UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended December 31, 2003
Commission file number: 0-25137
CONCUR TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its charter)
| Delaware | 91-1608052 | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
6222 185th Avenue NE
Redmond, Washington 98052
(Address of principal executive offices)
(425) 702-8808
(Registrant’s telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨
As of February 2, 2004, there were 32,374,584 shares of the Registrant’s Common Stock outstanding.
FORM 10-Q
DECEMBER 31, 2003
INDEX
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets
(In thousands, except share and per share data)
(Unaudited)
| December 31, 2003 |
September 30, 2003 |
|||||||
| Assets |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 22,895 | $ | 21,607 | ||||
| Accounts receivable, net of allowances for sales and doubtful accounts of $580 and $499 at December 31, 2003 and September 30, 2003, respectively |
6,401 | 7,862 | ||||||
| Prepaid expenses |
1,280 | 1,425 | ||||||
| Other current assets |
1,385 | 1,238 | ||||||
| Total current assets |
31,961 | 32,132 | ||||||
| Property and equipment, net |
1,737 | 1,331 | ||||||
| Restricted cash |
550 | 550 | ||||||
| Acquired customer base intangible asset, net of amortization |
4,085 | 4,370 | ||||||
| Goodwill |
3,704 | 3,704 | ||||||
| Deposits and other assets |
844 | 886 | ||||||
| Total assets |
$ | 42,881 | $ | 42,973 | ||||
| Liabilities and stockholders’ equity |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 1,050 | $ | 1,015 | ||||
| Accrued payroll and benefits |
956 | 945 | ||||||
| Other accrued liabilities |
2,084 | 2,518 | ||||||
| Current portion of long-term obligations |
533 | 768 | ||||||
| Current portion of deferred revenues |
9,063 | 9,905 | ||||||
| Total current liabilities |
13,686 | 15,151 | ||||||
| Long-term obligations, net of current portion |
84 | 199 | ||||||
| Long-term deferred revenues, net of current portion |
2,340 | 2,015 | ||||||
| Stockholders’ equity: |
||||||||
| Common stock, par value $0.001 per share: |
||||||||
| Authorized shares – 60,000,000; Issued and outstanding shares – 32,356,393 and 32,141,993 at December 31, 2003 and September 30, 2003, respectively |
237,866 | 237,402 | ||||||
| Accumulated other comprehensive income |
101 | — | ||||||
| Accumulated deficit |
(211,196 | ) | (211,794 | ) | ||||
| Total stockholders’ equity |
26,771 | 25,608 | ||||||
| Total liabilities and stockholders’ equity |
$ | 42,881 | $ | 42,973 | ||||
See accompanying notes.
3
Consolidated Statements of Operations
(In thousands, except per share and footnote data)
(Unaudited)
| Three Months December 31, |
||||||||
| 2003 |
2002 |
|||||||
| Revenues: |
||||||||
| Subscription |
$ | 9,210 | $ | 7,612 | ||||
| Consulting |
3,007 | 4,218 | ||||||
| License |
1,176 | 2,766 | ||||||
| Total revenues (1) |
13,393 | 14,596 | ||||||
| Expenses: |
||||||||
| Cost of operations (2) |
5,428 | 6,265 | ||||||
| Sales and marketing |
3,237 | 3,807 | ||||||
| Research and development |
2,205 | 2,707 | ||||||
| General and administrative |
1,721 | 1,554 | ||||||
| Amortization of intangible assets |
285 | 285 | ||||||
| Total expenses |
12,876 | 14,618 | ||||||
| Income (loss) from operations |
517 | (22 | ) | |||||
| Interest income |
48 | 57 | ||||||
| Interest expense |
(9 | ) | (44 | ) | ||||
| Other income (expense), net |
42 | (4 | ) | |||||
| Net income (loss) |
$ | 598 | $ | (13 | ) | |||
| Net income (loss) per share: |
||||||||
| Basic |
$ | 0.02 | $ | (0.00 | ) | |||
| Diluted |
$ | 0.02 | $ | (0.00 | ) | |||
| Shares used in calculation of net income (loss) per share: |
||||||||
| Basic |
32,232 | 30,435 | ||||||
| Diluted |
36,656 | 30,435 | ||||||
| (1) | Includes sales to related parties of $0 and $306,000 in the three months ended December 31, 2003 and 2002, respectively. |
| (2) | Includes payments to related parties of $0 and $386,000 in the three months ended December 31, 2003 and 2002, respectively. |
See accompanying notes.
