CONCUR TECHNOLOGIES INC - FORM 10-Q

CONCUR TECHNOLOGIES INC - FORM 10-Q - May 6, 2011

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Attached files

CONCUR TECHNOLOGIES INC Reports

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EXCEL - IDEA: XBRL DOCUMENT - CONCUR TECHNOLOGIES INC	Financial_Report.xls
EX-31.02 - SECTION 302 CFO CERTIFICATION - CONCUR TECHNOLOGIES INC	dex3102.htm
EX-31.01 - SECTION 302 CEO CERTIFICATION - CONCUR TECHNOLOGIES INC	dex3101.htm
EX-32.02 - SECTION 906 CFO CERTIFICATION - CONCUR TECHNOLOGIES INC	dex3202.htm
EX-32.01 - SECTION 906 CEO CERTIFICATION - CONCUR TECHNOLOGIES INC	dex3201.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2011

¨	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		98052
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (425) 702-8808

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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes x No

Number of shares of the registrant’s common stock outstanding as of April 29, 2011: 53,917,552

CONCUR TECHNOLOGIES, INC.

FORM 10-Q

March 31, 2011

INDEX


			Page
PART I. FINANCIAL STATEMENTS

	ITEM 1. FINANCIAL STATEMENTS

		Income Statements		3
		Balance Sheets		4
		Cash Flow Statements		5
		Notes to Financial Statements		6

	ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			20
	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			35
	ITEM 4. CONTROLS AND PROCEDURES			35

PART II. OTHER INFORMATION				36

	ITEM 1. LEGAL PROCEEDINGS			36
	ITEM 1A. RISK FACTORS			37
	ITEM 6. EXHIBITS			48

SIGNATURE				49

PART I. FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

Concur Technologies, Inc.

Income Statements

(In thousands, except per share amounts)

(Unaudited)


	Three Months Ended March 31,						Six Months Ended March 31,
	2011			2010			2011			2010
Revenues	$	84,629		$	72,816		$	164,864		$	140,469

Expenses:
Cost of operations		23,776			20,603			46,085			39,776
Sales and marketing		37,753			22,712			65,142			43,484
Systems development and programming		10,064			7,127			17,466			14,017
General and administrative		14,143			9,554			26,597			18,266
Revaluation of contingent consideration		(1,265	)		—			(1,265	)		—
Amortization of intangible assets		2,419			1,833			4,139			3,688

Total expenses		86,890			61,829			158,164			119,231


Operating income (loss)		(2,261	)		10,987			6,700			21,238

Other income (expense):
Interest income		622			294			1,305			605
Interest expense		(4,605	)		(440	)		(9,165	)		(543	)
Loss from equity investments		(7	)		—			(7	)		—
Other, net		(57	)		(332	)		(238	)		(491	)

Total other expense, net		(4,047	)		(478	)		(8,105	)		(429	)


Income (loss) before income tax		(6,308	)		10,509			(1,405	)		20,809
Income tax expense (benefit)		(3,646	)		3,791			(2,394	)		7,658

Net income (loss)		(2,662	)		6,718			989			13,151
Less: Net loss attributable to noncontrolling interests		33			—			33			—

Net income (loss) attributable to Concur	$	(2,629	)	$	6,718		$	1,022		$	13,151


Net income (loss) per share attributable to Concur common shareholders:
Basic	$	(0.05	)	$	0.14		$	0.02		$	0.27
Diluted		(0.05	)		0.13			0.02			0.25

Weighted average shares used in computing net income (loss) per share:
Basic		53,467			49,454			52,950			49,248
Diluted		53,467			52,738			55,112			52,619

See notes to financial statements.

Concur Technologies, Inc

Balance Sheets

(In thousands, except per share amounts)

(Unaudited)


	March 31, 2011			September 30, 2010
Assets
Current assets:
Cash and cash equivalents	$	385,120		$	329,098
Short-term investments		181,467			301,597
Restricted cash		1,717			2,535
Accounts receivable, net of allowance of $1,943 and $2,374		61,044			52,340
Deferred tax assets		16,747			18,810
Deferred costs and other assets		29,258			26,640

Total current assets		675,353			731,020
Non-current assets:
Property and equipment, net		39,435			36,229
Investments		48,311			6,045
Deferred costs and other assets		26,485			25,441
Intangible assets, net		51,879			36,398
Deferred tax assets		16,929			12,675
Goodwill		267,262			194,989

Total assets	$	1,125,654		$	1,042,797


Liabilities and stockholders’ equity

Current liabilities:
Accounts payable	$	4,731		$	5,413
Customer funding liabilities		61,565			66,985
Accrued compensation		14,894			20,944
Acquisition-related liabilities		3,068			—
Other accrued expenses and liabilities		18,853			14,390
Deferred revenues		49,651			44,358

Total current liabilities		152,762			152,090
Non-current liabilities:
Senior convertible notes, net		233,697			228,128
Deferred rent and other long-term liabilities		1,080			1,149
Deferred revenues		14,918			15,453
Acquisition-related contingent consideration		18,076			—
Tax liability		8,581			8,151

Total liabilities		429,114			404,971


Equity:
Concur stockholders’ equity:
Convertible preferred stock, par value $0.001 per share		—			—
Authorized shares: 5,000; No shares issued or outstanding
Common stock, $0.001 par value per share		54			52
Authorized shares: 195,000
Shares issued and outstanding: 53,913 and 52,379
Additional paid-in capital		794,840			739,781
Accumulated deficit		(98,514	)		(99,536	)
Accumulated other comprehensive loss		(1,008	)		(2,471	)

Total Concur stockholders’ equity		695,372			637,826

Noncontrolling interests		1,168			—

Total equity		696,540			637,826

Total liabilities and equity	$	1,125,654		$	1,042,797

See notes to financial statements.

Concur Technologies, Inc.

Cash Flow Statements

(In thousands)

(Unaudited)


	Three Months Ended March 31,						Six Months Ended March 31,
	2011			2010			2011			2010
Operating activities:
Net income (loss)	$	(2,662	)	$	6,718		$	989		$	13,151
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Amortization of intangible assets		2,419			1,833			4,139			3,688
Depreciation		5,250			4,164			9,806			8,296
Accretion of discount and issuance costs on notes, net		2,808			—			5,568			—
Net recovery of sales allowances		(72	)		(485	)		(430	)		(814	)
Share-based compensation expense		12,158			3,866			18,703			7,365
Gain on revaluation of contingent consideration		(1,265	)		—			(1,265	)		—
Deferred income taxes		(3,736	)		3,768			(2,345	)		7,261
Excess tax benefits from share-based compensation		—			—			(145	)		—
Loss from equity method investments		7			—			7			—
Changes in operating assets and liabilities:
Accounts receivable		(7,992	)		(4,451	)		(7,186	)		(2,140	)
Deferred costs and other assets		(2,103	)		(1,822	)		(3,298	)		(2,529	)
Accounts payable		256			(534	)		(715	)		(19	)
Accrued liabilities		6,749			915			(1,206	)		(7,996	)
Deferred revenues		4,196			4,270			4,297			6,128

Net cash provided by operating activities		16,013			18,242			26,919			32,391

Investing activities:
Purchases of investments		(138,904	)		(55,942	)		(221,850	)		(93,201	)
Maturities of investments		237,436			72,098			341,940			112,737
Increase(decrease) in customer funding liabilities, net of changes in restricted cash		24,915			20,808			(4,658	)		6,389
Investments in unconsolidated affiliates		(40,000	)		(2,000	)		(42,272	)		(2,000	)
Investments in consolidated joint venture by noncontrolling interest		1,152			—			1,152			—
Purchases of property and equipment		(7,920	)		(4,014	)		(12,696	)		(7,659	)
Payments for acquisitions, net of cash acquired		(24,000	)		(2,378	)		(24,108	)		(3,540	)

Net cash provided by investing activities		52,679			28,572			37,508			12,726

Financing activities:
Equity issuance costs		(25	)		—			(25	)		—
Net proceeds from share-based equity award activity		599			1,629			1,364			2,743
Proceeds from employee stock purchase plan activity		562			435			943			720
Tax withholding on stock awards		(11,081	)		(4,232	)		(11,081	)		(4,232	)
Excess tax benefits from share-based compensation		—			—			145			—
Repayments on capital leases		—			(279	)		(199	)		(551	)

Net cash used in financing activities		(9,945	)		(2,447	)		(8,853	)		(1,320	)

Effect of foreign currency exchange rate changes on cash and cash equivalents		311			(91	)		448			15

Net increase in cash and cash equivalents		59,058			44,276			56,022			43,812
Cash and cash equivalents at beginning of period		326,062			118,721			329,098			119,185

Cash and cash equivalents at end of period	$	385,120		$	162,997		$	385,120		$	162,997


Supplemental cash flow information:
Cash paid for interest	$	0		$	70		$	3,773		$	106
Income tax (receipts) payments, net		(649	)		619			(733	)		1,064

See notes to financial statements.

