UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended December 31, 1999
Commission file number: 0-25137
CONCUR TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its
charter)
| Delaware
(State or other jurisdiction of
incorporation or organization)
|
|
91-1608052
(I.R.S. Employer
Identification No.)
|
|
6222 185th Avenue NE
Redmond, Washington 98052
(Address of principal executive offices)
(425) 702-8808
(Registrant’s telephone number, including area
code)
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days:
Yes x No
¨
As of
January 31, 2000, there were 23,032,904 shares of the Registrant’s
Common Stock outstanding.
CONCUR TECHNOLOGIES, INC.
FORM 10-Q
DECEMBER 31, 1999
INDEX
PART I. FINANCIAL
INFORMATION
ITEM 1. CONSOLIDATED
FINANCIAL STATEMENTS
CONCUR TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share
data)
| |
|
December
31,
1999
|
|
September
30,
1999
|
| |
|
(Unaudited) |
|
|
| Assets |
|
|
|
|
|
|
| Current
assets: |
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$
23,336 |
|
|
$
59,815 |
|
|
Marketable securities |
|
60,253 |
|
|
48,907 |
|
Accounts receivable, net of allowance for doubtful
accounts of $802 and $870 at
December 31,
1999 and September 30, 1999, respectively |
|
10,261 |
|
|
9,020 |
|
|
Prepaid expenses and other current assets |
|
1,648 |
|
|
1,110 |
|
|
Note receivable from stockholders |
|
167 |
|
|
333 |
|
| |
|
|
|
|
|
|
|
Total current assets |
|
95,665 |
|
|
119,185 |
|
|
Equipment and furniture, net |
|
10,565 |
|
|
7,087 |
|
|
Deposits and other assets |
|
1,620 |
|
|
1,829 |
|
|
Note receivable from stockholders, net of current
portion |
|
167 |
|
|
167 |
|
|
Capitalized technology and other intangible
assets |
|
480 |
|
|
560 |
|
| |
|
|
|
|
|
|
|
Total assets |
|
$108,497 |
|
|
$128,828 |
|
| |
|
|
|
|
|
|
|
| Liabilities
and Stockholders’ Equity |
|
|
|
|
|
|
| Current
liabilities: |
|
|
|
|
|
|
|
Accounts payable |
|
$
1,865 |
|
|
$
5,323 |
|
|
Accrued liabilities |
|
10,471 |
|
|
11,809 |
|
|
Accrued commissions |
|
831 |
|
|
1,452 |
|
|
Current portion of accrued payment to
stockholders |
|
167 |
|
|
333 |
|
|
Current portion of long-term debt |
|
3,766 |
|
|
3,762 |
|
|
Current portion of capital lease
obligations |
|
2,783 |
|
|
1,869 |
|
|
Deferred revenues |
|
4,720 |
|
|
4,011 |
|
| |
|
|
|
|
|
|
|
Total current liabilities |
|
24,603 |
|
|
28,559 |
|
| |
|
|
|
|
|
|
|
|
Accrued payment to stockholders, net of current
portion |
|
167 |
|
|
167 |
|
|
Long-term debt, net of current portion |
|
2,939 |
|
|
3,890 |
|
|
Capital lease obligations, net of current
portion |
|
2,681 |
|
|
2,269 |
|
|
Deferred rental expense |
|
165 |
|
|
169 |
|
|
|
|
Commitments |
|
—
|
|
|
—
|
|
|
| Stockholders
’ equity: |
|
|
|
|
|
|
Preferred stock, par value $0.001 per share,
5,000,000 shares authorized, no shares issued
or
outstanding |
|
—
|
|
|
—
|
|
Common stock, par value $0.001 per share, 60,000,000
shares authorized; 22,971,297 and
22,693,022 shares
issued and outstanding at December 31, 1999 and September 30,
1999,
respectively |
|
186,107 |
|
|
184,943 |
|
|
Deferred stock compensation |
|
(1,105 |
) |
|
(1,439 |
) |
|
Accumulated deficit |
|
(107,060 |
) |
|
(89,730 |
) |
| |
|
|
|
|
|
|
|
Total stockholders’ equity |
|
77,942 |
|
|
93,774 |
|
| |
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity |
|
$108,497 |
|
|
$128,828 |
|
| |
|
|
|
|
|
|
The accompanying notes are an integral part of
these financial statements.
