and messaging technologies” alleged to be protected by the patents. In September 2011, Concur reached a settlement with the plaintiff, which was not material to Concur’s business or financial position, and the matter has been dismissed.
From time to time we are involved in legal proceedings that arise in the ordinary course of our business. Any such proceedings, whether meritorious or not, could be time consuming, costly, and result in the diversion of significant operational resources or management time.
Although the outcomes of legal proceedings are inherently difficult to predict, we are not currently involved in any legal proceeding in which the outcome, in our judgment based on information currently available, is likely to have a material adverse effect on our business or financial position.
ITEM 4.
ITEM 4. RESERVED.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
(a) Market Information. Our common stock is traded on the NASDAQ Global Select Market under the symbol “CNQR.” The following table shows the range of the high and low sales prices by quarter for years ended September 30, 2011 and 2010, as reported on the NASDAQ Global Select Market:
As of September 30, 2011, our common stock was held by 240 stockholders of record.
We have never paid cash dividends on our common stock. We currently intend to retain earnings for use in our business and, therefore, do not anticipate paying any cash dividends on our common stock in 2012.
In July 2010, American Express exercised a warrant to purchase 1.28 million shares of our common stock at an aggregate purchase price of $50.3 million. This warrant was issued to American Express Travel Related Services Company, Inc. in 2008. These securities were issued under an exemption from registration under Section 4(2) of the Securities Act of 1933, as amended, and Rule 506 of Regulation D promulgated thereunder.
During fiscal 2010, we issued 5.5 million warrants to purchase our common stock. For further information, see Note 9 of the notes to financial statements.
(b) Not applicable,
(c) Stock Repurchase Program. Our Board of Directors previously authorized a stock repurchase program (“Repurchase Program”) that allowed us to repurchase up to 7.0 million shares of our common stock through January 2011. In December 2009, our Board of Directors extended the Repurchase Program for an additional two-year period expiring in January 2013, and increased the number of shares eligible for repurchase by an additional 2.0 million shares, from 7.0 million shares to 9.0 million shares. We may repurchase our common stock from time to time in the open market based on market conditions. Any repurchases will be made at the then-current market prices, and repurchased shares will be retired. During 2011, we repurchased and retired 47,700 shares of our outstanding common stock for a total cost of $1.8 million (at an average purchase price of $36.72 per share) under the Repurchase Program. As of September 30, 2011, 4.1 million shares remained eligible for repurchase under the Repurchase Program.
All share repurchases in fiscal 2011 were executed in August and September of 2011. There were no share repurchases in 2010.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data presented in the table below is derived from our consolidated financial statements, and should be read in conjunction with the consolidated financial statements and notes to consolidated financial statements as well as Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The consolidated statements of operations and consolidated balance sheet data presented in the table below are derived from our audited consolidated financial statements. See Note 3 of Notes to Consolidated Financial Statements included in Item 8 of this report for an explanation of the determination of the shares used to compute basic and diluted net income (loss) per share. Our historical results are not necessarily indicative of results to be expected for any future period.
All amounts are reported in thousands, except for per share data.
ITEM 7.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management’s Discussion and Analysis of Financial Condition and Results of Operations provides information management believes is relevant to an assessment and understanding of our results of operations and financial condition. This discussion should be read in conjunction with our Financial Statements and Supplementary Data that are included in Item 8 of this report. Also, the discussion of Critical Accounting Policies and Estimates in this section is an integral part of the analysis of our results of operations and financial condition. We report our operating results on the basis of a fiscal year that starts October 1 and ends September 30. For convenience, in this report we refer to our fiscal years as “2009,” “2010,” “2011” and “2012.”
All dollar, option and share amounts are reported in thousands unless otherwise noted.
Special Note Regarding Forward-Looking Statements
This document contains forward-looking statements regarding our plans, objectives, expectations, intentions, future financial performance, future financial condition, and other statements that are not historical facts. These statements can be identified by our use of the future tense, or by forward-looking words such as “may,” “will,” “expect,” “anticipate,” “believe,” “intend,” “estimate,” “continue” and other similar words and phrases. These forward-looking statements involve many risks and uncertainties, described in Item 1A, Risk Factors, as well as in our other filings with the Securities and Exchange Commission (“SEC”). The occurrence of any of these risks and uncertainties may cause our actual results to differ materially from those anticipated in our forward-looking statements, which could have a material adverse effect on our business, results of operations, and financial condition. All forward-looking statements included in this report are based on information available to us as of the date of this report. We undertake no obligation to revise or update any such forward-looking statements for any reason.
Overview
We are a leading provider of integrated travel and expense management solutions for companies of all industries, sizes and geographies. Our core mission is to reduce costs for our customers and enhance the user experience for travelers, leveraging continuous innovation. Our easy-to-use cloud computing solutions help companies and their employees control costs, save time, and boost productivity by streamlining the expense management, travel procurement, itinerary management, and invoice management processes. By capturing and reporting on activity throughout the travel and expense management process, our solutions provide detailed information to help clients effectively negotiate with vendors, create budgets, and manage compliance.
On August 1, 2009, we completed the acquisition of Etap-On-Line (“Etap Acquisition” or “Etap-On-Line”). Etap-On-Line is a leading European provider of business travel and expense management solutions, based in Paris, France. The Etap Acquisition has strengthened our operations and client base in the European market.
In March 2010, we issued at par value $250.0 million principal amount of 2.50% senior convertible notes due in 2015 (“Initial Notes”). In addition, the underwriters were granted an over-allotment option to purchase an additional $37.5 million principal amount of 2.50% senior convertible notes due in 2015, which brings the total amount issued under such notes and the Initial Notes to $287.5 million (collectively, “Notes”). The over-allotment option was exercised in full on April 1, 2010.
In March 2010 we also entered into note hedge and warrant transactions that cover the number of shares of our common stock that are underlying the Notes. The note hedge transactions are designed, but not guaranteed, to reduce or eliminate the potential economic dilution arising upon conversion. We also sold warrants to acquire shares of our common stock at a strike price of $73.29.
On January 24, 2011, we completed the acquisition of TripIt, Inc. (“TripIt Acquisition” or “TripIt”), a market leader in mobile trip management. The combination of Concur and TripIt delivers additional value to existing clients and travelers while helping to expand the addressable market for Concur’s services by reaching a new class of travelers previously unaddressed by traditional managed travel solutions.
On July 1, 2011, we completed the acquisition of GlobalExpense Limited (“GlobalExpense Acquisition” or “GlobalExpense”). GlobalExpense is a London-based market leader in web-based end-to-end expense management. The GlobalExpense Acquisition expands Concur’s extended services offerings.
In March 2011, we established a Japanese joint venture, Concur (Japan) Ltd., (“Concur Japan”) with SunBridge, Inc., a Japanese corporation and an individual investor, to assist us with our sales efforts in Japan. Our ownership interest in the joint venture is 75%. Because of this controlling interest, we consolidate the venture’s financial results, which are reflected in each revenue, cost of revenues and expense category in our consolidated statement of operations. We then record a noncontrolling interest which reflects the interest that we do not control in the venture’s results. As of September 30, 2011, the operating performance and liquidity requirements of the Japanese joint venture have not been significant. While we plan to expand our selling and marketing activities in Japan in order to add new customers, we believe the future operating performance and liquidity requirements of the Japanese joint venture will not be significant.
Our strategic focus in 2012 is to continue to grow our core subscription business and to reduce our cost of deploying and operating our services as a percentage of revenue. We expect our subscription revenues to increase in 2012 compared to 2011 due to anticipated growth in demand. We expect total sales and marketing expenses in 2012 to increase in absolute dollars compared to 2011, driven primarily by an increase in sales personnel and marketing programs globally.
We operate in and report on one segment, which is integrated travel and expense management solutions.
Revenues
Revenues. Revenues consist primarily of fees paid for subscription services. To a much lesser degree, revenues also include the amortization of set-up fees paid to us in connection with subscription services. Revenues are affected by pricing, the number of new customers, customer contract durations and our customer retention rate.
International Revenues. Revenues from customers outside the United States represented 14%, 13% and 10% of total revenues for 2011, 2010 and 2009. We expect our international revenues to grow in the near term, as our products and services continue to gain acceptance in international markets due to our Etap Acquisition, GlobalExpense Acquisition, our investment in global distribution and increased global awareness of our products. Historically, fluctuations in foreign currency exchange rates have not had a material effect on our total revenues.
Operating Expenses
Cost of Operations. Cost of operations expenses consist primarily of personnel costs and related expenses and allocated overhead costs (including depreciation, occupancy, insurance, telecommunications and computer equipment expenses) associated with employees and contractors who provide our subscription and consulting services. Cost of operations expenses also include co-location and related telecommunications costs, royalties, and amortization of deferred set-up costs that we incur in connection with our subscription services.
Sales and Marketing. Sales and marketing expenses consist of personnel costs (including sales commissions) and related expenses, referral fees and allocated overhead costs associated with our sales and marketing personnel, miscellaneous sales and marketing costs, such as advertising, trade shows and other promotional activities.
Systems Development and Programming Costs. Systems development and programming costs consist of personnel costs and related expenses and allocated overhead costs associated with employees and contractors engaged in software engineering, program management and quality assurance.
General and Administrative. General and administrative expenses consist of personnel costs and related expenses and allocated overhead costs, all associated with employees and contractors in accounting, finance, human resources, information technologies, legal and facilities, as well as miscellaneous costs, such as professional fees, public company regulatory compliance costs and insurance costs.
Revaluation of Contingent Consideration. Revaluation of contingent consideration consists of changes in value of our acquisition-related contingent consideration liability that is not subject to a continued employment requirement. The changes in the fair value of the contingent consideration subject to the continued employment requirement are recognized as compensation expense. We remeasure this contingent consideration each quarter, with any changes in the fair value recorded as income or expense.
Amortization of Intangible Assets. Amortization of intangible assets represents the amortization of the intangible assets from acquisitions. We are amortizing our intangible assets as non-cash charges to operations over an expected useful life which is consistent with the timing and level of expected cash flows attributed to customer relationships, use of acquired technology, trade name and trademarks.
Results of Operations
Fiscal years 2011 and 2010
Revenues
Revenues increased 19.3%, or $56.6 million, in 2011 compared to 2010. This increase was primarily due to the growth in the number of customers for our subscription services, as a result of higher market demand for our subscription services and high rates of retention of existing subscription customers. We believe this demand reflects the market’s growing awareness of our integrated travel and expense management solutions and the increasing acceptance of outsourced services.
We expect revenues to continue to grow in 2012 as a result of the growing demand for our subscription service offerings and our planned increase in spending on sales and marketing.
Cost of Operations
Cost of operations expenses as a percentage of total revenues increased to 28.1% in 2011 compared to 27.9% in 2010. Cost of operations expense increased 20.2%, or $16.5 million, in 2011 compared to the same period a year ago. The growth in absolute dollars was primarily due to an increase in personnel costs and related expenses of $7.7 million, and an increase of $6.9 million in service related fees and initial set-up costs that we incur and then amortize in connection with our subscription services. In addition, there was an increase of $1.2 million in allocated overhead and infrastructure costs. These increases were primarily due to an increase in headcount and growth of the business.