NOTES TO FINANCIAL STATEMENTS

March 31, 2011

(Unaudited)

Note 1. Description of the Company and Basis of Presentation

Throughout these financial statements Concur Technologies, Inc. is referred to as “Concur,” “we,” “us” and “our.” We report our operating results on the basis of a fiscal year that starts October 1 and ends September 30. We refer to our fiscal years ended September 30, 2008, 2009, 2010 and 2011, as “2008”, “2009,” “2010” and “2011.” 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 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^®, Concur^® Expense, Concur^® Travel & Expense, Concur^® Cliqbook Travel, Concur^® Invoice, Concur^® Connect, Concur^® ExpenseLink, Concur^® Advantage, Concur^® Breeze, and TripIt are among the registered trademarks and registered service marks of Concur or our subsidiaries, in the United States and other countries. Other parties’ trademarks and service marks are the property of their respective owners and should be treated as such.

Basis of Presentation

The accompanying financial statements present our income statements, balance sheets, equity statements, and cash flow statements on a consolidated basis. These unaudited financial statements include the accounts of Concur and our subsidiaries. We have eliminated all intercompany accounts and transactions in these financial statements.

In addition, we hold a controlling interest (75 percent voting interest) in Concur (Japan) Ltd., (“Concur Japan”), a Japanese joint venture. We have consolidated the accounts of Concur Japan with the accounts of Concur, and we have recorded the noncontrolling interest for the minority investors’ interests in the net assets and operations of Concur Japan.

We have prepared the accompanying unaudited financial statements in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial reporting. In our opinion, we have included all adjustments necessary for a fair presentation. These adjustments consist of normal recurring items. Our unaudited financial statements are not necessarily indicative of results that may be expected for any other interim period or for the full year. These unaudited financial statements should be read in conjunction with the financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2010, filed with the Securities and Exchange Commission on November 18, 2010.

Reclassifications

Certain amounts previously presented for prior periods have been reclassified to conform to current presentation. The reclassifications had no effect on net income or total stockholders’ equity. Also see Note 10 for further information about the prior period correction related to income taxes.

Note 2. Accounting Estimates, Summary of Significant Accounting Policies and Recent Accounting Pronouncements

Use of Estimates

We prepared our financial statements in conformity with GAAP, which requires us to make estimates and assumptions affecting the amounts reported in the financial statements and accompanying notes. Changes in these estimates and assumptions may have a material impact on our financial statements and accompanying notes. Examples of estimates and assumptions include the determination of certain provisions, including valuing assets and liabilities acquired through business combinations, valuing and estimating useful lives of intangible assets, recognizing uncertain tax positions, and estimating tax valuation allowances on tax attribute carryforwards, deferring certain revenues and costs, allowances for accounts receivable, estimating useful lives of property and equipment and estimating product warranties.

Recently Adopted Accounting Pronouncements

On October 1, 2010, we adopted authoritative guidance on revenue arrangements with multiple deliverables that are outside the scope of the software revenue recognition guidance. Under the new guidance, when vendor specific objective evidence or third party evidence for deliverables in an arrangement cannot be determined, a best estimate of the selling price is required to separate deliverables and allocate arrangement consideration using the relative selling price method. The new guidance includes new disclosure requirements on how the application of the relative selling price method affects the timing and amount of revenue recognized. The new guidance also eliminates the use of the residual method of allocation and instead requires that arrangement consideration be allocated at the inception of the arrangement, to all deliverables based on their relative selling price. Adoption of the new guidance did not have a material impact on our financial statements.

Recently Issued Accounting Pronouncements Not Yet Adopted

In January 2010, the Financial Accounting Standards Board (“FASB”) issued guidance to amend the disclosure requirements related to fair value measurements. The guidance requires the disclosure of roll forward activities on purchases, sales, issuance, and settlements of the assets and liabilities measured using significant unobservable inputs (Level 3 fair value measurements). The guidance will become effective for us with the reporting period beginning October 1, 2011. Other than requiring additional disclosures, the adoption of this new guidance will not have a material impact on our financial statements.

In December 2010, the FASB issued Accounting Standards Update No. 2010-29, Disclosure of Supplementary Pro Forma Information for Business Combinations (Topic 805)—Business Combinations (ASU 2010-29), to improve consistency in how the pro forma disclosures are calculated. Additionally, ASU 2010-29 enhances the disclosure requirements and requires description of the nature and amount of any material, nonrecurring pro forma adjustments directly attributable to a business combination. The guidance will become effective for us with the reporting period beginning October 1, 2011, and should be applied prospectively to business combinations for which the acquisition date is after the effective date. Early adoption is permitted. We are currently evaluating the impact of the pending adoption of ASU 2010-29 on our consolidated financial statements.

Note 3. 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:


	Three Months Ended March 31,					Six Months Ended March 31,
	2011			2010		2011		2010
Net income (loss) attributable to Concur	$	(2,629	)	$	6,718	$	1,022	$	13,151

Weighted average number of shares outstanding:
Basic		53,467			49,454		52,950		49,248
Dilutive effect of share-based equity award plans (1)		—			3,222		2,162		3,344
Dillutive effect of warrants (2)		—			62		—		27

Diluted		53,467			52,738		55,112		52,619

Net income (loss) per share available to common stockholders:
Basic	$	(0.05	)	$	0.14	$	0.02	$	0.27
Diluted		(0.05	)		0.13		0.02		0.25

(1)	For the three months ended March 31, 2011 we excluded all share-based equity awards to purchase Concur common stock from the calculations of diluted net income per share as the inclusion of these securities would have been anti-dilutive

(2)	This warrant was issued to American Express Travel Related Services Company, Inc. in 2008, and was exercised in July 2010 and therefore had no dilutive effect in 2011.

Note 4. Business Acquisition

On January 24, 2011, we completed the acquisition of TripIt, Inc. (“TripIt”) a market leader in mobile trip management. The combination of Concur and TripIt delivers additional value to existing clients and travelers while helping to expand the addressable market for Concur’s services by reaching a new class of travelers previously unaddressed by traditional managed travel solutions.

Subject to the terms of the acquisition agreement, we acquired all of the outstanding shares of TripIt for $24.7 million cash, 814 shares of Concur’s common stock valued at approximately $41.2 million at closing, of which 217 shares are held in escrow, plus future contingent consideration with a fair value of $28.9 million (further discussed under “Top-Up Payment” below). Of the $28.9 million, $11.5 million relates to certain individuals whose ability to receive a Top-Up payment is subject to a continued employment requirement. The portion of the fair value of the contingent consideration subject to the continued employment requirement will be recognized as compensation expense in post combination financial statements. The remainder of the Top-Up Payment fair value ($17.4 million) was recorded as part of the purchase consideration.

In addition, we issued unvested Concur restricted stock units in exchange for cancellation of unvested TripIt stock options outstanding with an aggregate value of $9.9 million. The portion of the fair-value of the replacement award that is attributable to the precombination service period is $3.6 million and has been included as part of the purchase consideration. We accounted for this acquisition using the purchase method of accounting. We have included the financial results of TripIt in our consolidated financial statements beginning on the acquisition date.

The total purchase price for the TripIt acquisition was comprised of the following:


Net obligations assumed	$	(1,602	)
Intangible assets		19,300
Deferred tax liability, net of deferred tax asset		(588	)
Goodwill		69,699

Total purchase price	$	86,809

The following table presents the details of the intangible assets we acquired in connection with the TripIt acquisition:


	Fair value		Useful Life
Software technology	$	8,980		5 years
User base		8,220		5 years
Trademark and trade name		2,100		10 years

Total intangible assets subject to amortization	$	19,300

The goodwill recorded in connection with the Company’s business combinations is primarily related to the synergies to be achieved that are unique to our business. The goodwill balance is not deductible for tax purposes.

We expensed transaction costs associated with TripIt as incurred. These transaction costs were $1.8 million and $1.9 million for the three and six months ended March 31, 2011, and are included in our general and administrative expenses of our income statement.

Top-Up Payment

As part of the TripIt acquisition, we agreed to pay additional cash consideration of up to $38.3 million to the former shareholders of TripIt on the 30 month anniversary of the closing or at such earlier time as specified in the Agreement (the “Top-Up Payment Date”). If, on the Top-Up Payment Date, the value of the consideration issued at the closing (the “Market Value”) is less than approximately $82.1 million or $100.9 per share (the “Guaranteed Value”), subject to adjustments, we will make a payment to such holders in an aggregate amount equal to the difference between the Guaranteed Value and the Market Value (the “Top-Up Payment”), subject to certain limited exceptions. Such right to receive the Top-Up Payment will terminate in the event the value of the shares paid at closing increases by approximately $38.3 million to $100.90 per share at any time prior to the Top-Up Payment Date. If shares were sold or transferred before the Top-Up Payment Date, such holders will not be eligible to receive a Top-Up Payment. In addition, certain former shareholders that became employees of Concur will not be eligible to receive a Top-Up Payment if these employees terminate employment with Concur prior to the required service period. As of March 31, 2011, the potential undiscounted amount of the payment that we could be required to make on the Top-Up Payment Date is between $0 and approximately $38.3 million.

As of the acquisition date, we estimated the total fair value of the contingent consideration to be $28.9 million, using the Monte Carlo Simulation valuation approach. This valuation method was based on significant inputs that are not observable in the market (Level 3 inputs), with key assumptions including (i) expected term of 30 months, (ii) rate of return based on the yield on the three year U.S. Treasury bill (iii) volatility based on our historical stock price volatility and the volatility implied by traded options in our common stock, and (iv) strike price of $100.90.