CONCUR TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF
OPERATIONS
(in thousands, except per share
data)
(Unaudited)
| |
|
Three Months
Ended
December 31,
|
| |
|
1999
|
|
1998
|
| Revenues,
net: |
|
|
|
|
|
|
|
Licenses |
|
$
4,208 |
|
|
$
5,663 |
|
|
Services |
|
4,799 |
|
|
2,456 |
|
| |
|
|
|
|
|
|
|
Total
revenues |
|
9,007 |
|
|
8,119 |
|
|
| Cost of
revenues: |
|
Licenses |
|
228 |
|
|
224 |
|
|
Services |
|
5,905 |
|
|
3,417 |
|
| |
|
|
|
|
|
|
|
Total cost of
revenues |
|
6,133 |
|
|
3,641 |
|
| |
|
|
|
|
|
|
| Gross
profit |
|
2,874 |
|
|
4,478 |
|
|
| Operating
expenses: |
|
Sales and marketing |
|
9,088 |
|
|
6,376 |
|
|
Research and development |
|
8,634 |
|
|
3,845 |
|
|
General and administrative |
|
3,475 |
|
|
1,948 |
|
| |
|
|
|
|
|
|
|
Total operating
expenses |
|
21,197 |
|
|
12,169 |
|
| |
|
|
|
|
|
|
|
| Loss from
operations |
|
(18,323 |
) |
|
(7,691 |
) |
| Interest
income |
|
1,397 |
|
|
242 |
|
| Interest
expense |
|
(304 |
) |
|
(296 |
) |
| Other expense,
net |
|
(100 |
) |
|
(38 |
) |
| |
|
|
|
|
|
|
| Net
loss |
|
$(17,330 |
) |
|
$(7,783 |
) |
| |
|
|
|
|
|
|
|
| Basic and
diluted net loss per share |
|
$
(0.76 |
) |
|
$
(1.22 |
) |
| |
|
|
|
|
|
|
|
| Shares used in
calculation of basic and diluted net loss per share |
|
22,844 |
|
|
6,390 |
|
| |
|
|
|
|
|
|
The accompanying notes are an integral part of
these financial statements.
CONCUR TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS’
EQUITY
(in thousands, except share
data)
(Unaudited)
| |
|
Common
Stock
|
| |
|
Shares
|
|
Amount
|
|
Deferred
Compensation
|
|
Accumulated
Deficit
|
|
Total
Stockholders’
Equity
|
| Balance at
September 30, 1999 |
|
22,693,022 |
|
|
$184,943 |
|
|
$(1,439 |
) |
|
$
(89,730 |
) |
|
$
93,774 |
|
Issuance of
common stock in connection
with Employee Share Purchase
Plan |
|
111,964 |
|
|
1,059 |
|
|
—
|
|
|
—
|
|
|
1,059 |
|
|
Issuance of
common stock from net exercise
of common stock warrants |
|
93,785 |
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Issuance of
common stock from exercise of
stock options |
|
72,526 |
|
|
105 |
|
|
—
|
|
|
—
|
|
|
105 |
|
|
Amortization of
deferred stock
compensation |
|
—
|
|
|
—
|
|
|
334 |
|
|
—
|
|
|
334 |
|
|
| Net
loss |
|
—
|
|
|
—
|
|
|
—
|
|
|
(17,330 |
) |
|
(17,330 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance at
December 31, 1999 |
|
22,971,297 |
|
|
$186,107 |
|
|
$(1,105 |
) |
|
$(107,060 |
) |
|
$
77,942 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of
these financial statements.
CONCUR TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH
FLOWS
(in thousands)
(Unaudited)
| |
|
Three Months
Ended
December 31,
|
| |
|
1999
|
|
1998
|
| Operating
activities: |
|
|
|
|
|
|
|
Net loss |
|
$(17,330 |
) |
|
$(7,783 |
) |
|
Adjustments to reconcile net loss to net cash
used in operating activities: |
|
|
|
|
|
|
|
Amortization of
acquired in-process technology |
|
80 |
|
|
80 |
|
|
Amortization of
deferred stock compensation |
|
334 |
|
|
100 |
|
|
Depreciation |
|
907 |
|
|
395 |
|
|
Provision for
bad debts |
|
120 |
|
|
209 |
|
|
Changes in operating assets and
liabilities: |
|
Accounts
receivable |
|
(1,361 |
) |
|
390 |
|
|
Prepaid expenses
and other current assets |
|
(538 |
) |
|
71 |
|
|
Deposits and
other assets |
|
209 |
|
|
(2,047 |
) |
|
Accounts
payable |
|
(3,458 |
) |
|
591 |
|
|
Accrued
liabilities |
|
(1,959 |
) |
|
3,062 |
|
|
Deferred
revenues |
|
709 |
|
|
424 |
|
| |
|
|
|
|
|
|
|
Net cash used in
operating activities |
|
(22,287 |
) |
|
(4,508 |
) |
| |
|
|
|
|
|
|
|
| Investing
activities: |
|
|
|
|
|
|
|
Purchase of marketable securities,
net |
|
(11,346 |
) |
|
—
|
|
|
Purchases of equipment and
furniture |
|
(2,780 |
) |
|
(197 |
) |
| |
|
|
|
|
|
|
|
Net cash used in
investing activities |
|
(14,126 |
) |
|
(197 |
) |
| |
|
|
|
|
|
|
|
| Financing
activities: |
|
|
|
|
|
|
|
Net proceeds from initial public
offering |
|
—
|
|
|
37,369 |
|
|
Proceeds from exercise of preferred stock
warrants |
|
—
|
|
|
2,616 |
|
|
Proceeds from borrowings |
|
—
|
|
|