We expect cost of operations expenses to trend down as a percentage of total revenues over the long term as the incremental cost to deploy and support each new customer is expected to decrease due to economies of scale anticipated in our subscription service model infrastructure. We anticipate that cost of operations will increase in absolute dollars as we continue to expand our capacity to deploy and support additional new customers.
Sales and Marketing
Sales and marketing expenses as a percentage of total revenues increased to 40.5% in 2011, from 33.1% in 2010. Sales and marketing expenses increased 45.8%, or $44.4 million, in 2011 compared to the same period a year ago. The growth in absolute dollars was primarily due to an increase in personnel costs and related expenses of $27.3 million, an increase of $8.6 million in contingent consideration associated with the TripIt Acquisition that is subject to service requirements (see Note 4 to the consolidated financials), and an increase of $5.8 million in customer acquisition costs and amortization of those costs. Additionally, advertising costs increased by $1.4 million and allocated overhead and infrastructure costs increased by $1.0 million. These increases were primarily due to additional headcount and adding new customers and increasing penetration within our existing customer base.
We expect total sales and marketing expenses in 2012 to increase in absolute dollars compared to 2011, driven primarily by an increase in sales personnel and marketing programs globally. These increases reflect a key part of our strategic focus in 2012, which is to expand our sales and marketing efforts to create greater awareness of our subscription services in our target markets and to support expected demand.
Systems Development and Programming Costs
Systems development and programming costs increased as a percentage of total revenues to 10.0% in 2011 compared to 9.3% in 2010. Systems development and programming costs increased by 27.7%, or $7.6 million, in 2011 compared to the same period a year ago. The growth in absolute dollars was primarily due to an increase in personnel costs and related expenses of $4.1million with an additional $0.9 million of contingent consideration in relation to the TripIt Acquisition that are subject to service requirements (see Note 4 to consolidated financials). Furthermore, allocated overhead and infrastructure costs increased by $2.3 million. These increases were primarily due to an increase in headcount in order to upgrade and extend our service offerings and develop new technologies.
In response to the demand for our subscription services, the majority of our systems and development resources are focused on developing internal-use software used to provide these services to our customers. We capitalize costs in accordance with accounting principles generally accepted in the United States (“GAAP”) for software developed or obtained for internal use and amortize it over its estimated useful life. Capitalized internal-use software costs, net of amortization, increased $8.2 million, to $27.0 million at September 30, 2011 from $18.8 million at September 30, 2010.
We anticipate that recognized systems development and programming costs in 2012 will increase in absolute dollars compared to 2011 as we continue to focus on product innovation and enhancement.
General and Administrative
General and administrative expenses as a percentage of total revenues increased to 14.7% in 2011 compared to 13.2% in 2010. General and administrative expenses increased by 32.6%, or $12.7 million, in 2011 compared to the same period a year ago. The growth in absolute dollars was primarily due to an increase in $5.2 million of personnel costs and related expenses. These increases were the result of higher expenses for additional personnel to support our growth and other general and administrative costs. Additionally, we incurred increased costs of $5.6 million in professional fees mainly attributable to acquisitions, litigation and other related costs in 2011, and allocated overhead and infrastructure costs of $1.2 million.
We expect the absolute dollar amount of general and administrative expenses to increase in 2012 compared to 2011 due to increases in personnel costs related to the growth of our business.
Revaluation of Contingent Consideration
Revaluation of contingent consideration consisted of a loss of $4.0 million for year ended September 30, 2011. There was no contingent consideration revaluation for the year ended September 30, 2010. On a quarterly basis, we re-measure the fair value of the contingent Top-Up Payment associated with the TripIt Acquisition and any change in contingent consideration that is not associated with any continued employment requirement is recorded as gain (loss) of the revaluation of contingent consideration in the statement of operations. The change in the assumptions applied in the valuation since the acquisition, primarily the decrease in the stock price, resulted in the change in the fair value.
Interest Income, Interest Expense, Loss From Equity Investments and Other
Interest expense increased for 2011 over 2010 primarily due to the full year of interest expense associated with the Notes issued in April 2010. We record realized gains and losses on fluctuations in exchange rates in the other income (expense) section of the statement of operations. The loss from equity investments included investments in privately held companies in 2011. Under the equity method, we record our investment at cost and adjust the carrying amount of the investment to recognize our proportionate share of net income or loss, including adjustments to recognize certain differences between our carrying value and our equity in net assets, into our consolidated statements of income after the date of acquisition.
Income Tax Expense
The effective income tax rate for 2011 was -25.9% compared to 38.3% for 2010. The negative effective tax rate for 2011 was primarily the result of nondeductible compensation, revaluation of the contingent consideration, and nondeductible acquisition costs, partially offset by an increase in research and development tax credits, measured against a pretax loss for the year.
We are subject to income taxes in the U.S. and numerous foreign jurisdictions. We make estimates and judgments in determining income tax expense for financial statement purposes. We also make estimates and judgments in the calculation of certain tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes.
We measure and recognize uncertain tax positions. To recognize such positions we must first determine if it is more likely than not that the position will be sustained on audit. We then must measure the benefit as the largest amount which is more than 50% likely of being realized upon ultimate settlement. Since we are in a net operating loss position for those positions that require a reserve we do not include interest and penalties related to our contingencies in our income tax expense.
Fiscal years 2010 and 2009
Revenues
Revenues increased 18.3%, or $45.3 million, in 2010 compared to 2009. This increase reflects growth in the number of customers for our subscription services, as a result of higher market demand for our subscription services and high rates of retention of existing subscription customers. We believe this demand reflects the market’s continued and growing awareness of our integrated travel and expense management solutions, and the increasing acceptance of outsourced services which is driven in part by limited information technology capital budgets.
The increase in revenues outside of the United States was primarily the result of our Etap Acquisition in August 2009.
Cost of Operations
Cost of operations expenses as a percentage of total revenues decreased to 27.9% in 2010, compared to 29.6% in 2009. Cost of operations expense increased 11.5%, or $8.4 million, in 2010, compared to the same period in 2009. The growth in absolute dollars was primarily due to an increase of $2.4 million in personnel costs and related expenses and an increase of $4.5 million in initial set-up costs that we incur in connection with our subscription services. Additionally, there were increases of $0.9 million in allocated overhead costs and an increase of $1.0 million in partner royalty fees. These increases were primarily due to an increase in headcount and growth of the business.
Sales and Marketing
Sales and marketing expenses as a percentage of total revenues increased to 33.1% in 2010, from 29.8% in 2009. Sales and marketing expenses increased 31.2%, or $23.1 million, in 2010, compared to the same period in 2009. The growth in absolute dollars was primarily due to an increase of $12 million in personnel costs (including sales commissions) and related expenses, and $7.3 million increase in allocated overhead costs. Additionally, partner fees and the amortization of initial set-up costs increased by $3.6 million over the previous year.
Systems Development and Programming Costs
Systems development and programming costs decreased as a percentage of total revenues to 9.3% in 2010, compared to 9.9% in 2009. Systems development and programming costs increased by 11.2%, or $2.7 million, in 2010 compared to 2009. The growth in absolute dollars was primarily due to an increase in personnel costs and related expenses of $1.4 million and an increase of $1.4 million in allocated overhead costs. These increases are primarily due to an increase in headcount.
In response to the demand for our subscription services, the majority of our systems and development resources are focused on developing internal-use software used to provide these services to our customers. We capitalize costs in accordance with GAAP for software developed or obtained for internal use and amortize it over its useful life. Capitalized internal-use software costs, net of amortization, increased $2.3 million, to $18.8 million at September 30, 2010 from $16.5 million at September 30, 2009.
General and Administrative
General and administrative expenses as a percentage of total revenues increased to 13.2% in 2010, compared to 12.2% in 2009. General and administrative expenses increased by 28.1%, or $8.5 million, in 2010, compared to 2009. The increase in absolute dollars was primarily due to an increase of $9.7 million in personnel costs and related expenses. These increases were the result of higher expenses for additional personnel to support our growth and other general and administrative costs. These increases were partially offset by a $1.1 million decrease in allocated overhead costs.
Interest Income, Interest Expense and Other
Interest expense increased during 2010, compared to 2009 due to the interest expense associated with our 2010 issuance of the Notes. We record realized gains and losses on fluctuations in exchange rates in the other income (expense) section of the statement of operations.
Income Tax Expense
The effective income tax rate for 2010 was 38.3% compared to 37.5% for 2009. This rate increase is primarily due to a lack of benefit of the federal credit for increasing research activities and the valuation allowance release in 2009.
Financial Position, Liquidity and Capital Resources
Our available sources of liquidity as of September 30, 2011, consisted principally of cash, cash equivalents and short-term investments totaling $555.5 million.
Our cash flows are as follows:
Our operating cash inflows consist of payments received from our customers related to our subscription and other product offerings. Our operating cash outflows consist of payment of compensation to employees, payments to vendors directly related to our services, payments under arrangements with third parties who provide hosting infrastructure services in connection with our subscription services offerings, related sales and marketing and administrative costs, cost of operations and systems development and programming costs. Net cash provided by operating activities decreased by $3.3 million during 2011 compared to 2010, primarily due to deal-related costs for acquisitions and strategic investments, a full year of payments for interest due on Notes, as well as a slight increase in operating income after adjusting for the impacts of non-cash expenses such as stock based compensation. Net cash provided by operating activities increased by $14.3 million during 2010 compared to 2009, primarily due to growth in operating income after adjusting for the impacts of non-cash expenses such as stock based compensation.
Cash used in investing activities corresponds with purchases, sales, and maturities of investments, cash outlays for acquisitions, strategic investments, purchases of property and equipment, including leasehold improvements, internal-use software and changes in customer funding liabilities, net of the change in restricted cash. In 2011, our cash used in investing activities represented a change of $142.6 million in cash flows primarily due to cash inflow from net maturities of short-term investments of $115.9 million in 2011 compared to $157.4 million of cash outflow in 2010. Offsetting this was our acquisition activity for the year. In 2011 we acquired two privately held companies (TripIt and GlobalExpense) for approximately $42.4 million and invested approximately $46.3 million in other privately-held companies, which are accounted for as cost or equity method investments. In addition, we had a decrease in customer funding liabilities, net of changes in restricted cash which resulted in a cash outflow of $26.8 million for 2011 as compared to the $11.6 million cash inflow in 2010.
In 2010, our cash used in investing activities represented a change of $12.1 million in cash flows primarily due to, cash used by the net purchases of short-term investments of $157.4 million in 2010 compared to $143.4 million in 2009. Cash used in investing activities related to acquisitions was $3.6 million in 2010 compared to $26.6 million in 2009. In addition, we had an increase in customer funding liabilities, net of changes in restricted cash which resulted in $11.6 million in cash provided for 2010 compared to $33.4 million in 2009.