As of March 31, 2011, the acquisition-related liability total was $18.1 million. This includes $1.9 million related to the portion of the Top-Up Payment due to certain individuals whose Top-Up Payment is subject to a continued employment requirement. The acquisition-related contingent consideration also included $16.2 million related to the portion of the Top-Up Payment due to other former shareholders of TripIt. Changes in the Top-Up Payment liability since the acquisition date were recorded in the income statement. On a quarterly basis, we will continue to re-measure the fair value of the contingent Top-Up Payment and any changes in contingent consideration will be recorded in the income statement.

Note 5. Property and Equipment

As of the dates specified below, our property and equipment consisted of the following:


	March 31, 2011			September 30, 2010
Land and building	$	5,936		$	5,842
Leasehold improvements		5,673			5,586
Computer hardware		20,246			17,672
Computer software		52,196			47,245
Furniture and equipment		1,335			1,210

Property and equipment, gross		85,386			77,555
Less: accumulated depreciation		(45,951	)		(41,326	)

Property and equipment, net	$	39,435		$	36,229

Note 6. Investments

Our investment portfolio includes strategic investments in privately-held companies. We reported all of our strategic investment in “Investments” on our balance sheet.

ClearTrip

In March 2011, we invested $40.0 million in privately held ClearTrip, Inc. (“ClearTrip”), a leading provider of online travel services in India. Our investment consists of both preferred stock and common stock. In addition, we have a warrant to purchase up to 1.5 million shares of the preferred stock. The warrant has a five year term and can be exercised at any time during this term.

Classes of preferred stock in ClearTrip that do not meet all the characteristics of in-substance common stock have been accounted for under the cost method with net accumulated earnings recorded only to the extent of distributed dividends.

Our investment in ClearTrip’s common stock and certain classes of preferred stock are accounted for under the equity method because our total ownership interest exceeds 20% and we have the ability to exert significant influence. Under the equity method, we record our investment at cost and adjust the carrying amount of the investment to recognize our proportionate share of ClearTrip’s net income or loss into our consolidated statements of income after the date of acquisition.

RideCharge

During 2009 and 2010, we have made investments totaling $6.0 million in privately held RideCharge, Inc. (“RideCharge”), a leading provider of ground travel booking that allows business travelers to book, pay and get reimbursed for ground transportation.

Because our preferred stock in RideCharge does not meet all the characteristics of in-substance common stock, we have accounted for our investment under the cost method with net accumulated earnings recorded only to the extent of distributed dividends. We have reported our investment in RideCharge in “Investments” on our balance sheet.

Total cost method investments were $35.1 million and $6.0 million, as of March 31, 2011 and 2010. Total equity method investments were $13.2 million as of March 31, 2011. There were no equity investments as of March 31, 2010. We assess these investments for impairment as circumstances dictate.

Note 7. Intangible Assets and Goodwill

The following table presents our intangible assets as of March 31, 2011, and September 30, 2010:


Description	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount as of March 31, 2011		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount as of September 30, 2010
Trade name and trademarks	$	2,806	$	274	$	2,532	$	681	$	159	$	522
Technology		21,579		10,314		11,265		11,754		8,566		3,188
Customer relationships		52,215		14,133		38,082		44,465		11,777		32,688

Total	$	76,600	$	24,721	$	51,879	$	56,900	$	20,502	$	36,398

For the three and six months ended March 31, 2011, we recorded amortization expense of $2.4 million and $4.1 million in our income statements, and we recorded amortization expense of $1.8 million and $3.7 million for the same periods in 2010.

The following table presents the estimated amortization expense for the remaining estimated useful life of the intangible assets as of March 31, 2011:


Years Ending September 30,	Amortization of Intangible Assets
2011 (April 1, 2011, through September 30, 2011)	$	5,345
2012		8,493
2013		7,987
2014		7,778
2015		7,575
Thereafter		14,701

Total	$	51,879

Goodwill consisted of the following:


Balance as of September 30, 2010	$	194,989
Addition - Tripit		69,699
Additions - Other		1,668
Other adjustments ⁽¹⁾		906

Balance as of March 31, 2011	$	267,262

(1)

Other adjustments represent the impact of foreign currency translation for instances when goodwill is recorded in foreign entities whose functional currency is also their local currency. These goodwill balances are translated into U.S. dollars using exchange rates in effect at period end. Adjustments are included in other comprehensive income (loss).

Note 8. Customer Funding Liabilities

We draw funds from and make payments on behalf of our customers for employee expense reimbursements and related corporate credit card payments. We hold these funds in cash and record our obligation to make these expense reimbursements and payments on behalf of our customers as Customer Funding Liabilities. Some of our customers require that we maintain restricted bank accounts to hold these funds. Amounts held in these accounts are recorded as restricted cash.

Note 9. Debt

In March 2010, we issued $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 Concur 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 Concur 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).

Investors 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. Additionally, we recorded a deferred tax asset of $0.8 million in connection with the Notes.

The following table shows the amounts recorded within our financial statements for the Notes:


	As of
	March 31, 2011
Liability components:
Principal amount	$	287,500
Less: note discount		(48,365	)
Less: note issuance costs		(5,438	)

Senior convertible notes, net	$	233,697

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 three and six months ended March 31, 2011:


	Three months ended March 31, 2011			Six months ended March 31, 2011
Contractual interest expense	$	1,797		$	3,594
Amortization of debt issuance costs		301		$	599
Accretion of debt discount		2,507		$	4,969

	$	4,605		$	9,162

Effective interest rate of the liability component		7.73	%		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, 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 (“Warrants”), subject to anti-dilution adjustments. The Warrants will expire upon the maturity of the Notes. We received proceeds of $26.1 million from the sale of the Warrants. If the market value per share of our common stock, as measured under the Warrants, exceeds the strike price of the Warrants, the Warrants will have a dilutive effect on our net income per share.

Note 10. Income Taxes

We base the provision for income taxes in our interim financial statements on estimated annual effective tax rates in the tax jurisdictions where we operate. Our effective tax rates differ from the U.S. federal statutory rate primarily due to the tax impact of nondeductible compensation, research and development (“R&D”) tax credits, nondeductible acquisition costs, state taxes, foreign operations, and transfer pricing adjustments. If actual results differ from the assumptions used in estimating our annual effective income tax rates, future income tax expense could be materially affected.

For the three months ended March 31, 2011 and 2010, our effective tax rate was 57.80% and 36.07%. For the six months ended March 31, 2011 and 2010, our effective tax rate was 170.39% and 36.80%. The increase in the effective tax rate for the three and six months of 2011 compared to the same periods of the prior year is primarily the result of nondeductible compensation related to the TripIt acquisition, the decrease in pre-tax income from 2010, nondeductible TripIt acquisition costs, and partially offset by an increase in R&D development credits (the U.S. federal R&D tax credit was retroactively reinstated in the first quarter of 2011) and a decrease in the earnings from tax jurisdictions with higher statutory rates in which we operate.

We measure and recognize uncertain tax positions. To recognize such positions we first determine if it is more likely than not that the position will be sustained on audit. We 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.

Prior Period Correction

During the first quarter of 2011, we discovered an incorrect assumption related to the tax deductibility of certain operating expenses which resulted in an understatement of the provision for income taxes reported in prior periods. This error had no impact on previously reported cash flows from operating, financing or investing activities and was considered to be immaterial to our previously reported results of operations and financial position. Since the cumulative impact of this error is significant to the results of the first quarter of 2011, we applied the guidance of Staff Accounting Bulletin No. 108 (“SAB 108”) and corrected the prior period financial statements, even though such revision previously was, and continues to be, immaterial to the prior period financial statements.

The following is an income statement reconciliation of the comparable period for the three months ended March 31, 2010:


	Provision for Income Taxes		Net Income			Basic Net Income Per Share		Diluted Net Income Per Share
Reported	$	3,682	$	6,827		$	0.14	$	0.13
Adjustment		109		(109	)		—	$	—

Revised	$	3,791	$	6,718		$	0.14	$	0.13

The following is an income statement reconciliation of the comparable period for the six months ended March 31, 2010:


	Provision for Income Taxes		Net Income			Basic Net Income Per Share		Diluted Net Income Per Share
Reported	$	7,439	$	13,369		$	0.27	$	0.25
Adjustment		218		(218	)		—	$	—

Revised	$	7,657	$	13,151		$	0.27	$	0.25

The following is a reconciliation of balance sheet amounts as of September 30, 2010:


	Deferred Costs and Other Assets			Deferred Tax Assets			Additional paid-in capital		Accumulated Deficit
Reported	$	26,671		$	13,601		$	739,772	$	(98,570	)
Adjustment		(31	)		(926	)		9		(966	)

Revised	$	26,640		$	12,675		$	739,781	$	(99,536	)

Note 11. 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 March 31, 2011, we had 6.3 million shares of common stock reserved for future grants under our Equity Plan, excluding shares of common stock reserved for future issue under our Employee Stock Purchase Plan. We recognize compensation expense for equity awards on a straight line basis over the requisite service period of the award.

We have calculated an additional paid in capital (“APIC”) pool that represents the excess tax benefits related to share-based compensation that are available to absorb future tax deficiencies. We include those excess tax benefits in APIC only when they have been realized. If the amount of future tax deficiencies is greater than the available APIC pool, we will record the excess deficiencies as income tax expense in our income statements. Excess tax benefits or tax deficiencies, to the extent realized, are a factor in the calculation of diluted shares used in computing dilutive income per share.