5,025 |
|
|
Payments on borrowings |
|
(947 |
) |
|
(833 |
) |
|
Payments on capital leases |
|
(283 |
) |
|
(197 |
) |
|
Issuance of common stock in connection with
Employee Share Purchase Plan |
|
1,059 |
|
|
—
|
|
|
Proceeds from issuance of common stock from
exercise of stock options |
|
105 |
|
|
12 |
|
| |
|
|
|
|
|
|
|
Net cash (used
in) provided by financing activities |
|
(66 |
) |
|
43,992 |
|
| |
|
|
|
|
|
|
|
| Net increase
(decrease) in cash and cash equivalents |
|
(36,479 |
) |
|
39,287 |
|
| Cash and cash
equivalents at beginning of period |
|
59,815 |
|
|
17,058 |
|
| |
|
|
|
|
|
|
| Cash and cash
equivalents at end of period |
|
$
23,336 |
|
|
$56,345 |
|
| |
|
|
|
|
|
|
|
| Supplemental
disclosure of cash flow information: |
|
|
|
|
|
|
|
Cash paid for interest |
|
$
260 |
|
|
$
224 |
|
|
Equipment and furniture obtained through
capital leases |
|
$
1,609 |
|
|
$
478 |
|
Conversion of redeemable convertible preferred
stock and redeemable convertible
preferred stock warrants into common stock and common
stock warrants |
|
—
|
|
|
$30,129 |
|
The accompanying notes are an integral part of
these financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(Unaudited)
NOTE 1. DESCRIPTION OF
BUSINESS AND BASIS OF PRESENTATION
|
Description of the Company
|
Concur Technologies, Inc. (“Concur” or the
“Company”) is a leading provider of workplace eCommerce
software and services that extend automation to employees
throughout an enterprise and to partners, suppliers and service
providers in the extended enterprise. The Company’s flagship
product, Concur eWorkplace™, integrates the Company’s
suite of workplace eCommerce solutions and provides a portal
through which employees can access critical business eCommerce
information and services. The Concur eWorkplace suite is available
in three versions: licensed, application service provider (
“ASP”) and Internet outsourced. The Company was
originally incorporated in the State of Washington on August 19,
1993 and reincorporated in the State of Delaware on November 25,
1998. Operations commenced during 1994.
|
Unaudited Interim Financial
Information
|
The financial information as of December 31, 1999, and
for the three months ended December 31, 1999 and 1998, is
unaudited, but includes all adjustments (consisting only of normal
recurring adjustments) that the Company considers necessary for a
fair presentation of its financial position at such dates and its
operations and cash flows for the periods then ended. The
financial statements should be read in conjunction with the
financial statements and notes thereto for the fiscal year ended
September 30, 1999, included in the Company’s Annual Report
on Form 10-K, as filed with the Securities and Exchange
Commission. Operating results for the three months ended December
31, 1999, are not necessarily indicative of results that may be
expected for the entire fiscal year.
The preparation of financial statements in conformity
with generally accepted accounting principles requires management
to make estimates and assumptions that affect the amounts reported
in the financial statements and accompanying notes. Actual results
could differ materially from these estimates.
NOTE 2. SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
|
Principles of Consolidation
|
The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries, Seeker
Software, Inc., Concur Technologies (UK) Ltd., Concur Technologies
Pty. Limited and 7Software, Inc. All significant intercompany
accounts and transactions are eliminated in
consolidation.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
—(Continued)
NOTE 3. NET LOSS PER
SHARE
Basic and diluted net loss per common share is
calculated by dividing the net loss by the weighted average number
of common shares outstanding. Pro forma net loss per share is
computed using the weighted average number of common shares used
for basic and diluted per share amounts but also assuming that all
preferred stock outstanding converted to common stock at the time
of issuance.
