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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark one)
| x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended September 30, 2010
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 000-25137
Concur Technologies, Inc.
(Exact name of Registrant as specified in its charter)
| Delaware | 91-1608052 | |
| (State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) | |
| 18400 NE Union Hill Road Redmond, Washington (Address of principal executive offices) |
98052 (Zip Code) | |
Registrant’s telephone number, including area code: (425) 702-8808
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class: |
Name of Each Exchange on which Registered | |
| Common Stock, par value $0.001 per share Rights to purchase Series A Preferred Stock, par value $0.001 per share |
The NASDAQ Global Select Market The NASDAQ Global Select Market |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. x Yes ¨ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ¨ Yes x No
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. x Yes ¨ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes ¨ 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. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer x |
Accelerated filer ¨ | Non-accelerated filer ¨ [Do not check if a smaller reporting company] |
Smaller reporting company ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes x No
Aggregate market value of registrant’s common stock held by non-affiliates of the registrant, based upon the closing price of a share of the registrant’s common stock on March 31, 2010, as reported by The NASDAQ Global Select Market on that date: $1,725,812,757
Number of shares of the registrant’s common stock outstanding as of November 12, 2010: 52,406,253
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement relating to the its Annual Meeting of Shareholders, which is anticipated to be filed within 120 days after the end of the registrant’s fiscal year ended September 30, 2010, are incorporated by reference into Part III of this report.
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Special Note Regarding Forward-Looking Statements
This report 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. The section of this report captioned Management’s Discussion and Analysis of Financial Condition and Results of Operations contains many such forward-looking statements. These forward-looking statements involve many risks and uncertainties. Examples of such risks and uncertainties are described in this report under Risk Factors, and in Management’s Discussion and Analysis of Financial Condition and Results of Operations and in our other Securities and Exchange Commission (“SEC”) filings after the date of this report. 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 or duty to revise or update any such forward-looking statements.
| ITEM 1. | BUSINESS |
Overview
Concur Technologies, Inc. is a leading global provider of on-demand Employee Spend Management solutions. We refer to Concur Technologies, Inc. as “Concur,” the “Company,” “us,” “we” and “our” in this Annual Report on Form 10-K. Our software solutions enable organizations to control costs by automating the processes used to manage employee spending. Our solutions unite online travel procurement with automated expense reporting and optimize the process of collecting, submitting, tracking and paying supplier invoices and check requests. Our unified approach to managing these processes provides our customers with visibility into their employee spending, which helps to analyze trends, influence budget decisions, improve forecasting, and monitor and enforce compliance with corporate policies and external regulations, including the Sarbanes-Oxley Act. We believe the market for our solutions is still emerging and that the vast majority of businesses in the United States still employ manual processes for expense management.
Our core mission is to continuously innovate to reduce the costs of employee spend management for our customers. We work closely with our customers to identify opportunities to increase the value of our solutions by streamlining the travel procurement, expense reporting and vendor payment processes, reducing operating costs, improving internal controls, enhancing the overall user experience and user adoption rates, and enabling customers to gain greater insight into their spending patterns through comprehensive analytics.
We sell our solutions and services primarily on a subscription basis and deliver them on-demand. As of September 30, 2010, 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 and our telephone number is (425) 702-8808.
The Employee Spend Management Market
Employee spending on business travel and related expenses constitutes a significant portion of a company’s operating expenses. We believe that these expenses are generally the largest controllable expenses within an organization, after payroll. However, for most companies, the expense management process still involves
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manual, paper-based processes that are time-consuming, inefficient, costly and prone to error. We believe that the vast majority of businesses in the United States still employ manual processes for expense management and that this represents a substantial market opportunity for solutions that automate the expense reporting and vendor payment processes within a business.
Automated expense management solutions provide customers with the ability to significantly reduce operational costs, streamline business processes and improve internal controls. According to a 2010 report published by the Aberdeen Group, the average cost to process an expense report is over $28 per manual transaction, compared to under $7 per fully-automated transaction. An automated expense management solution also allows organizations to gain visibility into their employee expenses, enforce expense policies and decrease fraud, accelerate reimbursement cycles and improve Sarbanes-Oxley compliance. As a result of these and other factors, we believe that automated expense management solutions will continue to gain adoption.
We believe that the benefits of basic expense management solutions are well recognized. However, most expense management solutions offer limited automation benefits because they are not well integrated into other internal systems or the systems of suppliers and vendors. For example, most enterprises that have implemented an automated expense management solution have also implemented a separate travel procurement tool. Online travel procurement can itself lead to significant savings. Travel and related expenses can account for between 8% and 10% of total operating expenses. However, the lack of integration between travel procurement solutions and expense management solutions result in significant inefficiencies. In such cases, travel is booked through a separate solution and the related expenses are manually input into an expense management solution. These systems may have inconsistent or conflicting corporate policies. This creates inefficiencies, is prone to errors and can lengthen the time to reimbursement and vendor payment. We believe that 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, including:
| • | lower corporate travel and entertainment costs; |
| • | lower costs to procure travel and process expenses; |
| • | shorter reimbursement and vendor payment cycles; |
| • | better centralized control of corporate spending, insight and analysis; |
| • | better compliance with corporate policy and external regulations, such as the Sarbanes-Oxley Act; and |
| • | enhanced visibility and actionable data that helps drive policies and buying behavior. |
We believe that, as companies benefit from the automation of travel and expense management processes, they will continue to seek solutions that improve control and reduce the cost of managing employee spending. In addition to direct cost savings of this nature, we believe that companies will seek to leverage data generated by the automated corporate travel and expense reporting process to monitor and analyze contract compliance and negotiate more favorable terms with vendors.
The Growth of On-demand Software
The on-demand, or software-as-a-service (“SaaS”), model uses the Internet to deliver software applications from a centrally hosted computing facility to end users through a web browser and the Internet. SaaS eliminates the costs associated with installing and maintaining applications within the customer’s information technology infrastructure. As a result, on-demand applications require substantially less initial and ongoing investment in software, hardware and implementation services and lower ongoing support and maintenance. These benefits are equally valuable to large enterprises, which we believe are seeking 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 on-demand software also benefit significantly. Since they typically deliver the same version of their applications to all of their customers, they can focus their resources on
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delivering new innovations, as opposed to maintenance of older versions. In addition, because their software can be deployed to large and small markets with equal effectiveness, they are able to address a much larger market than on-premise vendors.
The SaaS model effectively provides the automation of more sophisticated business processes in a more cost effective manner. To date, the SaaS model has been applied to a variety of types of software, including customer relationship management, security, accounting, human resources management, messaging and others, and it has been broadly adopted by a wide variety of businesses. The SaaS model is particularly well-suited to delivery of applications, such as our Employee Spend Management solutions, that are widely deployed within an organization and benefit from integration with a variety of internal and external data sources.
Our On-demand Employee Spend Management Solutions
Our on-demand software solutions are designed to automate and streamline employee spend management processes, from travel purchasing through expense report generation, employee reimbursement and vendor payment. Our solutions are designed to manage employee spending in areas such as travel procurement, reimbursable employee expenses, and vendor payments, which we believe are the largest controllable operating expenses of our customers after payroll. We help our customers reduce operating costs, improve internal controls and gain greater insight into spending patterns through comprehensive analytics.
We provide our software solutions primarily on a subscription basis, which offers distinct advantages to customers compared to traditional software licensing. Subscription customers pay a one-time set up fee and recurring usage fees, reducing the financial risk of large up-front costs and maintenance of traditional on-premises enterprise software licensing. In addition, we maintain the hardware and other infrastructure necessary to deliver reliable, secure and scalable performance, which reduces the burden on the customer’s internal information technology organization. In general, our on-demand services 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.
Our solutions are designed to accommodate a wide range of customer business needs, technical requirements and budget objectives for businesses of all sizes worldwide. To that end, we offer flexible solutions that range from highly-configurable to standardized. Our software solutions include:
Concur® Travel & Expense
Concur Travel & Expense fully integrates online travel booking with automated expense reporting to provide one unified end-to-end corporate travel procurement and expense reporting experience. We believe Concur Travel & Expense is the most effective solution available for providing a single seamless process for managing travel procurement and expense reporting within a business. In addition, Concur Travel & Expense reconciles 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. Smart Expense makes One Touch Business Travel™—in which the click that books the travel reservation begins the expense reporting process—a reality by significantly reducing the need to edit or audit expense reports. Concur Travel & Expense also leverages Concur® Connect, the global program that connects suppliers from around the world to over $35 billion of spending driven by our more than 10,000 clients. By participating in this program, travel suppliers are able to provide our clients with direct access to their travel inventory. Once travel is completed, these participating suppliers can deliver complete electronic folio data in the form of e-receipts directly into the traveler’s expense report. A complete listing of our direct connect and e-receipt vendors can be found at http://www.concur.com/about/partners/travel-supplier/.
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Concur® Expense
Concur Expense automates, simplifies, reduces the cost of, and improves internal controls associated with, the travel and entertainment expense management process. Concur Expense automates each step of the expense management process, from expense report preparation and approval to business policy compliance, reimbursement and data analysis. Concur Expense provides 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.
Our intuitive, easy-to-use interface makes the creation of expense reports fast, while reducing errors and improving policy compliance. Corporate charge or credit card information automatically populates the expense report with key information, such as transaction date, type, vendor, location, method of payment, amount and currency conversion. In addition, the service can electronically capture, store and retrieve employee receipts, which reduces the costs of handling paper receipts. Imaged receipts can be associated with the relevant expense report and viewed online throughout the approval, payment, and audit processes. Customers determine how expense reports should be processed based on configurable workflow rules, and reports are automatically routed for approval based on cost center, dollar limit or other criteria. Items that are not compliant with corporate policy can be flagged for review, significantly reducing review time. Once approved, the report is forwarded to the next phase in the process or to the customer’s accounting department and the user is notified of the action. Concur Expense also includes report authoring features to help customers analyze, manage and reduce corporate expenses.
Concur Expense streamlines back-office processing of expense reports through electronic preparation and integration with external financial systems. It contains auditing tools that allow for a variety of audit practices ranging from auditing every report, to random audits or audits only of reports flagged as non-compliant. Status inquiries are reduced by updating the status of reports in the database and alerting employees via e-mail of the status of their reports. In addition, Concur Expense helps companies claim reimbursement of tax credits by tracking value added tax, goods and services tax and other international taxes.
Concur Expense also offers business intelligence capabilities. Customers can use captured data to analyze trends, influence budget decisions, improve forecasting and monitor for fraudulent activity.
Concur® Cliqbook Travel
Concur Cliqbook Travel is our online travel management solution that automates corporate travel procurement and processing. Concur Cliqbook Travel offers employees a powerful online corporate travel procurement solution that is tailored specifically to corporate policies and preferred vendors. Concur Cliqbook Travel enables customers to search for travel data from multiple sources, including consolidators, direct connections to travel service providers, and Internet-only sources. It delivers robust online procurement, reporting and agency support, making the travel procurement process quick, easy and more affordable.
Concur® Invoice
Concur Invoice 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. Concur Invoice’s combination of increased productivity and availability of valuable data for improved cost management can generate significant cost savings for our customers.
Concur® Breeze
Concur Breeze is a simple, cost-efficient expense reporting solution designed specifically for small businesses. This powerful yet intuitive online solution is quick and easy to set up. Concur Breeze helps save time, reduce errors and manage cash flows.
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Ulysse Travel & Expense
In August 2009, Concur acquired Etap-On-Line, a provider of business travel and expense management solutions headquartered in Paris, France. The Etap-On-Line product, Ulysse Travel & Expense, is an on-demand solution that offers control and flexibility for expense management through a modular design that allows clients to implement our travel and management solutions in stages at their own pace. Other features include integration to existing back office systems, multicurrency and multilingual support (available in Dutch, English, French, German, Italian and Spanish), and integration to corporate card suppliers and travel management companies.
Value-Added Services
We provide value-added services that leverage our integrated travel procurement and expense reporting platform to benefit our customers. Our primary value-added services are:
Concur® Pay
Concur Pay enables the direct deposit of reimbursable employee expenses submitted and approved through Concur Expense 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.
Concur® Audit
Concur Audit provides expense report auditing services to streamline the process of managing and substantiating expense receipts. It reduces audit costs while introducing a higher level of control over corporate travel and entertainment expenses. Leveraging the paperless receipt imaging functionality of Concur Expense, this service helps our customers accurately report and properly classify expenses, and even identifies expenses that should be treated as taxable income for employees. Customizable and flexible enough for any organization, Concur Audit can conduct random audits at any level, and targeted audits of specific users or groups, to meet customer needs.
Concur® Intelligence, Powered by Cognos
Concur Intelligence offers enhanced report authoring features to customers using Concur Travel & Expense, Concur Expense, or Concur Invoice, which helps them more effectively analyze, manage and reduce corporate expenses.
Smart Expense™
Smart Expense is a feature that begins the expense reporting process simultaneously with the click that books the travel reservation. As travel occurs, Concur’s service automatically populates expense reports with information reconciled from three sources of expense information: itinerary data captured at the time of booking; corporate card charges incurred by the employee; and electronic receipts captured directly from the supplier. To the extent that travel was booked within policy and paid for with the customer’s corporate card, the result is a Smart Expense, which makes One Touch Business Travel™ a reality.
Concur® Connect
Concur Connect is a global program that connects suppliers from around the world to over $35 billion of spend driven by Concur’s more than 10,000 clients. By participating in this program, travel suppliers are able to provide Concur Cliqbook Travel or Concur Travel & Expense users with direct access to their travel inventory. Once travel is completed, participating suppliers can deliver complete electronic folio data in the form of e-receipts directly into the traveler’s expense report. A complete listing of our direct connect and e-receipt vendors can be found at http://www.concur.com/about/partners/travel-supplier.
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Concur® Advantage
Concur Advantage is an extended set of client services providing organizations with a supplemental level of assistance, expertise or support when needed. Whether it’s a one-time specialized need, or ongoing requirements, Concur Advantage allows clients to select the added level of assistance that best meets their needs. Concur Advantage services include consulting, customized education, configuration, and managed services.
Concur® Mobile
Concur® Mobile extends our platform for developers and travel partners to provide employees with choices, information and easy tools so they can make informed decisions about their business travel and purchases. We utilize robust and flexible mobile application and web services technology to extend the power of our on-demand travel and expense management services to popular smart phones and mobile devices, including Android, BlackBerry, iPhones and iPad. By seamlessly connecting to our travel and expense management solutions, our mobile application helps drive compliance and minimize program leakage by delivering access to in-policy travel choices and accurately capturing the resulting spend. The mobile application is available for download from app stores at no additional charge for Concur customers.