Cash used by financing activities in 2011 included $11.9 million in minimum tax withholdings on restricted stock awards, compared to $4.2 million in 2010, and was partially offset by, among other things, $3.9 million of proceeds from the exercise of employee stock options and employee stock purchase plan. Additionally, there were cash outflows of $1.6 million related to outstanding common stock repurchases under the Repurchase Program. Our Board of Directors previously authorized a stock Repurchase Program that allowed us to repurchase up to 9.0 million shares of our common stock through January 2013. We may repurchase our common stock from time to time in the open market based on market conditions. Any repurchases will be made at the then-current market prices, and repurchased shares will be retired. As of September 30, 2011, 4.1 million shares remained eligible for repurchase under the Repurchase Program. Cash provided by financing activities in 2010 included $4.2 million in minimum tax withholdings on restricted stock awards, compared to $1.2 million in 2009. Additionally, there were cash inflow of $245.1 million related to our issuance of the Notes, Note Hedges and Warrant transactions. The Notes will mature on April 15, 2015, unless converted earlier. All amounts in connection with the Notes, Note Hedges and Warrants were settled in cash in April 2010. As of September 30, 2011, the Notes have not been repurchased or converted. We also have not received any shares under the Note Hedges or delivered cash or shares under the Warrants. We issued these Notes for general corporate purposes, including potential acquisitions and strategic transactions. For further information, see Note 9 of the notes to consolidated financial statements. In addition, cash provided by financing activities in 2010 included $49.7 million in net proceeds from the exercise of warrants issued to American Express in 2008. We did not have any stock repurchases during the year ended September 30, 2010.
We believe our cash, cash equivalents and short-term investment amounts, as well as expected positive operating cash flows, will be sufficient to meet our anticipated cash needs for normal business operations, working capital needs and capital expenditures for at least the next 12 months. In the longer term, or if we decide
to acquire assets or businesses, we may require additional funds and may seek to raise such additional funds through private or public sales of debt or equity securities, or securities convertible or exchangeable into such securities, strategic relationships, bank debt, lease financing arrangements or other available means. There can be no assurances that any such funds will be available or, if available, will be on acceptable terms to meet our business needs. If additional funds are raised through the issuance of equity securities, stockholders may experience dilution, or such equity securities may have rights, preferences, or privileges senior to those of the holders of our common stock.
The following table summarizes our outstanding contractual obligations as of September 30, 2011:
As of September 30, 2011, we have $4.9 million of gross unrecognized tax benefits recorded on our consolidated balance sheet. These obligations have been excluded from the table above. We are unable to make a reasonable estimate of the timing of payments in individual years beyond 12 months due to uncertainties in the timing of tax settlements.
Senior Convertible Notes
As of September 30, 2011, holders of the Notes may require us to repurchase all or a portion of their Notes at a purchase price in cash equal to the full principal amount of the Notes plus any accrued and unpaid interest on or after January 15, 2015, or upon the occurrence of certain events including specified corporate events or trading. For further information, see Note 9 of the notes to consolidated financial statements.
Operating Leases
We lease office space and equipment under non-cancelable operating leases. We lease our current headquarters in Redmond, Washington under an operating lease that expires on May 31, 2013. The lease agreement for our headquarters in Redmond, Washington provides for an eight-year term with an option to renew for an additional five years. We do not include amounts for certain operating expenses under these leases such as common area maintenance. We also lease office space in the United States in the states of Arizona, California, Georgia, Illinois, Massachusetts, Texas and Virginia, and internationally in Australia, China (Hong Kong), Czech Republic, France, Germany, India, Italy, Mexico, Netherlands, Philippines, Singapore and the United Kingdom.
Purchase Obligations
We have future minimum purchase obligations under arrangements with third parties that are enforceable and legally binding. Future obligations are based on contracted commitments.
Acquisition related contingent consideration
As part of the TripIt Acquisition, we agreed to pay additional cash consideration, if any, to the former shareholders of TripIt on the 30 month anniversary of the closing or at such earlier time as Top-Up Payment Date. Please see Note 4 of the notes to the consolidated financial statements for a full description of the acquisition related contingent consideration.
As part of the GlobalExpense Acquisition, we agreed to pay additional cash consideration, if any, to the former shareholders of GlobalExpense on September 30, 2012. Please see Note 4 of the notes to the consolidated financial statements for a full description of the acquisition related contingent consideration.
As part of the Etap Acquisition, we agreed to pay additional cash consideration, if any, to the former shareholders of Etap on August 1, 2012. Please see Note 4 of the notes to the consolidated financial statements for a full description of the acquisition related contingent consideration.
Off Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
Critical Accounting Policies and Estimates
Our discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities. We base our estimates and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances; such estimates and judgments are periodically re-evaluated. Actual results may differ materially from these estimates under different assumptions, judgments or conditions.
The estimates and judgments noted above are affected by our application of accounting policies. Our critical accounting policies are those we deem most important to the portrayal of our financial condition and results of operations, including those that require the most difficult, subjective or complex judgments. Our critical accounting policies include revenue recognition, income taxes, business combinations, contingent consideration and allowances for accounts receivable.
Revenue Recognition
We generate our revenues from the delivery of subscription services and, to a much lesser degree, consulting services. We recognize revenues in accordance with accounting standards for software and service companies.
We recognize revenue when:
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evidence of an arrangement exists;
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delivery has occurred;
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the fees are fixed or determinable; and
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collection is considered probable.
If collection is not considered probable, we recognize revenues when the fees are collected. If the fees are not fixed or determinable, we recognize revenues as payments become due from the customer. Accordingly, our judgment as to the probability of collection and determinability of fees may materially affect the timing of our revenue recognition and results of operations. If non-standard acceptance periods or non-standard performance criteria are required, we recognize revenue upon the expiration of the acceptance period or satisfaction of the acceptance/performance criteria, as applicable.
Revenues
Our revenues are typically recognized monthly as the service is provided to the customer and consist of:
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fees paid for subscription services; and
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amortization of related set-up fees.
Set-up fees paid by customers in connection with subscription services, as well as the associated direct and incremental costs, such as labor and commissions, are deferred until the customer begins service and is recognized ratably over the expected lives of the customer relationships, which generally range from three to five years. In addition to set-up fees, our deferred revenue balances include subscription fees paid in advance of their recognition and software maintenance fees related to our legacy license offerings.
Consulting services consist of fees for professional services, which relate to system implementation and integration, planning, data conversion, training, and documentation of procedures. In determining whether the consulting services can be accounted for separately from subscription revenue, we primarily considers the timing of when the consulting contract was signed in comparison to the subscription service start date. Consulting services that are sold with the subscription service are recognized ratably over the expected lives of the customer relationships. Consulting services that are sold after the initial contract are typically fixed fee contracts and are recognized as revenue upon delivery. We also sell consulting services under milestone or fixed-fee contracts and, in such cases, recognize consulting revenues as milestones or services are completed.
Revenues are adjusted for estimated sales allowances, which are based on our historical experience, including a review of our experience related to price adjustments and sales credits issued.
Portions of our revenues are generated from sales made through our reseller partners. When we assume a majority of the business risks associated with performance of the contractual obligations, we record the revenues on a gross basis and amounts paid to our reseller partners are recognized as sales and marketing expense. Our assumption of such business risks is evidenced when, among other things, we take responsibility for delivery of the product or service, establish pricing of the arrangement and are the primary obligor in the arrangement. When our reseller partner assumes the majority of the business risks associated with the performance of the contractual obligations, we record the associated revenues net of the amounts paid to our reseller partner. Our judgment as to whether we have assumed the majority of the business risks associated with performance of the contractual obligations materially affects how we report revenues and cost of operations.
Income Taxes
We make estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments occur in the calculation of certain tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes.
We measure and recognize uncertain tax positions. To recognize such positions we must first determine if it is more likely than not that the position will be sustained on audit. We must then measure the benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement. Since we are in a net operating loss position for those positions that require a reserve we do not include interest and penalties related to our contingencies in our income tax expense.
Business Combinations
We are required to allocate the purchase price of acquired companies to the tangible and intangible assets acquired and liabilities assumed as well as to in-process research and development based upon their estimated fair values. This valuation requires management to make significant estimates and assumptions, especially with respect to long-lived and intangible assets.
Critical estimates in valuing intangible assets include but are not limited to estimates about: future expected cash flows from customer contracts, customer lists, distribution agreements, proprietary technology and non-compete agreements; the acquired company’s brand awareness and market position, assumptions about the period of time the brand will continue to be used in our product portfolio; as well as expected costs to develop the in-process research and development into commercially viable products and estimated cash flows from the projects when completed, and discount rates. Our estimates of fair value are based upon assumptions we believe to be reasonable, but which are inherently uncertain and unpredictable. Assumptions may be incomplete or inaccurate, and unanticipated events and circumstances may occur.
Other estimates associated with the accounting for these acquisitions may change as additional information becomes available regarding the assets acquired and liabilities assumed.
Contingent Consideration
We estimated the fair value of the acquisition-related contingent consideration using various valuation approaches, as well as significant unobservable inputs, reflecting our assessment of the assumptions market participants would use to value these liabilities. The fair value of contingent consideration is remeasured each reporting period, with any changes in the value recorded as income or expense.
Accounts Receivable Allowances
We record provisions for estimated sales allowances against subscription and consulting revenues in the period in which the related revenues are recorded. We record our sales allowances based on historical experience, including a review of our experience related to price adjustments and sales credits issued.
We make judgments as to our ability to collect outstanding receivables, and we provide an allowance for doubtful accounts, included in general and administrative expenses. In estimating allowances for doubtful accounts, we consider specific receivables when collection is doubtful, as well as an analysis of our historical bad debt experience and the current economic environment. If the data used to estimate the allowance provided for doubtful accounts does not adequately reflect our future ability to collect outstanding receivables, additional provisions for doubtful accounts may be needed and future results of operations could be materially affected.
New Accounting Standards
See Note 1 of the notes to financial statements for a full description of new accounting pronouncements, including the respective expected dates of adoption and effects on results of operations and financial condition.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks in the ordinary course of our business. These risks include primarily interest rate, foreign exchange, market and market interest risks.
Interest Rate Risk. We had cash, cash equivalents and short-term investments totaling $555.5 million as of September 30, 2011. Short-term investments were invested primarily in highly liquid investment vehicles including money market accounts that bear interest at variable overnight or short term rates. The cash, cash equivalents and short-term investments are held for working capital purposes. Our investments are made for capital preservation purposes. We do not enter into investments for trading or speculative purposes.
Our cash equivalents and short-term investments are subject to market risk due to changes in interest rates. Fixed rate interest securities may have their market value adversely impacted due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due in part to these factors, our future investment income may fall short of expectation due to changes in interest rates or we may suffer losses in principal if we are forced to sell securities that decline in the market value due to changes in interest rates.
An immediate increase or decrease in market interest rates of 100 basis points at September 30, 2011, could result in a $0.5 million reduction or increase of the same amount. This estimate is based on a sensitivity model that measures market value changes when changes in interest rates occur. Fluctuations in the value of our investment securities caused by a change in interest rates (gains or losses on the carrying value) are recorded in other comprehensive income, and are realized only if we sell the underlying securities.
Market Risk and Market Interest Risk. In March 2010, we issued at par value $250 million principal amount of our 2.50% senior convertible notes due in 2015 (“Initial Notes”). In addition, the underwriters were granted an over-allotment option to purchase an additional $37.5 million principal amount of 2.50% senior convertible notes due in 2015, which brings the total amount issued under such notes and the Initial Notes to $287.5 million (collectively, “Notes”). Holders may convert their Notes prior to maturity upon the occurrence of certain circumstances. Upon conversion, we would pay the holder an amount of cash equal to the principal amount of the Notes. Amounts in excess of the principal amount, if any, will be paid in stock. Concurrent with the issuance of the Notes, we entered into separate note hedges transactions and the sale of warrants. These separate transactions were completed to reduce the potential economic dilution from the conversion of the Notes.
