CONCUR TECHNOLOGIES INC - 10-K Annual Report

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

As of December 10, 1999, 22,873,018 shares of Common Stock of Registrant were outstanding. The aggregate market value of the shares held by non-affiliates of the Registrant (based upon the closing price of the Registrant’s Common Stock on December 10, 1999 of $32.625 per share) was approximately $746.2 million.

Portions of Registrant’s definitive Proxy Statement to be filed pursuant to Regulation 14A promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, which is anticipated to be filed within 120 days after the end of the Registrant’s fiscal year ended September 30, 1999, are incorporated by reference in Part III hereof.

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PART I
Item 1	Business	3
Item 2	Properties	28
Item 3	Legal Proceedings	28
Item 4	Submission of Matters to a Vote of Security Holders	28

PART II
Item 5	Market for Registrant’s Common Equity and Related Stockholder Matters	29
Item 6	Selected Consolidated Financial Data	31
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32
Item 7A	Qualitative and Quantitative Disclosures About Market Risk	42
Item 8	Financial Statements and Supplementary Data	43
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	65

PART III
Item 10	Directors and Executive Officers of the Registrant	65
Item 11	Executive Compensation	65
Item 12	Security Ownership of Certain Beneficial Owners and Management	65
Item 13	Certain Relationships and Related Transactions	65

PART IV
Item 14	Exhibits, Financial Statement Schedules and Reports on Form 8-K	66
Signatures		69

Some of the information in this document contains forward-looking statements that involve substantial risks and uncertainties. You can identify these statements by our use of the future tense, or by forward-looking words such as “may,” “will,” “expect,” “anticipate,” “believe,” “estimate” and “continue”. You should read statements that contain these words carefully, because they discuss our expectations about our future performance, contain projections of our future operating results and our future financial condition, or state other “forward-looking” information. There may be events in the future, however, that we are not able to predict or over which we have no control. The risk factors listed in this document, as well as any other cautionary language in this document, provide examples of risks, uncertainties and events that may cause actual results to differ from what we describe in our forward-looking statements. You should be aware that the occurrence of any of the events described below under “Risk Factors That May Affect Results of Operations and Financial Conditions,” or elsewhere in this document, could have a material and adverse effect on our business, results of operations and financial condition.

We are a leading provider of workplace eCommerce software and services that extend automation to employees throughout an enterprise and to partners, suppliers and service providers in the extended enterprise. Our flagship product, Concur eWorkplace™ (formerly EmployeeDesktop™) integrates our suite of workplace eCommerce solutions and provides a portal through which employees can access critical business eCommerce information and services. The Concur eWorkplace suite is available in three versions: licensed, application service provider (“ASP”) and Internet outsourced. Our licensed version, which is principally marketed to larger corporations, includes our entire suite of workplace eCommerce solutions, consisting of corporate procurement, human resources self service and travel and entertainment expense management. Our ASP version, called Concur eWorkplace ASP™, is offered on a subscription-pricing basis principally to larger corporations and currently includes travel and entertainment expense management functionality. Our Internet outsourced version, called Concur eWorkplace.com™, is offered on a subscription-pricing basis, principally for small and mid-size businesses. This version currently includes travel and entertainment expense management and corporate procurement funtionality. More than 275 companies worldwide, representing over 2.1 million end-users, have licensed our software.

We sell our products primarily through our direct sales organization. We also have strategic referral relationships. For example, American Express Inc., ( “American Express”) has referred to us corporate charge card customers seeking a travel and entertainment expense management solution. Automatic Data Processing, (“ADP”), jointly markets our travel and entertainment expense management solution and refers potential customers to us.

In response to competitive conditions worldwide, businesses seek cost savings and productivity gains by using enterprise applications to automate business processes. These applications have traditionally targeted discrete functional or department-level business processes involving relatively few employees. However, businesses are now seeking similar applications for employee-centric business processes including travel and entertainment expense management, business-to-business procurement, human resources self-service, time and attendance, and facilities management. The emergence of the Internet and corporate intranets has made it possible to deploy software applications that reach all employees in the enterprise and connect the enterprise to corporate partners, suppliers, and service providers. In addition, in contrast to traditional client-server applications, Internet and intranet-based applications can be deployed rapidly throughout the enterprise on a cost-effective basis.