| |
|
Three
Months Ended
December 31,
|
| |
|
1999
|
|
1998
|
| |
|
(in
thousands,
except per share data) |
| Net
loss |
|
$(17,330 |
) |
|
$(7,783 |
) |
| |
|
|
|
|
|
|
| Basic and
diluted net loss per common share |
|
$
(0.76 |
) |
|
$
(1.22 |
) |
| |
|
|
|
|
|
|
Weighted average
number of common shares used for basic and diluted per share
amounts |
|
22,844 |
|
|
6,390 |
|
Weighted average
common shares issuable upon pro forma conversion of preferred
stock |
|
—
|
|
|
9,954 |
|
| |
|
|
|
|
|
|
| Weighted average
number of shares used for pro forma per share amounts |
|
22,844 |
|
|
16,344 |
|
| |
|
|
|
|
|
|
| Pro forma net
loss per share |
|
$
(0.76 |
) |
|
$
(0.48 |
) |
| |
|
|
|
|
|
|
Note. Pro forma results for the
three months ended December 31, 1999 and 1998, are presented for
informational purposes only and are not prepared in accordance
with generally accepted accounting principles. Shares used in
computation of pro forma basic and diluted loss per share assumes
the conversion of all preferred stock to common stock at the time
of issuance, and is presented for comparative purposes
only.
Options to purchase 4,984,586 shares of common stock
with exercise prices of $0.01 to $55.00 per share and warrants to
purchase 1,400,000 shares of common stock with exercise prices of
$50.63 to $85.00 per share were outstanding as of December 31,
1999. These options and warrants were excluded from the
computation of diluted earnings per share because their effect was
anti-dilutive.
|
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
Forward-looking Statements
Some of the information in this document contains
forward-looking statements that involve substantial risks and
uncertainties. You can identify these statements by our use of the
future tense, or by forward-looking words such as “may,”
“will,” “expect,” “anticipate,”
“believe,” “estimate” and “continue.
” You should read statements that contain these words
carefully, because they discuss our expectations about our future
performance, contain projections of our future operating results
and our future financial condition, or state other
“forward-looking” information. There may be events in
the future, however, that we are not able to predict or over which
we have no control. The risk factors listed in this document, as
well as any other cautionary language in this document, provide
examples of risks, uncertainties and events that may cause actual
results to differ from what we describe in our forward-looking
statements. You should be aware that the occurrence of any of the
events described below or elsewhere in this document, could have a
material and adverse effect on our business, results of operations
and financial condition.
Overview
We are a leading provider of workplace eCommerce
software and services that extend automation to employees
throughout an enterprise and to partners, suppliers and service
providers in the extended enterprise. Our flagship product, Concur
eWorkplace, integrates our suite of workplace eCommerce solutions
and provides a portal through which employees can access critical
business eCommerce information and services. The Concur eWorkplace
suite is available in three versions: licensed, application
service provider (“ASP”) and Internet outsourced. Our
licensed version, which is principally marketed to larger
corporations, includes our entire suite of workplace eCommerce
solutions, consisting of corporate procurement, human resources
self- service and travel and entertainment expense management. Our
ASP version, called Concur eWorkplace ASP™, is offered on a
subscription-pricing basis principally to larger corporations and
currently includes travel and entertainment expense management
functionality. Our Internet outsourced version, called Concur
eWorkplace.com™, is offered on a subscription-pricing basis
principally for small and mid-size businesses. This version
currently includes travel and entertainment expense management and
corporate procurement functionality. More than 320 companies
worldwide, representing over 2.4 million end-users, have licensed
our solutions.
We were incorporated in 1993 and commenced operations
in fiscal 1994, initially developing QuickXpense, a retail,
shrink-wrapped application that automated travel and entertainment
expense reporting for individuals. We first shipped QuickXpense in
fiscal 1995 and sold QuickXpense through a combination of retail
channels and direct marketing, utilizing a small sales force and
no consulting or implementation staff. In response to inquiries
from businesses seeking to automate the entire travel and
entertainment expense reporting process, including back-office
processing and integration to financial systems, we significantly
expanded our product development efforts and released Concur
Expense™, a client-server based enterprise travel and
entertainment expense management solution, in July 1996. In March
1998, we shipped an intranet-based version of Concur Expense.
Since its release, the intranet-based version has accounted for a
majority of Concur Expense license revenues. We expect to focus
all future product development efforts on the intranet and
Internet-based versions of our products.