4
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
| Three Months December 31, |
||||||||
| 2003 |
2002 |
|||||||
| Operating activities: |
||||||||
| Net income (loss) |
$ | 598 | $ | (13 | ) | |||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities |
||||||||
| Amortization of intangible assets |
285 | 285 | ||||||
| Depreciation |
406 | 1,019 | ||||||
| Provision for doubtful accounts and sales allowances |
204 | (13 | ) | |||||
| Changes in operating assets and liabilities, net of acquisition: |
||||||||
| Accounts receivable |
1,292 | (157 | ) | |||||
| Prepaid expenses, deposits, and other assets |
50 | (1,153 | ) | |||||
| Accounts payable |
17 | (490 | ) | |||||
| Accrued liabilities |
(465 | ) | (129 | ) | ||||
| Deferred revenues |
(525 | ) | 1,668 | |||||
| Net cash provided by operating activities |
1,862 | 1,017 | ||||||
| Investing activities: |
||||||||
| Purchases of property and equipment |
(803 | ) | (239 | ) | ||||
| Acquisition Captura Software, Inc., net of cash acquired |
— | (415 | ) | |||||
| Net cash used in investing activities |
(803 | ) | (654 | ) | ||||
| Financing activities: |
||||||||
| Proceeds from issuance of common stock from exercise of stock options |
464 | 108 | ||||||
| Proceeds from borrowings |
— | 915 | ||||||
| Payments on borrowings and capital leases |
(342 | ) | (776 | ) | ||||
| Increase in restricted cash balances |
— | (700 | ) | |||||
| Net cash provided by (used in) financing activities |
122 | (453 | ) | |||||
| Effect of foreign currency exchange rates on cash and cash equivalents |
107 | — | ||||||
| Net increase (decrease) in cash and cash equivalents |
1,288 | (90 | ) | |||||
| Cash and cash equivalents at beginning of period |
21,607 | 13,746 | ||||||
| Cash and cash equivalents at end of period |
$ | 22,895 | $ | 13,656 | ||||
| Supplemental disclosure of cash flow information: |
||||||||
| Cash paid for interest |
$ | 23 | $ | 52 | ||||
| Common stock issued in connection with acquisition, net of issuance costs |
$ | — | $ | 1,899 | ||||
See accompanying notes.
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003
(Unaudited)
NOTE 1. DESCRIPTION OF THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of the Company
Concur Technologies, Inc. (“Concur” or the “Company”) is a leading provider of Corporate Expense Management subscription service and software solutions. These solutions are designed to automate and streamline business processes, reduce operating costs, improve internal controls, and empower businesses to apply greater insight to their spending patterns. The Company’s solutions include:
| • | Concur Expense™ for travel and entertainment expense management. |
| • | Concur Payment™ for the management of employee requests for vendor payments. |
| • | Value-added solutions that integrate with Concur Expense and Concur Payment, such as Concur Imaging Service™ for imaging of receipts and invoices, Concur Travel Integration™ for end-to-end integration of the travel planning process, Concur Business Intelligence™ for enhanced business intelligence reporting, Concur Total Access™ for expense data entry by voice, laptop, or handheld device when not connected to the Internet, and Concur Transaction Assessment Module™ for the detection of fraudulent expense transactions. |
The Company’s solutions are designed to accommodate a wide range of customer business needs, technical requirements, and budget objectives for businesses worldwide through flexible subscription services and license delivery models.