Customers using our products can realize significant operating cost savings through reduced processing costs, consolidated purchases with preferred vendors and negotiated vendor discounts. Based on the results of the 1997 American Express Travel and Entertainment Management Process Study, businesses using best-in-class automation solutions that process 1,000 to 5,000 travel and entertainment expense reports per month can achieve savings of $300,000 to $1.5 million per year in processing costs alone. American Express concluded that corporations on average spend $36 per travel and entertainment expense report processed, but can reduce such costs to as little as $8 through best-in-class automation.

We believe our customers can achieve these cost savings rapidly because our products are designed to minimize burdens on customer information technology ( “IT”) professionals and to maximize employees’ ease of use. Our Internet and intranet-based products are designed to deploy rapidly, scale enterprise-wide and integrate easily with an organization ’s existing IT infrastructure, enabling our customers’ IT personnel to deliver and support solutions quickly and cost-effectively. For example, one customer deployed Concur Expense™, our travel and expense management application, (formerly Xpense Management Solution, or “XMS”) to over 25,000 employees in less than 90 days, and has since deployed Concur Expense to over 50,000 employees. Employees readily adopt our solutions because they are easy to use, significantly reduce unproductive time, and shorten reimbursement, fulfillment, and processing cycles.

We are a leading provider of workplace eCommerce software and services that extend automation to employees throughout an enterprise and to partners, suppliers and service providers in the extended enterprise. Our Concur Expense, Concur Procurement™ and Concur Human Resources™ products automate the preparation, approval, processing and data analysis of travel and entertainment expense reports, business-to-business procurement requisitions and human resources processes. Concur eWorkplace integrates Concur Expense, Concur Procurement and Concur Human Resources into a suite of products and provides a business portal through which corporate customers and third parties can deliver other information and services to employees. We believe that we are a leading provider of workplace eCommerce solutions based on a combination of the number of customers we serve, the number of applications included in our suite and the features our solutions provide. Since 1996, we have licensed our products to more than 275 companies worldwide for use by over 2.1 million end-users.

Reduced Processing Costs. Our products can significantly reduce the amount of labor associated with manual, paper-based travel and entertainment expense management, business-to-business procurement and human resources systems, by automating the process of preparation, approval, processing and data analysis. We believe that companies using our solutions as part of best-in-class processes can achieve significant cost savings. According to the American Express study, corporations on average spend $36 per travel and entertainment expense report processed, but can reduce such costs to as little as $8 through best-in-class automation. Similarly, industry estimates indicate that companies typically spend in excess of $100 to process each requisition for corporate procurement goods and services and our own research indicates that companies typically spend in excess of $10 for each employee-driven human resources transaction. We believe that these estimates are typical and that enterprises using best-in-class automation for such processes can reduce that cost to approximately $1 to $10, depending on the type of transaction

Improved Supplier Management. Our products enable customers to collect and analyze data on travel and entertainment expenses and corporate procurement. Customers can use this data to help consolidate purchases with preferred vendors, negotiate vendor discounts and monitor compliance with pre-negotiated rates. We believe that the savings from improved supplier management can be substantial.

Rapid Deployment. Our Internet and intranet-based products are designed to be deployed rapidly within today’s existing corporate IT infrastructures without requiring modifications to customer systems. We offer applications configured to customer requirements rather than solutions customized on a customer-by-customer basis. Once installed on a customer’s Internet and/or intranet servers, our products can reach employees enterprise-wide. For example, one of our customers deployed Concur Expense to over 25,000 employees in less than 90 days, and has since deployed Concur Expense to over 50,000 employees.

Enterprise-Wide Scalability. Our products are designed to reach employees throughout the enterprise, regardless of the organization’s size. We have licensed our products to customers seeking to deploy to as few as 100 employees and to as many as 200,000 employees, with the largest deployment to date being to over 124,000 employees.