On June 30, 1998, we acquired 7Software, Inc. (
“7Software”), a privately held software company and the
developer of Concur Procurement™. 7Software was incorporated
in May 1997. 7Software was selling the initial version of its
product through a single sales representative at the time of the
acquisition. In connection with the acquisition, we issued 708,918
shares of our common stock in exchange for all the outstanding
shares of 7Software. We also converted all of 7Software’s
outstanding options into options to purchase up to 123,921 shares
of our common stock, paid $130,000 to 7Software, and agreed to pay
$500,000 to certain stockholders of 7Software. Our total purchase
price was valued at $6.2 million, including direct costs of the
acquisition. The
total purchase price was determined by our management and board of
directors based on an assessment of the value of 7Software and as
a result of negotiations with 7Software. In determining the
purchase price, we estimated the fair value of our common stock
and our stock options issued in the transaction. We also entered
into employment and bonus agreements with certain officers of
7Software. The acquisition was recorded under the purchase method
of accounting and the results of operations of 7Software and the
fair value of the assets acquired and liabilities assumed were
included in our consolidated financial statements beginning on the
acquisition date. In connection with this acquisition, we recorded
$5.2 million for in-process technology as an expense during the
quarter ended June 30, 1998. In addition, we recorded capitalized
technology and other intangible assets of $960,000 that are being
amortized on a straight-line basis over three years.
On June 1, 1999, we acquired Seeker Software Inc. (
“Seeker Software”), a privately held software company
and developer of Concur Human Resources™. The transaction was
accounted for as a pooling of interests. We issued 3,419,929
shares of common stock in exchange for all outstanding preferred
stock, preferred stock warrants and common stock of Seeker
Software, and we converted all outstanding options to purchase
Seeker Software common stock into options to purchase up to
680,234 shares of Concur common stock. These consolidated
financial statements have been prepared to reflect the restatement
of all periods presented to include the accounts of Seeker
Software. The historical results of the pooled entities reflect
each of their actual operating cost structures and, as a result,
do not necessarily reflect the cost structure of the newly
combined entity. These consolidated financial statements are now
considered the historical financial statements of the
Company.
In January 1999, we introduced Concur eWorkplace,
which provides a common user interface to integrate Concur Expense
and Concur Procurement and provides a portal through which
employees can access critical business eCommerce information and
services. Concur Human Resources will be integrated into Concur
eWorkplace in fiscal 2000. Concur eWorkplace improves employee
productivity by integrating common features, such as the user
interface, applications icons, approval reminders, status updates
and passwords. It enables IT personnel to easily administer
employee-centric applications that are integrated into Concur
eWorkplace, because the data is captured in a central database,
eliminating the need to support, maintain and manage multiple
servers and software programs. In October 1999, we introduced
Concur eWorkplace.com, which provides features and benefits
similar to Concur eWorkplace but is offered as an ASP product
principally for small and mid-size companies, and requires limited
IT infrastructure and limited IT support. Concur eWorkplace.com is
currently available with Concur Expense and Concur Procurement. We
expect to add Concur Human Resources in fiscal 2001. In December
1999, we introduced Concur eWorkplace ASP, which provides features
and benefits similar to Concur eWorkplace, but is offered as an
ASP product principally to large companies that want a configured
solution offered on an outsourced basis with limited IT
infrastructure and support requirements. Concur eWorkplace ASP is
currently available with Concur Expense, and we expect to add
Concur Procurement and Concur Human Resources in fiscal 2000 and
fiscal 2001, respectively.
In December 1999, we introduced the Concur Commerce
Network, which enables customers to conduct business-to-business
eCommerce transactions over the Internet by bringing buyers and
suppliers together through an Internet-based electronic
marketplace. Connectivity to the Concur Commerce Network is
currently available to Concur eWorkplace.com customers.
Connectivity to the Concur Commerce Network will be available to
customers of Concur eWorkplace and Concur eWorkplace ASP through a
software upgrade expected to be released in fiscal
2000.
Through June 1996, we derived our revenues from
licenses of QuickXpense and related services. In July 1996, we
released Concur Expense. Substantially all of our revenues since
the fourth quarter of fiscal 1996 have been derived from licenses
of Concur Expense and related services, and to a lesser degree,
the sale of licenses and services relating to Concur Human
Resources. We expect that the majority of our revenues will
continue to be derived from our Concur Expense product line and
related services. Our revenues, which consist of software license
revenues and service revenues, totaled $9.0 million and $8.1
million in the three months ended December 31, 1999 and 1998,
respectively. The pricing for our license version is primarily
based on the
number of users or employees of the customer. Our ASP and Internet
outsourced versions are offered on a subscription-pricing basis.
Service revenues consist of consulting, customer support and
training.
We market our software and services primarily through
our direct sales organization in the United States, Canada, United
Kingdom and Australia. Revenues from licenses and services to
customers outside the United States were $654,000 and $548,000 in
the three months ended December 31, 1999 and 1998, respectively.
Historically, as a result of the relatively small amount of
international sales, fluctuations in foreign currency exchange
rates have not had a material effect on our operating
results.