The following table presents our share-based compensation resulting from equity awards that we recorded in our income statements for the three and six months ended March 31, 2011 and 2010:


	Three Months Ended March 31,				Six Months Ended March 31,
	2011		2010		2011		2010
Cost of operations	$	681	$	597	$	1,334	$	1,081
Sales and marketing		7,175		1,786		10,536		3,493
Systems development and programming		2,358		576		3,176		1,076
General and administrative		1,944		907		3,657		1,715

Total share-based compensation	$	12,158	$	3,866	$	18,703	$	7,365

Net cash proceeds from the exercise of stock options were $0.6 million and $1.5 million for the three and six months ended March 31, 2011, and $1.6 million and $2.7 million for the same periods in 2010. We present excess tax benefits from the exercise of stock options and vesting of RSUs, if any, as financing cash flows and a corresponding reduction in operating cash flows.

The following table presents our stock option activity for the six months ended March 31, 2011:


	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding as of September 30, 2010		1,389		$	8.65
Exercised		(253	)		5.77
Forfeited or expired		—			—

Outstanding as of March 31, 2011		1,136			9.47		3.42	$	52,218

Exercisable as of March 31, 2011		1,136			9.47		3.42		52,174

For the six months ended March 31, 2011, the total intrinsic value of options exercised was $11.7 million.

RSUs are awards that entitle the holder to shares of our common stock as the awards vest. RSUs generally vest over four years, but may accelerate in certain circumstances. The compensation expense incurred for RSUs is based on the closing market price of our common stock on the date of grant and is amortized ratably on a straight-line basis over the requisite service period.

The following table presents a summary of RSU award activity for the six months ended March 31, 2011:


	Shares			Weighted Average Share Value
Outstanding as of September 30, 2010		1,807		$	33.67
Granted		321			50.99
Vested and released		(650	)		35.28
Cancelled		(16	)		41.17

Outstanding as of March 31, 2011		1,462			36.36

As of March 31, 2011, we expected $27.9 million of total unrecognized share-based compensation costs related to non-vested stock options and RSUs to be recognized over a weighted average period of 1.6 years.

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.

We have highly liquid investments classified as cash equivalents and short-term investments included in our balance sheet. Cash equivalents consist of money market instruments and commercial paper that have original maturities of 90 days or less. We also invest in commercial paper with maturities greater than 90 days but generally mature within 270 days. Such instruments are classified within Level 2 of the fair value hierarchy.

Our financial assets and liabilities measured at fair value as of March 31, 2011, are summarized below:


	Fair value measurement using						Assets at
	Level 1		Level 2		Level 3		fair value
Assets:
Money market accounts	$	58,018	$	—	$	—	$	58,018
Commercial paper		—		309,829		—		309,829
Other fixed income securities		—		73,797				73,797

Total	$	58,018	$	383,626	$	—	$	441,644

Liabilities:
Acquisition-related contingent consideration	$	—	$	—	$	18,076	$	18,076

Acquisition-related Contingent Consideration

We estimate the fair value of acquisition-related contingent consideration using the Monte Carlo Simulation approach. Contingent consideration liabilities are classified as Level 3 liabilities, because we use unobservable inputs to value them, reflecting our assessment of the assumptions market participants would use to value these liabilities. The unrealized gains and losses related to the contingent consideration are included in our income statement.

The following table presents a reconciliation for liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) as of March 31, 2011:


Acquisition-related contingent consideration	$	17,395
Change in fair value		(1,265	)

Balance as of March 31, 2011	$	16,130

Acquisition-related contingent consideration - compensatory	$	—
Recorded as compensation expense		1,946

Balance as of March 31, 2011	$	1,946

As of March 31, 2011, the total fair value of the contingent consideration associated with TripIt was $26.8 million, of which 18.1 million is recorded as a liability. The remaining of $8.7 million is compensation related and will be recorded during the requisite service period.

Note 13. Equity and Comprehensive Income (Loss) The following table shows the changes in equity attributable to both Concur and the noncontrolling interest in our consolidated subsidiary in which we have control, but not total ownership interest.


	Attributable to Concur			Noncontrolling Interest			Total Equity
Equity at December 31, 2010		648,862			—			648,862
Initial investment by noncontrolling interest partners					1,225			1,225
Comprehensive Income (loss):
Net loss		(2,629	)		(33	)		(2,662	)
Foreign currency translation adjustment		2,074			(24	)		2,050
Net unrealized gain on investments, net of tax		15			—			15

Comprehensive Loss:		(540	)		(57	)		(597	)
Stock-based transactions and compensation expense		47,050			—			47,050

Equity at March 31, 2011	$	695,372		$	1,168		$	696,540



	Attributable to Concur			Noncontrolling Interest		Total Equity
Equity at December 31, 2009		532,373			—		532,373
Comprehensive income (loss):
Net income		6,827			—		6,827
Foreign currency translation adjustment		(2,028	)		—		(2,028	)
Net unrealized loss on investments		(31	)		—		(31	)

Comprehensive income:		4,768			—		4,768
Equity component of Senior Convertible Notes, net		19,534			—		19,534
Stock-based transactions and compensation expense		1,819			—		1,819

Equity at March 31, 2010	$	558,494		$	—	$	558,494



	Attributable to Concur		Noncontrolling Interest			Total Equity
Equity at September 30, 2010		637,826		—			637,826
Initial investment by noncontrolling interest partners				1,225			1,225
Comprehensive income (loss):
Net income (loss)		1,022		(33	)		989
Foreign currency translation adjustment		1,444		(24	)		1,420
Net unrealized gain on investments, net of tax		19		—			19

Comprehensive Income (loss):		2,485		(57	)		2,428
Stock-based transactions and compensation expense		55,061		—			55,061

Equity at March 31, 2011	$	695,372	$	1,168		$	696,540



	Attributable to Concur			Noncontrolling Interest		Total Equity
Equity at September 30, 2009		521,330			—		521,330
Comprehensive income (loss):
Net income		13,369			—		13,369
Foreign currency translation adjustment		(2,505	)		—		(2,505	)
Net unrealized gain on investments, net of tax		2			—		2

Comprehensive income:		10,866			—		10,866
Equity component of Senior Convertible Notes, net		19,534			—		19,534
Stock-based transactions and compensation expense		6,764			—		6,764

Equity at March 31, 2010	$	558,494		$	—	$	558,494

Note 14. Segment Reporting

We operate in and report on one segment, which is on-demand Employee Spend Management Solutions. We market our services and products primarily in the United States and operate in a single industry segment. For the three and six months ended March 31, 2011 and 2010, no single customer accounted for more than 10% of our total revenues. The following table presents our revenues by geographic region:


	Three Months Ended March 31,				Six Months Ended March 31,
	2011		2010		2011		2010
United States	$	73,237	$	63,920	$	142,895	$	122,856
Europe		8,302		5,785		15,675		11,737
Other		3,090		3,111		6,294		5,876

Total revenues	$	84,629	$	72,816	$	164,864	$	140,469

Note 15. 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

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 Concur of six patents generally related to seat selection and reservation systems under the Patent Laws of the United States of America, 35 U.S.C. §§ 1 et seq., including 35 U.S.C. § 271(a), (b), (c), and/or (f). 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.

Note 16. Subsequent Event

On April 29, 2011, TripIt LLC, successor-in-interest to TripIt, Inc. and a subsidiary of Concur Technologies, Inc., was named as a defendant in a purported patent infringement lawsuit, captioned ArrivalStar S.A. and Melvino Technologies Limited v. Encore Forwarding, Inc. et al., in the United States District Court for the Southern District of Florida. The complaint alleges infringement by TripIt of eight patents on account of “ ‘Get SMS Travel Alerts’ programs/products/services/systems which include and use tracking and messaging technologies” alleged to be protected by the patents. The plaintiffs seek an injunction 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.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) provides information that we believe is relevant to an assessment and understanding of our results of operations and financial condition. This discussion should be read in conjunction with the Financial Statements and Notes that are included with 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.

Throughout this MD&A, we refer to Concur Technologies, Inc. as “Concur,” “we,” “us” and “our.” We report our operating results on a fiscal year basis that starts October 1 and ends September 30. We refer to our fiscal years ended September 30, 2009, 2010 and 2011, as “2009,” “2010” and “2011.” Throughout this MD&A, where we provide discussion of the three months ended December 31, 2010, and we provide data for the same period in the prior year, we will refer to the prior period as “2009.” 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.

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 acquisition related activities and 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 14% and 13% of total revenues for the three and six months ended March 31, 2011, compared to 12% and 13% for the three and six months ended March 31, 2010. 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, 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. 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, public company regulatory compliance costs and insurance costs.

Revaluation of Contingent Consideration. Revaluation of contingent consideration consists of any change in value of our liability-classified acquisition-related contingent consideration. We remeasure this contingent consideration each quarter, with any changes in the fair value recorded as income or expense.

Amortization of Intangible Assets. Amortization of intangible assets represents the amortization of the intangible assets from acquisitions. We are amortizing our intangible assets as non-cash charges to operations over an expected useful life which is consistent with the timing and level of expected cash flows attributed to customer relationships, use of acquired technology, trade name and trademarks, and non-compete agreements.