Leverage of Existing IT Infrastructure. Because most businesses operate in a heterogeneous computing environment, our products are designed to interact and interoperate with a broad range of software platforms and products, including multiple operating systems, browsers, databases, accounting packages and major enterprise resource planning (“ERP”) programs.

Connectivity to Third Parties. Our products are designed to enable enterprises to link their systems with those of their corporate partners, suppliers and service providers, including corporate charge card providers such as American Express, travel booking applications providers such as GetThere.com, and suppliers such as Office Depot and barnesandnoble.com.

Common Technology Platform. Concur eWorkplace provides a common user interface and a common technology platform to integrate Concur Expense, Concur Procurement and in the future, Concur Human Resources and other applications. The applications integrated into Concur eWorkplace enable IT personnel to administer employee-centric applications more easily because the data are captured in a central database. Concur eWorkplace also enables IT personnel to deploy the suite of software applications and updates from a central location.

Faster Reimbursement and Order Fulfillment. Our products enable businesses to reduce the time required to reimburse employees for their travel and entertainment expenses, to fulfill corporate procurement requisitions and to process employee-driven human resources transactions. Features that expedite the process include automated electronic approval routing, links to automatic deposit systems, links with approved suppliers, on-line status updates and automatic linking to and posting to ERP and financial applications. The American Express study reported that the time from submission of an expense report to reimbursement could be reduced from an average of 22 days to as few as three days using best-in-class automation processes.

Ease of Use. Our products contain easy-to-use features and functions that reduce the time users spend preparing travel and entertainment expense reports, corporate procurement purchase requisitions and employee-driven human resources transactions. Concur Expense uses corporate credit card information to “prepopulate ” a user’s expense report automatically based on past experience and preferences. Concur Procurement allows reconciliation of purchasing card transactions. Concur Human Resources’ benefits enrollment and modeling module allows employees to perform easy “what-if” analyses to determine their preferred combinations of benefits and costs. Our customers’ corporate policies and preferred suppliers can be integrated into our products, and detailed explanations of corporate policies are available on-line. These features reduce errors, save user time and effort and improve reconciliations. In addition, because Concur eWorkplace integrates Concur Procurement and Concur Expense through a common user interface, we believe it is faster and easier for employees to learn and to use our applications.

Lower cost of processing orders. Our products electronically link corporate customers with suppliers. This electronic link allows suppliers to lower the cost of processing orders by eliminating paper-based order and payment processing. In addition, by distributing catalogs and product information electronically, suppliers can decrease the cost of printing and distributing catalogs.

Ability to reach new customers. Once a supplier has been electronically linked to Concur Procurement, the supplier can reach new customers as we license the applications to additional companies. In addition, our products help companies channel their purchasing to preferred suppliers, which can thereby increase the revenues of these suppliers.

Extend Leadership Position. We intend to extend our leadership position in travel and entertainment expense management and human resources self-service solutions and to leverage that position to sell our corporate procurement product. In order to accommodate anticipated future demand for our products, we intend to increase the size of our direct sales and telesales organizations significantly. We believe that expanding our sales and marketing organization will enhance our ability to sell our products to new customers globally. We also believe that an expanded sales force will allow us to sell new applications to our current customers.

Expand Product Functionality and Integration. We plan to continue our innovation and development of advanced features and functionality for our products. In addition, we will continue to integrate all of our applications within the Concur eWorkplace suite so that the features and functions are common across the applications.

Expand Concur Commerce Network. We plan to expand our customers’ and their suppliers’ ability to conduct business-to-business eCommerce transactions over the Internet through the Concur Commerce Network which was launched in December 1999. The Concur Commerce Network brings buyers and suppliers together through an Internet-based electronic marketplace.

Expand our Small and Middle-Market Presence. We intend to expand our presence in the market for small and mid-size companies through Concur eWorkplace.com, which was launched in October 1999. Concur eWorkplace.com is offered on a per-employee subscription-pricing basis to companies seeking to outsource their employee-centric business applications. We expect that this offering will be particularly attractive to businesses with 100-750 employees, which typically have limited IT staff and budget resources. Concur eWorkplace.com is currently available with Concur Expense and Concur Procurement; we expect to add Concur Human Resources to Concur eWorkplace.com in fiscal 2001.