| • | Subscription Services. The Company provides its solutions as a subscription service to customers on an outsourced basis over the Internet or a dedicated telecommunications connection. The Company offers a variety of service offerings that are tailored to the needs of different customer types. |
| • | Large-Market Subscription Services. The Company offers both highly-configurable and standardized subscription service offerings that are marketed primarily to large-market companies with 2,000 or more employees. These services are generally offered on either a “transaction basis,” under which a customer pays for access to the service based on the number of transaction reports submitted through the service, or an “authorized-user basis,” under which a customer is authorized to use the service based on the number of users that are authorized to submit transaction reports by operation of the service. Fees typically include a one-time set-up fee and recurring subscription fees for the service. The Company also offers hosting and application management of its software for customers who purchase (or have previously purchased) an up-front license for the software. In those cases, the customer typically pays a one-time set up fee and recurring subscription fees for such services. |
| • | Middle-Market Subscription Services. The Company offers standardized subscription service offerings that are marketed primarily to middle-market companies with less than 2,000 employees. These services are typically offered on an authorized-user basis. Fees typically include a one-time set-up fee and recurring subscription fees for the service. |
| • | License Models. The Company licenses its software to customers that want highly-configurable solutions that are typically installed at the customer’s premises on customer-furnished equipment, managed by the customer, and accessed over a corporate intranet. These software licenses are generally offered on either a transaction basis or an authorized-user basis. Fees typically include an up-front license fee for the software and recurring fees for related software maintenance services. |
The Company offers its solutions worldwide through a direct sales organization as well as through indirect distribution channels.
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
Unaudited Interim Financial Information
The financial information as of December 31, 2003, and for the three months ended December 31, 2003 and 2002, is unaudited, but includes all adjustments (consisting of normal recurring adjustments) that the Company considers necessary for a fair presentation of its financial position at such dates and its operations and cash flows for the periods then ended. The financial statements should be read in conjunction with the financial statements and notes thereto for the fiscal year ended September 30, 2003, included in the Company’s Annual Report on Form 10-K, as filed with the United States Securities and Exchange Commission (“SEC”) on December 22, 2003. Operating results for the three months ended December 31, 2003 are not necessarily indicative of results that may be expected for the entire fiscal year.
The balance sheet information at September 30, 2003 has been derived from the Company’s audited financial statements at that date but, in accordance with the rules and regulations of the SEC, does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.
Principles of Consolidation
The consolidated financial statements include the accounts of Concur and its wholly-owned subsidiaries. All significant intercompany accounts and transactions were eliminated in consolidation.
Revenue Recognition Policy
The Company recognizes revenues in accordance with accounting standards for software and service companies including American Institute of Certified Public Accountants (“AICPA”) Statement of Position (“SOP”) 97-2, Software Revenue Recognition (“SOP 97-2”), as amended by SOP 98-9, the consensus reached in Emerging Issues Task Force (“EITF”) Issue No. 00-3, Application of AICPA Statement of Position 97-2 to Arrangements That Include the Right to Use Software Stored on Another Entity’s Hardware, the consensus reached in EITF Issue No. 00-21, Revenue Arrangements with Multiple Deliverables, the consensus reached in EITF Issue No. 03-5, Applicability of AICPA Statement of Position 97-2 to Non-Software Deliverables in an Arrangement Containing More-Than-Incidental Software (“EITF 03-5”), the SEC Staff Accounting Bulletin 104, Revenue Recognition, SOP 81-1, Accounting for Performance of Construction-Type and Certain Production-Type Contracts, and related interpretations, including AICPA Technical Practice Aids.
The Company derives its revenues from the delivery of subscription services (which include software maintenance services), consulting services, and the sale of licensed software.
Generally, the Company recognizes revenue when evidence of an arrangement exists, delivery has occured, the fees are fixed and determinable, and collection is considered probable. If collection is not considered probable, revenues are recognized when the fees are collected. If the fees are not fixed or determinable, revenues are recognized as payments become due from the customer. If non-standard acceptance periods or non-standard performance criteria are required, revenues are recognized upon the earlier of satisfaction of the acceptance/performance criteria or the expiration of the period, if applicable.
In contractual arrangements that include the provision of multiple elements, the Company applies the accounting guidance most applicable to the specific arrangement to address how contract consideration should be measured and allocated to the separate elements in the arrangement. Elements are deliverables such as products and services contractually provided for in an arrangement. Multiple element arrangements require the delivery or performance of multiple products, services and/or rights to use assets. Generally, separate contracts with the same customer that are entered into at or near the same time are presumed to have been negotiated together and, therefore, are evaluated as a single contractual arrangement.