We are also delivering on our vision of giving the mobile workforce greater flexibility in managing their travel and expenses by expanding our partner program, Concur Connect, to include third-party mobile solutions that complement our travel and expense solutions and that provide our customers with access to services that may not be available through traditional travel programs. As part of the program, we have introduced mobile APIs and Web services that allow partners and other third-party developers to integrate their mobile applications with Concur solutions. For partners, these new tools will provide value across their business, helping improve reach and driving new opportunities. By extending our mobile platform, we can provide greater local, global and premium content to travelers conveniently through a mobile device. In addition, our travel management business partners can help drive compliance and minimize program leakage by making our mobile application available to their customers, thereby ensuring that mobile transactions stay within their managed travel services.
Client Services
Our client services organization offers consulting, client support and training services in connection with our Employee Spend Management solutions.
Consulting
We offer consulting services in connection with deployment of our solutions to assist customers in maximizing their return on investment. Leveraging industry best practices and our direct experience, 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.
Client Support Services
We provide customer support through our Client Support Services program. The program offers telephone and Internet support, including online case entry and review, access to technical information documents and technical tips. We also provide new releases and updates of our services through our Client Support Services program, which is included with our subscription services offerings. We also provide similar services to our traditional license customers who subscribe for the first year of the Client Support Services program at the time they license an application. After the expiration of the one-year subscription period, support is typically renewable on an annual basis.
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Training Services
We offer a variety of flexible training programs designed to assist customers transitioning to our products and services. These programs are tailored to particular user groups, such as administrators, help desk personnel or trainers.
Our Growth Strategy
Our objective is to be the leading global provider of Employee Spend Management solutions. Our integrated corporate travel and expense software solutions enable organizations to control costs globally by automating the processes they use to manage employee spending. Key elements of our strategy include:
Continue to Grow Our Customer Base. We believe the market for our corporate travel and expense management services is large and under-penetrated. We intend to continue investing in the growth of our customer base and increasing our market penetration by expanding our direct sales force, collaborating with and growing our strong partner network and expanding geographically.
Broaden Our Service Offerings. Over the past several years, we have developed new solutions and features, such as Concur Travel & Expense featuring Smart Expense that drives One Touch Business Travel, Concur Invoice, Concur Pay, Concur Audit, and Concur Intelligence. We intend to continue to develop and deliver new solutions and features that enhance or expand the value of our current offerings to our customers. We may also acquire companies with complementary products and technologies that we believe will enhance our suite of services.
Cross-Sell New Service Offerings to Our Existing Customers. We develop close relationships with our customers by automating and streamlining their corporate travel and expense management processes and enabling them to lower the cost of managing their second largest controllable expense. For 2010, our customer retention rate for subscription services exceeded 96%. We intend to leverage our strong relationships with customers to cross-sell new offerings to them.
Expand International Presence. On August 1, 2009, we acquired privately-held Etap-On-Line, a leading European provider of business travel and expense management solutions based in Paris, France. This acquisition puts us in a stronger position in a highly competitive and fragmented marketplace that includes ERP providers such as SAP and Oracle, card and travel providers. We believe this acquisition improves our ability to meet demand for our products and services across the globe. We intend to continue our investment in international sales and marketing, and to expand our relationships with strategic partners, to better serve customers in markets across the globe.
Extend Relationships With Strategic Third Parties. We believe that working closely with strategic third parties, including travel management vendors, corporate charge card providers, payroll processors, consulting firms, travel suppliers and others, can 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.
In 2008, we entered into a strategic alliance with American Express Travel Related Services Company, Inc., which we refer to as American Express, in order to expand our market presence and broaden our distribution capacity. Through this alliance, we exclusively promote American Express’s Corporate Cards to our clients and American Express exclusively promotes Concur® Expense to its corporate clients and prospects worldwide. In connection with this transaction, American Express purchased 6.4 million shares of newly issued Concur common stock and received a warrant to purchase additional shares of common stock, under which American Express purchased 1.28 million shares of our common stock in July 2010 at an aggregate purchase price of $50.3 million.
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In 2010, we entered into a strategic alliance with Amadeus IT Group, S.A., a leading global technology and distribution partner to the travel industry, to bring key technologies together for a combined travel and expense management solution and to extend the market reach of each company’s core offerings.
Customers
As of September 30, 2010, we have sold our on-demand software and services to more than 10,000 companies in over 100 countries. Our customers range from large global public companies with more than 200,000 employees to smaller, single-location private companies. No single customer accounted for more than 10% of our total revenues for 2010, 2009 or 2008.
Sales and Marketing
We market and sell our solutions worldwide through our direct sales organization, through indirect distribution channels such as our strategic reseller and referral partners and through our website.
Our direct sales organization has field sales professionals located in metropolitan areas throughout the United States, Canada, Europe, Australia and Asia. Direct telemarketing representatives based at our headquarters in Redmond, Washington and at our service center in Prague, Czech Republic support the field sales force through lead-generation and lead-tracking activities. We also have a number of marketing referral alliances that provide our sales force with prospect leads. Our direct sales efforts involve contact with multiple decision makers, frequently including the prospective customer’s chief financial officer, vice president of finance, controller, accounts payable manager and corporate travel manager.
Our indirect distribution channels consist of strategic relationships with a number of reseller and referral partners, which include companies such as American Express, a leading issuer of corporate cards and corporate purchasing solutions and provider of travel management services; Amadeus IT Group, S.A., a leading global technology and distribution partner to the travel industry; ADP, Inc., a subsidiary of Automatic Data Processing, Inc., a global payroll solutions and computing services provider; BCD Travel, a leading corporate travel management company; and other travel management companies.
Our marketing programs are designed to increase awareness of our solutions within our target markets, and to extend the competitive advantage of our Employee Spend Management services. These efforts are specifically targeted to accounting, finance, information technology and procurement and travel executives.
We engage in a variety of marketing activities, including e-mail and direct mail campaigns, co-marketing strategies designed to leverage existing strategic relationships, website marketing, seminars and “webinars,” public relations campaigns, speaking engagements and forums and industry analyst visibility initiatives. We participate in and sponsor finance and shared-services conferences and demonstrate and promote our products at trade shows targeted to accounting, finance, information technology, travel executives and small and mid-size businesses.
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.
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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, and trademark 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 one issued patent and five 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 Expense, Concur Travel & Expense, Cliqbook, Concur Cliqbook Travel, Concur Invoice, Concur Audit, Concur Pay, Concur Intelligence, Concur Mobile, Concur Breeze, Concur Advantage, Concur Connect, Concur ExpenseLink, Concur Travel Manager, Smart Expense, One Touch Business Travel, and Ulysse Travel & Expense 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.
Competition
The market for our Employee Spend Management solutions is highly competitive and subject to rapid change. Our principal direct competition comes from independent vendors of corporate travel and expense
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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:
| • | investment in innovation; |
| • | speed and ease of implementation; |
| • | product functionality; |
| • | greater financial, technical, marketing and other resources; |
| • | quick response time to new or emerging technologies and changes to customer requirements; |
| • | ease of use and rates of user adoption; |
| • | global presence; |
| • | performance, security, scalability, flexibility and reliability of the service; |
| • | ease of integration with existing applications; |
| • | quality of customer support; |
| • | availability and quality of implementation, consulting and training services; and |
| • | 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, 2010, we had over 1,200 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
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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. | RISK FACTORS |
We operate in a dynamic and rapidly changing business environment that involves multiple risks and substantial uncertainty. The following discussion addresses the 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.
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.
We generated 94% of our total revenues for 2010 from four solutions—Concur Travel & Expense, Concur Expense, Concur ExpenseLink and Concur Cliqbook Travel. We expect these solutions to continue to constitute a large percentage of our total revenues as we continue to 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.
If the market for integrated travel and expense services develops more slowly than we expect it to, our future revenue and profitability will be harmed.
The market for integrated travel and expense 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 services. The market for integrated travel and expense 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 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.
Unfavorable economic conditions may continue or worsen, affecting our business, financial condition and operating results.
Our financial performance depends, in part, on the state of the economy, which deteriorated in the recent broad recession, and which may deteriorate in the future. Declining levels of 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. The contraction in the global economy appears to be lingering, and continuing weakness or worsening economic
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conditions, as well as increased volatility of foreign exchange rates, or impairment of our goodwill and other assets, may further adversely affect our business and operating results. If unfavorable economic conditions continue 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. To expand our market presence and broaden our distribution capacity, in 2008, we entered into a strategic referral relationship with American Express Travel Related Services Company, Inc., and we realized our first customer additions as a result of that relationship in 2009. In 2010, we announced the participation of Concur Breeze, our expense management service for small and mid-sized businesses, in Google’s application marketplace. We believe that application marketplaces such as Google’s will be an important channel for the small business market. If we are unable to effectively utilize this channel, or competitors utilize this channel more effectively, our future growth prospects may be adversely affected.
Our success depends in part on the ultimate success of our strategic reseller and referral partners and their ability to market our products and services successfully. 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.
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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.
Personal privacy has become a significant issue in the United States and many other countries where we operate. The United States and many other countries have imposed restrictions and requirements on the use of personal information by those collecting such information. 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.
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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:
| • | general economic and market conditions; |
| • | the evolving demand for our solutions; |
| • | spending decisions by our customers and prospective customers; |
| • | our ability to manage expenses; |
| • | the timing of new product releases; |
| • | changes in our pricing policies or those of our competitors; |
| • | the timing of large contracts or contract terminations; |
| • | changes in mix of our offerings; |
| • | the mix of sales channels through which our solutions are sold; |
| • | costs of developing new products and enhancements; |
| • | our ability to adequately provide software solutions on-demand; |
| • | foreign currency fluctuations; and |
| • | global political conditions. |
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Our acquisitions of, and investments in, other companies, products, or technologies may not yield expected benefits.
We have acquired and invested in other companies from time to time, and we may acquire or invest in other companies, products or technologies in the future. Our most recent acquisition, for example, occurred in August 2009, when we acquired Etap-On-Line, a provider of business and travel expense management solutions based in Paris, France to expand our presence in the European market.
We may not realize the anticipated benefits of our acquisitions or investments to the extent that we anticipate, or at all. We may issue additional equity 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 the notes. If any acquisition or investment is not perceived as ultimately improving our financial condition and operating results, our stock price may decline. In addition, we may have unanticipated costs or liabilities from our acquisitions or investments and may not be able to retain key employees from acquired businesses. The value of acquired businesses or investments may decline due to market conditions or adverse developments in the acquired business, as a result of factors such as the performance of the business relative to its business plan, revenue and cost trends, its liquidity and cash position, and market acceptance of its products.
Our ability to integrate acquisitions may affect our business, financial condition or operating results.
For us to realize the benefits of past and future acquisitions, we must successfully integrate the acquired businesses with ours. Some of the challenges to successful integration include:
| • | unanticipated costs or liabilities associated with an acquisition; |
| • | difficulties integrating acquired operations, personnel, technologies or products; |
| • | diversion of management attention from business operations and strategy; |
| • | commitment of resources that are needed in other parts of our business; |
| • | potential loss of key employees; |
| • | potential litigation by third parties, such as claims related to intellectual property or other assets acquired or liabilities assumed; and |
| • | non-cash amortization charges which could harm our future operating results. |
To the extent that these challenges are not effectively overcome, our future business, financial condition or operating results may be adversely affected.
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. Revenues from customers located outside the United States represented 13% in 2010. 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:
| • | costs to customize our products for foreign markets; |
| • | foreign currency exchange rate risk; |
| • | compliance with multiple, conflicting and changing governmental laws and regulations; |
| • | different pricing environments; |
| • | longer sales cycles; |
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| • | greater difficulty in collecting accounts receivable; |
| • | import and export restrictions and tariffs; |
| • | adverse tax consequences; |
| • | potentially weaker protection for our intellectual property than in the United States and practical difficulties in enforcing our rights abroad; and |
| • | difficulties staffing and managing foreign operations. |
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. We currently do not engage in foreign exchange hedging activities and, therefore, 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.
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. In the past, we have experienced a material weakness in our internal controls, and we may discover material weaknesses in our internal controls in the future. 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.
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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. In addition, the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act and rules subsequently implemented by the SEC and The NASDAQ Stock Market have imposed a variety of requirements and restrictions on public companies, including requiring changes in corporate governance practices. In addition, the SEC and Congress are proposing additional significant corporate governance-related rules. Our management and other personnel will need to devote a substantial amount of time to these new compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. Our failure to adequately comply could subject us to liability, costly regulatory or other investigations, claims 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.
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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:
| • | general and industry-specific business, economic and market conditions; |
| • | the announcement of a merger or acquisition; |
| • | fluctuations in our actual and anticipated operating results; |
| • | changes in our earnings estimates, or other information published by analysts; |
| • | failing to achieve revenue or earnings expectations; |
| • | volatility inherent in prices of technology company stocks; |
| • | adverse publicity; and |
| • | 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
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combination of patent, copyright, trade secret and trademark laws, confidentiality procedures, contractual provisions and other similar measures to protect our proprietary information. We have one issued patent and five 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 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. 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. In 2010, we were named as a defendant in a purported patent infringement lawsuit related to patents generally related to seat selection and reservation systems. Any such claims could have a material adverse effect on our business, financial condition and operating results. Even if we defend ourselves successfully, the management distraction in dealing with such lawsuits may be sufficiently severe that our results are harmed. 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:
| • | our Board of Directors may, without stockholder approval, issue shares of preferred stock with special voting or economic rights; |
| • | 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; |
| • | 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; |
| • | our stockholders may not take action by written consent; |
| • | our Board of Directors is divided into three classes, only one of which is elected each year; |
| • | 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 |
| • | 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.
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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:
| • | make it difficult for us to pay other obligations; |
| • | make it difficult to obtain favorable terms for any necessary future financing for working capital, capital expenditures, debt service requirements or other purposes; |
| • | 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 |
| • | 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. | UNRESOLVED STAFF COMMENTS |
Not applicable.
| 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, 2010, we also leased
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office space in the United States in the states of Arizona, California, Georgia, Illinois, Massachusetts, Minnesota, Texas and Virginia, and internationally in Australia, China (Hong Kong), Czech Republic, France, Germany, Netherlands, 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. | 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 alleges infringement by the defendants of seven 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). The plaintiff seeks injunctions enjoining the defendants from the alleged infringement and damages in an unspecified amount. We believe this lawsuit is without merit and intend to defend against it vigorously.