Results of Operations

Fiscal years 2011 Q2 and 2010 Q2

Revenues


	Three Months Ended March 31,				Variance
	2011		2010		Dollars
Revenues	$	84,629	$	72,816	$	11,813


	Three Months Ended March 31,
	2011		%			2010		%
United States	$	73,237		86.5	%	$	63,920		87.8	%
Europe		8,302		9.8	%		5,785		7.9	%
Other		3,090		3.7	%		3,111		4.3	%

Total revenues	$	84,629		100.0	%	$	72,816		100.0	%

Revenues increased 16.2%, or $11.8 million, for the three months ended March 31, 2011, compared to the same period in 2010. This increase was primarily due to the growth in the number of customers for our subscription services, as a result of higher market demand for our subscription services and high rates of retention of existing subscription customers. We believe this demand reflects the market’s growing awareness of our on-demand Employee Spend Management solutions and the increasing acceptance of outsourced services.

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


	Three Months Ended March 31,						Variance
	2011			2010			Dollars
Cost of operations	$	23,776		$	20,603		$	3,173
Percent of total revenues		28.1	%		28.3	%

Cost of operations as a percentage of total revenues decreased to 28.1% for the three months ended March 31, 2011, compared to 28.3% for the same period in 2010. Cost of operations increased by 15.4%, or $3.2 million, for the three months ended March 31, 2011, compared to the same period in 2010. The growth in absolute dollars was primarily due to an increase of $1.5 million in initial set-up costs that we incur and then amortize in connection with our subscription services, an increase in personnel costs and related expenses of $0.9 million, and an increase of $0.8 million in infrastructure and allocated overhead costs, primarily due to increased headcount and growth of the business.

We expect cost of operations 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 anticipated economies of scale. We anticipate that cost of operations will increase in absolute dollars as we continue to expand our capacity (including acquisitions) to deploy and support additional new customers.

Sales and Marketing


	Three Months Ended March 31,						Variance
	2011			2010			Dollars
Sales and marketing	$	37,753		$	22,712		$	15,041
Percent of total revenues		44.6	%		31.2	%

Sales and marketing expenses as a percentage of total revenues increased to 44.6% for the three months ended March 31, 2011, compared to 31.2% for the same period in 2010. Sales and marketing expenses increased by 66.2%, or $15.0 million, for the three months ended March 31, 2011, compared to the same period in 2010. The growth in absolute dollars was primarily due to an increase in personnel costs and related expenses of $11.9 million (including $3.0 million of additional share-based compensation expense from the Concur RSU’s issued in exchange for the unvested TripIt options at acquisition), an increase of $1.4 million in professional service fees and an increase of $0.5 million in infrastructure and allocated overhead costs. These increases were related to additional headcount increases (some of which was due to the acquisition of TripIt), growth in new sales 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 acquisition related activities and 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


	Three Months Ended March 31,						Variance
	2011			2010			Dollars
Systems development and programming	$	10,064		$	7,127		$	2,937
Percent of total revenues		11.9	%		9.8	%

Systems development and programming costs as a percentage of total revenues increased to 11.9% for the three months ended March 31, 2011, compared to 9.8% for the same period in 2010. Systems development and programming costs increased by 41.2%, or $2.9 million, for the three months ended March 31, 2011, compared to the same period in 2010. This increase was primarily due to a $2.2 million increase in personnel costs (including $1.3 million of additional share-based compensation expense from the Concur RSU’s issued in exchange for the unvested TripIt options at acquisition), and a $0.7 million increase in allocated overhead costs and general 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 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 $1.8 million, from $19.8 million at December 31, 2010, to $21.6 million at March 31, 2011.

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 as we continue to focus on product innovation and enhancement.

General and Administrative


	Three Months Ended March 31,						Variance
	2011			2010			Dollars
General and administrative	$	14,143		$	9,554		$	4,589
Percent of total revenues		16.7	%		13.1	%

General and administrative expenses consist of personnel costs and related expenses and allocated overhead costs, all associated with employees and contractors in finance, human resources, legal and facilities, as well as miscellaneous costs, such as professional fees, public company regulatory compliance and insurance costs.

General and administrative expenses as a percentage of total revenues increased to 16.7% for the three months ended March 31, 2011, compared to 13.1% for the same period in 2010. General and administrative expenses increased by 48.0%, or $4.6 million, for the three months ended March 31, 2011, compared to the same period in 2010. The growth in absolute dollars was primarily due to an increase of $2.5 million in professional fees (including $2.1 million of one-time acquisition and other related costs), an increase of $1.8 million in personnel costs and related expenses and an increase of $0.3 million in infrastructure and allocated overhead costs. These increases were the result of higher expenses for additional personnel to support our growth, other general and administrative costs and expenses associated with strategic investment activities.

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.

Revaluation of Contingent Consideration


	Three Months Ended March 31,						Variance
	2011			2010			Dollars
Revaluation of contingent consideration	$	(1,265	)	$	—		$	(1,265	)
Percent of total revenues		-1.5	%		0.0	%

Revaluation of contingent consideration consisted of a gain of $1.3 million for the three months ended March 31, 2011, related to the Top-Up Payment associated with the TripIt acquisition.

Amortization of Intangible Assets


	Three Months Ended March 31,						Variance
	2011			2010			Dollars
Amortization of intangible assets	$	2,419		$	1,833		$	586
Percent of total revenues		2.9	%		2.5	%

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. Amortization of intangibles increased for the three months ended March 31, 2011, compared to the same period in 2010, due to the additional intangible acquired as part of the TripIt acquisition.

Interest Income, Interest Expense and Other


	Three Months Ended March 31,						Variance
	2011			2010			Dollars
Interest income	$	622		$	294		$	328
Interest expense		(4,605	)		(440	)		(4,165	)
Loss from equity investments		(7	)		—			(7	)
Other, net		(57	)		(332	)		275

Total other (expense) income, net	$	(4,047	)	$	(478	)	$	(3,569	)

Interest expense increased for the three months ended March 31, 2011, compared to the same period in 2010, due to the interest expense associated with our April 2010 issuance of senior convertible notes (“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 2011 compared to 2010 because of the full-year 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


	Three Months Ended March 31,						Variance
	2011			2010			Dollars
Income tax (benefit) expense	$	(3,646	)	$	3,791		$	(7,437	)
Effective tax rate		57.8	%		36.1	%

Our effective tax rate of 57.8% for the three months ended March 31, 2011, was higher than the prior period primarily due to the nondeductible compensation related to the TripIt acquisition and the decrease in pre-tax income from 2010, nondeductible TripIt acquisition costs, and partially offset by an increase in R&D development credits and a decrease in the earnings from tax jurisdictions with higher statutory rates in which we operate.

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.

Results of Operations

Fiscal years 2011 YTD and 2010 YTD

Revenues.


	Six Months Ended March 31,				Variance
	2011		2010		Dollars
Revenues	$	164,864	$	140,469	$	24,395


	Six Months Ended March 31,
	2011		%			2010		%
United States	$	142,895		86.7	%	$	122,856		87.5	%
Europe		15,675		9.5	%		11,737		8.3	%
Other		6,294		3.8	%		5,876		4.2	%

Total revenues	$	164,864		100.0	%	$	140,469		100.0	%

Revenues increased 17.4%, or $24.4 million, for the six months ended March 31, 2011, compared to the same period in 2010. This increase was primarily due to the growth in the number of customers for our subscription services, as a result of higher market demand for our subscription services and high rates of retention of existing subscription customers. We believe this demand reflects the market’s growing awareness of our on-demand Employee Spend Management solutions and the increasing acceptance of outsourced services.

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


	Six Months Ended March 31,						Variance
	2011			2010			Dollars
Cost of operations	$	46,085		$	39,776		$	6,309
Percent of total revenues		28.0	%		28.3	%

Cost of operations as a percentage of total revenues decreased to 28.0% for the six months ended March 31, 2011, compared to 28.3% for the same period in 2010. Cost of operations increased by 15.9%, or $6.3 million, for the six months ended March 31, 2011, compared to the same period in 2010. The growth in absolute dollars was primarily due to an increase of $3.2 million in initial set-up costs that we incur and then amortize in connection with our subscription services, an increase in personnel costs and related expenses of $1.8 million, and an increase of $1.3 million in infrastructure and allocated overhead costs. These increases were primarily due to an increase in headcount and growth of the business through both organic growth and acquisitions.

We expect cost of operations 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 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 (including acquisitions) to deploy and support additional new customers.

Sales and Marketing


	Six Months Ended March 31,						Variance
	2011			2010			Dollars
Sales and marketing	$	65,142		$	43,484		$	21,658
Percent of total revenues		39.5	%		31.0	%

Sales and marketing expenses as a percentage of total revenues increased to 39.5% for the six months ended March 31, 2011, compared to 31.0% for the same period in 2010. Sales and marketing expenses increased by 49.8%, or $21.7 million, for the six months ended March 31, 2011, compared to the same period in 2010. The growth in absolute dollars was primarily due to an increase in personnel costs and related expenses of $16.6 million with our subscription services, an increase of $2.1 million in professional fees and an increase in $0.8 million in infrastructure and allocated overhead costs. These increases were primarily due to additional headcount (some of which was due to the acquisition of TripIt), growth in new sales and increasing penetration within our existing customer base.