Our Notes have fixed annual interest rates at 2.50% and therefore, interest expense from these Notes is not subject to fluctuation based on changes in market interest rates. However, the fair value of the Notes will fluctuate based on changes in market interest rates. Generally, the fair market value of our fixed interest rate Notes will increase as interest rates fall and decrease as interest rates rise. In addition, the fair value of our Notes is affected by our stock price. The carrying value of our Notes was $239.5 million as of September 30, 2011. This represents the liability component of the $287.5 million principal balance as of September 30, 2011. The total estimated fair value of our Notes at September 30, 2011 was $291.3 million and the fair value was determined based on the average trading price per $100 of the Notes as of the last day of trading for the fourth quarter of fiscal 2011, which was $101.31. For further information, see Note 9 of the notes to consolidated financial statements.
Foreign Currency Risk. We have foreign currency risks related to our revenue and operating expenses denominated in currencies other than the U.S. dollar, particularly in the Euro, Canadian Dollar, British Pound Sterling, Australian Dollar, Czech Koruna and Japanese Yen. We do not believe movements in the foreign currencies in which we transact will significantly affect future net earnings. We may seek to minimize the impact of certain foreign currency fluctuations by hedging certain balance sheet exposures with foreign currency forward contracts. Any gain or loss from settling these contracts would offset by the loss or gain derived from the underlying balance sheet exposures. Additionally, by policy, we do not enter into any hedging contracts for trading or speculative purposes.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial Statements of Concur Technologies, Inc.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Concur Technologies, Inc.
We have audited the accompanying consolidated balance sheets of Concur Technologies, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of September 30, 2011 and 2010, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended September 30, 2011. Our audits of the basic consolidated financial statements included the financial statement schedule listed in the index appearing under Item 15(a)(2). These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Concur Technologies, Inc. and subsidiaries as of September 30, 2011 and 2010, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 2011, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Concur Technologies, Inc and subsidiaries’ internal control over financial reporting as of September 30, 2011, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated November 17, 2011, expressed an unqualified opinion.
/s/ GRANT THORNTON LLP
Seattle, Washington
November 17, 2011
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Concur Technologies, Inc.
We have audited Concur Technologies, Inc. (a Delaware corporation) and subsidiaries’ (the “Company”) internal control over financial reporting as of September 30, 2011, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of Management on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Concur Technologies, Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of September 30, 2011, based on criteria established in Internal Control - Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s consolidated financial statements and financial statement schedule as of September 30, 2011 and 2010, and for each of the three years in the period ended September 30, 2011, and our report dated November 17, 2011, expressed an unqualified opinion on those consolidated financial statements.
/s/ GRANT THORNTON LLP
Seattle, Washington
November 17, 2011
Concur Technologies, Inc.
Consolidated Statements of Operations
(In thousands, except per share amounts)
See notes to Consolidated Financial Statements.
Concur Technologies, Inc.
Consolidated Balance Sheets
(In thousands, except per share amounts)
See notes to Consolidated Financial Statements.
Concur Technologies, Inc.
Consolidated Equity Statement
(In thousands)
See notes to Consolidated Financial Statements.
Concur Technologies, Inc.
Consolidated Statements of Cash Flow
(In thousands)
See notes to Financial Statements.
Concur Technologies, Inc.
Notes to Consolidated Financial Statements
(in thousands, unless otherwise noted)
Note 1. Description of the Company
We are a leading global provider of integrated travel and expense management solutions for companies of all industries and sizes worldwide. Our core mission is to continuously innovate to reduce the costs for our customers and enhance the user experience for travelers. Our easy-to-use cloud computing solutions help companies and their employees control costs, save time, and boost productivity by streamlining the expense management, travel procurement, itinerary management, and invoice management processes. By capturing and reporting on activity throughout the travel and expense management process, our solutions provide detailed information to help clients effectively negotiate with vendors, create budgets, and manage compliance. Our solutions adapt to individual employee preferences, while scaling to meet the needs of companies from small to large.
Concur, the Concur logo, Concur Connect, Smart Expense, TripIt, and Global Expense, as well as a number of other names and brands that are not referenced in these financial statements, are trademarks or registered trademarks of Concur or its affiliates. Other parties’ marks are the property of their respective owners and should be treated as such.
Throughout these financial statements Concur Technologies, Inc. is referred to as “Concur,” the “Company,” “we,” “us” and “our.”
Note 2. Summary of Significant Accounting Policies and Recent Accounting Pronouncements
Segment Information
The Company’s chief operating decision maker is its Chief Executive Officer, who reviews financial information presented on a consolidated basis. Accordingly, we have determined that the company operates in and reports on one segment, integrated travel and expense management.
Principles of Consolidation
These financial statements include the accounts of Concur and its wholly-owned subsidiaries on a consolidated basis. All intercompany accounts and transactions were eliminated in consolidation. In addition, we established a Japanese joint venture and hold a controlling interest (75 percent voting interest) in Concur (Japan) Ltd., (“Concur Japan”). We have consolidated the accounts of Concur Japan with the accounts of Concur, and we have recorded the noncontrolling interest for the minority investors’ interests in the equity and operations of Concur Japan.
We recorded a noncontrolling interest in the consolidated statements of operations for the noncontrolling investors’ interests in the operations of Concur Japan. Noncontrolling interest of $1,176 as of September 30, 2011 is reflected in stockholders’ equity.
We report our financial statements on a fiscal year basis that starts on October 1 and ends on September 30. Throughout these financial statements, we refer to our fiscal years ending September 30, 2009 to 2011, as “2009,” “2010” and “2011.”
Use of Estimates
We prepared our financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) which requires us to make estimates and assumptions affecting the amounts reported in the financial statements and accompanying notes. Changes in these estimates and assumptions may have a
material impact on our financial statements and accompanying notes. Examples of estimates and assumptions include the determination of certain provisions, including allowances for accounts receivable, product warranties, estimating useful lives of property and equipment, valuing and estimating useful lives of intangible assets, valuing assets and liabilities acquired through business combinations, deferring certain revenues and costs, estimating expected lives of customer relationships, valuation of share-based compensation and estimating tax valuation allowances.
Revenue Recognition
We generate our revenues from the delivery of subscription services and, to a much lesser degree, consulting services. We recognize revenues in accordance with accounting standards for software and service companies.
We recognize revenue when:
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evidence of an arrangement exists;
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delivery has occurred;
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the fees are fixed or determinable; and
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collection is considered probable.
If collection is not considered probable, we recognize revenues when the fees are collected. If the fees are not fixed or determinable, we recognize revenues as payments become due from the customer. Accordingly, our judgment as to the probability of collection and determinability of fees may materially affect the timing of our revenue recognition and results of operations. If non-standard acceptance periods or non-standard performance criteria are required, we recognize revenue upon the expiration of the acceptance period or satisfaction of the acceptance/performance criteria, as applicable.
Revenues
Our revenues are typically recognized monthly as the service is provided to the customer and primarily consist of:
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fees paid for subscription services; and
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amortization of related set-up fees.
Set-up fees paid by customers in connection with subscription services, as well as the associated direct and incremental costs, such as labor and commissions, are deferred until the customer begins service and are recognized ratably over the expected lives of the customer relationships, which generally range from three to five years. In addition to set-up fees, our deferred revenue balances include subscription fees paid in advance of their recognition and software maintenance fees related to our legacy license offerings.
Consulting services consist of fees for professional services, which relate to system implementation and integration, planning, data conversion, training, and documentation of procedures. In determining whether the consulting services can be accounted for separately from subscription revenue, we primarily consider the timing of when the consulting contract was signed in comparison to the subscription service start date. Consulting services that are sold with the subscription service are recognized ratably over the expected lives of the customer relationships. Consulting services that are sold after the initial contract are typically fixed fee contracts and are recognized as revenue upon delivery. We also sell consulting services under milestone or fixed-fee contracts and, in such cases, recognize consulting revenues as milestones or services are completed.
Revenues are adjusted for estimated sales allowances, which are based on our historical experience, including a review of our experience related to price adjustments and sales credits issued.
Portions of our revenues are generated from sales made through our reseller partners. When we assume a majority of the business risks associated with performance of the contractual obligations, we record the revenues on a gross basis and amounts paid to our reseller partners are recognized as sales and marketing expense. Our assumption of such business risks is evidenced when, among other things, we take responsibility for delivery of the product or service, establish pricing of the arrangement and are the primary obligor in the arrangement. When our reseller partner assumes the majority of the business risks associated with the performance of the contractual obligations, we record the associated revenues net of the amounts paid to our reseller partner. Our judgment as to whether we have assumed the majority of the business risks associated with performance of the contractual obligations materially affects how we report revenues and cost of operations.
Income Taxes
We make estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments occur in the calculation of certain tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes.
We measure and recognize uncertain tax positions. To recognize such positions we must first determine if it is more likely than not that the position will be sustained on audit. We must then measure the benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement. Since we are in a net operating loss position for those positions that require a reserve we do not include interest and penalties related to our contingencies in our income tax expense.
Business Combinations
We are required to allocate the purchase price of acquired companies to the tangible and intangible assets acquired and liabilities assumed as well as to in-process research and development based upon their estimated fair values. This valuation requires management to make significant estimates and assumptions, especially with respect to long-lived and intangible assets.
Critical estimates in valuing intangible assets include but are not limited to estimates about: future expected cash flows from customer contracts, customer lists, distribution agreements, proprietary technology and non-compete agreements; the acquired company’s brand awareness and market position, assumptions about the period of time the brand will continue to be used in our product portfolio; as well as expected costs to develop the in-process research and development into commercially viable products and estimated cash flows from the projects when completed, and discount rates. Our estimates of fair value are based upon assumptions we believe to be reasonable, but which are inherently uncertain and unpredictable. Assumptions may be incomplete or inaccurate, and unanticipated events and circumstances may occur.
Other estimates associated with the accounting for these acquisitions may change as additional information becomes available regarding the assets acquired and liabilities assumed.
Contingent Consideration
We estimated the fair value of the acquisition-related contingent consideration using various valuation approaches, as well as significant unobservable inputs, reflecting our assessment of the assumptions market participants would use to value these liabilities. The fair value of contingent consideration is remeasured each reporting period, with any changes in the value recorded as income or expense.
Accounts Receivable Allowances
In estimating allowances for doubtful accounts, we consider specific receivables when collection is doubtful, as well as an analysis of our historical bad debt experience and the current economic environment. If the data used to estimate the allowance provided for doubtful accounts does not adequately reflect our future
ability to collect outstanding receivables, additional provisions for doubtful accounts may be needed and future results of operations could be materially affected.
Cash and Cash Equivalents
Highly liquid financial instruments purchased with maturities of three months or less at the date of purchase are reported as cash equivalents.
Short-term Investments
Our short-term investments consist of financial instruments with maturities greater than 90 days but less than one year.
Property and Equipment
We record property and equipment at cost and provide for depreciation and amortization using the straight-line method for financial reporting purposes over their estimated useful lives which range from two to five years. Depreciation expense includes amounts amortized for assets recorded under capital leases. We depreciate leasehold improvements over the shorter of the lease term or expected useful life of the improvements.