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. | [REMOVED AND RESERVED.] |
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| 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, 2010 and 2009, as reported on the NASDAQ Global Select Market:
| High | Low | |||||||
| Year ended September 30, 2010: |
||||||||
| Fourth Quarter |
$ | 52.17 | $ | 41.17 | ||||
| Third Quarter |
45.88 | 37.52 | ||||||
| Second Quarter |
44.57 | 37.41 | ||||||
| First Quarter |
44.01 | 34.99 | ||||||
| Year ended September 30, 2009: |
||||||||
| Fourth Quarter |
$ | 40.56 | $ | 28.21 | ||||
| Third Quarter |
34.37 | 18.55 | ||||||
| Second Quarter |
34.45 | 17.82 | ||||||
| First Quarter |
38.38 | 19.52 | ||||||
As of September 30, 2010, our common stock was held by 203 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 2011.
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 8 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. As of September 30, 2010, 4.1 million shares remained eligible for repurchase under the Repurchase Program. We did not have any stock repurchases during the three months ended September 30, 2010.
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| ITEM 6. | SELECTED FINANCIAL DATA |
The selected financial data presented in the table below is derived from our financial statements, and should be read in conjunction with the financial statements and notes to financial statements as well as Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The income statement and balance sheet data presented in the table below are derived from our audited financial statements. See Note 1 of Notes to 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 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.
| Year ended September 30, | ||||||||||||||||||||
| 2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
| Income Statements: |
||||||||||||||||||||
| Revenue |
$ | 292,936 | $ | 247,596 | $ | 215,491 | $ | 129,107 | $ | 97,145 | ||||||||||
| Expenses (1): |
||||||||||||||||||||
| Cost of operations |
81,941 | 72,928 | 68,378 | 43,711 | 37,846 | |||||||||||||||
| Sales and marketing |
95,990 | 73,459 | 59,912 | 34,154 | 22,907 | |||||||||||||||
| Systems development and programming |
27,997 | 25,295 | 22,974 | 15,866 | 12,445 | |||||||||||||||
| General and administrative |
38,811 | 30,300 | 31,371 | 18,759 | 14,458 | |||||||||||||||
| Amortization of intangible assets |
7,224 | 6,396 | 6,196 | 2,965 | 2,420 | |||||||||||||||
| Total expenses |
251,963 | 208,378 | 188,831 | 115,455 | 90,076 | |||||||||||||||
| Operating income |
40,973 | 39,218 | 26,660 | 13,652 | 7,069 | |||||||||||||||
| Other income (expense): |
||||||||||||||||||||
| Interest income |
2,017 | 2,149 | 1,720 | 897 | 512 | |||||||||||||||
| Interest expense |
(9,297 | ) | (481 | ) | (1,417 | ) | (1,240 | ) | (962 | ) | ||||||||||
| Other, net |
(1,049 | ) | (598 | ) | (486 | ) | 231 | 72 | ||||||||||||
| Total other (expense) income, net |
(8,329 | ) | 1,070 | (183 | ) | (112 | ) | (378 | ) | |||||||||||
| Income before income tax |
32,644 | 40,288 | 26,477 | 13,540 | 6,691 | |||||||||||||||
| Income tax expense (benefit) |
12,063 | 14,611 | 9,293 | 5,315 | (27,465 | ) | ||||||||||||||
| Net income |
$ | 20,581 | $ | 25,677 | $ | 17,184 | $ | 8,225 | $ | 34,156 | ||||||||||
| Net income per share available to common stockholders: |
||||||||||||||||||||
| Basic |
$ | 0.41 | $ | 0.53 | $ | 0.39 | $ | 0.22 | $ | 0.97 | ||||||||||
| Diluted |
0.39 | 0.50 | 0.35 | 0.20 | 0.87 | |||||||||||||||
| Weighted average shares used in computing net income per share: |
||||||||||||||||||||
| Basic |
50,141 | 48,652 | 44,607 | 37,443 | 35,056 | |||||||||||||||
| Diluted |
53,090 | 51,740 | 48,459 | 41,033 | 39,150 | |||||||||||||||
| (1)Includes share-based compensation as follows: |
||||||||||||||||||||
| Cost of operations |
$ | 2,442 | $ | 1,829 | $ | 1,688 | $ | 1,304 | $ | 1,200 | ||||||||||
| Sales and marketing |
9,772 | 5,517 | 3,404 | 1,894 | 1,608 | |||||||||||||||
| Systems development and programming |
2,597 | 1,815 | 1,149 | 883 | 467 | |||||||||||||||
| General and administrative |
4,796 | 3,011 | 2,738 | 1,671 | 1,584 | |||||||||||||||
| Total share-based compensation |
$ | 19,607 | $ | 12,172 | $ | 8,979 | $ | 5,752 | $ | 4,859 | ||||||||||
| September 30, | ||||||||||||||||||||
| 2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
| Balance Sheets: |
||||||||||||||||||||
| Cash and cash equivalents |
$ | 329,098 | $ | 119,185 | $ | 267,725 | $ | 168,835 | $ | 16,334 | ||||||||||
| Total assets |
1,043,754 | 670,885 | 641,019 | 345,482 | 181,319 | |||||||||||||||
| Senior convertible notes, net |
228,128 | 0 | 0 | 0 | 0 | |||||||||||||||
| Deferred rent and other long-term liabilities |
1,149 | 1,800 | 3,454 | 7,797 | 16,348 | |||||||||||||||
| Stockholders’ equity |
638,783 | 521,330 | 534,538 | 284,360 | 117,394 | |||||||||||||||
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| 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 “2008,” “2009,” “2010” and “2011.”
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 on-demand Employee Spend Management solutions. Our integrated travel and expense software solutions enable organizations to control costs by automating the processes used to manage employee spending. Our solutions unite online travel procurement with automated expense reporting, streamline corporate event management, and optimize the process of managing vendor payments, employee check requests and direct reimbursements. Our unified approach to managing these processes provides our customers with visibility into their employee spending, which helps them analyze trends, influence budget decisions, improve forecasting, and monitor and enforce compliance with their corporate policies and external regulations, such as the Sarbanes-Oxley Act of 2002.
On October 1, 2007, we completed our acquisition of H-G Holdings, Inc. and its subsidiaries, including Gelco Information Network, Inc. (“Gelco Acquisition” or “Gelco”). Gelco provides a flexible on-demand expense management solution that enables organizations to control costs by gaining processing efficiencies, capturing spending data for analysis and ensuring policy compliance. Gelco offers different levels of outsourcing and is capable of providing a full range of services to streamline the expense management process, including expense data capture, multi-currency reimbursement, card payment processing, reporting and analysis, receipt imaging, and management and auditing.
On August 1, 2009, we completed the acquisition of Etap-On-Line (“Etap Acquisition”). 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
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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.
Our strategic focus in 2011 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 2011 compared to 2010 due to anticipated growth in demand. We expect our sales and marketing expenses to increase on both an absolute basis and as a percentage of revenues in 2011 compared to 2010, primarily reflecting our continued emphasis on growing our sales and marketing personnel to support expected demand and create additional awareness in our target market.
We operate in and report on one segment, which is on-demand Employee Spend 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 13%, 10% and 11% of total revenues for 2010, 2009 and 2008. 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, 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, fees paid to third parties for referrals, resale arrangements, 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 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, legal and facilities, as well as miscellaneous costs, such as professional fees and public company regulatory compliance costs.
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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, and non-compete agreements.
Results of Operations
Fiscal years 2010 and 2009
Revenues.
| Year Ended September 30, | Variance Dollars |
|||||||||||
| 2010 | 2009 | |||||||||||
| Revenues |
$ | 292,936 | $ | 247,596 | $ | 45,340 | ||||||
| Year Ended September 30, | ||||||||||||||||
| 2010 | % | 2009 | % | |||||||||||||
| United States |
$ | 254,751 | 87.0 | % | $ | 222,460 | 89.8 | % | ||||||||
| Europe |
25,963 | 8.8 | % | 14,538 | 5.9 | % | ||||||||||
| Other |
12,222 | 4.2 | % | 10,598 | 4.3 | % | ||||||||||
| Total revenues |
$ | 292,936 | 100.0 | % | $ | 247,596 | 100.0 | % | ||||||||
Revenues increased 18.3%, or $45.3 million, in 2010 compared to 2009. 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 on-demand Employee Spend Management solutions and the increasing acceptance of outsourced services.
The increase in revenues outside of the United States was primarily the result of our Etap Acquisition in August 2009. As part of our overall growth, we expect the percentage of our revenues generated in Europe and the Asia Pacific region to continue to increase as a percentage of our total revenues.
We expect revenues to continue to grow in 2011 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.
| Year Ended September 30, | Variance Dollars |
|||||||||||
| 2010 | 2009 | |||||||||||
| Cost of operations |
$ | 81,941 | $ | 72,928 | $ | 9,013 | ||||||
| Percent of total revenues |
28.0 | % | 29.5 | % | ||||||||
Cost of operations expenses as a percentage of total revenues decreased to 28.0% in 2010 compared to 29.5% in 2009. Cost of operations expense increased 12.4%, or $9.0 million, in 2010 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 $2.4 million, an increase of $4.5 million in initial set-up costs that we incur and then amortize in connection with our subscription services, an increase 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.
We expect cost of operations expenses to continue 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
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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.
| Year Ended September 30, | Variance Dollars |
|||||||||||
| 2010 | 2009 | |||||||||||
| Sales and marketing |
$ | 95,990 | $ | 73,459 | $ | 22,531 | ||||||
| Percent of total revenues |
32.8 | % | 29.7 | % | ||||||||
Sales and marketing expenses as a percentage of total revenues increased to 32.8% in 2010, from 29.7% in 2009. Sales and marketing expenses increased 30.7%, or $22.5 million, in 2010 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 $12.0 million, an increase of $3.6 million in customer acquisition and initial set-up costs that we incur in connection with our subscription services, and an increase of $7.3 million in allocated overhead costs. 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 2011 to increase as a percentage of revenue and in absolute dollars compared to 2010, driven primarily by an increase in sales personnel and marketing programs globally. These increases reflect a key part of our strategic focus in 2011, 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.
| Year Ended September 30, | Variance Dollars |
|||||||||||
| 2010 | 2009 | |||||||||||
| Systems development and programming |
$ | 27,997 | $ | 25,295 | $ | 2,702 | ||||||
| Percent of total revenues |
9.6 | % | 10.2 | % | ||||||||
Systems development and programming costs decreased as a percentage of total revenues to 9.6% in 2010 compared to 10.2% in 2009. Systems development and programming costs increased by 10.7%, or $2.7 million, in 2010 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 $1.4 million and an increase of $1.4 million in allocated overhead costs. 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 $2.3 million, from $16.5 million at September 30, 2009, to $18.8 million at September 30, 2010.
We anticipate that recognized systems development and programming costs in 2011 will increase in absolute dollars and remain relatively consistent as a percentage of revenue compared to 2010 as we continue to focus on product innovation and enhancement.
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General and Administrative.
| Year Ended September 30, | Variance Dollars |
|||||||||||
| 2010 | 2009 | |||||||||||
| General and administrative |
$ | 38,811 | $ | 30,300 | $ | 8,511 | ||||||
| Percent of total revenues |
13.2 | % | 12.2 | % | ||||||||
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 the same period a year ago. The growth in absolute dollars was primarily due to an increase in $9.7 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. These increases were partially offset by a $1.1 million decrease in allocated overhead costs.
We expect the absolute dollar amount of general and administrative expenses to increase in 2011 compared to 2010 due to increases in personnel costs related to the growth of our business.
Interest Income, Interest Expense and Other
| Year Ended September 30, | Variance Dollars |
|||||||||||
| 2010 | 2009 | |||||||||||
| Interest income |
$ | 2,017 | $ | 2,149 | $ | (132 | ) | |||||
| Interest expense |
(9,297 | ) | (481 | ) | (8,816 | ) | ||||||
| Other, net |
(1,049 | ) | (598 | ) | (451 | ) | ||||||
| Total other (expense) income, net |
$ | (8,329 | ) | $ | 1,070 | $ | (9,399 | ) | ||||
Interest expense increased for 2010 over 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 income statement. We expect interest expense to be significantly higher in fiscal 2011 compared to 2010 because 2011 will include a full year of interest expense associated with the Notes. We also expect our interest income to be higher as a result of the investment of the proceeds of that offering pending use.
Income Tax Expense.
| Year Ended September 30, | Variance Dollars |
|||||||||||
| 2010 | 2009 | |||||||||||
| Income tax expense |
$ | 12,063 | $ | 14,611 | $ | (2,548 | ) | |||||
| Effective tax rate |
37.0 | % | 36.3 | % | ||||||||
The effective income tax rate for 2010 was 37.0% compared to 36.3% 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.
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
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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 2009 and 2008
Revenues.
| Year Ended September 30, | Variance Dollars |
|||||||||||
| 2009 | 2008 | |||||||||||
| Revenues |
$ | 247,596 | $ | 215,491 | $ | 32,105 | ||||||
| Year Ended September 30, | ||||||||||||||||
| 2009 | % | 2008 | % | |||||||||||||
| United States |
$ | 222,460 | 89.8 | % | $ | 192,922 | 89.5 | % | ||||||||
| Europe |
14,538 | 5.9 | % | 12,658 | 5.9 | % | ||||||||||
| Other |
10,598 | 4.3 | % | 9,911 | 4.6 | % | ||||||||||
| Total revenues |
$ | 247,596 | 100.0 | % | $ | 215,491 | 100.0 | % | ||||||||
Revenues increased 14.9%, or $32.1 million, in 2009 compared to 2008. This increase reflects growth in the number of customers for our subscription services. The growth in customers reflects increased market demand for our subscription services and strong retention of existing subscription customers. The expansion was due primarily to the market’s continued and growing awareness of our on-demand Employee Spend Management solutions, and the increasing acceptance of outsourced services which is driven in part by limited information technology capital budgets.
Cost of Operations.
| Year Ended September 30, | Variance Dollars |
|||||||||||
| 2009 | 2008 | |||||||||||
| Cost of operations |
$ | 72,928 | $ | 68,378 | $ | 4,550 | ||||||
| Percent of total revenues |
29.5 | % | 31.7 | % | ||||||||
Cost of operations expenses as a percentage of total revenues decreased to 29.5% in 2009, compared to 31.7% in 2008. Cost of operations expense increased 6.7%, or $4.6 million, in 2009, compared to the same period in 2008. The growth in absolute dollars was primarily due to an increase of $3.1 million in personnel costs and related expenses and an increase of $2.5 million in initial set-up costs that we incur in connection with our subscription services. These increases were primarily due to an increase in headcount and growth of the business. These increases were partially offset by a decrease in allocated overhead costs.