We recognize revenues in accordance with the American
Institute of Certified Public Accountants Statement of Position
97-2, “Software Revenue Recognition,” or SOP 97-2. These
standards generally require revenues earned on software
arrangements involving multiple elements, such as software
products, upgrades, enhancements, post-contract customer support,
installation and training, to be allocated to each element based
on the relative fair values of the elements. The fair value of an
element must be based on evidence that is specific to the vendor.
Evidence of the fair value of each element is based on the price
charged when the element is sold separately. The revenues
allocated to software products, including specified upgrades or
enhancements, generally are recognized upon delivery of the
products. The revenues allocated to unspecified upgrades, updates
and other post-contract customer support generally are recognized
ratably over the term of the related maintenance contract.
Revenues relating to consulting and training services provided to
customers are generally recognized as such services are performed.
If evidence of the fair value for all elements of the arrangement
does not exist, all revenues from the arrangement are deferred
until such evidence exists or until all elements are delivered.
SOP 97-2 has been subject to certain modifications and
interpretations since its release in October 1997. Most recently,
in December 1998, the American Institute of Certified Public
Accountants issued Statement of Position 98-9, “Modification
of SOP 97-2, Software Revenue Recognition, With Respect to Certain
Transactions” which has been adopted by us without any
significant effect on revenue recognition. Further implementation
guidelines relating to SOP 97-2 and related modifications may
result in unanticipated changes in our revenue recognition
practices and such changes could affect our future revenues and
earnings.
Since inception, we have incurred and continue
incurring substantial research and development costs and have
invested heavily in the expansion of our sales, marketing and
professional services organizations to build an infrastructure to
support our long-term growth strategy. As a result of investments
in our infrastructure, we have incurred net losses in each fiscal
quarter since inception and as of December 31, 1999, had an
accumulated deficit of $107.1 million. We anticipate that our
operating expenses will increase substantially for the foreseeable
future as we expand our product development, sales and marketing
and professional services staff. In addition, we plan to expand
our customers’ and suppliers’ ability to conduct
business-to-business eCommerce transactions over the Internet
through the use of our Concur Commerce Network. The Concur
Commerce Network will require additional expenditures as we expand
our marketing efforts and continue its development. Accordingly,
we expect to incur net losses for the foreseeable
future.
We have recorded aggregate deferred stock compensation
of $3.4 million. Deferred stock compensation is amortized over the
life of the options, generally four years. Since inception, we
recorded amortization of deferred stock compensation of $2.3
million of which $1.6 million was a result of the Seeker Software
acquisition.
We believe that period-to-period comparisons of our
operating results are not meaningful and should not be relied upon
as indicative of future performance. Our prospects must be
considered in light of the risks, expenses and difficulties
frequently encountered by companies in early stages of
development, particularly companies in new and rapidly evolving
markets. There can be no assurance that we will be successful in
addressing such risks and difficulties. Although historically we
have experienced significant revenue growth, this trend may not
continue. In addition, we may not achieve or maintain
profitability in the future.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL
CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED
DECEMBER 31, 1999 AND 1998
The following table sets forth certain financial data,
derived from the Company’s unaudited statements of
operations, as a percentage of total revenues for the periods
indicated. The operating results for the three months ended
December 31, 1999 and 1998, are not necessarily indicative of the
results that may be expected for any future period.
| |
|
Three
Months Ended
December 31,
|
| |
|
1999
|
|
1998
|
| Revenues,
net: |
|
Licenses |
|
46.7 |
% |
|
69.7 |
% |
|
Services |
|
53.3 |
|
|
30.3 |
|
| |
|
|
|
|
|
|
|
Total revenues |
|
100.0 |
|
|
100.0 |
|
| |
|
|
|
|
|
|
| Cost of
revenues: |
|
Licenses |
|
2.5 |
|
|
2.7 |
|
|
Services |
|
65.6 |
|
|
42.1 |
|
| |
|
|
|
|
|
|
|
Total cost of revenues |
|
68.1 |
|
|
44.8 |
|
| |
|
|
|
|
|
|
| Gross
margin |
|
31.9 |
|
|
55.2 |
|
| |
|
|
|
|
|
|
| Operating
expenses: |
|
Sales and marketing |
|
100.9 |
|
|
78.5 |
|
|
Research and development |
|
95.8 |
|
|
47.4 |
|
|
General and administrative |
|
38.6 |
|
|
24.0 |
|
| |
|
|
|
|
|
|
|
Total operating expenses |
|
235.3 |
|
|
149.9 |
|
| |
|
|
|
|
|
|
| Loss from
operations |
|
(203.4 |
) |
|
(94.7 |
) |
| Interest
income |
|
15.5 |
|
|
3.0 |
|
| Interest
expense |
|
(3.4 |
) |
|
(3.6 |
) |
| Other expense,
net |
|
(1.1 |
) |
|
(0.5 |
) |
| |
|
|
|
|
|
|
| Net
loss |
|
(192.4 |
)% |
|
(95.8 |
)% |
| |
|
|
|
|
|
|
Revenues
We derive our revenues from software licenses and
related services. Total revenues were $9.0 million and $8.1
million for the three months ended December 31, 1999 and 1998,
respectively, representing an increase of $0.9 million, or 11%.