Extend Concur eWorkplace ASP. We expect to extend our outsourced offerings to large companies through Concur eWorkplace ASP, which was launched in December 1999 and which is offered on a subscription-pricing basis. This product enables large companies to outsource their workplace eCommerce solutions and still configure the application to their own specific needs in much the same way they would have been able to configure the application if they had licensed Concur eWorkplace and installed in on their intranet servers.

Expand International Presence. We believe that considerable untapped demand exists for our products outside of the United States. For fiscal 1999, our international revenues accounted for less than five percent of our total revenues. We intend to accelerate our investment in international sales and marketing in an effort to increase sales of our workplace eCommerce applications worldwide. We also plan to localize our applications for new countries, and to add new features and functionality to our products to accommodate accounting, customs, currency and tax requirements of foreign jurisdictions.

Extend Relationships With Strategic Third Parties. We intend to expand our relationships with existing strategic partners and to develop additional relationships with providers of complementary applications and products. We have developed strong relationships with leading corporate charge card providers, payroll processors and systems integration and consulting firms, and intend to establish similar relationships with information technology outsourcing companies, software developers and telecommunications providers. We intend to integrate Concur Procurement with leading vendors to provide our customers with greater access to those vendors. We also intend to partner with suppliers in the human resources area, such as insurance and 401(k) providers, to add additional features and functionality to Concur Human Resources.

Our strategy involves substantial risk. There can be no assurance that we will be successful in implementing our strategy or that it will lead to achievement of our objectives. If we are unable to implement our strategy effectively, our business will be materially adversely affected.

Our licensed version of Concur eWorkplace is currently available with Concur Expense, Concur Procurement and Concur Human Resources. Concur eWorkplace ASP is currently available with Concur Expense, and we expect to add Concur Procurement and Concur Human Resources in fiscal 2000 and fiscal 2001, respectively. Concur eWorkplace.com is currently available with Concur Expense and Concur Procurement, and we expect to add Concur Human Resources in fiscal 2001.

Substantially all of our revenues have been derived from the sale of licenses of Concur Expense and related services, and to a lesser degree, the sale of licenses and services relating to Concur Human Resources. Since 1996, more than 275 companies worldwide, representing over 2.1 million end-users, have licensed our products. We generally offer licenses for Concur eWorkplace based on the number of users or employees at a given enterprise. The typical order size for Concur eWorkplace and related services ranges from $100,000 to $750,000, with certain transactions that have been in excess of $1.0 million. Substantially all of our customers to date have licensed one of the applications available within Concur eWorkplace. We generally offer Concur eWorkplace ASP and Concur eWorkplace.com on a per employee subscription basis. The typical monthly fee for Concur eWorkplace ASP and Concur eWorkplace.com ranges from approximately $10 per month to $2.50 per month per user and per application, depending on the total number of users.

Concur eWorkplace provides a common user interface to integrate Concur Expense and Concur Procurement and provides a business portal through which corporate customers and third parties can deliver other information and services to employees. Concur Human Resources will be integrated into Concur eWorkplace in fiscal 2000. Concur eWorkplace improves employee productivity by integrating common features, such as the user interface, applications icons, approval reminders, status updates and passwords. Features include frequently asked questions and helpful tips about the applications. It enables IT personnel to easily administer employee-centric applications that are integrated into Concur eWorkplace, because the data are captured in a central database, eliminating the need to support, maintain and manage multiple servers and software programs. In addition, IT personnel can deploy the applications in our suite, and deliver updates to those applications from a central location.

The Concur Commerce Network enables customers to conduct business-to-business eCommerce transactions over the Internet by bringing buyers and suppliers together through an Internet-based electronic marketplace. Connectivity to the Concur Commerce Network is currently available to Concur eWorkplace.com customers. Connectivity to the Concur Commerce Network will be available to customers of Concur eWorkplace and Concur eWorkplace ASP through a software upgrade expected to be released in fiscal 2000.