Sales and Marketing.
| Year Ended September 30, | Variance Dollars |
|||||||||||
| 2009 | 2008 | |||||||||||
| Sales and marketing |
$ | 73,459 | $ | 59,912 | $ | 13,547 | ||||||
| Percent of total revenues |
29.7 | % | 27.8 | % | ||||||||
Sales and marketing expenses as a percentage of total revenues increased to 29.7% in 2009, from 27.8% in 2008. Sales and marketing expenses increased 22.6%, or $13.5 million, in 2009, compared to the same period in 2008. The growth in absolute dollars was primarily due to an increase of $10.6 million in personnel costs
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(including sales commissions) and related expenses, and an increase of $4.3 million in customer acquisition and initial set-up costs that we incur in connection with our subscription services. These increases were primarily due to additional headcount and adding new customers. These increases were partially offset by a $2.1 million decrease in marketing and advertising campaigns.
Systems Development and Programming Costs.
| Year Ended September 30, | Variance Dollars |
|||||||||||
| 2009 | 2008 | |||||||||||
| Systems development and programming |
$ | 25,295 | $ | 22,974 | $ | 2,321 | ||||||
| Percent of total revenues |
10.2 | % | 10.7 | % | ||||||||
Systems development and programming costs decreased as a percentage of total revenues to 10.2% in 2009, compared to 10.7% in 2008. Systems development and programming costs increased by 10.2%, or $2.3 million, in 2009, compared to 2008. The growth in absolute dollars was primarily due to an increase of $2.6 million in allocated overhead costs.
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 $1.7 million, from $14.8 million at September 30, 2008, to $16.5 million at September 30, 2009.
General and Administrative.
| Year Ended September 30, | Variance Dollars |
|||||||||||
| 2009 | 2008 | |||||||||||
| General and administrative |
$ | 30,300 | $ | 31,371 | $ | (1,071 | ) | |||||
| Percent of total revenues |
12.2 | % | 14.6 | % | ||||||||
General and administrative expenses as a percentage of total revenues decreased to 12.2% in 2009, compared to 14.6% in 2008. General and administrative expenses decreased by 3.4%, or $1.1 million, in 2009, compared to 2008. The decline in absolute dollars was primarily due to a decrease of $0.6 million in personnel costs and related expenses, and a decrease of $0.3 million in allocated overhead costs. These decreases were the result of lower expense for legal and accounting fees, travel, state and local taxes, and other general and administrative costs.
Interest Income, Interest Expense and Other.
| Year Ended September 30, | Variance Dollars |
|||||||||||
| 2009 | 2008 | |||||||||||
| Interest income |
$ | 2,149 | $ | 1,720 | $ | 429 | ||||||
| Interest expense |
(481 | ) | (1,417 | ) | 936 | |||||||
| Other, net |
(598 | ) | (486 | ) | (112 | ) | ||||||
| Total other income (expense), net |
$ | 1,070 | $ | (183 | ) | $ | 1,253 | |||||
Interest income increased during 2009, compared to 2008 reflecting higher levels of interest-earning cash and cash equivalent investments. We record net gains and losses on fluctuations in exchange rates in the Other, net line of the income statement.
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Income Tax Expense.
| Year Ended September 30, | Variance Dollars |
|||||||||||
| 2009 | 2008 | |||||||||||
| Income tax expense |
$ | 14,611 | $ | 9,293 | $ | 5,318 | ||||||
| Effective tax rate |
36.3 | % | 35.1 | % | ||||||||
The effective income tax rate for 2009 was 36.3% compared to 35.1% for 2008. This rate increase is primarily due to state income tax increases and reserves for uncertainty in income taxes.
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.
Financial Position, Liquidity and Capital Resources
Our available sources of liquidity as of September 30, 2010, consisted principally of cash, cash equivalents and short-term investments totaling $630.7 million. Our cash and cash equivalents held at financial institutions generally are in excess of the current Federal Deposit Insurance Corporation limits of $250.
Our cash flows are as follows:
| Year Ended September 30, | $ Change | |||||||||||||||||||
| 2010 | 2009 | 2008 | 2010 vs 2009 | 2009 vs 2008 | ||||||||||||||||
| Cash provided by (used in): |
||||||||||||||||||||
| Operating activities |
$ | 80,262 | $ | 65,972 | $ | 63,821 | $ | 14,290 | $ | 2,151 | ||||||||||
| Investing activities |
(170,042 | ) | (157,922 | ) | (175,231 | ) | (12,120 | ) | 17,309 | |||||||||||
| Financing activities |
299,544 | (55,237 | ) | 211,116 | 354,781 | (266,353 | ) | |||||||||||||
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. In 2010, net cash provided by operating activities increased by $14.3 million primarily due to growth in operating income after adjusting for the impacts of non cash expenses such as stock based compensation. In 2009, net cash provided by operating activities increased by $2.2 million primarily due to growth in operating income.
Cash used in investing activities corresponds with purchases, sales, and maturities of investments, cash outlays for acquisitions, 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 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
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$11.6 million in cash provided for 2010 compared to $33.4 million in 2009. In 2009, our cash used in investing activities decreased by $17.3 million compared to 2008 primarily due to a $136.6 million decrease in cash paid for acquisitions and an increase in customer funding liabilities, net of changes in restricted cash of $32.4 million. These amounts were partially offset by cash used by the net purchases of short-term investments of $143.4 million in 2009.
Cash provided by financing activities in 2010 included the net proceeds 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, 2010, 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. For further information, see Note 8 of the notes to 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. In 2009, financing activities included $54.8 million in cash used for repurchases of our common stock compared to $43.8 million in 2008. Proceeds from financing activities in 2008 included the sale of 6.4 million shares of newly issued Concur common stock to American Express for $249.6 million in net proceeds.
On March 29, 2010, we terminated a credit agreement with a financial institution that provided for a revolving credit facility for up to $70 million that was set to expire in September 2012. As of March 29, 2010, and September 30, 2009, we were in compliance with all loan covenants under the terms of the credit agreement, and had no outstanding borrowings under the agreement.
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. As of September 30, 2010, 4.1 million shares remained eligible for repurchase under the Repurchase Program. We did not have any stock repurchases during the three months 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.
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The following table summarizes our outstanding contractual obligations as of September 30, 2010:
| Years ending September 30, |
Senior Convertible Notes, including interest |
Capital Leases |
Operating Leases |
Purchase Obligations |
||||||||||||
| 2011 |
7,187 | 199 | 3,738 | 3,878 | ||||||||||||
| 2012 |
7,187 | 0 | 3,612 | 1,701 | ||||||||||||
| 2013 |
7,188 | 0 | 2,625 | 1,714 | ||||||||||||
| 2014 |
7,188 | 0 | 983 | 533 | ||||||||||||
| 2015 |
291,393 | 0 | 462 | 105 | ||||||||||||
| 2016 and thereafter |
0 | 0 | 0 | 0 | ||||||||||||
| Total |
$ | 320,143 | $ | 199 | $ | 11,420 | $ | 7,931 | ||||||||
Senior Convertible Notes
As of September 30, 2010, 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 8 of the notes to financial statements.
Capital Leases
We lease equipment, some of which is required to be capitalized if it meets certain criteria, with the related asset recorded in property and equipment and an offsetting amount recorded as a liability.
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, Minnesota, Texas and Virginia, and internationally in Australia, China (Hong Kong), Czech Republic, France, Germany, Netherlands, Singapore and the United Kingdom.
Purchase Obligations
We have future minimum purchase obligations under arrangements with third parties that are enforceable and legally binding.
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 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
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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 business combinations, revenue recognition, allowances for accounts receivable and income taxes.
Revenue Recognition
We generate our revenues from the delivery of subscription services (which include software maintenance services), and to a much lesser degree, consulting services and the sale of software licenses. We recognize revenues in accordance with accounting standards for software and service companies.
We recognize revenue when:
| • | evidence of an arrangement exists; |
| • | delivery has occurred; |
| • | the fees are fixed or determinable; and |
| • | 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:
| • | monthly fees paid for subscription services; |
| • | amortization of related set-up fees; and |
| • | amortization of fees paid for software maintenance services under software license arrangements. |
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 two 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.
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 of the services with provisions for subsequent automatic annual renewals. We defer the related revenues and recognize them ratably over the respective maintenance terms, which typically are one year.
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Consulting services consist of fees for professional services, which relate to system implementation and integration, planning, data conversion, training, and documentation of procedures. 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 billed and recognized as revenue on a time-and-materials basis. In some instances, we 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 cost of operations. 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.
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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. | 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 $630.7 million as of September 30, 2010. 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, 2010, could result in a $0.8 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 $250.0 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, may be paid in cash or stock at our option. 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.
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Our Notes have fixed annual interest rates at 2.50% and therefore, we do not have economic interest rate exposure on our Notes. However, the value of the Notes is exposed to interest rate risk. 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 $228.1 million as of September 30, 2010. This represents the liability component of the $287.5 million principal balance as of September 30, 2010. For further information, see Note 8 of the notes to 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 and Australian Dollar. We do not believe movements in the foreign currencies in which we transact will significantly affect future net earnings. Foreign currency risk can be quantified by estimating the change in cash flows resulting from a hypothetical 10% adverse change in foreign exchange rates. 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.
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| ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
Financial Statements of Concur Technologies, Inc.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Concur Technologies, Inc.
We have audited the accompanying balance sheets of Concur Technologies, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of September 30, 2010 and 2009, and the related consolidated statements of income, stockholders’ equity, and cash flows for each of the three years in the period ended September 30, 2010. 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. as of September 30, 2010 and 2009, and the results of its operations and its cash flows for each of the three years in the period ended September 30, 2010, 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, 2010, 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, 2010, expressed an unqualified opinion.
/s/ GRANT THORNTON LLP
Seattle, Washington
November 17, 2010
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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, 2010, 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, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2010, 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, 2010 and 2009, and for each of the three years in the period ended September 30, 2010, and our report dated November 17, 2010, expressed an unqualified opinion on those consolidated financial statements.
/s/ GRANT THORNTON LLP
Seattle, Washington
November 17, 2010
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Income Statements
(In thousands, except per share amounts)
| Year ended September 30, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| Revenue |
$ | 292,936 | $ | 247,596 | $ | 215,491 | ||||||
| Expenses: |
||||||||||||
| Cost of operations |
81,941 | 72,928 | 68,378 | |||||||||
| Sales and marketing |
95,990 | 73,459 | 59,912 | |||||||||
| Systems development and programming |
27,997 | 25,295 | 22,974 | |||||||||
| General and administrative |
38,811 | 30,300 | 31,371 | |||||||||
| Amortization of intangible assets |
7,224 | 6,396 | 6,196 | |||||||||
| Total expenses |
251,963 | 208,378 | 188,831 | |||||||||
| Operating income |
40,973 | 39,218 | 26,660 | |||||||||
| Other income (expense): |
||||||||||||
| Interest income |
2,017 | 2,149 | 1,720 | |||||||||
| Interest expense |
(9,297 | ) | (481 | ) | (1,417 | ) | ||||||
| Other, net |
(1,049 | ) | (598 | ) | (486 | ) | ||||||
| Total other income (expense) |
(8,329 | ) | 1,070 | (183 | ) | |||||||
| Income before income tax |
32,644 | 40,288 | 26,477 | |||||||||
| Income tax expense |
12,063 | 14,611 | 9,293 | |||||||||
| Net income |
$ | 20,581 | $ | 25,677 | $ | 17,184 | ||||||
| Net income per share: |
||||||||||||
| Basic |
$ | 0.41 | $ | 0.53 | $ | 0.39 | ||||||
| Diluted |
0.39 | 0.50 | 0.35 | |||||||||
| Weighted average shares used in computing net income per share: |
||||||||||||
| Basic |
50,141 | 48,652 | 44,607 | |||||||||
| Diluted |
53,090 | 51,740 | 48,459 | |||||||||
See notes to Financial Statements.
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Balance Sheets
(In thousands, except per share amounts)
| 2010 | 2009 | |||||||
| Assets |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 329,098 | $ | 119,185 | ||||
| Short-term investments |
301,597 | 143,549 | ||||||
| Restricted cash |
2,535 | 3,599 | ||||||
| Accounts receivable, net of allowance of $2,374 and $3,680 |
52,340 | 46,638 | ||||||
| Deferred tax assets |
18,810 | 24,570 | ||||||
| Deferred costs and other assets |
26,671 | 18,142 | ||||||
| Total current assets |
731,051 | 355,683 | ||||||
| Non-current assets: |
||||||||
| Property and equipment, net |
36,229 | 33,999 | ||||||
| Investments |
6,045 | 4,045 | ||||||
| Deferred costs and other assets |
25,441 | 19,964 | ||||||
| Intangible assets, net |
36,398 | 44,383 | ||||||
| Deferred tax assets |
13,601 | 19,695 | ||||||
| Goodwill |
194,989 | 193,116 | ||||||
| Total assets |
$ | 1,043,754 | $ | 670,885 | ||||
| Liabilities and stockholders’ equity |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 5,413 | $ | 3,638 | ||||
| Customer funding liabilities |
66,985 | 56,424 | ||||||
| Accrued compensation |
20,944 | 17,508 | ||||||
| Acquisition-related liabilities |
— | 902 | ||||||
| Other accrued expenses and liabilities |
14,390 | 11,668 | ||||||
| Deferred revenues |
44,358 | 34,955 | ||||||
| Total current liabilities |
152,090 | 125,095 | ||||||
| Non-current liabilities: |
||||||||
| Senior convertible notes, net |
228,128 | 0 | ||||||
| Deferred rent and other long-term liabilities |
1,149 | 1,800 | ||||||
| Deferred revenues |
15,453 | 14,083 | ||||||
| Tax liabilities |
8,151 | 8,577 | ||||||
| Total liabilities |
404,971 | 149,555 | ||||||
| Stockholders’ equity: |
||||||||
| Convertible preferred stock, par value $0.001 per share |
0 | 0 | ||||||
| Authorized shares: 5,000; No shares issued or outstanding |
||||||||
| Common stock, $0.001 par value per share |
52 | 49 | ||||||
| Authorized shares: 195,000 |
||||||||
| Shares issued and outstanding: 52,379 and 48,988 |
||||||||
| Additional paid-in capital |
739,772 | 640,911 | ||||||
| Accumulated deficit |
(98,570 | ) | (119,151 | ) | ||||
| Accumulated other comprehensive loss |
(2,471 | ) | (479 | ) | ||||
| Total stockholders’ equity |
638,783 | 521,330 | ||||||
| Total liabilities and stockholders’ equity |
$ | 1,043,754 | $ | 670,885 | ||||
See notes to Financial Statements.