International revenues were $654,000 and $548,000 for the three
months ended December 31, 1999 and 1998, respectively.
License Revenues. Our
license revenues were $4.2 million and $5.7 million for the three
months ended December 31, 1999 and 1998, respectively,
representing a decrease of $1.5 million, or 26%. License revenues
represented 46.7% and 69.7% of total revenues for the three months
ended December 31, 1999 and 1998, respectively. The decrease in
license revenues reflects our introduction of a suite of
applications, and the shift in demand for our products from
licensed to ASP and outsourced products. In fiscal 1999, we
introduced our Concur eWorkplace suite, which increased the number
of applications available for license from one to three (Concur
Expense, Concur Procurement and Concur Human Resources). This has
had the effect of lengthening our sales cycle because it makes our
customers’ acquisition decision more complex, and license
revenues declined as a result. Second, we have experienced a shift
in the market demand for our products from the licensed version to
the ASP and Internet outsourced versions of Concur eWorkplace. In
our traditional license
sales model, a license fee is generally recognized upon delivery; in
contrast, ASP and Internet outsourced sales require recognition of
the contract revenue as the licenses are used and the services are
performed over the life of the ASP or Internet outsourced
contracts, which is generally two to four years. License revenue
recognized for the ASP and Internet outsourced products were
immaterial for the three months ended December 31,
1999.
Service Revenues. Our
service revenues consist primarily of revenue from consulting and
implementation, maintenance and to a lesser extent, training
services. Our service revenues were $4.8 million and $2.5 million
for the three months ended December 31, 1999 and 1998,
respectively, representing an increase of $2.3 million, or 95%.
Service revenues represented 53.3% and 30.3% of total revenues for
the three months ended December 31, 1999 and 1998, respectively.
This increase reflects a higher level of professional services
activity as a result of higher numbers of customers as well as an
increase in the number of professional services personnel. The
number of our professional services personnel increased from 57 at
December 31, 1998, to 139 at December 31, 1999. The percentage of
total revenues represented by service revenues in prior fiscal
periods may not be indicative of levels to be expected in future
periods as the proportion of our service revenues to total
revenues will fluctuate in the future. This fluctuation will
depend, in part, on the mix of our product sales because the
amount of consulting efforts required, as well as our use of
third-party implementation service providers, is higher for our
licensed product than for our ASP and Internet outsourced
products.
Cost of Revenues
Cost of License Revenues.
Our cost of license revenues includes license fees for
sublicensing third-party software, product media, product
duplication, manuals and amortization of capitalized technology
and other intangible assets. Our cost of license revenues
was $228,000 and $224,000 for the three months ended December 31,
1999 and 1998, respectively, representing an increase of $4,000,
or 2%. Cost of license revenues represented 5.4% and 4.0% of total
license revenue for the three months ended December 31, 1999 and
1998. We expect that the cost of license revenues will continue to
fluctuate in the future depending in part on product mix and the
overall demand for our products.
Cost of Service Revenues.
Our cost of service revenues includes personnel and
other costs related to consulting services, technical support and
training. Our cost of service revenues was $5.9 million and $3.4
million for the three months ended December 31, 1999 and 1998,
respectively, representing an increase of $2.5 million, or 73%.
This increase was primarily due to the increase in professional
service personnel to manage and support our growing customer base,
as well as expenses to recruit professional services personnel.
The number of our professional services personnel increased from
57 at December 31, 1998, to 139 at December 31, 1999. Cost of
service revenues represented 123% and 139% of service revenues for
the three months ended December 31, 1999 and 1998, respectively.
We expect that the cost of service revenues as a percentage of
service revenues will vary between periods due to changes in the
mix of products and services provided by us or by our third party
implementation service provider partners.
Costs and Expenses
Sales and Marketing. Our
sales and marketing expenses consist primarily of salaries,
commissions and bonuses earned by sales and marketing personnel,
lead referral fees, travel and entertainment and promotional
expenses. Our sales and marketing expenses were $9.1 million and
$6.4 million for the three months ended December 31, 1999 and
1998, respectively, representing an increase of $2.7 million, or
43%. This increase primarily reflects our investment in our sales
and marketing infrastructure, including significant
personnel-related expenses such as salaries and benefits, travel
and entertainment expenses and recruiting and related costs of
hiring sales management, sales representatives, sales engineers
and marketing personnel. The increase also reflects our continuing
investment in our international operations in the United Kingdom
and Australia, and an increase in public relations and marketing
expenses. Sales and marketing expenses represented 100.9% and
78.5% of total revenues for the three months ended December 31,
1999 and 1998, respectively. We believe that a significant
increase in our sales and marketing efforts is essential for us to
maintain our market position
and increase market acceptance of our existing and future products.