Report Preparation. Concur Expense includes a number of features that facilitate report preparation for end-users. The application uses corporate charge or credit card information to prepopulate a user’s expense report with transaction data covering a variety of the information required for the expense report, including transaction date, type of expense, vendor, location, method of payment, currency amount and foreign currency conversion. Using a graphical user interface, employees supply additional expense-related information by using pull-down menus. To eliminate the task of sorting receipts, Concur Expense allows users to enter data in any order. The HotelXpert feature of the program automates the complicated process of itemizing hotel receipts. With each use of Concur Expense, the application retains commonly incurred expense information and uses this information to help complete the next expense report. Other ease-of-use features include simple “checkbook” style input screens, the ability to create “attendees” lists, mileage reimbursement tracking and automatic flagging of non-compliant and incomplete entries.

Report Approval. Concur Expense allows each enterprise to determine how expense reports should be processed, whether by submission to a manager for approval before processing or by submission to the accounting department for immediate review and payment. Once the report is submitted, the approver receives an e-mail message containing an intranet link to Concur Expense, where all reports awaiting approval are listed. Concur Expense can be configured to route the report for approval based on cost center, dollar limit or other criteria. Items that do not comply with corporate policy can be automatically flagged for review, allowing approvers to focus on problematic items. Approvers can reject individual line items, while allowing the rest of the report to continue in the approval process. Once approved, the report is automatically forwarded to the next phase in the process or to the enterprise’s accounting department, and the user is notified of the action.

Report Processing. Concur Expense streamlines back-office processing of expense reports in a number of ways. Because all expense reports are prepared electronically, the processing department no longer needs to check the arithmetic of each report manually. Moreover, businesses can greatly reduce the time spent auditing reports by choosing to audit only those reports flagged by Concur Expense as not compliant with corporate travel and entertainment expense policies. In addition, Concur Expense reduces the number of status inquiries between employees and processing departments by automatically updating the status of reports in the database, and alerting employees via e-mail to the status of their reports. Concur Expense allows significant time savings by automatically posting expense report information to the enterprise’s ERP or accounting package, eliminating the manual re-entry of these data. Concur Expense further simplifies processing by producing bar-coded receipt submission cover pages to validate delivery of receipts associated with expense reports. Concur Expense also helps companies claim reimbursement of tax credits by tracking VAT, GST and other international taxes.

Data Analysis. Concur Expense utilizes business intelligence software to analyze expense data. This information can be presented graphically in various display formats and allows travel managers to determine total spending according to vendor, location or other user-defined criteria. Informed by these data, managers can analyze trends and determine methods for controlling costs or negotiating more favorable terms with vendors. Managers can also analyze the data to monitor compliance with corporate travel policies and determine if policy modifications are appropriate.

Concur Procurement automates the corporate procurement process, including order preparation, approval, processing and data analysis. See “Risk Factors That May Affect Results of Operations and Financial Condition —Future acquisitions might harm our business” and “ —Our expansion into the corporate procurement application and human resources self-service application markets is risky.”

Order Preparation. Concur Procurement utilizes a customer-specific electronic catalog of preferred suppliers and commonly requested goods and services such as office supplies, computers and other equipment. Using a graphical user interface, requisitioners browse the catalog to select and order items and place them in an electronic “shopping basket.” Catalog materials can be updated by either the enterprise or the supplier. Concur Procurement contains links to supplier Web sites, allowing the requisitioner to obtain detailed product information. To make the ordering process easier, Concur Procurement retains information about the user, including name, employee identification, shipping address, accounting information and frequently ordered products. To reduce delays and unnecessary processing iterations, Concur Procurement prevents submission of incomplete orders.

Order Approval. Concur Procurement allows an enterprise to determine how requisitions should be processed, whether by submission to a manager for approval before processing, by submission to the purchasing department for immediate processing or by direct submission to the supplier. Once the order is submitted, an e-mail notification of the order is automatically sent to the specified approver. The e-mail contains a link to an “approval” Web page, which lists all purchase requisitions that are awaiting approval by the particular approver. Using the Web page, the approver specifies which requisitions to approve in each order. Concur Procurement enables the customer to configure approval rules based on cost center, requisition value, material type or other criteria. Concur Procurement enables authorization of orders based on digital signatures and prohibits the release of orders without required approval.