We capitalize certain costs of software developed or obtained for internal use. We capitalize software development costs when application development begins, it is probable that the project will be completed, and the software will be used as intended. We expense costs associated with preliminary project stage activities, training, maintenance and all other post implementation stage activities as we incur these costs. Our policy provides for the capitalization of certain payroll, benefits and other payroll-related costs for employees who are directly associated with internal use computer software development projects, as well as external direct costs of materials and services associated with developing or obtaining internal use software. We only capitalize personnel costs that relate directly to time spent on such projects.
Investments
Our investment portfolio primarily includes strategic investments in privately-held companies. We account for our strategic investments under either the cost or equity method.
Our investments are accounted for under the equity method when we have the ability to exercise significant influence, but not control, over the investee. We record equity method adjustments in gains (losses) on equity method investments, net, and may do so with up to a one-quarter lag. Equity method adjustments may include: our proportionate share of investee income or loss, gains or losses resulting from investee capital transactions, adjustments to recognize certain differences between our carrying value and our equity in net assets of the investee at the date of investment, impairments, and other adjustments required by the equity method. Otherwise we account for the investment using the cost method of accounting.
All of our strategic investments are subject to a periodic impairment review. Investments are considered to be impaired when a decline in fair value is judged to be other-than-temporary. The determination that a decline is other-than-temporary is, in part, subjective and influenced by many factors. Future adverse changes in market conditions or poor operating results of an investee could result in losses or an inability to recover the carrying value of our investment. When assessing our investments for other-than-temporary declines in value, we will consider many factors, including but not limited to the following: the performance of the investee in relation to its own operating targets and its business plan; the investee’s revenue and cost trends; the investee’s liquidity and cash position; and market acceptance of the investee’s products and services. From time to time, we may consider third-party valuations. In the event an investment experiences other-than-temporary declines in value, we will record an impairment loss in “Other income (expense)” in our statement of operations. There were no impairments related to investments during the years ended 2011 and 2010.
Intangible Assets
Intangible assets primarily consist of acquisition-related technology, customer relationships, trade names and trademarks. Our intangible assets are subject to amortization using the straight-line method over their estimated period of benefit, ranging from 2 to 12 years. We evaluate our intangible assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable based on expected undiscounted cash flows attributable to that asset or group of assets. The amount of any impairment is measured as the difference between the carrying value and the fair value of the impaired asset. There were no impairment charges related to intangible assets during the years ended September 30, 2011 and 2010.
Goodwill
Goodwill is tested for impairment at the reporting unit level on an annual basis in the second quarter and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. The annual goodwill impairment test is a two-step process. First, we determine if the carrying value of our related reporting unit exceeds fair value, which would indicate that goodwill may be impaired. If we then determine that goodwill may be impaired, we compare the implied fair value of the goodwill to its carrying amount to determine if there is an impairment loss. We did not record any charges related to goodwill impairment during the years ended September 30, 2011 and 2010.
Share-Based Compensation
We measure stock-based compensation cost at the grant date based on the fair value of the award. Some of our stock-based awards are subject to performance-based vesting as well as time-based vesting. We recognize compensation cost on a straight-line basis over the requisite service period for each separately vesting portion of the award as if the award was multiple awards. The requisite service period is generally four years. The compensation cost is recognized net of estimated forfeiture activity.
Advertising and Marketing Costs
Advertising costs are expensed as incurred or the first time the advertising takes place, applied consistently based on the nature of the advertising activity. Advertising costs for 2011, 2010, and 2009, were $9,143, $8,521, and $3,321.
Warranty Claims
Our software license contracts typically include an industry-standard software performance warranty provision. Historically, we have experienced minimal warranty claims. Our standard sales contracts typically do not include contingencies such as rights of return or conditions of acceptance.
Deferred Revenues and Deferred Costs
As described above in our Revenue Recognition Policy, we defer certain revenues and related direct and incremental costs and recognize them ratably over the applicable service period. We categorize deferred revenues and deferred costs on our Balance Sheet as current if we expect to recognize such revenue or cost within the following twelve months.
Concentrations of Credit Risk
Financial instruments that potentially subject Concur to concentrations of credit risk consist primarily of cash equivalents and accounts receivable. These instruments are generally unsecured and uninsured. We maintain the majority of our cash balances with a few financial institutions. Accounts receivable are typically unsecured
and are from revenues earned from customers across different geographic areas, primarily located in the United States, and operating in a wide variety of industries. No customer represented greater than 10% of outstanding accounts receivable at either September 30, 2011 or 2010. No single customer accounted for more than 10% of our total revenues during 2011, 2010 or 2009. We typically do not require collateral or other security to support credit sales but provide allowances for sales and doubtful accounts based on historical experience and specific identification.
Foreign Currency Translation
The functional currency of the Company’s major foreign subsidiaries is generally the local currency. Adjustments resulting from translating foreign functional currency financial statements into U.S. dollars are recorded as a separate component of stockholders’ equity. Income and expense accounts are translated into U.S. dollars at average rates of exchange prevailing during the periods presented. Foreign currency transaction gains and losses are included in net loss. All assets and liabilities denominated in a foreign currency are remeasured into U.S. dollars at the respective exchange rates in effect on the consolidated balance sheet dates.
Reclassifications
We have reclassified certain amounts previously presented for prior periods to conform to current presentation. The reclassifications had no effect on net income or total stockholders’ equity.
Recently Adopted Accounting Pronouncements
On October 1, 2010, we adopted authoritative guidance on revenue arrangements with multiple deliverables that are outside the scope of the software revenue recognition guidance. Under the new guidance, when vendor specific objective evidence or third party evidence for deliverables in an arrangement cannot be determined, a best estimate of the selling price is required to separate deliverables and allocate arrangement consideration using the relative selling price method. The new guidance includes new disclosure requirements on how the application of the relative selling price method affects the timing and amount of revenue recognized. The new guidance also eliminates the use of the residual method of allocation and instead requires that arrangement consideration be allocated at the inception of the arrangement, to all deliverables based on their relative selling price. Adoption of the new guidance did not have a material impact on our financial statements.
Recently Issued Accounting Pronouncements
In December 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2010-29, Disclosure of Supplementary Pro Forma Information for Business Combinations (Topic 805) - Business Combinations (ASU 2010-29), to improve consistency in how the pro forma disclosures are calculated. Additionally, ASU 2010-29 enhances the disclosure requirements and requires description of the nature and amount of any material, nonrecurring pro forma adjustments directly attributable to a business combination. The guidance will become effective for us with the reporting period beginning October 1, 2011, and should be applied prospectively to business combinations for which the acquisition date is after the effective date. Early adoption is permitted. Other than requiring disclosures for prospective business combinations, the adoption of this guidance will not have an impact on our consolidated financial statements.
In January 2010, the FASB issued guidance to amend the disclosure requirements related to fair value measurements. The guidance requires the disclosure of roll forward activities on purchases, sales, issuance, and settlements of the assets and liabilities measured using significant unobservable inputs (Level 3 fair value measurements). The guidance will become effective for us with the reporting period beginning October 1, 2011. Other than requiring additional disclosures, the adoption of this new guidance will not have a material impact on our consolidated financial statements.
In May 2011, the FASB issued Accounting Standards Update No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial
Reporting Standards (Topic 820) - Fair Value Measurement (ASU 2011-04), to provide a consistent definition of fair value and ensure that the fair value measurement and disclosure requirements are similar between U.S. GAAP and International Financial Reporting Standards. ASU 2011-04 changes certain fair value measurement principles and enhances the disclosure requirements particularly for level 3 fair value measurements. The guidance will become effective for us with the reporting period beginning October 1, 2012 and should be applied prospectively. We are currently evaluating the impact of adopting ASU 2011-04 on our consolidated financial statements.
In June 2011, the FASB issued guidance on presentation of comprehensive income. The new guidance eliminates the current option to report other comprehensive income and its components in the statement of changes in equity. Instead, an entity will be required to present either a continuous statement of net income and other comprehensive income or in two separate but consecutive statements. The new guidance will be effective for us with the reporting period beginning October 1, 2011 and will have presentation changes only.
In September 2011, the FASB issued guidance to amend and simplify the rules related to testing goodwill for impairment. The revised guidance allows an entity to make an initial qualitative evaluation, based on the entity’s events and circumstances, to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The results of this qualitative assessment determine whether it is necessary to perform the currently required two-step impairment test. The new guidance is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted. We plan to early adopt this guidance for our fiscal year 2012 annual impairment test. Adoption of this guidance is not expected to have a material impact on our consolidated financial statements.
Note 3. Net Income (Loss) Per Share
We calculate basic net income (loss) per share by dividing net income (loss) attributable to Concur for the period by the weighted-average number of shares of common stock outstanding during the period. We calculate diluted net income (loss) per share by dividing net income (loss) attributable to Concur for the period by the weighted-average number of shares of common stock outstanding during the period, plus any dilutive effect from share-based equity awards, senior convertible notes and warrants during the period, under the treasury stock method. The computation of basic and diluted net income (loss) per share is as follows:
(1) The 2011 weighted average number of diluted shares outstanding does not include the dilutive effect of share-based equity award plans of 2,018 because the effect would have been anti-dilutive.
We excluded the following shares from the calculations of diluted earnings per share because their inclusion would have an anti-dilutive impact. The conversion or exercise of the potential common shares are excluded when, for example, their exercise prices, unrecognized compensation and tax benefits exceed the average market price of the Company’s common stock for the period. The potential common shares will be included in the future when the inclusion has a dilutive impact on the Company’s earnings per share.
Note 4. Business Combinations
Acquisition of GlobalExpense
On July 1, 2011, we completed the acquisition of GlobalExpense Limited (“GlobalExpense”) for total cash consideration of $19.2 million. As of September 30, 2011, we have paid $19.1 million in cash. In addition, the Company will potentially make additional payments (“GE contingent consideration”) totaling up to £2 million in cash, based on the achievement of certain revenue targets related to GlobalExpense’s service through September 30, 2012. The estimated fair value using a discounted cash flow model of the contingent consideration at July 1, 2011 was $2.6 million and is included in the total purchase price. The Company has recorded and will record the fair value of the contingent consideration each reporting period based on GlobalExpense’s achievement of revenue targets as it relates to the contingent consideration. The change in fair value of contingent consideration is recorded in the statement of operations.
GlobalExpense is a provider of web-based expense management in the United Kingdom. The acquisition of GlobalExpense will help to serve the travel and expense management market in Europe. The acquisition also expands and enhances Concur’s extended services offerings by leveraging GlobalExpense’s strengths in receipt validation, VAT and income tax compliance, and knowledge of tax legislation in the United Kingdom.
The total preliminary purchase price and the fair value of the contingent consideration was allocated to the net tangible and intangible assets based on their fair values as of the acquisition date as set forth below.
The following table presents the details of the intangible assets we acquired in connection with the GlobalExpense acquisition:
The initial purchase price allocation is preliminary as of September 30, 2011, pending finalization of valuation reports and the deferred tax calculations. Changes to amounts recorded as assets or liabilities, may result in a corresponding adjustment to goodwill. The goodwill recorded in connection with our business combinations are primarily related to the synergies to be achieved that are unique to our business. The goodwill balance is not deductible for tax purposes.