Subscription revenues consist of monthly fees paid for subscription services, the amortization of set-up fees in connection with those services, and fees paid for software maintenance services under software license arrangements. Subscription monthly fees are billed and recognized monthly as the service is provided to the customer. In arrangements that include only subscription services, the related set-up fees are recorded to deferred revenue and recognized over the subscription service period. The associated direct and incremental costs, such as labor and commissions, are deferred and expensed over the subscription service period. In certain subscription offerings, the subscription service period is open-ended and, therefore, the date upon which the monthly fees will end is undetermined. For these offerings, the subscription set-up fees, as well as the associated direct and incremental costs, are typically deferred and recognized over the expected lives of the customer relationships, which are typically
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
two to five years, based on the particular service offering and the Company’s experience in delivering that offering. The Company continues to evaluate and adjust the length of these amortization periods as it gains more experience with customer contract renewals and contract cancellations. It is possible that, in the future, the estimates of expected customer lives may change and, if so, the periods over which such subscription set-up fees and costs are amortized will be adjusted. Software maintenance services include technical support and the right to receive unspecified upgrades and enhancements on a when-and-if available basis. Fees for software maintenance services are typically billed annually in advance of performance with provisions for subsequent automatic annual renewals. The related revenues are deferred and recognized ratably over the respective maintenance terms, which typically are one year. Additionally, subscription revenues are adjusted for estimates in sales allowances on subscription revenues, which are based on the Company’s historical experience, including a review of its experience related to price adjustments and sales credits issued.
Consulting revenues consist of fees for professional services, which consist of system implementation and integration, planning, data conversion, training, and documentation of procedures. Consulting service fees are primarily billed and recognized as revenue on a time-and-materials basis. In some instances, the Company sells its consulting services under milestone or fixed-fee contracts and, in such cases, consulting revenues are recognized on a percentage-of-completion basis. Additionally, consulting revenues are adjusted for estimates in sales allowances on consulting revenues, which are based on the Company’s historical experience, including a review of its experience related to price adjustments and sales credits issued.
In service arrangements that include both consulting and subscription services, but not a license of the Company’s software, consulting revenues are recognized as they are performed if the consulting services qualify as a separate unit of accounting within the arrangement. The consulting services qualify as a separate unit of accounting if they have value to the customer on a stand-alone basis, there is objective and reliable evidence of the fair value of the subscription services, and delivery or performance of the subscription services is considered probable and substantially within the control of the Company. The Company has determined that, in its service arrangements of this type, the consulting services typically qualify as a separate unit of accounting and, accordingly, the consulting revenues are recognized as the services are performed.
License revenues consist of all fees earned from granting licenses to use the Company’s software products. The Company recognizes license revenues when it enters into a contract signed by the customer, it has delivered the software, the amount of the transaction is fixed or determinable, collection is probable, and vendor-specific objective evidence of fair value exists for any undelivered element of the arrangement. Elements included in the Company’s multiple-element software arrangements consist of various licensed software products and services such as software maintenance services, consulting services, and subscription services.
In software license arrangements that include rights to multiple elements, the Company allocates the total arrangement fee among each of the elements using the residual method, under which revenues are allocated to undelivered elements based on vendor-specific objective evidence of their fair value and the residual amounts of revenue are allocated to the delivered elements. Vendor-specific objective evidence is based on the price charged when an element is sold separately or, in the case of an element not yet sold separately, the price established by authorized management, if it is probable that the price, once established, will not change prior to separate market introduction.
In software license arrangements where the Company also provides consulting services, software license revenues generally are recognized upon delivery of the software, provided that the criteria for recognition of software license revenues described above are met, payment of the license fees is not dependent upon the performance of the consulting services, and the consulting services are not essential to the functionality of the licensed software. If the Company determines that the consulting services are essential to the functionality of the licensed software, or payment of the software license fees is dependent upon the performance of the consulting services, then both the software license and consulting fees are recognized on a percentage-of-completion basis. The Company typically does not consider the consulting services it provides in such arrangements to be essential to the functionality of the software and, therefore, revenues related to software licenses are typically recognized upon delivery of the software and revenues related to consulting services are recognized as the services are performed.
In arrangements where the Company has licensed its software, but contractually hosts the licensed software for the customer, a software element is only considered present if the customer has the contractual right to take possession of the software at any time during the hosting period without significant penalty, and it is feasible for the customer to either operate the software on its own hardware or contract with another vendor to host the software. If the arrangement meets these criteria, as well as the other criteria for recognition of software license revenues
8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — (Continued)
described above, then the license revenue is recognized when the software is delivered, and the subscription hosting revenues are recognized as the hosting service is provided. The hosting set-up fees as well as the associated direct and incremental costs, such as labor and commissions, are matched with the monthly hosting fees and recognized over the hosting service period. If the arrangement does n