Order Processing. Concur Procurement streamlines processing of front-office requisitions in a number of ways. The customer ’s purchasing department selects the items and suppliers to be included in the Concur Procurement electronic catalog. After approval, orders are sent to the purchasing department to be processed and progress reports are delivered to the requisitioner automatically, reducing the number of status inquiries between the requisitioner and the purchasing department. Concur Procurement can be integrated into the customer’s ERP application so that the order can be entered into the purchasing system automatically, allowing significant time savings. Concur Procurement allows approved requisitions to be sent directly to suppliers via fax, e-mail, electronic data interchange or via the OBI (Open Buying on the Internet) standard.

Data Analysis. Concur Procurement consolidates purchasing data, allowing managers to determine spending according to cost center, time period, employee and supplier. These data allow managers to determine how best to control costs, negotiate more favorable supplier arrangements and consolidate suppliers. Managers can analyze the data to monitor compliance with corporate purchasing policies and supplier commitments.

Concur Human Resources is a comprehensive application that automates employee and managerial human resources processes for enterprise customers. Concur Human Resources offers a variety of modules for employee and managerial self-service tasks, enabling customers to choose the applications that meet their needs and to add new components or customized applications as their business needs grow and change.

Concur Human Resources allows employees and managers to access and update information easily, and to process everyday human resources transactions quickly. Concur Human Resources employee self-service applications are HR Core, Payroll and Paid-Time-Off, and Benefits Open Enrollment and Modeling. Its managerial self-service applications are Events@Work and Compensation and Salary Management. Concur Human Resources allows employees and managers to conduct many everyday transactions without the involvement of human resources personnel. This reduces administrative costs and allows the human resources staff to maximize employee productivity and efficiency.

Employee Self-Service Applications. Concur Human Resources allows employees to review and modify information in the human resources, payroll and benefits management systems. HR Core, which is a foundation component of Concur Human Resources, provides security, navigation, search, display and maintenance capabilities, and allows employees to access information about company personnel. The Payroll and Paid-Time-Off application allows employees to access their payroll and W-4 data, view their paycheck stubs and perform updates to deductions, withholdings and direct deposit data. The Benefits Enrollment and Modeling application allows employees to access information about the employer’s benefit plans, and to complete enrollment forms, 24 hours a day, seven days a week. Concur Human Resources’ employee self-service applications are “role based” in that each user ’s access rights, views and workflow are tailored to that user ’s role in the organization.

Managerial Self-Service Applications. Concur Human Resources also automates manager-centric processes. Concur Human Resources’ Events@Work provides managers the convenience of a single access point to manage planning and day-to-day transactions such as performance reviews, salary planning, and position management (interdepartmental transfers, salary changes, promotions and terminations). The Compensation and Salary Management application also provides managers with easy access to decision-critical information such as compensation data and department compensation plans, modeling and approvals. These applications reduce the time that managers must spend on routine administrative functions, allowing them to spend more time on core business matters. Like the Concur Human Resources employee self-service applications, Concur Human Resources managerial self-service applications are role based.

Human Resources Management System (HRMS) Integration. Concur Human Resources integrates with the back-office HRMS systems offered by PeopleSoft and Tesseract. In addition, Concur’s open system approach has been integrated with many other HRMS systems developed by partners and customers.

HR Procedure Control and Security. Concur Human Resources meets business needs for scalability, security and enterprise-wide distribution. Management staff, HR personnel and employees can access the HR information they need, but access is strictly controlled so that each employee only has access to the applications, functions and data appropriate to their roles within the company. Concur’s security model ensures that sensitive data are available only to appropriate users. Dynamic Profiling™ determines access dynamically, based on the relationship of the user to the organization, to the employee records being accessed, and to the transaction being performed. Company policies, employee contracts, compensation plans, and rules are securely protected and accessible to authorized personnel only.