Systems Development and Programming


	Six Months Ended March 31,						Variance
	2011			2010			Dollars
Systems development and programming	$	17,466		$	14,017		$	3,449
Percent of total revenues		10.6	%		10.0	%

Systems development and programming costs as a percentage of total revenues increased to 10.6% for the six months ended March 31, 2011, compared to 10.0% for the same period in 2010. Systems development and programming costs increased by 24.6%, or $3.4 million, for the three months ended March 31, 2011, compared to the same period in 2010. This increase was primarily due to a $2.2 million increase in personnel costs mainly attributable to our continuing efforts to expand our services and acquisitions, and $1.2 million increases each in infrastructure and 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 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 $2.8 million, from $18.8 million at September 30, 2010, to $21.6 million at March 31, 2011.

General and Administrative


	Six Months Ended March 31,						Variance
	2011			2010			Dollars
General and administrative	$	26,597		$	18,266		$	8,331
Percent of total revenues		16.1	%		13.0	%

General and administrative expenses as a percentage of total revenues increased to 16.1% for the six months ended March 31, 2011, compared to 13.0% for the same period in 2010. General and administrative expenses increased by 45.6%, or $8.3 million, for the six months ended March 31, 2011, compared to the same period in 2010. The growth in absolute dollars was primarily due to an increase of $4.0 million in personnel costs and related expenses, an increase of $3.2 million in professional fees, and an increase of $1.1 million in infrastructure and allocated overhead costs. These increases were the result of additional personnel to support our growth, and professional services associated with strategic investment activities.

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.

Revaluation of Contingent Consideration


	Six Months Ended March 31,						Variance
	2011			2010			Dollars
Revaluation of contingent consideration	$	(1,265	)	$	—		$	(1,265	)
Percent of total revenues		-0.8	%		0.0	%

Revaluation of contingent consideration consisted of a gain of approximately $1.3 million for the six months ended March 31, 2011, related to the Top-Up Payment associated with the TripIt acquisition.

Amortization of Intangible Assets


	Six Months Ended March 31,						Variance
	2011			2010			Dollars
Amortization of intangible assets	$	4,139		$	3,688		$	451
Percent of total revenues		2.5	%		2.6	%

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. Amortization of intangibles increased for the six months ended March 31, 2011, compared to the same period in 2010, due to the additional intangible acquired as part of the TripIt acquisition.

Interest Income, Interest Expense and Other


	Six Months Ended March 31,						Variance
	2011			2010			Dollars
Interest income	$	1,305		$	605		$	700
Interest expense		(9,165	)		(543	)		(8,622	)
Loss from equity investments		(7	)		—			(7	)
Other, net		(238	)		(491	)		253

Total other (expense) income, net	$	(8,105	)	$	(429	)	$	(7,676	)

Interest expense increased for the six months ended March 31, 2011, compared to the same period in 2010, due to the interest expense associated with our 2010 issuance of senior convertible notes (“Notes”). We record realized gains and losses from fluctuations in exchange rates in the other income (expense) section of the income statement. We expect interest expense to be significantly higher in 2011 compared to 2010 because of the full-year impact of interest expense associated with the Notes in 2011. 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


	Six Months Ended March 31,						Variance
	2011			2010			Dollars
Income tax (benefit) expense	$	(2,394	)	$	7,658		$	(10,052	)
Effective tax rate		170.4	%		36.8	%

Our effective tax rate of 170.4% for the six months ended March 31, 2011, higher than the prior period primarily due to the nondeductible compensation related to the Tripit acquisition and the decrease in pre-tax income from 2010, nondeductible Tripit acquisition costs, and the U.S. federal R&D tax credit that was retroactively reinstated in the first quarter of 2011.

Liquidity and Capital Resources

Our available sources of liquidity as of March 31, 2011, consisted principally of cash, cash equivalents and short-term investments totaling $568.3 million.

Our cash flows were as follows:


	Three months ended March 31,									Six months ended March 31,
	2011			2010			$ Change			2011			2010			$ Change
Cash provided by (used in):
Operating activities	$	16,013		$	18,242		$	(2,229	)	$	26,919		$	32,391		$	(5,472	)
Investing activities		52,679			28,572			24,107			37,508			12,726			24,782
Financing activities		(9,945	)		(2,447	)		(7,498	)		(8,853	)		(1,320	)		(7,533	)

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 personnel and related costs, payments to vendors directly related to our services or acquisition related costs, payments under arrangements with third parties who provide hosting infrastructure services in connection with our subscription services offerings, related sales and marketing and administrative costs, cost of operations and systems development and programming costs. Net cash provided by operating activities was $16.0 million for the three months ended March 31, 2011, compared to $18.2 million for the same period in 2010. Net cash provided by operating activities was $26.9 million for the six months ended March 31, 2011, compared to $32.4 million for the same period in 2010. The decrease in cash provided by operating activities was primarily associated with the interest expense from our senior convertible note offering.

Cash flows in investing activities relates to purchases, sales, and maturities of investments, cash outlays for acquisitions, purchases of property and equipment, including leasehold improvements and internal-use software, and changes in customer funding liabilities, net of the change in restricted cash. Our investing activities provided $52.7 million for the three months ended March 31, 2011, compared to $28.6 million of cash provided for the same period in 2010. The net maturities of our short-term investments provided $98.5 million for the three months ended March 31, 2011, compared to $16.2 million in 2010. Cash used for the TripIt acquisition was $24.0 million, net of cash acquired for the three months ended March 31, 2011. Cash used for our investments in ClearTrip was $40.0 million for the three months ended March 31, 2011, compared to $2.0 million of cash used for additional investments in RideCharge for the same period in 2010. Purchases of property and equipment were $7.9 million for the three months ended March 31, 2011, compared to $4.0 million for the same period in 2010. The decrease in customer funding liabilities, net of changes in restricted cash resulted in $24.9 million in cash used for the three months ended March 31, 2011, compared to $20.8 million of cash provided in 2010.

Our investing activities provided $37.5 million for the six months ended March 31, 2011, compared to $12.7 million of cash provided for the same period in 2010. The net maturities of our short-term investments provided $120.0 million for the six months ended March 31, 2011, compared to $19.5 million in 2010. Cash used for the TripIt acquisition was $24.0 million for the six months ended March 31, 2011. Cash used for our investments in privately-held companies including ClearTrip was $42.3 million for the six months ended March 31, 2011, compared to $2.0 cash used for additional investments in RideCharge for the same period in 2010. Purchases of property and equipment were $12.7 million for the six months ended March 31, 2011, compared to $7.7 million for the same period in 2010. The decrease in customer funding liabilities, net of changes in restricted cash resulted in $4.6 million in cash provided for the six months ended March 31, 2011, compared to $6.4 million of cash provided in 2010.

Our financing activities used $9.9 million for the three months ended March 31, 2011, compared to cash used of $2.4 million for the same period in 2010. Our financing activities used $8.9 million for the six months ended March 31, 2011 and used $1.3 million for the comparable period in the prior year. The increase in cash used for the three and six months ended March 31, 2011 as compared to the prior year periods primarily relates to $11.1 million in tax withholdings on restricted stock awards, as compared to $4.2 million for the same periods in the prior year.

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, we were in compliance with all loan covenants under the terms of the credit agreement, and had no outstanding borrowings under the agreement.

In March 2010, we issued Notes, Note Hedges and Warrants. 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 March 31, 2011, the Notes have not been repurchased or converted. We also have not received any shares under the Note Hedges or delivered cash or shares under the Warrants. For further information, see Note 7 to the notes to consolidated financial statements.

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 March 31, 2011, 4.1 million shares remained eligible for repurchase under the Repurchase Program. We did not have any stock repurchases during the three and six months ended March 31, 2011 and 2010.

We believe our cash and cash equivalents, amounts available under existing credit arrangements, 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 they are available, that they will be available 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.

Contractual Obligations and Commercial Commitments

The following table summarizes our outstanding contractual obligations and commercial commitments as of March 31, 2011.


Years ending September 30,	Senior Convertible Notes, including interest		Operating Leases		Purchase Obligations
2011 (April 1, 2011, through September 30, 2011)		3,594		2,132		1,879
2012		7,188		3,887		1,833
2013		7,187		2,734		1,652
2014		7,187		1,084		533
2015 and thereafter		291,393		615		106

Total	$	316,549	$	10,452	$	6,003

Senior Convertible Notes

As of March 31, 2011, investors 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 7 of the notes to financial statements.

Operating Leases

We lease office space and equipment under non-cancelable operating leases. We lease our current headquarters in Redmond, Washington under an operating lease that expires on May 31, 2013. The lease agreement for our headquarters in Redmond, Washington provides for an eight-year term with an option to renew for an additional five years. We do not include amounts for certain operating expenses under these leases such as common area maintenance. We also lease office space in the United States in the states of Arizona, California, Georgia, Illinois, Massachusetts, Minnesota, Texas and Virginia, and internationally in Australia, China (Hong Kong), Czech Republic, France, Germany, Netherlands, India, Italy, Singapore and the United Kingdom.

Purchase Obligations

We have future minimum purchase obligations primarily relating to hosting operations under arrangements with third parties that are enforceable and legally binding.