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Stockholders’ Equity Statements
(In thousands)
| Common Stock | Additional Paid-In Capital |
Accumulated Deficit |
Accumulated Other Comprehensive Loss |
Total Stockholders’ Equity |
||||||||||||||||||||
| Shares | Amount | |||||||||||||||||||||||
| Balance as of September 30, 2007 |
43,699 | $ | 44 | $ | 445,324 | $ | (162,012 | ) | $ | 1,004 | $ | 284,360 | ||||||||||||
| Common stock repurchased |
(1,418 | ) | (1 | ) | (43,762 | ) | 0 | 0 | (43,763 | ) | ||||||||||||||
| Common stock issued: |
||||||||||||||||||||||||
| Employee Stock Purchase Plan |
34 | 0 | 1,175 | 0 | 0 | 1,175 | ||||||||||||||||||
| Stock option exercises and vesting of restricted stock units |
1,571 | 1 | 12,655 | 0 | 0 | 12,656 | ||||||||||||||||||
| Equity issued to American Express, net of issue costs |
6,400 | 6 | 237,448 | 0 | 0 | 237,454 | ||||||||||||||||||
| Warrant issued to American Express |
0 | 0 | 12,286 | 0 | 0 | 12,286 | ||||||||||||||||||
| Tax Benefit from stock option exercises |
0 | 0 | 5,074 | 0 | 0 | 5,074 | ||||||||||||||||||
| Share-based compensation |
0 | 0 | 9,326 | 0 | 0 | 9,326 | ||||||||||||||||||
| Foreign currency translation adjustment loss |
0 | 0 | 0 | 0 | (1,214 | ) | (1,214 | ) | ||||||||||||||||
| Net Income |
0 | 0 | 0 | 17,184 | 0 | 17,184 | ||||||||||||||||||
| Balance as of September 30, 2008 |
50,286 | 50 | 679,526 | (144,828 | ) | (210 | ) | 534,538 | ||||||||||||||||
| Common stock repurchased |
(2,025 | ) | (2 | ) | (54,771 | ) | 0 | 0 | (54,773 | ) | ||||||||||||||
| Common stock issued: |
||||||||||||||||||||||||
| Employee Stock Purchase Plan |
44 | 0 | 1,176 | 0 | 0 | 1,176 | ||||||||||||||||||
| Stock option exercises and vesting of restricted stock units |
559 | 1 | 1,068 | 0 | 0 | 1,069 | ||||||||||||||||||
| Acquisition of Etap-On-Line |
124 | 0 | 4,318 | 0 | 0 | 4,318 | ||||||||||||||||||
| Equity Issuance costs |
0 | 0 | (2,842 | ) | 0 | 0 | (2,842 | ) | ||||||||||||||||
| Share-based compensation |
0 | 0 | 12,436 | 0 | 0 | 12,436 | ||||||||||||||||||
| Foreign currency translation adjustment loss |
0 | 0 | 0 | 0 | (278 | ) | (278 | ) | ||||||||||||||||
| Unrealized gain on investments |
0 | 0 | 0 | 0 | 9 | 9 | ||||||||||||||||||
| Net Income |
0 | 0 | 0 | 25,677 | 0 | 25,677 | ||||||||||||||||||
| Balance as of September 30, 2009 |
48,988 | 49 | 640,911 | (119,151 | ) | (479 | ) | 521,330 | ||||||||||||||||
| Common stock issued: |
||||||||||||||||||||||||
| Employee Stock Purchase Plan |
36 | 0 | 1,401 | 0 | 0 | 1,401 | ||||||||||||||||||
| Stock option exercises and vesting of restricted stock units |
2,075 | 2 | 4,358 | 0 | 0 | 4,360 | ||||||||||||||||||
| Equity issued to American Express, net of issue costs |
1,280 | 1 | 49,716 | 0 | 0 | 49,717 | ||||||||||||||||||
| Share-based compensation |
0 | 0 | 20,063 | 0 | 0 | 20,063 | ||||||||||||||||||
| Excess tax benefits from share-based compensation |
0 | 0 | 274 | 0 | 0 | 274 | ||||||||||||||||||
| Equity component of the senior convertible notes issuance, net |
0 | 0 | 56,327 | 0 | 0 | 56,327 | ||||||||||||||||||
| Purchase of note hedges |
0 | 0 | (60,145 | ) | 0 | 0 | (60,145 | ) | ||||||||||||||||
| Sale of warrants |
0 | 0 | 26,076 | 0 | 0 | 26,076 | ||||||||||||||||||
| Net tax effect related to the senior convertible notes |
0 | 0 | 791 | 0 | 0 | 791 | ||||||||||||||||||
| Foreign currency translation adjustment loss |
0 | 0 | 0 | 0 | (1,971 | ) | (1,971 | ) | ||||||||||||||||
| Unrealized loss on investments |
0 | 0 | 0 | 0 | (21 | ) | (21 | ) | ||||||||||||||||
| Net Income |
0 | 0 | 0 | 20,581 | 0 | 20,581 | ||||||||||||||||||
| Balance as of September 30, 2010 |
52,379 | $ | 52 | $ | 739,772 | $ | (98,570 | ) | $ | (2,471 | ) | $ | 638,783 | |||||||||||
See notes to Financial Statements.
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Cash Flow Statements
(In thousands)
| Year Ended September 30, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| Operating activities: |
||||||||||||
| Net income |
$ | 20,581 | $ | 25,677 | $ | 17,184 | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||||||
| Amortization of intangible assets |
7,224 | 6,396 | 6,196 | |||||||||
| Depreciation |
16,818 | 16,348 | 15,080 | |||||||||
| Accretion of discount and issuance costs on notes |
5,233 | 0 | 0 | |||||||||
| Net change in sales allowances |
(1,309 | ) | (1,862 | ) | 1,473 | |||||||
| Share-based compensation |
19,607 | 12,172 | 8,979 | |||||||||
| Deferred income taxes |
11,076 | 13,485 | 9,108 | |||||||||
| Excess tax benefits from share-based compensation |
(274 | ) | 0 | 0 | ||||||||
| Changes in operating assets and liabilities, net of effects from acquisition: |
||||||||||||
| Accounts receivable |
(4,804 | ) | 403 | 1,347 | ||||||||
| Deferred costs and other assets |
(10,087 | ) | (7,880 | ) | (5,511 | ) | ||||||
| Accounts payable |
1,849 | (1,021 | ) | (272 | ) | |||||||
| Accrued liabilities |
3,453 | (2,375 | ) | 1,224 | ||||||||
| Deferred revenues |
10,895 | 4,629 | 9,013 | |||||||||
| Net cash provided by operating activities |
80,262 | 65,972 | 63,821 | |||||||||
| Investing activities: |
||||||||||||
| Purchases of investments |
(438,924 | ) | (167,414 | ) | 0 | |||||||
| Maturities of investments |
281,513 | 24,000 | 0 | |||||||||
| Increase in customer funding liabilities, net of changes in restricted cash |
11,588 | 33,383 | 987 | |||||||||
| Investment in unconsolidated affiliate |
(2,000 | ) | (4,045 | ) | 0 | |||||||
| Purchases of property and equipment |
(18,596 | ) | (17,251 | ) | (13,040 | ) | ||||||
| Payments for acquisition, net of cash acquired |
(3,623 | ) | (26,595 | ) | (163,178 | ) | ||||||
| Net cash used in investing activities |
(170,042 | ) | (157,922 | ) | (175,231 | ) | ||||||
| Financing activities: |
||||||||||||
| Proceeds from borrowings on senior convertible notes, net |
245,153 | 0 | 0 | |||||||||
| Proceeds from warrant, net |
49,716 | 0 | 0 | |||||||||
| (Payments) Proceeds for issuance of common stock, net |
0 | (2,829 | ) | 249,590 | ||||||||
| Net proceeds from share-based equity award activity |
4,129 | 2,556 | 11,155 | |||||||||
| Proceeds from employee stock purchase plan activity |
1,401 | 1,175 | 1,175 | |||||||||
| Payments on repurchase of common stock |
0 | (54,773 | ) | (43,763 | ) | |||||||
| Net (payments) proceeds under revolving credit facility |
0 | 0 | (5,370 | ) | ||||||||
| Excess tax benefits from share-based compensation |
274 | 0 | 0 | |||||||||
| Repayments on capital leases |
(1,129 | ) | (1,366 | ) | (1,671 | ) | ||||||
| Net cash (used in) provided by financing activities |
299,544 | (55,237 | ) | 211,116 | ||||||||
| Effect of foreign currency exchange rate changes on cash and cash equivalents |
149 | (1,353 | ) | (816 | ) | |||||||
| Net (decrease) increase in cash and cash equivalents |
209,913 | (148,540 | ) | 98,890 | ||||||||
| Cash and cash equivalents at beginning of period |
119,185 | 267,725 | 168,835 | |||||||||
| Cash and cash equivalents at end of period |
$ | 329,098 | $ | 119,185 | $ | 267,725 | ||||||
| Supplemental cash flow information: |
||||||||||||
| Cash paid for interest |
$ | 106 | $ | 139 | $ | 966 | ||||||
| Income tax payments, net |
1,832 | 963 | 616 | |||||||||
| Common stock issued in connection with acquisition |
0 | 4,318 | 0 | |||||||||
See notes to Financial Statements.
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Notes to Financial Statements
Note 1. Description of the Company and Summary of Significant Accounting Policies
All dollar, option and share amounts are reported in thousands, unless otherwise noted.
Description of the Company
We are a leading global provider of on-demand Employee Spend Management solutions. Our integrated travel and expense software solutions enable organizations to control costs by automating the processes used to manage employee spending. Our solutions unite online travel procurement with automated expense reporting, streamline corporate event management, and optimize the process of managing vendor payments, employee check requests and direct reimbursements. Our unified approach to managing these processes provides our customers with visibility into their employee spending, which helps them analyze trends, influence budget decisions, improve forecasting, and monitor and enforce compliance with their corporate policies and external regulations, such as the Sarbanes-Oxley Act of 2002.
Our core mission is to continuously innovate to reduce the costs of employee spend management for our customers. We work closely with our customers to identify opportunities to increase the value of our solutions by streamlining the travel procurement, expense reporting and vendor payment processes, reducing operating costs, improving internal controls, enhancing the overall user experience and user adoption rates, and enabling customers to gain greater insight into their spending patterns through comprehensive analytics.
We offer our solutions through flexible delivery models that range from highly configurable to standardized. We sell our solutions primarily as subscription services. We market and sell our solutions worldwide through our direct sales organization and through indirect distribution channels such as strategic resellers.
Concur, the Concur logo, Concur Expense, Concur Travel & Expense, Cliqbook, Concur Cliqbook Travel, Concur Invoice, Concur Audit, Concur Pay, Concur Intelligence, Concur Mobile, Concur Breeze, Concur Advantage, Concur Connect, Concur ExpenseLink, Concur Travel Manager, Smart Expense, One Touch Business Travel, and Ulysse Travel & Expense are among the trademarks or registered trademarks of Concur or its affiliates in the United States and other countries. 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,” “we,” “us” and “our.”
Segment Information
We operate in and report on one segment, Employee Spend Management solutions.
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. 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, 2008 to 2011, as “2008,” “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
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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 (which include software maintenance services), and to a much lesser degree, consulting services and the sale of software licenses. We recognize revenues in accordance with accounting standards for software and service companies.
We recognize revenue when:
| • | evidence of an arrangement exists; |
| • | delivery has occurred; |
| • | the fees are fixed or determinable; and |
| • | 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:
| • | monthly fees paid for subscription services; |
| • | amortization of related set-up fees; and |
| • | amortization of fees paid for software maintenance services under software license arrangements. |
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 two 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.
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 of the services with provisions for subsequent automatic annual renewals. We defer the related revenues and recognize them ratably over the respective maintenance terms, which typically are one year.
Consulting services consist of fees for professional services, which relate to system implementation and integration, planning, data conversion, training, and documentation of procedures. Consulting services that are
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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 billed and recognized as revenue on a time-and-materials basis. In some instances, we 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 cost of operations. 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.
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.
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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.
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.
Advertising and Marketing Costs
We charge costs of marketing materials and advertising expenditures to operations when the materials are used or the advertising is first released. Advertising costs for 2010, 2009 and 2008, were $8,521, $3,321 and $5,262.
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.
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Impairment of Goodwill and Certain Other Long-Lived Assets
We do not amortize goodwill, but instead test it for impairment at the reporting unit level at least annually and more frequently upon the occurrence of certain events. We have one reporting unit. 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 conducted our most recent test for impairment as of March 31, 2010, and we determined that goodwill was not impaired.
We evaluate long-lived assets, including 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. We do not have any long-lived assets, including intangible assets other than goodwill, which we consider to be impaired.
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, 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
We have subsidiaries located in Australia, Canada, China (Hong Kong), Czech Republic, France, Germany, India, Netherlands and the United Kingdom. We determine the functional currency of each foreign subsidiary by referencing the authoritative accounting guidance which includes evaluating the operating and economic characteristics of each of our foreign subsidiaries. For international subsidiaries whose functional currency is other than the U.S. dollar, we translate assets and liabilities denominated in foreign currencies to U.S. dollars at the exchange rate in effect on the balance sheet date. We include translation adjustments resulting from this process in other comprehensive income (loss). Monetary assets and liabilities denominated in a currency other than the functional currency are remeasured to the functional currency at the exchange rate in effect at the balance sheet date. The remeasurement adjustments are recorded in the income statement. We translate revenues and expenses using average rates of exchange during the period in which the transactions occurred.
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, 2009, we adopted guidance issued by the Financial Accounting Standards Board (“FASB”) on business combinations. The guidance retains the fundamental requirements that the acquisition method of accounting (previously referred to as the purchase method of accounting) be used for all business combinations, but requires a number of changes, including changes in the way assets and liabilities are recognized and measured as a result of business combinations. It also requires the capitalization of in-process research and development at fair value and requires the expensing of acquisition-related costs as incurred. The guidance is applicable to business combinations completed after October 1, 2009.
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On October 1, 2009, we adopted guidance issued by the FASB that changes the accounting and reporting for non-controlling interests. Non-controlling interests are to be reported as a component of equity separate from the parent’s equity, and purchases or sales of equity interests that do not result in a change in control are to be accounted for as equity transactions. In addition, net income attributable to a non-controlling interest is to be included in net income and, upon a loss of control, the interest sold, as well as any interest retained, is to be recorded at fair value with any gain or loss recognized in net income. Adoption of the new guidance did not have a material impact on our financial statements.