We expensed transaction costs associated with GlobalExpense as incurred. Transaction costs were $906 for 2011, and are included in general and administrative expenses in our statement of operations.
Acquisition of TripIt
On January 24, 2011, we completed the acquisition of TripIt, Inc. (“TripIt”), a market leader in mobile trip management. The combination of Concur and TripIt delivers additional value to existing clients and travelers while helping to expand the addressable market for Concur’s services by reaching a new class of travelers previously unaddressed by traditional managed travel solutions.
Subject to the terms of the acquisition agreement, we acquired all of the outstanding shares of TripIt for $24.7 million of cash, and 814 shares of Concur’s common stock valued at approximately $41.2 million at closing, of which 217 shares are held in escrow, plus future contingent consideration with a fair value of $28.9 million (further discussed under “Top-Up Payment” below). Of the $28.9 million, $11.5 million relates to certain individuals whose ability to receive a Top-Up Payment is subject to a continued employment requirement. The portion of the fair value of the contingent consideration subject to the continued employment requirement will be recognized as compensation expense in post combination financial statements. The remainder of the Top-Up Payment fair value at $17.4 million was recorded as part of the purchase consideration.
In addition, we issued unvested Concur restricted stock units in exchange for cancellation of unvested TripIt stock options outstanding with an aggregate value of $9.9 million. The portion of the fair-value of the replacement award that is attributable to the pre-combination service period is $3.6 million and has been included as part of the purchase consideration. We accounted for this acquisition using the purchase method of accounting. We have included the financial results of TripIt in our financial statements beginning on the acquisition date.
The total purchase price for the TripIt acquisition was comprised of the following:
The following table presents the details of the intangible assets we acquired in connection with the TripIt acquisition:
The goodwill recorded in connection with our business combinations are primarily related to the synergies to be achieved that are unique to our business. The goodwill balance is not deductible for tax purposes.
We expensed transaction costs associated with TripIt as incurred. Transaction costs were $1.9 million for 2011, and are included in our general and administrative expenses in our statement of operations.
Top-Up Payment
As part of the TripIt acquisition, we agreed to pay additional cash consideration of up to $38.3 million to the former shareholders of TripIt on the 30 month anniversary of the closing or at such earlier time as specified in the Agreement (the “Top-Up Payment Date”). If, on the Top-Up Payment Date, the value of the consideration issued at the closing (the “Market Value”) is less than approximately $82.1 million or $100.9 per share (the “Guaranteed Value”), subject to adjustments, we will make a payment to such holders in an aggregate amount equal to the difference between the Guaranteed Value and the Market Value (the “Top-Up Payment”), subject to certain limited exceptions. Such right to receive the Top-Up Payment will terminate in the event the value of the shares paid at closing increases by approximately $38.3 million to $100.90 per share at any time prior to the Top-Up Payment Date. If shares were sold or transferred before the Top-Up Payment Date, such holders will not be eligible to receive a Top-Up Payment. In addition, certain former shareholders that became employees of Concur will not be eligible to receive a Top-Up Payment if these employees terminate employment with Concur prior to the required service period. As of September 30, 2011, the potential undiscounted amount of the payment that we could be required to make on the Top-Up Payment Date is between $0 and approximately $38.3 million.
As of the acquisition date, we estimated the total fair value of the contingent consideration to be $28.9 million, using the Monte Carlo Simulation valuation approach. This valuation method was based on significant inputs that are not observable in the market (Level 3 inputs), with key assumptions including (i) expected term of 30 months, (ii) rate of return based on the yield on the three year U.S. Treasury bill (iii) volatility based on our historical stock price volatility and the volatility implied by traded options in our common stock, and (iv) strike price of $100.90.
As of September 30, 2011, the total fair value of the acquisition-related contingent consideration associated with TripIt was $35.4 million, of which $30.9 million is recorded as a liability. The remaining $4.5 million is compensation related and will be recorded during the requisite service period.
As of September 30, 2011, the acquisition-related contingent consideration liability of $30.9 million included a $9.5 million Top-Up Payment related to certain individuals whose Top-Up Payment is subject to a continued employment requirement. The acquisition-related contingent consideration also included $21.4 million related to the portion of the Top-Up Payment due to other former shareholders of TripIt. Changes in the Top-Up Payment liability since the acquisition date were recorded in the statement of operations. On a quarterly basis, we will continue to re-measure the fair value of the contingent Top-Up Payment and any changes in contingent consideration will be recorded in the statement of operations.
Acquisition of Etap-On-Line
On August 1, 2009, we completed the acquisition of Etap-On-Line (“Etap Acquisition”) pursuant to the Share Purchase Agreement, dated August 1, 2009, between Concur and the shareholders of Etap-On-Line (“Purchase Agreement”). Etap-On-Line is a leading European provider of business travel and expense management solutions based in Paris, France. The Etap Acquisition is expected to strengthen our operations and client-base in the European market.
Subject to the terms of the Purchase Agreement, we purchased all outstanding equity securities of Etap-On-Line for an aggregate consideration of up to 28 million in cash and shares of Concur common stock (in aggregate totaling approximately $40 million). As of September 30, 2011, we have paid $33.2 million in cash and $4.3 million worth of shares of our common stock. The remaining purchase price is subject to specified earn out provisions and other adjustments to be determined over a three year period ending August 1, 2012. As of September 30, 2011, the fair value of the earn-out contingent consideration associated with the Etap Acquisition was $4.0 million and is recorded as acquisition related liabilities.
Pro forma results of operations have not been presented because the effect of the acquisitions individually or in the aggregate were not significant.
Note 5. Property and Equipment
Our property and equipment as of September 30, 2011 and 2010 consisted of the following:
Depreciation of property and equipment was $19.5 million, $16.8 million, and $16.3 million for 2011, 2010 and 2009, respectively.
Note 6. Investments
Strategic Investments in Private Companies
As of September 30, 2011, our strategic investments primarily included the following:
ClearTrip
In March 2011, we invested $40.0 million in privately held ClearTrip, Inc. (“ClearTrip”), a leading provider of online travel services in India. Our investment consists of both preferred stock and common stock. In addition, we have a warrant to purchase up to 1.5 million shares of the preferred stock. The warrant has a five year term and can be exercised at any time during this term.
Classes of preferred stock in ClearTrip that do not meet all the characteristics of in-substance common stock have been accounted for under the cost method with net accumulated earnings recorded only to the extent of distributed dividends.
Our equity interest in 7% of ClearTrip’s common stock and certain classes of preferred stock is accounted for under the equity method because our total ownership interest exceeds 20% and we have the ability to exert significant influence. Our investment represents our original investment and our proportionate share of ClearTrip’s net income or loss, adjusted for any difference between our cost and the underlying equity in their net assets as of the date of our investment. The difference between our cost and the underlying equity in net assets of ClearTrip totaling $12.6 million was identified as intangible assets (which will be amortized over their estimated useful lives of 5-10 years) and goodwill.
Yapta
In 2011, we invested $5.3 million in privately held Yapta, Inc. (“Yapta”), a leading provider of fare tracking services, for a 37% equity interest. Our investment consists of preferred stock which meets the characteristics of in-substance common stock.
Our investment in Yapta is accounted for under the equity method because our ownership interest exceeds 20% and we have the ability to exert significant influence. Our investment represents our original investment and our proportionate share of Yapta’s net income or loss, adjusted for any difference between our cost and the underlying equity in their net assets as of the date of our investment. The difference between our cost and the underlying equity in net assets of Yapta totaling $4.0 million was identified as intangible assets (which will be amortized over their estimated useful lives of 5-10 years) and goodwill.
RideCharge
During 2009 and 2010, we have made investments totaling $6.0 million in privately held RideCharge, Inc. (“RideCharge”), a leading provider of ground travel bookings that allows business travelers to book, pay and get reimbursed for ground transportation. This includes a $4.0 million investment, including transaction costs, in January 2009, and an investment of $2.0 million in February 2010.
Because our preferred stock in RideCharge does not meet all the characteristics of in-substance common stock, we have accounted for our investment under the cost method with net accumulated earnings recorded only to the extent of distributed dividends. We have reported our investment in RideCharge in “Investments” on our balance sheet.
Total cost method investments were $33.9 million and $6.0 million, as of September 30, 2011 and 2010, respectively. Total equity method investments were $17.5 million as of September 30, 2011. There were no equity investments as of September 30, 2010. We assess these investments for impairment as circumstances dictate. There has been no impairment loss on strategic investments for the years ended September 30, 2011, 2010 or 2009.
Other Investments
We generally invest our excess cash in investment grade short- to intermediate-term fixed income securities and money market funds. For further information, see Note 13 of the notes to consolidated financial statements.
Note 7. Intangible Assets and Goodwill
The following table presents the components of our intangible assets as of September 30, 2011 and 2010:
The related amortization expense reflected in our statement of operations for 2011, 2010 and 2009, were $10.1 million, $7.2 million, and $6.4 million.
Estimated amortization expense for the remaining estimated useful life of the acquired intangible assets is as follows for the years ending September 30:
The following table presents the activity we recorded in our goodwill balance:
(1) On August 1, 2009, we completed the acquisition of Etap-On-Line (“Etap Acquisition”). The purchase price is subject to specified earn out provisions to be determined over a three year period ending August 1, 2012. We recorded a $4.0 million earn out as additional goodwill for 2011. We consider the earn-out amounts as additional contingent consideration and will record them in goodwill as incurred.
(2) Other adjustments represent primarily the impact of foreign currency translation for instances when goodwill is recorded in foreign entities whose functional currency is also their local currency. These goodwill balances are translated into U.S. dollars using exchange rates in effect at period end. Adjustments are included in other comprehensive income (loss).
Note 8. Customer Funding Liabilities
We draw funds from and make payments on behalf of our customers for employee expense reimbursements and related corporate credit card payments. We hold these funds in cash and record our obligation to make these expense reimbursements and payments on behalf of our customers as Customer Funding Liabilities.
Note 9. Debt
Senior Convertible Notes
In March 2010, we issued at par value $287.5 million principal amount of our 2.50% senior convertible notes due April 15, 2015 (“Notes”). All amounts from the issuance of the Notes were settled in April 15, 2010.
The Notes are governed by an Indenture, dated April 6, 2010 (“Indenture”), between the Company and Wells Fargo Bank, National Association, as trustee. The Notes will mature on April 15, 2015, unless earlier repurchased or converted, and bear interest at a rate of 2.50% per year payable semi-annually in arrears on April 15 and October 15 of each year, commencing October 15, 2010.
The Notes are convertible into cash and shares of our common stock at an initial conversion rate of 19.10 shares of common stock per $1,000 principal amount of Notes, which represents an initial conversion price of approximately $52.35 per share, subject to adjustment. Prior to January 15, 2015, conversion is subject to the satisfaction of certain conditions set forth below. Holders of the Notes who convert their Notes in connection with a fundamental change (as defined in the Indenture) will, under certain circumstances, be entitled to a make-whole premium in the form of an increase in the conversion rate. Additionally, in the event of a fundamental change, holders of the Notes may require the Company to repurchase all or a portion of their Notes at a repurchase price equal to 100% of the principal amount of Notes, plus accrued and unpaid interest, if any, to, but not including, the fundamental change repurchase date (as defined in the Indenture).