Acquisition related contingent consideration

As part of the TripIt acquisition, we agreed to pay additional cash consideration, if any, to the former shareholders of TripIt on the 30 month anniversary of the closing or at such earlier time as Top-Up Payment Date. Please see Note 4 and Note 12 of the notes to financial statements for a full description of the acquisition related contingent consideration.

Off Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

Critical Accounting Policies and Estimates

Our discussion and analysis of financial condition and results of operations is based on our financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities. We base our estimates and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances; such estimates and judgments are periodically re-evaluated. Actual results may differ materially from these estimates under different assumptions, judgments or conditions.

The estimates and judgments noted above are affected by our application of accounting policies. Our critical accounting policies are those we deem most important to the portrayal of our financial condition and results of operations, including those that require the most difficult, subjective or complex judgments. Our critical accounting policies include revenue recognition, income taxes, business combinations, and allowances for accounts receivable.

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 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.

Contingent Considerations

We estimated the fair value of the acquisition-related contingent consideration using the Monte Carlo valuation approach, as well as significant unobservable inputs, reflecting our assessment of the assumptions market participants would use to value these liabilities. The fair value of contingent consideration is remeasured each reporting period, with any changes in the value recorded as income or expense.

Allowances for Accounts Receivable

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 2 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 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There has been no material change in our market risk during the three months ended March 31, 2011. For additional information, see Item 7A, Quantitative and Qualitative Disclosures About Market Risk, in Part II of our Annual Report on Form 10-K for the year ended September 30, 2010.

ITEM 4.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Based on our management’s evaluation (with the participation of our Chief Executive Officer and Chief Financial Officer), our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) were effective in providing reasonable assurance that the information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting during the three months ended March 31, 2011, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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.

PART II. OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

ITEM 1A.

RISK FACTORS

We operate in a dynamic and rapidly changing business environment that involves multiple risks and substantial uncertainty. The following discussion addresses risks and uncertainties that could cause, or contribute to causing, actual results to differ from expectations in material ways. In evaluating our business, investors should pay particular attention to the risks and uncertainties described below and in other sections of this report and in our subsequent filings with the SEC. These risks and uncertainties, or other events that we do not currently anticipate or that we currently deem immaterial also may affect our results of operations, cash flows and financial condition.

We depend on sales of a relatively small number of our solutions for a substantial majority of our revenues, and decreased demand for any of those solutions could substantially harm our revenues, while we may be unable to expand our service offerings successfully.

We generated 95% of our total revenues for the three months ended March 31, 2011 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 even as we expand our service offerings. Our financial performance and business outlook depends on continued market acceptance of these solutions. If customers reduce or cancel their subscriptions for our solutions due to economic conditions or because our competitors (some of which have substantially greater resources than we do) develop new offerings, or if we do not keep up with technological advancements in services and software platforms, delivery models or product features, our revenues could decline. There can be no assurance that our solutions will continue to maintain current levels of market penetration or that we will maintain current levels of revenues from sales of these solutions in the future. There can also be no assurance that we will be able to introduce new solutions successfully, or that any initial interest in such solutions will result in significant revenue or long term success for us.

If the market for integrated travel and expense 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 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. For example, 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.

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.

Interruption of our operations could prevent us from delivering our products and services to our customers, which could significantly harm our business.

Because our business is primarily conducted over the Internet, it depends on our ability to protect our computer equipment and the information stored in our computer equipment, offices and hosting facilities against damage from earthquake, floods, fires, power loss, telecommunications failures, unauthorized intrusion and other events. There can be no assurance that our disaster preparedness will prevent significant interruption of our operations.

In addition, we engage third party facility providers for our Web hosting facilities and related infrastructure that is essential for our subscription services. Our service to customers could be interrupted in the event of a natural disaster, by a hosting provider decision to close a facility or terminate operations or by other unanticipated problems. Similarly, we use third-party telecommunications providers for Internet and other telecommunication services. We also rely heavily on our own and third-party financial, accounting, and other data processing systems, as well as various financial institutions to perform financial services in connection with our operations and our services offerings, such as providing depository services and executing Automated Clearing House and wire transfers as part of our expense reimbursement services. Any of these third-party providers may fail to perform their obligations adequately, and any of these third-party systems may fail to operate properly or become disabled for varying periods of time, causing business interruption, system damage, or inability to process funds on behalf of our customers, which could reduce our revenue, cause us to issue credits or pay penalties, cause customers to terminate their subscriptions, cause other liability to customers, or cause regulatory intervention or damage to our reputation.

Our quarterly revenues and operating results may fluctuate, and if we fail to meet the expectations of investors or public market analysts, our stock price could decline substantially.

Our revenues and operating results may fluctuate significantly from quarter to quarter, and if they fall below the expectations of investors or public market analysts, the price of our common stock could substantially decline. Factors that might cause quarterly fluctuations in our operating results include:

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general economic and market conditions;

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the evolving demand for our solutions;

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spending decisions by our customers and prospective customers;

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our ability to manage expenses;

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the timing of new product releases;

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changes in our pricing policies or those of our competitors;

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the timing of large contracts or contract terminations;

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changes in mix of our offerings;

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the mix of sales channels through which our solutions are sold;

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costs of developing new products and enhancements;

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our ability to adequately provide software solutions on-demand;

•

foreign currency fluctuations; and

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global political conditions.

Our acquisitions of, and investments in, other companies, products, or technologies may not yield expected benefits.

As part of our business strategy, from time to time we invest in or acquire complementary businesses, joint ventures, products or technologies, and we expect that we will make such investments and acquisitions in the future. For example, our most recent acquisition occurred in January 2011, when we acquired TripIt, Inc., a provider of mobile trip management solutions, and our most recent investment in a privately-held company occurred in March 2011, when we invested in ClearTrip, Inc., a leading provider of online travel services in India.

We may not realize the anticipated benefits of our acquisitions or investments to the extent that we anticipate, or at all, because acquisitions and investments involve many risks, including:

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difficulties integrating the acquired operations, personnel, technologies, products or infrastructure;

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diversion of management attention or other resources from other business operations and strategic priorities;

•

unexpected difficulties encountered when we enter new markets in which we have little or no experience, or where competitors may have stronger market positions;

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potential loss of key employees;

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inability to maintain relationships with customers and partners of the acquired business;

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the difficulty of incorporating acquired technology and rights into our products and services;

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potential unknown liabilities associated with an acquired business or investment;

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unanticipated expenses related to integrating acquired technology with our existing technology;

•

the impact on our results of operations due to depreciation and amortization related to acquired intangible assets, fixed assets and deferred compensation;

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potential litigation, such as claims by third parties related to intellectual property of the businesses we acquire or in which we invest;

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potential write-offs of our investments in acquired assets;

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the need to implement controls, procedures and policies appropriate for a public company at companies that prior to the acquisition lacked such controls, procedures and policies; and

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challenges caused by distance, language and cultural differences.

We may issue additional equity securities or convertible debt securities to pay for future acquisitions or investments, the issuance of which could be dilutive to our existing stockholders and affect the trading price of our securities. If any acquisition or investment is not perceived as ultimately improving our financial condition and operating results, our stock price may decline. Further, if we fail to properly evaluate and execute acquisitions or investments, our business and prospects may be seriously harmed and the value of your investment may decline.

The growth of the international component of our business subjects us to additional management challenges and incremental costs associated with foreign operations.

Our international operations are an increasingly important part of our business. Customers located outside the United States represented 13% of our total revenues in 2011. In addition, a portion of our United States revenue reflects utilization of our services outside of the United States by customers located in the United States. We expect international revenues as a percentage of our total revenues to increase. Our international operations are subject to many difficulties and incremental costs, including:

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costs to customize our products for foreign markets;

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foreign currency exchange rate risk;

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compliance with multiple, conflicting and changing governmental laws and regulations;

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different pricing environments;

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longer sales cycles;

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greater difficulty in collecting accounts receivable;

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import and export restrictions and tariffs;

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adverse tax consequences;

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potentially weaker protection for our intellectual property than in the United States and practical difficulties in enforcing our rights abroad; and

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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. 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.

Our business is subject to changing regulations regarding corporate governance and public disclosure that will increase both our costs and the risk of noncompliance.

As a public company, we incur significant legal, accounting and other expenses, and these compliance expenses are expected to increase over time. For example, the Dodd-Frank Wall Street Reform and Consumer Protection Act and rules subsequently implemented or to be implemented by the SEC and The NASDAQ Stock Market include new disclosure and corporate governance requirements on public companies. Our management and other personnel are required to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations increase our legal and financial compliance costs and will make some activities more time-consuming and costly. If we do not adequately comply with applicable laws and regulations applicable to public companies, we could be subject to liability, increased compliance costs, regulatory inquiries or litigation.

Our lengthy sales cycle could cause our operating results to vary significantly.

Our sales cycle, which is the time between initial contact with a potential customer and the ultimate sale, is often lengthy and unpredictable. Our potential customers typically commit significant resources to an evaluation of available alternatives and require us to expend substantial time, effort and money educating them about the value of our offerings. As a result, we have limited ability to forecast the timing and size of specific sales. In addition, customers may delay their purchases from one quarter to another as they wait for new product enhancements. Customers may delay their purchases for even longer periods due to their inability to assess and forecast future business activity, impaired purchasing ability or other economic factors. Any delay in completing, or failure to complete, sales in a particular quarter or year could harm our business and could cause our operating results to vary significantly.