Recently Issued Accounting Pronouncements
In October 2009, the FASB issued 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 recognition. 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. We are required to adopt these changes to revenue recognition in the first quarter of 2011. We believe adoption of this new guidance will not have a material impact on our financial statements.
Note 2. Net Income Per Share
We calculate basic net income per share by dividing net income for the period by the weighted-average number of shares of common stock outstanding during the period. We calculate diluted net income per share by dividing net income 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 and warrants during the period, under the treasury stock method. The computation of basic and diluted net income per share is as follows:
| Year ended September 30, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| Net income |
$ | 20,581 | $ | 25,677 | $ | 17,184 | ||||||
| Weighted average number of shares outstanding: |
||||||||||||
| Basic |
50,141 | 48,652 | 44,607 | |||||||||
| Dilutive effect of share-based equity award plans (1) |
2,949 | 3,088 | 3,852 | |||||||||
| Diluted |
53,090 | 51,740 | 48,459 | |||||||||
| Net income per share available to common stockholders: |
||||||||||||
| Basic |
$ | 0.41 | $ | 0.53 | $ | 0.39 | ||||||
| Diluted |
0.39 | 0.50 | 0.35 | |||||||||
| (1) | For 2010, 2009, and 2008, we did not exclude any share-based equity awards to purchase Concur common stock from the calculations of diluted net income per share. |
For 2009 and 2008, we excluded a warrant to purchase 1,280 shares of Concur common stock from the calculations of diluted net income per share. This warrant was issued to American Express Travel Related Services Company, Inc. in 2008 and exercised in full in 2010.
For 2010 we excluded warrants to purchase 5,500 shares of Concur common stock from the calculations of diluted net income per share. These warrants were issued as part of our senior convertible notes issuance in 2010.
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Note 3. Business Combinations
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”). Under 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, 2010, 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. Pro forma results of operations are not presented in this report because the effect was not material to our financial statements.
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.
Purchase Price Allocation
We allocated the Etap Acquisition purchase price to net tangible and identifiable intangible assets based upon the estimated fair value of those assets as of August 1, 2009. We allocated the excess of purchase price over the identifiable intangible and net tangible assets to goodwill. The net tangible assets included $4.9 million in cash and cash equivalents and $6.0 million in accounts receivable. Total liabilities were $10.9 million.
Intangible Assets
We recorded $23.4 million of goodwill recorded for the Etap Acquisition, none of which is deductible for tax purposes. In addition, we had $11.7 million of acquired intangible assets in our financial statements. The acquired intangible assets include $9.9 million of customer relationships with an expected life of 11 years, $1.0 million of technology-based intangible assets with an expected useful life of 3 years and $0.7 million of other intangible assets with an expected life of five years.
Gelco Acquisition
On October 1, 2007, we completed our acquisition of H-G Holdings, Inc. and its subsidiaries, including Gelco Information Network, Inc. (“Gelco Acquisition” or “Gelco”). Gelco provides a flexible on-demand expense management solution that enables organizations to control costs by gaining processing efficiencies, capturing spending data for analysis and ensuring policy compliance. Gelco offers different levels of outsourcing and is capable of providing a full range of services to streamline the expense management process, including: expense data capture, multi-currency reimbursement, card payment processing, reporting and analysis, receipt imaging and management, and auditing.
We have included Gelco’s operating results in our income statements from the date of the acquisition.
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Purchase Price Allocation
We allocated the Gelco Acquisition purchase price to net tangible and identifiable intangible assets based upon the estimated fair value of those assets as of October 1, 2007. We allocated the excess of purchase price over the identifiable intangible and net tangible assets to goodwill. The following table presents the allocation of the total purchase price consideration:
| Purchase Price (in millions) |
||||
| Cash and cash equivalents |
$ | 3.5 | ||
| Restricted cash |
2.7 | |||
| Accounts receivable |
9.9 | |||
| Prepaid and other current assets |
2.6 | |||
| Property and equipment |
10.0 | |||
| Goodwill |
108.3 | |||
| Deferred income tax assets |
34.8 | |||
| Other intangible assets |
34.7 | |||
| Total assets |
206.5 | |||
| Accounts payable |
(0.3 | ) | ||
| Customer funding liabilities |
(21.5 | ) | ||
| Other accrued liabilities |
(7.1 | ) | ||
| Long-term tax liabilities |
(4.0 | ) | ||
| Deferred revenue |
(1.2 | ) | ||
| Capital leases |
(4.4 | ) | ||
| Total liabilities |
(38.5 | ) | ||
| Total |
$ | 168.0 | ||
Intangible Assets
We recorded $108.3 million of goodwill, which includes a reduction of $30.8 million related to the valuation allowance for deferred tax assets as a result of the expected increase in earnings due to the Gelco Acquisition. In addition, we recorded $34.7 million of acquired intangible assets in our financial statements. The acquired intangible assets include $27.9 million of customer relationships with an expected life of 11 years, $6.5 million of technology-based intangible assets with an expected useful life of four years and $0.3 million of other intangible assets with an expected life of two years.
Note 4. Property and Equipment
Our property and equipment as of September 30, 2010 and 2009, consisted of the following:
| September 30, | ||||||||
| 2010 | 2009 | |||||||
| Land and building |
$ | 5,842 | $ | 5,596 | ||||
| Computer hardware |
17,672 | 17,590 | ||||||
| Computer software |
47,245 | 43,577 | ||||||
| Furniture and equipment |
1,210 | 1,395 | ||||||
| Leasehold improvements |
5,586 | 5,111 | ||||||
| Property and equipment, gross |
77,555 | 73,269 | ||||||
| Less: accumulated depreciation |
(41,326 | ) | (39,270 | ) | ||||
| Property and equipment, net |
$ | 36,229 | $ | 33,999 | ||||
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Note 5. Investments
Equity Investment in Private Company
We have an equity investment of $6.0 million in 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.
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 12 of the notes to financial statements.
Note 6. Intangible Assets
The following table presents the components of our intangible assets as of September 30, 2010 and 2009:
| Description |
Gross Carrying Amount |
Accumulated Amortization |
Net
Carrying Amount as of September 30, 2010 |
Gross Carrying Amount |
Accumulated Amortization |
Net Carrying Amount as of September 30, 2009 |
||||||||||||||||||
| Trade name and trademarks |
$ | 681 | $ | 159 | $ | 522 | $ | 1,029 | $ | 324 | $ | 705 | ||||||||||||
| Technology |
11,754 | 8,566 | 3,188 | 13,721 | 7,432 | 6,289 | ||||||||||||||||||
| Customer relationships |
44,465 | 11,777 | 32,688 | 45,120 | 7,731 | 37,389 | ||||||||||||||||||
| Total |
$ | 56,900 | $ | 20,502 | $ | 36,398 | $ | 59,870 | $ | 15,487 | $ | 44,383 | ||||||||||||
The related amortization expense reflected in our income statements for 2010, 2009 and 2008, were $7.2 million, $6.4 million and $6.2 million.
Estimated amortization expense for the remaining estimated useful life of the acquired intangible assets is as follows for the years ending September 30:
| Years Ending September 30, |
Amortization of Intangible Assets |
|||
| 2011 |
$ | 6,884 | ||
| 2012 |
4,688 | |||
| 2013 |
4,192 | |||
| 2014 |
4,169 | |||
| 2015 |
4,056 | |||
| Thereafter |
12,409 | |||
| Total |
$ | 36,398 | ||
Note 7. 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.
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Note 8. 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 in 2015 (“Notes”). All amounts from the issuance of the Notes were settled in April 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 $6.0 million as of September 30, 2010, and equity issuance costs were $1.7 million for the Notes. Additionally, we recorded a deferred tax asset of $0.8 million in connection with the Notes.
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The following table shows the amounts recorded within our financials for the Notes:
| As of September 30, 2010 |
||||
| Liability components: |
||||
| Principal amount |
$ | 287,500 | ||
| Less: note discount |
(53,334 | ) | ||
| Less: note issuance costs |
(6,038 | ) | ||
| Senior convertible notes, net |
$ | 228,128 | ||
| Equity components |
$ | 57,996 | ||
| Less: issuance costs |
(1,669 | ) | ||
| Additional paid-in capital |
$ | 56,327 | ||
| Note hedge costs |
$ | 60,145 | ||
| Warrants proceeds |
(26,076 | ) | ||
| Net cost |
$ | 34,069 | ||
The following table presents the interest expense recognized related to the Notes for the year ended September 30, 2010:
| Year ended September 30, 2010 |
||||
| Contractual interest expense |
$ | 3,494 | ||
| Amortization of debt issuance costs |
570 | |||
| Accretion of debt discount |
4,662 | |||
| $ | 8,726 | |||
| Effective interest rate of the liability component |
7.73 | % | ||
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.
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Revolving Credit Facility
On March 29, 2010, we terminated a credit agreement with a financial institution that provided for a revolving credit facility for up to $70 million that was set to expire in September 2012. As of March 29, 2010, and September 30, 2009, we were in compliance with all loan covenants under the terms of the credit agreement, and had no outstanding borrowings under the agreement.
Note 9. 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 2010, 2009 and 2008, the income tax expense (benefit) consisted of the following:
| Year ended September 30, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| Current income taxes: |
||||||||||||
| Federal |
$ | (6 | ) | $ | 789 | $ | 151 | |||||
| State and local |
673 | 443 | — | |||||||||
| Foreign |
320 | (106 | ) | 34 | ||||||||
| Current income tax expense |
987 | 1,126 | 185 | |||||||||
| Deferred income taxes: |
||||||||||||
| Federal |
12,241 | 13,487 | 12,274 | |||||||||
| State and local |
178 | 286 | (3,166 | ) | ||||||||
| Foreign |
(1,343 | ) | (288 | ) | — | |||||||
| Deferred income tax expense |
11,076 | 13,485 | 9,108 | |||||||||
| Income tax expense |
$ | 12,063 | $ | 14,611 | $ | 9,293 | ||||||
A reconciliation of our effective income tax rate on income before taxes with the federal statutory rate is as follows:
| Year ended September 30, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| Statutory rate |
35.0 | % | 35.0 | % | 35.0 | % | ||||||
| State and local taxes, net of federal income taxes |
2.2 | 2.5 | 1.1 | |||||||||
| Research and development tax credits |
(0.4 | ) | (1.0 | ) | (1.5 | ) | ||||||
| Reserves for uncertainty in income taxes |
1.7 | 1.7 | 0 | |||||||||
| Foreign rate differentials |
(1.4 | ) | (1.2 | ) | (0.1 | ) | ||||||
| Change in valuation allowance |
0.1 | (1.0 | ) | (0.5 | ) | |||||||
| Other |
(0.2 | ) | 0.3 | 1.1 | ||||||||
| Effective tax rate |
37.0 | % | 36.3 | % | 35.1 | % | ||||||
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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, 2010 and 2009, are as follows:
| September 30, | ||||||||
| 2010 | 2009 | |||||||
| Domestic deferred tax assets: |
||||||||
| Net operating loss carryforwards |
$ | 23,231 | $ | 41,150 | ||||
| Credit carryforwards |
7,879 | 7,827 | ||||||
| Deferred revenue |
20,368 | 17,301 | ||||||
| Stock based compensation |
8,195 | 4,801 | ||||||
| Other |
5,606 | 9,764 | ||||||
| Total domestic deferred tax assets |
65,279 | 80,843 | ||||||
| Domestic deferred tax liabilities: |
||||||||
| Intangible assets |
(9,681 | ) | (11,709 | ) | ||||
| Property and equipment |
(8,018 | ) | (14,369 | ) | ||||
| Deferred costs |
(14,973 | ) | (12,146 | ) | ||||
| Other |
(2,308 | ) | (124 | ) | ||||
| Total domestic deferred tax liabilities |
(34,980 | ) | (38,348 | ) | ||||
| Net domestic deferred tax asset |
30,299 | 42,495 | ||||||
| Less: valuation allowance |
(41 | ) | 0 | |||||
| Net domestic deferred tax asset |
$ | 30,258 | $ | 42,495 | ||||
| September 30, | ||||||||
| 2010 | 2009 | |||||||
| Foreign deferred tax assets: |
||||||||
| Net operating loss carryforwards |
$ | 1,002 | $ | 1,576 | ||||
| Deferred revenue |
727 | 1,096 | ||||||
| Stock based compensation |
664 | 0 | ||||||
| Other |
266 | 517 | ||||||
| Total foreign deferred tax assets |
2,659 | 3,189 | ||||||
| Foreign deferred tax liabilities: |
||||||||
| Intangible assets |
(3,232 | ) | (3,936 | ) | ||||
| Deferred costs |
(139 | ) | (12 | ) | ||||
| Other |
(12 | ) | (1,671 | ) | ||||
| Total foreign deferred tax liabilities |
(3,383 | ) | (5,619 | ) | ||||
| Net foreign deferred tax liability |
(724 | ) | (2,430 | ) | ||||
| Less: valuation allowance |
0 | 0 | ||||||
| Net foreign deferred tax liability |
$ | (724 | ) | $ | (2,430 | ) | ||
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, 2010, will be realized in the future.
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The net increase in the valuation allowance for 2010 was $41 compared to a net decrease of $406 for 2009. 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. The reduction in the valuation allowance for 2009 was due to the expected future earnings of our foreign subsidiaries.
As of September 30, 2010, we had total federal net operating loss carryforwards in the amount of $63.5 million, which will expire in the years 2021 to 2027. We had total state net operating loss carryforwards in the amount of $16.9 million, which will expire in the years 2013 to 2028. As of September 30, 2010, we had total foreign net operating loss carryforwards in the amount of $3.7 million, which have no expiration date.
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 state provisions. The annual limitations could result in the expiration of net operating losses before they can be utilized.
As of September 30, 2010, we had total current deferred tax liabilities of $12 included in other accrued expenses and liabilities. As of September 30, 2010, our tax liabilities balance was made up of $5.2 million of reserves for uncertain tax positions and $2.9 million of non-current deferred tax liabilities.
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:
| 2010 | 2009 | |||||||
| Gross tax contingencies—beginning of year |
$ | 4,679 | $ | 3,985 | ||||
| Gross increases to tax positions in prior periods |
16 | 210 | ||||||
| Gross increases to current period tax positions |
551 | 484 | ||||||
| Gross tax contingencies—end of year |
$ | 5,246 | $ | 4,679 | ||||
We file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. We are no longer subject to tax examinations by tax authorities for years prior to December 31, 1995.
The above table of deferred tax assets and liabilities does not include certain deferred tax assets at September 30, 2010 and 2009 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. 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
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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, 2010, we had $117.0 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.