Holders of the Notes may convert their Notes on or after January 15, 2015, until the close of business on the second scheduled trading day immediately preceding the maturity date. The conversion rate will be subject to adjustment in some events but will not be adjusted for accrued interest. Upon conversion, we will satisfy our conversion obligation by delivering cash and shares of common stock, if any, based on a daily settlement amount (as defined in the Indenture). Prior to January 15, 2015, holders of the Notes may convert their Notes under any of the following conditions:
•
during any calendar quarter commencing after June 30, 2010, (and only during such calendar quarter), if the last reported sale price of common stock for 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the preceding calendar quarter is greater than or equal to 130% of the applicable conversion price on each applicable trading day;
•
during the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of the Notes for each day of that five consecutive trading day period was less than 98% of the product of the last reported sale price of common stock and the applicable conversion rate on such day; or
•
upon the occurrence of specified corporate events.
In accounting for the issuance of the Notes, we separated the Notes into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of a similar liability that does not have an associated convertible feature. 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 Notes as a whole. The excess of the principal amount of the liability component over its carrying amount (“debt discount”) is accreted to interest expense over the term of the Note. The equity component will not be remeasured as long as it continues to meet the conditions for equity classification.
In accounting for the transaction costs related to the issuance of the Notes, we allocated the total amount incurred to the liability and equity components. Transaction costs allocated to the liability component are being amortized to expense over the term of the Notes, and transaction costs allocated to the equity component were netted with the equity component in additional paid-in capital. Debt issuance costs, net of amortization, were $4.8 million and $6 million as of September 30, 2011 and 2010. Equity issuance costs for the Notes were $1.7 million. Additionally, in 2010 we recorded a deferred tax asset of $0.8 million in connection with the Notes.
The following table shows the amounts recorded within our financials for the Notes:
The carrying value of our Notes was $239.5 million as of September 30, 2011. This represents the liability component of the $287.5 million principal balance as of September 30, 2011. The total estimated fair value of our Notes at September 30, 2011 was $291.3 million. The fair value was determined based on the average trading price per $100 of the Notes as of the last day of trading for the fourth quarter of fiscal 2011.
The following table presents the interest expense recognized related to the Notes for the year ended September 30, 2011 and 2010:
The net proceeds from the Notes were approximately $279.0 million after payment of the initial purchasers’ discounts and offering expenses. From these net proceeds, we used a net total of approximately $34.1 million which included $60.1 million to pay for the cost of the Note Hedge offset by proceeds of $26.1 million from our sale of Warrants. These transactions are described in more detail below. We expect to use the net proceeds of the Notes for general corporate purposes, including potential acquisitions and strategic transactions.
Note Hedges
To minimize the impact of potential economic dilution upon conversion of the Notes, we entered into note hedge transactions (“Note Hedges”) with respect to our common stock. We paid $60.1 million for the Note Hedges. The Note Hedges cover approximately 5.0 million shares of our common stock at a strike price of $52.35, subject to anti-dilution adjustments, and are exercisable upon conversion of the Notes. The Note Hedges will expire upon the maturity of the Notes. The Note Hedges are intended to reduce the potential economic dilution upon conversion of the Notes in the event that the market value per share of our common stock, as measured under the Notes, at the time of exercise is greater than the conversion price of the Notes.
Warrants
Separately, we entered into warrant transactions (“Warrants”), whereby we sold warrants to acquire up to 5.5 million shares of our common stock at a strike price of $73.29 per share, subject to anti-dilution adjustments. The Warrants will expire upon the maturity of the Notes. We received proceeds of $26.1 million from the sale of the Warrants. If the market value per share of our common stock, as measured under the Warrants, exceeds the strike price of the Warrants, the Warrants will have a dilutive effect on our net income per share.
Note 10. Income Taxes
Our income tax expense is based on pretax financial accounting income. We determine deferred tax assets and liabilities based on the difference between the GAAP financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.
For 2011, 2010 and 2009, the income tax expense consisted of the following:
A reconciliation of our effective income tax rate on income before taxes with the federal statutory rate is as follows:
Our deferred income tax assets and liabilities reflect the net effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. We record deferred tax assets for the future tax benefit of net operating losses and tax credit carryforwards. Significant components of our deferred tax assets and liabilities as of September 30, 2011 and 2010, are as follows:
In accounting for income taxes, we recognize deferred tax assets if realization of such assets is more likely than not. We believe, based on factors including, but not limited to, our significant financial and tax loss history, forecasts of financial and taxable income or loss by jurisdiction, the estimated impact of future stock option deductions, possible tax planning strategies, and the expiration dates and amounts of net operating loss carryforwards, that it is more likely than not that the net deferred tax asset as of September 30, 2011, will be realized in the future.
The net increase in the valuation allowance for 2011 was $257 compared to $41 for 2010. The increase in the valuation allowance for 2011 was due to a foreign and state net operating loss carryforward the company expects will expire unused. The increase in the valuation allowance for 2010 was due to a change in expected earnings which caused a portion of the federal research and development credit to become unrealized.
As of September 30, 2011, we have total federal net operating loss carryforwards in the amount of $186.6 million, which will expire in the years 2011 to 2027. We had total state net operating loss carryforwards in the amount of $52.6 million, which will expire in the years 2013 to 2028. As of September 30, 2011, we had total foreign net operating loss carryforwards in the amount of $13.4 million, most of which can be carried forward with no time limit.
Our utilization of net operating loss carryforwards may be subject to annual limitations due to ownership change provisions of Internal Revenue Code Section 382 and similar foreign and state provisions. The annual limitations could result in the expiration of net operating losses before they can be utilized.
During the ordinary course of our business, there are many transactions and calculations for which the ultimate tax determination is uncertain. We establish reserves for tax-related uncertainties based on estimates of whether, and the extent to which, additional taxes will be due. These reserves are established when we believe that certain positions might be challenged despite our belief that our tax return positions are fully supportable. We adjust these reserves in light of changing facts and circumstances, such as the outcome of a tax audit. The provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate.
Due to our net operating loss carryover position, we have not recognized any interest or penalties associated with our uncertain tax positions. We classify interest and penalties associated with tax matters as additional interest expense and as additional penalties rather than as part of income taxes. We do not anticipate any significant changes to our unrecognized tax benefits within the next 12 months.
The reconciliation of our tax contingencies is as follows:
The above table of deferred tax assets and liabilities does not include certain deferred tax assets at September 30, 2011 and 2010 that arose directly from (or the use of which was postponed by) tax deductions related to share-based compensation arrangements in excess of compensation recognized for financial reporting. Tax deductions from share-based payment arrangements are not recorded until the deduction reduces current taxes payable when such in excess tax benefits have been realized; when such instance occurs, we record the amount of the reduction of cash tax owned as a credit to additional paid-in capital. NOLs created by tax deductions related to-share based compensation arrangements in excess of compensation are not recognized in the deferred tax asset resulting in the deferred tax asset to be less than the actual NOL reported to the various federal, state, and foreign jurisdictions. On the other hand, any amount by which the tax deduction from share-based payment arrangements is less than the related amount of compensation recognized for financial reporting the deficiency (i.e., deferred tax asset write-off) shall first be charged against any remaining additional paid-in capital from excess tax benefits. The remaining balance, if any, of the write-off of a deferred tax asset related to a tax deficiency shall be recognized as income tax expense.
At September 30, 2011, we had $135.5 million of excess tax deductions related to share-based payment arrangements that will be credited to additional paid-in capital if and when such amounts are ultimately realized.
Prior Period Correction
During the first quarter of 2011, we discovered an incorrect assumption related to the tax deductibility of certain operating expenses which resulted in an understatement of the provision for income taxes reported in prior periods. This error had no impact on previously reported cash flows from operating, financing or investing activities and was considered to be immaterial to our previously reported results of operations and financial position. Since the cumulative impact of this error is significant to the results of each quarter of 2011, we applied the guidance of Staff Accounting Bulletin No. 108 (“SAB 108”) and corrected the prior period financial statements, even though such revision previously was, and continues to be, immaterial to the prior period financial statements.
The following is a consolidated statement of operations reconciliation of the comparable period for 2010:
The following is a consolidated statement of operations reconciliation of the comparable period for 2009:
The following is a reconciliation of consolidated balance sheet amounts as of September 30, 2010:
The following is a reconciliation of consolidated balance sheet amounts as of September 30, 2009:
The following is a reconciliation of consolidated balance sheet amounts as of September 30, 2008:
Note 11. Contractual Obligations
Our future minimum commitments under non-cancelable contractual obligations are as follows:
Senior Convertible Notes
As of September 30, 2011, holders of the Notes may require us to repurchase all or a portion of their Notes at a purchase price in cash equal to the full principle amount of the Notes plus any accrued and unpaid interest on or after January 15, 2015, or upon the occurrence of certain events including specified corporate events or trading. For further information, see Note 9 of the notes to consolidated financial statements.
Operating Leases
We lease office space and equipment under non-cancelable operating leases. We lease our current headquarters in Redmond, Washington under an operating lease that expires on May 31, 2013. The lease agreement for our headquarters in Redmond, Washington provides for an eight-year term with an option to renew for an additional five years. We do not include amounts for certain operating expenses under these leases such as common area maintenance. We also lease office space in the United States in the states of Arizona, California, Georgia, Illinois, Massachusetts, Texas and Virginia, and internationally in Australia, China (Hong Kong), Czech Republic, France, Germany, India, Italy, Mexico, Netherlands, Philippines, Singapore and the United Kingdom.
Purchase Obligations
We have future minimum purchase obligations under arrangements with third parties that are enforceable and legally binding.
Note 12. Equity Plans and Share-based Compensation
Our 2007 Equity Incentive Plan (“Equity Plan”) provides for grants of stock options, restricted stock, stock bonuses, stock appreciation rights and restricted stock units (“RSUs”). As of September 30, 2011, we had 5.1 million shares of common stock reserved for future grants under our Equity Plan, excluding shares of common stock reserved for future issue under our 2008 Employee Stock Purchase Plan. We recognize compensation expense for equity awards on a straight line basis over the requisite service period of the award.
We have calculated an additional paid in capital (“APIC”) pool that represents the excess tax benefits related to share-based compensation that are available to absorb future tax deficiencies. We include those excess tax benefits in APIC only when they have been realized. If the amount of future tax deficiencies is greater than the available APIC pool, we will record the excess deficiencies as income tax expense in our statement of operations. Excess tax benefits or tax deficiencies, to the extent realized, are a factor in the calculation of diluted shares used in computing dilutive income per share.
The following table presents our share-based compensation resulting from equity awards that we recorded in our statement of operations:
Net cash proceeds from the exercise of stock options for 2011, 2010 and 2009, were $2.0 million, $9.8 million and $4.8 million. We present excess tax benefits from the exercise of stock options, if any, as financing cash flows and a corresponding reduction in operating cash flows. We did not realize an income tax benefit from stock option exercises during 2009 due to the use of net operating loss carryforwards.
The following table presents our stock option activity:
Stock option activity for 2011 was as follows:
Total intrinsic value of options exercised for 2011, 2010 and 2009, was $17.6 million, $66.1 million and $8.9 million.