If we do not successfully develop or introduce new products or enhancements to existing products, or successfully integrate acquired products and services with our offerings, we may lose existing customers or fail to attract new customers and our financial performance and revenue growth may suffer.

Our financial performance and revenue growth depends upon the successful development, introduction and customer acceptance of new and enhanced versions of our software solutions and on our ability to integrate products and services that we acquire into our existing and future solutions. We have experienced delays in the planned release dates of enhancements to our solutions and we have discovered errors in new releases after their introduction. Either situation could result in adverse publicity, loss of sales, delay in market acceptance of our products and services, or customer claims, including, among other things, warranty claims against us, any of which could cause us to lose existing customers or affect our ability to attract new customers. If we do not deliver new product versions, upgrades or other enhancements to existing products and services on a timely and cost-effective basis, we may lose existing customers or may not be able to attract new customers. We are also continually seeking to develop new offerings. However, we remain subject to all of the risks inherent in product development, including unanticipated technical or other development problems, which could result in material delays in product introduction and acceptance or significantly increased costs. There can be no assurance that we will be able to develop new solutions successfully, or to introduce and gain market acceptance of new solutions in a timely manner.

If our products and services do not keep pace with technological change, our sales could decline and our business could be harmed.

We must continually modify and enhance our software solutions to keep pace with changes in hardware and software platforms, database technology, electronic commerce technical standards and other items. As a result, uncertainties related to the timing and nature of new product announcements or introductions, or modifications by vendors of operating systems, back-office applications and browsers and other Internet-related applications, could cause our sales to decline and harm our business.

We rely on third-party software and services that may be difficult to replace.

We license or purchase software and services provided by third parties to offer some of our services and software offerings. Such third-party software and services may not continue to be available on commercially reasonable terms, if at all. The loss or inability to maintain our rights to use any of these software or services could result in delays in the sale of our services or software offerings until equivalent technology is either developed by us, or, if available, is identified, licensed and integrated, which could harm our business.

Our stock price has experienced high volatility, may continue to be volatile and may decline.

The trading price of our common stock has fluctuated widely in the past and may do so in the future, as a result of many factors. In particular, the stock market as a whole has experienced extreme price and volume fluctuations that affected the market price of many technology companies in ways that may have been unrelated to those companies’ operating performance. Factors that could cause our stock price to fluctuate include:

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general and industry-specific business, economic and market conditions;

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the announcement of a merger or acquisition;

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fluctuations in our actual and anticipated operating results;

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changes in our earnings estimates, or other information published by analysts;

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failing to achieve revenue or earnings expectations;

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volatility inherent in prices of technology company stocks;

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adverse publicity; and

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the volume of trading in our common stock, including sales upon exercise of outstanding options.

Securities class action litigation has often been brought against companies that experience periods of volatility in the market prices of their securities. Securities class action litigation could result in substantial costs and a diversion of our management’s attention and resources.

If we fail to attract and retain qualified personnel, our business could be harmed.

Our success depends in large part on our ability to attract, motivate and retain highly qualified personnel. Competition for such personnel is intense and there can be no assurance that we will be successful in attracting, motivating and retaining key personnel. Many of our competitors have greater financial and other resources than us for attracting experienced personnel. We also compete for personnel with other software vendors and consulting and professional services companies. Further, changes in applicable stock exchange listing standards relating to obtaining stockholder approval of equity compensation plans could make it more difficult or expensive for us to grant options to employees in the future. We rely on our direct sales force to sell our services and software in the marketplace. We anticipate increasing our direct sales force. There is significant competition for direct sales personnel with the advanced sales skills and technical knowledge we need. If we were not able to hire or retain competent sales personnel our business would suffer. In addition, by relying primarily on a direct sales model, we may miss sales opportunities that might be available through other sales channels, such as domestic and international resellers and strategic referral arrangements. Any inability to hire and retain salespeople or any other qualified personnel, or any loss of the services of key personnel, would harm our business.

Our ability to protect our intellectual property is limited and we have been or may be sued by third parties for alleged infringement of their proprietary rights.

Our success depends, in part, upon our proprietary technology, processes, trade secrets and other proprietary information and our ability to protect this information from unauthorized disclosure and use. We rely on a combination of patent, copyright, trade secret and trademark laws, confidentiality procedures, contractual provisions and other similar measures to protect our proprietary information. We have 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;

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our stockholders do not have cumulative voting rights and, therefore, each of our directors can only be elected by a majority of our votes cast at a stockholder meeting;

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a special meeting of stockholders may only be called by a majority of our Board of Directors, the Chairman of our Board of Directors, or our Chief Executive Officer;

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our stockholders may not take action by written consent;

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our Board of Directors is divided into three classes, only one of which is elected each year;

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we require advance notice for nominations for election to the Board of Directors or for proposing matters that can be acted upon by stockholders at stockholder meetings; and

•

we are subject to Section 203 of the Delaware General Corporation Law, which, under certain circumstances, may make it more difficult for a person who would be an “Interested Stockholder,” as defined in Section 203, to effect various business combinations with us for a three-year period. Our amended and restated certificate of incorporation and amended and restated bylaws do not exclude us from the restrictions imposed under Section 203.

In addition, the fundamental changes provisions of our outstanding senior convertible notes due in 2015 may delay or prevent a change in control of Concur, because those provisions allow note holders to require us to repurchase the notes upon the occurrence of a fundamental change.

We have increased our indebtedness.

In April 2010, we completed an offering of $287.5 million aggregate principal amount of our senior convertible notes due in 2015, as a result of which we incurred approximately $287.5 million principal amount of new indebtedness that we may be required to repurchase at maturity in 2015 or upon the occurrence of fundamental changes. There can be no assurance that we will be able to repay this indebtedness when due, or that we will be able to refinance this indebtedness on acceptable terms or at all. In addition, this indebtedness could, among other things:

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make it difficult for us to pay other obligations;

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make it difficult to obtain favorable terms for any necessary future financing for working capital, capital expenditures, debt service requirements or other purposes;

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require us to dedicate a substantial portion of our cash flow from operations to service the indebtedness, reducing the amount of cash flow available for other purposes; and

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limit our flexibility in planning for and reacting to changes in our business.

Conversion of our senior convertible notes will dilute the ownership interest of existing stockholders.

The conversion of some or all of our outstanding senior convertible notes due in 2015 will dilute the ownership interest of existing stockholders to the extent we deliver newly-issued shares of common stock upon conversion. Holders of such notes may convert them on or after January 15, 2015, until the close of business on the second scheduled trading day immediately preceding the maturity date of such notes. We expect to satisfy our conversion obligation by delivering cash and potentially shares of common stock. Prior to January 15, 2015, conversion of such notes is subject to satisfaction of certain conditions. Any sales in the public market of shares of common stock issued upon conversion of such notes could adversely affect trading prices of our common stock. In addition, the existence of such notes may encourage short selling by market participants because the conversion of such notes could be used to satisfy short positions, or anticipated conversion of such notes into shares of our common stock could depress the price of our common stock.

The note hedges and warrants may adversely affect the value of our common stock.

In connection with our offering of senior convertible notes due in 2015, we entered into note hedges covering approximately 5 million shares of our common stock. We also sold warrants to acquire up to approximately 5.5 million shares of our common stock at an initial strike price of $73.29. The note hedges are intended to reduce the potential economic dilution to our common stock upon conversion of the senior convertible notes. However, the warrants could have a dilutive effect, if the market price per share of our common stock exceeds the strike price of the warrants. The counterparties to our note hedges and warrants are likely to enter into or unwind various derivatives with respect to our common stock, or purchase or sell shares of our common stock or other securities linked to or referencing our common stock in secondary market transactions prior to the maturity of the senior convertible notes. These activities could adversely affect the value of our common stock.

ITEM 6.

EXHIBITS

(a) The following exhibits are filed as a part of this report:


		Incorporated by Reference
Exhibit Number	Exhibit Description	Form	File No.	Date of First Filing	Exhibit Number	Provided Herewith
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-Q for the fiscal quarter ended December 31, 2010, formatted in XBRL.**	—	—	—	—	X

This certification is not deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, 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-Q for the fiscal quarter ended March 31, 2011, formatted in XBRL: (i) Consolidated Income Statements, (ii) Consolidated Balance Sheets, (iii) Consolidated Statements of Cash Flows, and (v) Notes to Consolidated Financial Statements, tagged as blocks of text.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Dated: May 6, 2011


CONCUR TECHNOLOGIES, INC.

By		/s/ Frank Pelzer
		Frank Pelzer
		Chief Financial Officer principal financial officer and duly authorized signatory

EXHIBIT INDEX


		Incorporated by Reference
Exhibit Number	Exhibit Description	Form	File No.	Date of First Filing	Exhibit Number	Provided Herewith
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-Q for the fiscal quarter ended March 31, 2011, formatted in XBRL.**	—	—	—	—	X

**	The following financial statements from the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2011, formatted in XBRL: (i) Consolidated Income Statements, (ii) Consolidated Balance Sheets, (iii) Notes to Consolidated Financial Statements, tagged as blocks of text.

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨[Do not check if a smaller reporting company]

Smaller reporting company