Note 10. Contractual Obligations
Our future minimum commitments under non-cancelable contractual obligations are as follows:
| Years ending September 30, |
Senior Convertible Notes, including interest |
Capital Leases |
Operating Leases |
Purchase Obligations |
||||||||||||
| 2011 |
7,187 | 199 | 3,738 | 3,878 | ||||||||||||
| 2012 |
7,187 | 0 | 3,612 | 1,701 | ||||||||||||
| 2013 |
7,188 | 0 | 2,625 | 1,714 | ||||||||||||
| 2014 |
7,188 | 0 | 983 | 533 | ||||||||||||
| 2015 |
291,393 | 0 | 462 | 105 | ||||||||||||
| 2016 and thereafter |
0 | 0 | 0 | 0 | ||||||||||||
| Total |
$ | 320,143 | $ | 199 | $ | 11,420 | $ | 7,931 | ||||||||
Senior Convertible Notes
As of September 30, 2010, 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 8 of the notes to financial statements.
Capital Leases
We lease equipment, some of which is required to be capitalized if it meets certain criteria, with the related asset recorded in property and equipment and an offsetting amount recorded as a liability.
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, Minnesota, Texas and Virginia, and internationally in Australia, China (Hong Kong), Czech Republic, France, Germany, Netherlands, 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 11. 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, 2010, we had
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0.6 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.
The following table presents our share-based compensation resulting from equity awards that we recorded in our income statements:
| Year ended September 30, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| Cost of operations |
$ | 2,442 | $ | 1,829 | $ | 1,688 | ||||||
| Sales and marketing |
9,772 | 5,517 | 3,404 | |||||||||
| Systems development and programming |
2,597 | 1,815 | 1,149 | |||||||||
| General and administrative |
4,796 | 3,011 | 2,738 | |||||||||
| Total share-based compensation |
$ | 19,607 | $ | 12,172 | $ | 8,979 | ||||||
Net cash proceeds from the exercise of stock options for 2010, 2009 and 2008, were $9.8 million, $4.8 million and $12.1 million. During 2010, we realized a state income tax benefit in APIC from exercises of stock options and vesting of RSUs. 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 and 2008 due to the use of net operating loss carryforwards.
The following table presents our stock option activity:
| Year ended September 30, | ||||||||||||||||||||||||
| 2010 | 2009 | 2008 | ||||||||||||||||||||||
| Options | Weighted Avg. Exercise Price |
Options | Weighted Avg. Exercise Price |
Options | Weighted Avg. Exercise Price |
|||||||||||||||||||
| Balance at beginning of year |
3,168 | $ | 6.95 | 3,563 | $ | 7.10 | 5,109 | $ | 7.73 | |||||||||||||||
| Exercised |
(1,779 | ) | 5.51 | (393 | ) | 8.30 | (1,498 | ) | 9.10 | |||||||||||||||
| Forfeited or expired |
— | — | (2 | ) | 12.89 | (48 | ) | 11.65 | ||||||||||||||||
| Outstanding at end of year |
1,389 | 8.65 | 3,168 | 6.95 | 3,563 | 7.10 | ||||||||||||||||||
| Exercisable at end of year |
1,387 | 8.65 | 3,110 | 6.81 | 3,256 | 6.56 | ||||||||||||||||||
Stock option activity for 2010 was as follows:
| Shares | Weighted Avg. Exercise Price |
Weighted
Avg. Remaining Contractual Term (in years) |
Aggregate Intrinsic value |
|||||||||||||
| Outstanding as of September 30, 2009 |
3,168 | $ | 6.95 | |||||||||||||
| Exercised |
(1,779 | ) | 5.51 | |||||||||||||
| Forfeited or expired |
— | — | ||||||||||||||
| Outstanding as of September 30, 2010 |
1,389 | 8.65 | 3.65 | $ | 56,451 | |||||||||||
| Exercisable as of September 30, 2010 |
1,387 | 8.65 | 3.65 | 56,368 | ||||||||||||
Total intrinsic value of options exercised for 2010, 2009 and 2008, was $66.1 million, $8.9 million and $46.5 million.
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Information regarding the weighted-average remaining contractual life and weighted-average exercise price of options outstanding and options exercisable as of September 30, 2010, for selected exercise price ranges is as follows:
| September 30, 2010 | ||||||||||||||||||||
| Options Outstanding | Options Exercisable | |||||||||||||||||||
| Range of Exercise Prices |
Number Outstanding |
Weighted Average Remaining Contractual Life (in years) |
Weighted Average Exercise Price |
Number Exercisable |
Weighted Average Exercise Price |
|||||||||||||||
| $ 0.38 - $ 1.11 |
183 | 1.0 | $ | 0.89 | 183 | $ | 0.89 | |||||||||||||
| 1.63 - 1.78 |
186 | 2.0 | 1.78 | 186 | 1.78 | |||||||||||||||
| 1.87 - 4.39 |
18 | 1.9 | 2.16 | 18 | 2.16 | |||||||||||||||
| 5.10 - 5.67 |
35 | 2.5 | 5.11 | 35 | 5.11 | |||||||||||||||
| 7.38 - 9.70 |
182 | 3.9 | 8.50 | 182 | 8.50 | |||||||||||||||
| 9.74 - 11.20 |
307 | 4.0 | 10.86 | 307 | 10.86 | |||||||||||||||
| 11.39 - 12.89 |
336 | 5.0 | 12.76 | 336 | 12.76 | |||||||||||||||
| 14.21 - 17.55 |
142 | 5.5 | 16.48 | 140 | 16.53 | |||||||||||||||
| $ 0.38 - $ 17.55 |
1,389 | 3.7 | $ | 8.80 | 1,387 | $ | 8.79 | |||||||||||||
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:
| Year ended September 30, | ||||||||||||||||||||||||
| 2010 | 2009 | 2008 | ||||||||||||||||||||||
| Shares | Weighted Avg. Share Value |
Shares | Weighted Avg. Share Value |
Shares | Weighted Avg. Share Value |
|||||||||||||||||||
| Balance at beginning of year |
1,327 | $ | 24.86 | 772 | $ | 27.49 | 284 | $ | 17.86 | |||||||||||||||
| Granted |
950 | 41.56 | 801 | 22.59 | 604 | 30.41 | ||||||||||||||||||
| Vested and released |
(422 | ) | 24.33 | (234 | ) | 25.77 | (96 | ) | 38.48 | |||||||||||||||
| Cancelled |
(48 | ) | 29.11 | (12 | ) | 26.77 | (20 | ) | 22.61 | |||||||||||||||
| Outstanding at end of year |
1,807 | 33.67 | 1,327 | 24.86 | 772 | 27.49 | ||||||||||||||||||
As of September 30, 2010, we expect total unrecognized compensation costs net of estimated forfeitures of $31.2 million, and we expect to recognize the non-vested equity awards expense over a weighted average period of 1.5 years. Total fair value of options exercised and RSUs vested during 2010, 2009 and 2008, were $18.9 million, $9.4 million and $6.7 million.
Note 12. 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: 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; 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.
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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. We had no financial liabilities measured at fair value on a recurring basis at September 30, 2010.
Our financial assets measured at fair value as of September 30, 2010, are summarized below:
| Fair value measurement using | Assets at fair value |
|||||||||||||||
| Level 1 | Level 2 | Level 3 | ||||||||||||||
| Assets: |
||||||||||||||||
| Money market accounts |
$ | 4,670 | $ | — | $ | — | $ | 4,670 | ||||||||
| Commercial paper |
— | 338,920 | — | 338,920 | ||||||||||||
| Other fixed income securities |
— | 144,218 | 144,218 | |||||||||||||
| Total |
$ | 4,670 | $ | 483,138 | $ | — | $ | 487,808 | ||||||||
Equity Investment in Private Company
The valuation of investments in non-public companies requires significant management judgment due to the absence of quoted market prices, inherent lack of liquidity and the long-term nature of such assets. As of September 30, 2010, our investment in Ridecharge is recorded at $6.0 million in “Investments” on our balance sheet. For further information, see Note 5 of the notes to financial statements. This investment will be subject to fair value adjustments in certain circumstances, such as when there is evidence of impairment. We will record impairment charges when an investment has experienced a decline that we deem 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 evaluations. In the event an investment experiences other-than-temporary declines in value, we will record an impairment loss in “Other income (expense)” in our income statement.
Note 13. Stock Repurchase Program
Our Board of Directors has authorized a stock repurchase program that expires in January 2013. During 2009, we repurchased and retired 2.0 million shares of our outstanding common stock for a total cost of $54.8 million under this program. As of September 30, 2010, we remained authorized to repurchase up to an additional 4.1 million shares under this program.
We did not make any purchases of our outstanding common stock during 2010.
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Note 14. Comprehensive Income
The components of our comprehensive income for 2010, 2009 and 2008, are as follows:
| Year ended September 30, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| Net income |
$ | 20,581 | $ | 25,677 | $ | 17,184 | ||||||
| Other comprehensive gain (loss): |
||||||||||||
| Foreign currency translation adjustment loss |
(1,971 | ) | (278 | ) | (1,214 | ) | ||||||
| Net unrealized (loss) gain on investments |
(21 | ) | 9 | — | ||||||||
| Total comprehensive income |
$ | 18,589 | $ | 25,408 | $ | 15,970 | ||||||
Note 15. International Revenues
We market our 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 2010, 2009 or 2008. Information regarding revenues by geographic region for the past three years is as follows:
| Year Ended September 30, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| United States |
$ | 254,751 | $ | 222,460 | $ | 192,922 | ||||||
| Europe |
25,963 | 14,538 | 12,658 | |||||||||
| Other |
12,222 | 10,598 | 9,911 | |||||||||
| Total revenues |
$ | 292,936 | $ | 247,596 | $ | 215,491 | ||||||
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 2010, 2009 and 2008, totaled $1,990, $1,555 and $1,250.
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 to reimburse 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.
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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
Concur’s 401(k) Profit Sharing and Trust Plan (“401(k) Plan”) is a defined contribution plan that is available to employees in the United States that meet eligibility requirements. Participating employees may contribute up to 80% of their pretax gross earnings, subject to statutory limits. We reserve the right to amend the 401(k) Plan at any time. Effective April 1, 2007, an amendment to the 401(k) Plan was passed, which provided for a required employer matching contribution. For 2010, 2009 and 2008, our contribution to this plan was $1,125, $997 and $708.
Note 19. Quarterly Financial Results (Unaudited)
Our summarized unaudited quarterly financial results for 2010, 2009 and 2008, are as follows:
| First Quarter | Second Quarter | Third Quarter | Fourth Quarter | Full Year | ||||||||||||||||
| 2010 |
||||||||||||||||||||
| Revenue |
$ | 67,653 | $ | 72,816 | $ | 74,978 | $ | 77,489 | $ | 292,936 | ||||||||||
| Operating income |
10,251 | 10,987 | 10,530 | 9,205 | 40,973 | |||||||||||||||
| Net income |
6,542 | 6,827 | 3,743 | 3,469 | 20,581 | |||||||||||||||
| Net Income per share: |
||||||||||||||||||||
| Basic |
$ | 0.13 | $ | 0.14 | $ | 0.07 | $ | 0.07 | $ | 0.41 | ||||||||||
| Diluted |
0.12 | 0.13 | 0.07 | 0.06 | 0.39 | |||||||||||||||
| 2009 |
||||||||||||||||||||
| Revenue |
$ | 58,564 | $ | 61,991 | $ | 62,226 | $ | 64,815 | $ | 247,596 | ||||||||||
| Operating income |
8,207 | 10,762 | 10,895 | 9,354 | 39,218 | |||||||||||||||
| Net income |
5,809 | 6,749 | 7,243 | 5,876 | 25,677 | |||||||||||||||
| Net Income per share: |
||||||||||||||||||||
| Basic |
$ | 0.12 | $ | 0.14 | $ | 0.15 | $ | 0.12 | $ | 0.53 | ||||||||||
| Diluted |
0.11 | 0.13 | 0.14 | 0.11 | 0.50 | |||||||||||||||
| 2008 |
||||||||||||||||||||
| Revenue |
$ | 49,352 | $ | 53,663 | $ | 54,929 | $ | 57,547 | $ | 215,491 | ||||||||||
| Operating income |
5,865 | 6,218 | 7,474 | 7,103 | 26,660 | |||||||||||||||
| Net income |
3,382 | 3,704 | 4,456 | 5,642 | 17,184 | |||||||||||||||
| Net Income per share: |
||||||||||||||||||||
| Basic |
$ | 0.08 | $ | 0.08 | $ | 0.10 | $ | 0.12 | $ | 0.39 | ||||||||||
| Diluted |
0.07 | 0.08 | 0.09 | 0.11 | 0.35 | |||||||||||||||
| ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
Not applicable.
| 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
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(“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, 2010. There were no changes in our internal control over financial reporting during the quarter ended September 30, 2010 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, 2010; 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. | OTHER INFORMATION |
None.
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| 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 2011 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. | 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 2011 Annual Meeting of Shareholders is incorporated herein by reference.
| 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 2011 Annual Meeting of Shareholders, and is incorporated herein by reference.
| 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 2011 Annual Meeting of Shareholders, and is incorporated herein by reference.
| 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 2011 Annual Meeting of Shareholders and is incorporated herein by reference.