Our professional services organization was formed in 1996 to offer consulting, customer support and training in connection with licenses of our products. We believe that services are an important part of our success and consequently we have expanded our professional services organization. See “Risk Factors That May Affect Results of Operations and Financial Condition—We depend on service revenues to increase our overall revenues; services may not achieve profitability. ”

Consulting. We offer a variety of consulting services in connection with licenses of our products. Our consulting staff meets with customers prior to product implementation to review the customer ’s existing business processes and IT infrastructure, and to provide advice on ways to improve these processes using industry best practices and prior experiences with similar customers. Thereafter, our consultants install, configure and test the application and integrate it with the customer’s existing ERP and employee reimbursement systems. Our consultants also help customers implement bar-coding processes and develop a strategy for the customers’ enterprise-wide deployment of the application.

Customer Support. We provide product upgrades and customer support through our “CustomerOne” customer support program. Our CustomerOne program provides telephone support as well as 24-hour electronic access via the Internet, including online case entry and review, access to technical information documents and technical tips. Customers routinely subscribe for the first year of the CustomerOne program at the time they license an application; thereafter, support may be renewed on an annual basis.

Training. We offer a variety of training programs for our products. These classes are tailored to particular user groups, such as end users, help desk personnel and trainers. Training classes are offered at customer sites and also at our headquarters in Redmond, Washington. We also provide training classes for third-party service providers, such as systems integrators.

We sell our software primarily through our direct sales organization, with sales professionals located in the metropolitan areas of Atlanta, Baltimore, Boston, Chicago, Dallas, Denver, London, Los Angeles, New York, Oakland, Paris, Philadelphia, Princeton, Raleigh, Redmond, San Francisco, St. Louis, Sydney, Toronto, and Washington, D.C. Direct telesales and telemarketing representatives based at our headquarters in Redmond, Washington complement the field sales force in addition to directly selling Concur eWorkplace.com. Field based sales engineers provide technical sales support. We currently intend to add a significant number of sales representatives and sales engineers in other domestic and international locations. We use a remarketer in New Zealand and a reseller in Spain and plan to expand our international distribution channel to other markets. The remarketer in New Zealand receives a referral fee from us for marketing our products while our Spanish reseller remits a royalty to us on resale of our products, and each of these distributors provides post-sale implementation and support of the Company’s products. See “Risk Factors That May Affect Results of Operations and Financial Condition—We depend on our direct sales model.”

Since our products affect employees throughout the enterprise, our sales effort involves multiple decision makers and frequently includes the chief financial officer, vice president of finance, controller, vice president of purchasing and vice president of human resources. While the average sales cycle varies substantially from customer to customer, for initial sales it has generally ranged from six to fifteen months. See “Risk Factors That May Affect Results of Operations and Financial Condition —Our lengthy sales cycle could adversely affect our revenue growth. ”

We have developed a number of strategic referral relationships. Under arrangements with American Express, the largest corporate charge card issuer in the United States, and its subsidiary American Express Travel Related Services Company, Inc. (“TRS”), American Express may, at its sole discretion, refer corporate charge card customers that seek a travel and entertainment expense management software solution to us. ADP, a subsidiary of Automatic Data Processing, Inc., a global payroll solutions and computing services provider, has agreed to refer potential customers for travel and entertainment expense management software products and services exclusively to us. ADP and Concur also agreed to jointly market our travel and entertainment expense report processing products and services to ADP customers.

Our existing strategic relationships generally do not, and any future strategic relationships may not, afford us any exclusive marketing or distribution rights. Many of our strategic partners have multiple strategic relationships, and we may not be regarded as significant for their own businesses. In addition, our strategic 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. Further, our existing strategic relationships may interfere with our ability to enter into other desirable strategic relationships. Any inability to maintain our strategic relationships or to enter into additional strategic relationships may have a material adverse effect on our business. See “Risk Factors That May Affect Results of Operations and Financial Condition—It is important for us to establish and maintain strategic relationships.”

Our marketing efforts are directed at promoting the Concur brand, and our suite of applications under Concur eWorkplace extending our leadership position in travel and entertainment expense management and human resources applications and increasing our market share in corporate procurement. Our marketing programs are targeted at accounting, finance, purchasing, human resources and travel executives, and are focused on creating awareness of, and generating interest in, our products.

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