Information regarding the weighted-average remaining contractual life and weighted-average exercise price of options outstanding and options exercisable as of September 30, 2011, for selected exercise price ranges is as follows:
RSUs are stock awards that entitle the holder to shares of our common stock as the award vests. Some of our RSUs are subject to performance-based vesting as well as time-based vesting. We base compensation expense incurred for RSUs on the closing market price of our common stock on the date of grant and we amortize the expense ratably on a straight-line basis over the requisite service period.
The following table presents our RSU activity:
As of September 30, 2011, we expect total unrecognized compensation costs net of estimated forfeitures of $64.1 million, and we expect to recognize the non-vested equity awards expense over a weighted average period of 1.6 years. Total fair value of options exercised and RSUs vested during 2011, 2010 and 2009, were $24.9 million, $18.9 million and $9.4 million.
Note 13. Fair Value Measurements
The accounting guidance for fair value measurements and its subsequent updates establishes a three-tier fair value hierarchy, categorizing the inputs used to measure fair value.
The hierarchy can be described as follows:
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Level 1- observable inputs such as quoted prices in active markets;
•
Level 2- inputs other than the quoted prices in active markets that are observable either directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and
•
Level 3- unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
Assets and liabilities recognized or disclosed at fair value in the financial statements on a nonrecurring basis include items such as property and equipment, equity and cost method investments, and other assets. These assets are measured at fair value if determined to be impaired. The fair values of these investments are determined based on valuation techniques using the best information available, and may include quoted market prices, market comparables, and discounted cash flow projections. An impairment charge is recorded when the cost of the investment exceeds its fair value and this condition is determined to be other-than-temporary.
Assets and Liabilities Measured at Fair Value on a Recurring Basis:
We have highly liquid investments classified as cash equivalents and short-term investments included in our balance sheet. Cash equivalents consist of money market instruments and commercial paper that have original maturities of 90 days or less.
We also invest in commercial paper with maturities greater than 90 days but generally mature within 270 days. Such instruments are classified within Level 2 of the fair value hierarchy.
Our financial assets measured at fair value are summarized below:
September 30, 2011
(1) Included in cash and cash equivalents on our balance sheets.
(2) Included in either cash and cash equivalents or short-term investments on our balance sheets.
September 30, 2010
(1) Included in cash and cash equivalents on our balance sheets.
(2) Included in either cash and cash equivalents or short-term investments on our balance sheets.
Our valuation techniques used to measure the fair values of our money market funds that were classified as Level 1 in the table above were derived from quoted market prices as substantially all of these instruments have maturity dates (if any) within one year from our date of purchase and active markets for these instruments exist. Our valuation techniques used to measure the fair values of commercial paper and other fixed income securities listed in the table above, generally all of which mature within one year and the counterparties to which have high credit ratings, were derived from the following: non-binding market consensus prices that are corroborated by observable market data and quoted market prices for similar instruments.
Acquisition-related Contingent Consideration
We estimate the fair value of acquisition-related contingent consideration using various valuation approaches including the Monte Carlo Simulation approach and discounted cash flow model. Contingent consideration liabilities are classified as Level 3 liabilities, because we use unobservable inputs to value them, reflecting our assessment of the assumptions market participants would use to value these liabilities. The unrealized gains and losses related to the contingent consideration are included in operating expenses in our statement of operations.
The following tables present a reconciliation for liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) as of September 30, 2011:
TripIt Acquisition
As of September 30, 2011, the total fair value of the acquisition-related contingent consideration associated with TripIt was $35.4 million, of which $30.9 million is recorded as a liability. The remaining of $4.5 million is compensation related and will be recorded during the requisite service period.
GlobalExpense Acquisition
Etap Acquisition
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
During 2011, 2010 and 2009, we did not record any other-than-temporary impairments on those assets required to be measured at fair value on a nonrecurring basis.
Note 14. Stock Repurchase Program
Our Board of Directors has authorized a stock repurchase program that expires in January 2013. During 2011, we repurchased and retired 47.7 shares of our outstanding common stock for a total cost of $1.8 million under this program. We did not make any purchases of our outstanding common stock during 2010. As of September 30, 2011, we remained authorized to repurchase up to an additional 4.1 million shares under this program.
Note 15. Geographic Data
We market our services and products primarily in the United States and operate in a single industry segment. No single customer accounted for more than 10% of our total revenues during 2011, 2010 or 2009. Information regarding revenues by geographic region for the past three years is as follows:
Note 16. Royalty Agreements
We have entered into agreements that allow us to incorporate licensed technology into our products or that allow the right to sell separately the licensed technology. We incur royalty fees under these agreements that are based on a predetermined fee per license sold. Royalty costs incurred under these agreements are recognized as licensed products are sold and are included in cost of operations. These amounts for 2011, 2010 and 2009, totaled $1,897, $1,984, and $1,555.
Note 17. Contingencies
Product Warranty and Indemnification Obligations
We provide services and software solutions to our customers under sales contracts, which usually include a limited warranty regarding product and service performance and a limited indemnification of customers against losses, expenses and liabilities from damages that may be awarded against them if our services or software are found to infringe upon a patent, copyright, trademark, or other proprietary right of a third party. The contracts generally limit the scope of and remedies for such indemnification obligations in a variety of industry-standard respects. We also enter into similar limited indemnification terms in agreements with certain strategic business partners and vendors. To date, we have experienced minimal warranty claims and have not had significant reimbursements to any customers for any losses related to the limited indemnification described above.
Legal Matters
From time to time we are involved in legal proceedings that arise in the ordinary course of our business. Any such proceedings, whether meritorious or not, could be time consuming, costly, and result in the diversion of significant operational resources or management time.
Although the outcomes of legal proceedings are inherently difficult to predict, we are not currently involved in any legal proceeding in which the outcome, in our judgment based on information currently available, is likely to have a material adverse effect on our business or financial position.
Note 18. Retirement 401(k) Plan
The Company has a 401(k) plan covering all eligible employees in the United States. Since April 1, 2007, the Company has been contributing to the plan. Total Company contributions during 2011, 2010 and 2009, were $1,393, $1,125 and $997, respectively.
Note 19. Quarterly Financial Results (Unaudited)
Our summarized unaudited quarterly financial results for 2011, 2010 and 2009, are as follows:
Note 20. Subsequent Event
On November 14, 2011, the Company and ADP, Inc. entered into an arrangement, under which ADP transferred to the Company all rights and obligations relating to the Company’s solutions under the ADP client contracts that were previously resold by ADP under a reseller agreement between the Company and ADP. The Company is currently in the process of determining the initial accounting for this arrangement.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
ITEM 9A.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Securities and Exchange Commission, or SEC, defines the term “disclosure controls and procedures” to mean a company’s controls and other procedures that are designed to ensure that information required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934, as amended (“Exchange Act”), is recorded, processed, summarized, and reported, within the time periods specified in the SEC’s rules and forms. “Disclosure controls and procedures” include, without limitation, controls and procedures designed: (a) to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure; and (b) to provide reasonable assurance of achieving their objectives.
Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures as required by Exchange Act Rule 13a-15(b) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective.
Report of Management on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the company. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes policies and procedures that: pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and dispositions of assets; provide reasonable assurance that transactions are recorded as necessary to permit preparation of our financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are made only in accordance with management and board authorization; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected.
Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that the company’s internal control over financial reporting was effective as of September 30, 2011. There were no changes in our internal control over financial reporting during the quarter ended September 30, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Grant Thornton, LLP has audited our internal control over financial reporting as of September 30, 2011; their report is included in Item 8.
Limitation on Effectiveness of Controls
It should be noted that any system of controls, including disclosure controls and procedures and internal controls over financial reporting, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met. The design of any control system is based, in part, upon the benefits of the control system relative to its costs. Our disclosure controls and procedures were designed to provide reasonable assurance of achieving their objectives and the actual effectiveness of our disclosure controls and procedures is described above.
Control systems can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. In addition, over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of these and other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.
ITEM 9B.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this item relating to our executive officers, directors and nominees, regarding compliance with Section 16(a) of the Securities Exchange Act of 1934, as amended, and regarding our Audit Committee, is included under the captions “Election of Directors” and “Section 16(a) Beneficial Ownership Reporting Compliance” in our proxy statement related to the 2012 Annual Meeting of Shareholders and is incorporated herein by reference.
We have adopted a code of ethics that applies to our principal executive officer and all members of our finance department, including the principal financial officer and principal accounting officer. This code of ethics, which consists of the “Books and Records; Financial Integrity; Public Reporting” section of our Code of Business Conduct and Ethics that applies to employees generally, is posted on our website. The Internet address for our website is www.concur.com, and the code of ethics may be found from our main web page by clicking first on “About Us” and then on “Corporate Info,” then on “Business Conduct & Ethics.”
We intend to satisfy any disclosure requirement under Item 10 of Form 10-K regarding an amendment to, or waiver from, a provision of this code of ethics by posting such information on our website, at the address and location specified above.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The information appearing under the headings “Election of Directors - Director Compensation” and “Compensation Discussion and Analysis” in our proxy statement related to the 2012 Annual Meeting of Shareholders is incorporated herein by reference.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by this item relating to security ownership of certain beneficial owners and management is included under the caption “Ownership of Securities,” and the information required by this item relating to securities authorized for issuance under equity compensation plans is included under the caption “Equity Compensation Plans,” in each case in our proxy statement related to the 2012 Annual Meeting of Shareholders, and is incorporated herein by reference.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this item relating to review, approval or ratification of transactions with related persons is included under the caption “Certain Relationships and Related Transactions,” and the information required by this item relating to director independence is included under the caption “Election of Directors - Board of Directors Meetings and Committees,” in each case in our proxy statement related to the 2012 Annual Meeting of Shareholders, and is incorporated herein by reference.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this item is included under the captions “Ratification of Selection of Independent Registered Public Accounting Firm - Independent Auditor’s Services and Fees” and “- Audit Committee Pre-Approval Policy” in our proxy statement related to the 2012 Annual Meeting of Shareholders and is incorporated herein by reference.
PART IV
ITEM 15.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as part of this report:
3. Exhibits
* Represents a management agreement or compensatory plan.
** This certification is not deemed “filed” for purposes of Section 18 of the Securities Exchange Act, or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that Concur specifically incorporates it by reference.
*** The following financial statements from the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2011, formatted in XBRL: (i) Consolidated Statements of Operations, (ii) Consolidated Balance Sheets, (iii) Consolidated Equity Statements (iv) Consolidated Statements of Cash Flow, and (v) Notes to Consolidated Financial Statements.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
CONCUR TECHNOLOGIES, INC.
September 30, 2011
(in thousands)
Allowance for Doubtful Accounts
(1) Amounts charged against revenues for estimated sales returns.
(2) Uncollectible accounts written off, net of recoveries.
EXHIBIT INDEX
* Represents a management agreement or compensatory plan.
** This certification is not deemed “filed” for purposes of Section 18 of the Securities Exchange Act, or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that Concur specifically incorporates it by reference.
*** The following financial statements from the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2011, formatted in XBRL: (i) Consolidated Statements of Operations, (ii) Consolidated Balance Sheets, (iii) Consolidated Equity Statements (iv) Consolidated Statements of Cash Flow, and (v) Notes to Consolidated Financial Statements.