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| ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
(a) The following documents are filed as part of this report:
| 1.Financial Statements |
||||||
| Financial Statements of Concur Technologies, Inc. |
||||||
| Reports of Grant Thornton LLP, Independent Registered Public Accounting Firm |
41 | |||||
| Income Statements for the years ended September 30, 2010, 2009 and 2008 |
43 | |||||
| 44 | ||||||
| Stockholders’ Equity Statement for the years ended September 30, 2010, 2009 and 2008 |
45 | |||||
| Cash Flows Statements for the years ended September 30, 2010, 2009 and 2008 |
46 | |||||
| 47 | ||||||
| 2.Schedule |
||||||
| The following financial statement schedule for the years ended September 30, 2010, 2009 and 2008, should be read in conjunction with the Financial Statements of Concur Technologies, Inc. filed as part of this Annual Report on Form 10-K: |
||||||
| 73 | ||||||
| Schedules other than that listed above have been omitted since they are either not required, not applicable, or because the information required is included in the Financial Statements or the notes thereto. |
||||||
| 3.Exhibits |
||||||
| Exhibit |
Exhibit Description |
Form | File No. | Date of First Filing |
Exhibit Number |
Filed Herewith |
||||||||||||||||
| 3.01 |
Registrant’s Second Amended and Restated Certificate of Incorporation, as filed with Delaware Secretary of State on August 7, 2010. | 8-K | 000-25137 | 03/29/10 | 3.1 | |||||||||||||||||
| 3.02 |
Certificate of Designations of Series A Junior Preferred Stock of Registrant. | 8-A | 000-25137 | 04/23/01 | 3.2 | |||||||||||||||||
| 3.03 |
Registrant’s Amended and Restated Bylaws, as adopted on December 6, 2007. | 8-K | 000-25137 | 12/10/07 | 3.1 | |||||||||||||||||
| 4.01 |
Specimen Stock Certificate representing shares of Registrant’s Common Stock. | S-1 | 333-62299 | 08/26/98 | 4.01 | |||||||||||||||||
| 4.02 |
Rights Agreement between Registrant and Wells Fargo N.A. dated April 20, 2001. | 8-A | 000-25137 | 04/23/01 | 4.1 | |||||||||||||||||
| 4.03 |
Amendment to Rights Agreement between Registrant and Wells Fargo N.A. dated July 29, 2008. | 8-K | 000-25137 | 07/30/08 | 4.1 | |||||||||||||||||
| 4.04 |
Form of Base Convertible Bond Hedge Transaction Confirmation | 8-K | 000-25137 | 04/05/10 | 99.2 | |||||||||||||||||
| 4.05 |
Form of Base Warrant Transaction Confirmation | 8-K | 000-25137 | 04/05/10 | 99.3 | |||||||||||||||||
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| Exhibit |
Exhibit Description |
Form | File No. | Date of First Filing |
Exhibit Number |
Filed Herewith |
||||||||||||||||
| 4.06 |
Form of Additional Convertible Bond Hedge Transaction Confirmation | 8-K | 000-25137 | 04/05/10 | 99.4 | |||||||||||||||||
| 4.07 |
Form of Additional Warrant Transaction Confirmation | 8-K | 000-25137 | 04/05/10 | 99.5 | |||||||||||||||||
| 4.08 |
Indenture between Registrant and Wells Fargo Bank, N.A., as trustee, dated April 6, 2010 | 8-K | 000-25137 | 04/07/10 | 4.1 | |||||||||||||||||
| 10.01 |
Registrant’s Amended 1998 Equity Incentive Plan.* | 10-Q | 000-25137 | 05/14/04 | 10.01 | |||||||||||||||||
| 10.02 |
Registrant’s Amended 1998 Directors Stock Option Plan.* | 10-Q | 000-25137 | 05/14/04 | 10.02 | |||||||||||||||||
| 10.03 |
Registrant’s 1999 Stock Incentive Plan.* | S-8 | 333-31190 | 02/28/00 | 4.09 | |||||||||||||||||
| 10.04 |
Registrant’s 2007 Equity Incentive Plan and related forms of agreement for stock options, restricted stock, stock bonuses, stock appreciation rights, restricted stock units and other awards.* | S-8 | 333-141925 | 04/05/07 | 4.1 | |||||||||||||||||
| 10.05 |
Form of agreement for restricted stock units under Registrant’s 2007 Equity Incentive Plan.* | 8-K | 000-25137 | 07/06/10 | 99.1 | |||||||||||||||||
| 10.06 |
Registrant’s 2008 Employee Stock Purchase Plan* | 10-Q | 000-25137 | 02/05/09 | 10.01 | |||||||||||||||||
| 10.07 |
Registrant’s 401(k) Profit Sharing and Trust Plan.* | S-1 | 333-62299 | 08/26/98 | 10.05 | |||||||||||||||||
| 10.08 |
Fiscal 2008 Corporate Bonus Plan.* | 10-Q | 000-25137 | 02/11/08 | 10.03 | |||||||||||||||||
| 10.09 |
Fiscal 2009 Corporate Bonus Plan.* | 10-K | 000-25137 | 11/18/09 | 10.09 | |||||||||||||||||
| 10.10 |
Fiscal 2010 Corporate Bonus Plan.* | — | — | — | — | X | ||||||||||||||||
| 10.11 |
Amended and Restated Board Compensation Policy. | 10-Q | 000-25137 | 02/11/08 | 10.01 | |||||||||||||||||
| 10.12 |
Amended and Restated Non-Employee Director Compensation Policy. | 10-Q | 000-25137 | 02/05/09 | 10.02 | |||||||||||||||||
| 10.13 |
Form of Indemnity Agreement entered into by Registrant with each of its directors and executive officers.* | S-1 | 333-62299 | 08/26/98 | 10.06 | |||||||||||||||||
| 10.14 |
Office Lease Agreement, dated as of September 30, 2004, between Registrant and BTC U.S. L.L.C. | 10-K | 000-25137 | 12/14/04 | 10.12 | |||||||||||||||||
| 10.15 |
Securities Purchase Agreement dated July 29, 2008 between Registrant and American Express Travel Related Services Company, Inc. | 10-Q | 000-25137 | 08/06/08 | 10.01 | |||||||||||||||||
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| Exhibit |
Exhibit Description |
Form | File No. | Date of First Filing |
Exhibit Number |
Filed Herewith |
||||||||||||||||
| 10.16 |
Offer Letter, dated May 3, 2010, by and between Concur Technologies, Inc. and Frank Pelzer | 8-K | 000-25137 | May 4, 2010 | 99.1 | |||||||||||||||||
| 21.01 |
List of Registrant’s subsidiaries. | — | — | — | — | X | ||||||||||||||||
| 23.01 |
Consent of Grant Thornton LLP, Independent Registered Public Accounting Firm. | — | — | — | — | X | ||||||||||||||||
| 31.01 |
Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14(a). | — | — | — | — | X | ||||||||||||||||
| 31.02 |
Certification of Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-14(a). | — | — | — | — | X | ||||||||||||||||
| 32.01 |
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 and Securities Exchange Act Rule 13a-14(b).** | — | — | — | — | X | ||||||||||||||||
| 32.02 |
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 and Securities Exchange Act Rule 13a-14(b).** | — | — | — | — | X | ||||||||||||||||
| 101 |
Financial statements from the Company’s Quarterly Report on Form 10-K for the fiscal year ended September 30, 2010, formatted in XBRL.*** | — | — | — | — | X | ||||||||||||||||
| * | 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 Quarterly Report on Form 10-K for the fiscal year ended September 30, 2010, formatted in XBRL: (i) Consolidated Income Statements, (ii) Consolidated Balance Sheets, (iii) Consolidated Stockholders’ Equity Statements (iv) Consolidated Statements of Cash Flows, and (v) Notes to Consolidated Financial Statements, tagged as blocks of text. |
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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.
| CONCUR TECHNOLOGIES, INC. | ||||
| November 18, 2010 |
By: | /s/ S. STEVEN SINGH | ||
| S. Steven Singh Chief Executive Officer and Chairman of the Board | ||||
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:
| Name |
Title |
Date | ||
| /s/ S. STEVEN SINGH S. Steven Singh |
Chief Executive Officer and |
November 18, 2010 | ||
| /s/ FRANK PELZER Frank Pelzer |
Chief Financial Officer |
November 18, 2010 | ||
| /s/ RAJEEV SINGH Rajeev Singh |
Director | November 18, 2010 | ||
| /s/ JEFFREY T. MCCABE Jeffrey T. McCabe |
Director | November 18, 2010 | ||
| /s/ ED P. GILLIGAN Ed P. Gilligan |
Director | November 18, 2010 | ||
| /s/ GORDON EUBANKS Gordon Eubanks |
Director | November 18, 2010 | ||
| /s/ JEFFREY T. SEELY Jeffrey T. Seely |
Director | November 18, 2010 | ||
| /s/ RANDALL H. TALBOT Randall H. Talbot |
Director | November 18, 2010 | ||
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SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
CONCUR TECHNOLOGIES, INC.
September 30, 2010
(in thousands)
Allowance for Doubtful Accounts
| Balance at Beginning of Year |
Additions Charged to Costs and Expenses |
Additions Charged to Other Accounts(1) |
Deduction(2) | Balance at End of Year |
||||||||||||||||
| Year ended September 30: |
||||||||||||||||||||
| 2010 |
$ | 3,680 | $ | — | $ | 3,608 | $ | (4,914 | ) | $ | 2,374 | |||||||||
| 2009 |
$ | 5,543 | $ | — | $ | 2,990 | $ | (4,853 | ) | $ | 3,680 | |||||||||
| 2008 |
$ | 2,766 | $ | — | $ | 6,774 | $ | (3,997 | ) | $ | 5,543 | |||||||||
| (1) | Amounts charged against revenues for estimated sales returns. |
| (2) | Uncollectible accounts written off, net of recoveries. |
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EXHIBIT INDEX
| Exhibit Number |
Exhibit Description |
Form | File No. | Date of First Filing |
Exhibit Number |
Filed Herewith | ||||||
| 3.01 |
Registrant’s Second Amended and Restated Certificate of Incorporation, as filed with Delaware Secretary of State on August 7, 2010. | 8-K | 000-25137 | 03/29/10 | 3.1 | |||||||
| 3.02 |
Certificate of Designations of Series A Junior Preferred Stock of Registrant. | 8-A | 000-25137 | 04/23/01 | 3.2 | |||||||
| 3.03 |
Registrant’s Amended and Restated Bylaws, as adopted on December 6, 2007. | 8-K | 000-25137 | 12/10/07 | 3.1 | |||||||
| 4.01 |
Specimen Stock Certificate representing shares of Registrant’s Common Stock. | S-1 | 333-62299 | 08/26/98 | 4.01 | |||||||
| 4.02 |
Rights Agreement between Registrant and Wells Fargo N.A. dated April 20, 2001. | 8-A | 000-25137 | 04/23/01 | 4.1 | |||||||
| 4.03 |
Amendment to Rights Agreement between Registrant and Wells Fargo N.A. dated July 29, 2008. | 8-K | 000-25137 | 07/30/08 | 4.1 | |||||||
| 4.04 |
Form of Base Convertible Bond Hedge Transaction Confirmation | 8-K | 000-25137 | 04/05/10 | 99.2 | |||||||
| 4.05 |
Form of Base Warrant Transaction Confirmation | 8-K | 000-25137 | 04/05/10 | 99.3 | |||||||
| 4.06 |
Form of Additional Convertible Bond Hedge Transaction Confirmation | 8-K | 000-25137 | 04/05/10 | 99.4 | |||||||
| 4.07 |
Form of Additional Warrant Transaction Confirmation | 8-K | 000-25137 | 04/05/10 | 99.5 | |||||||
| 4.08 |
Indenture between Registrant and Wells Fargo Bank, N.A., as trustee, dated April 6, 2010 | 8-K | 000-25137 | 04/07/10 | 4.1 | |||||||
| 10.01 |
Registrant’s Amended 1998 Equity Incentive Plan.* | 10-Q | 000-25137 | 05/14/04 | 10.01 | |||||||
| 10.02 |
Registrant’s Amended 1998 Directors Stock Option Plan.* | 10-Q | 000-25137 | 05/14/04 | 10.02 | |||||||
| 10.03 |
Registrant’s 1999 Stock Incentive Plan.* | S-8 | 333-31190 | 02/28/00 | 4.09 | |||||||
| 10.04 |
Registrant’s 2007 Equity Incentive Plan and related forms of agreement for stock options, restricted stock, stock bonuses, stock appreciation rights, restricted stock units and other awards.* | S-8 | 333-141925 | 04/05/07 | 4.1 | |||||||
| 10.05 |
Form of agreement for restricted stock units under Registrant’s 2007 Equity Incentive Plan.* | 8-K | 000-25137 | 07/06/10 | 99.1 | |||||||
| 10.06 |
Registrant’s 2008 Employee Stock Purchase Plan* | 10-Q | 000-25137 | 02/05/09 | 10.01 | |||||||
| 10.07 |
Registrant’s 401(k) Profit Sharing and Trust Plan.* | S-1 | 333-62299 | 08/26/98 | 10.05 | |||||||
| 10.08 |
Fiscal 2008 Corporate Bonus Plan.* | 10-Q | 000-25137 | 02/11/08 | 10.03 | |||||||
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| Exhibit Number |
Exhibit Description |
Form | File No. | Date of First Filing |
Exhibit Number |
Filed Herewith | ||||||
| 10.09 |
Fiscal 2009 Corporate Bonus Plan.* | 10-K | 000-25137 | 11/18/09 | 10.09 | |||||||
| 10.10 |
Fiscal 2010 Corporate Bonus Plan.* | — | — | — | — | X | ||||||
| 10.11 |
Amended and Restated Board Compensation Policy. | 10-Q | 000-25137 | 02/11/08 | 10.01 | |||||||
| 10.12 |
Amended and Restated Non-Employee Director Compensation Policy. | 10-Q | 000-25137 | 02/05/09 | 10.02 | |||||||
| 10.13 |
Form of Indemnity Agreement entered into by Registrant with each of its directors and executive officers.* | S-1 | 333-62299 | 08/26/98 | 10.06 | |||||||
| 10.14 |
Office Lease Agreement, dated as of September 30, 2004, between Registrant and BTC U.S. L.L.C. | 10-K | 000-25137 | 12/14/04 | 10.12 | |||||||
| 10.15 |
Securities Purchase Agreement dated July 29, 2008 between Registrant and American Express Travel Related Services Company, Inc. | 10-Q | 000-25137 | 08/06/08 | 10.01 | |||||||
| 10.16 |
Offer Letter, dated May 3, 2010, by and between Concur Technologies, Inc. and Frank Pelzer | 8-K | 000-25137 | May 4, 2010 |
99.1 | |||||||
| 21.01 |
List of Registrant’s subsidiaries. | — | — | — | — | X | ||||||
| 23.01 |
Consent of Grant Thornton LLP, Independent Registered Public Accounting Firm. | — | — | — | — | X | ||||||
| 31.01 |
Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14(a). | — | — | — | — | X | ||||||
| 31.02 |
Certification of Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-14(a). | — | — | — | — | X | ||||||
| 32.01 |
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 and Securities Exchange Act Rule 13a-14(b).** | — | — | — | — | X | ||||||
| 32.02 |
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 and Securities Exchange Act Rule 13a-14(b).** | — | — | — | — | X | ||||||
| 101 |
Financial statements from the Company’s Quarterly Report on Form 10-K for the fiscal year ended September 30, 2010, formatted in XBRL.*** | — | — | — | — | X | ||||||
| * | 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 Quarterly Report on Form 10-K for the fiscal year ended September 30, 2010, formatted in XBRL: (i) Consolidated Income Statements, (ii) Consolidated Balance Sheets, (iii) Consolidated Stockholders’ Equity Statements (iv) Consolidated Statements of Cash Flows, and (v) Notes to Consolidated Financial Statements, tagged as blocks of text. |
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