Accordingly, we anticipate that we will continue to invest
significantly in sales and marketing for the foreseeable future,
and sales and marketing expenses will continue to increase in
future periods.
Research and Development.
Our research and development expenses consist primarily
of salaries and benefits for software developers, product managers
and quality assurance personnel and payments to outside
contractors. Our research and development expenses were $8.6
million and $3.8 million for the three months ended December 31,
1999 and 1998, respectively, representing an increase of $4.8
million, or 125%. This increase was primarily related to increased
usage of outside contractors and the increase in software
engineers, program management and quality assurance personnel to
support our existing suite of products, new product development
and the Concur Commerce Network. Research and development costs
represented 95.8% and 47.4% of total revenues for the three months
ended December 31, 1999 and 1998, respectively. We believe that a
significant increase in our research and development investment is
essential for us to maintain our market position, to continue
expanding our product lines and to enhance the common technology
platform for our suite of products. In addition, we are continuing
to expand our customers’ and suppliers’ ability to
conduct business-to-business eCommerce transactions over the
Internet through the use of our Concur Commerce Network. The
Concur Commerce Network will require additional expenditures as we
continue to expand our marketing efforts and further its
development. Accordingly, we anticipate that we will invest
significantly in product research and development for the
foreseeable future, and research and development expenses are
likely to increase in future periods. In the development of our
new products and enhancements of existing products, the
technological feasibility of the software is not established until
substantially all product development is complete. Historically,
software development costs eligible for capitalization have been
insignificant, and all costs related to internal research and
development have been expensed as incurred.
General and Administrative.
Our general and administrative expenses include
primarily salaries, benefits and related costs for our executive,
finance, business development, investor relations, legal and
information services personnel. Our general and administrative
expenses were $3.5 million and $1.9 million for the three months
ended December 31, 1999 and 1998, respectively, representing an
increase of $1.6 million, or 78%. This increase was primarily the
result of hiring additional general and administrative personnel
to support the growth of our business, increased use of outside
contractors to fulfill hiring needs until full time personnel
could be retained and an increase in professional fees, such as
legal fees. General and administrative costs represented 38.6% and
24.0% of our total revenues for the three months ended December
31, 1999 and 1998, respectively. We believe that our general and
administrative expenses will continue to increase as a result of
the expansion of our administrative staff to continue supporting
our ongoing growth.
Interest Income and Interest Expense.
Our interest income was $1.4 million and $242,000
for the three months ended December 31, 1999 and 1998,
respectively, representing an increase of approximately $1.2
million. This increase reflects interest income earned on the
higher cash, cash equivalents and marketable securities balances
as a result of proceeds received in December 1998 and April 1999
from our public offerings. Interest expense was $304,000 and
$296,000 for the three months ended December 31, 1999 and 1998,
respectively, representing an increase of $8,000.
Provision for Income Taxes.
No provision for federal and state income taxes has been
recorded because we have experienced net losses since inception
that have resulted in deferred tax assets. A valuation allowance
has been recorded for the entire deferred tax asset as a result of
uncertainties regarding the realization of the asset
balance.
Financial Condition
Our total assets were $108.5 million and $128.8
million at December 31, 1999 and September 30, 1999, respectively,
representing a decrease of $20.3 million, or 16%. This decrease
was primarily the result of cash used to fund our operations
during the quarter. As of December 31, 1999, we had $83.6 million
of cash, cash equivalents and marketable securities compared to
$108.7 million at September 30, 1999, representing a decrease of
$25.1 million, or 23%.
Our accounts receivable balance, net of allowance
for doubtful accounts, was $10.3 million and $9.0 million as of
December 31, 1999 and September 30, 1999, respectively,
representing an increase of $1.3 million, or 14%. This increase
was principally a result of increased service revenues as well as
the timing of our license sales during the quarter. Days’
sales outstanding (“DSO”) in accounts receivable was 103
days and 90 days for the three months ended December 31, 1999 and
September 30, 1999, respectively. We expect that DSO will
fluctuate significantly in future quarters, and may continue to
increase.
Our total current liabilities were $24.6 million and
$28.6 million at December 31, 1999 and September 30, 1999,
respectively, representing a decrease of $4.0 million, or 14%.
This decrease is primarily a result of the timing of vendor and
other related cash payments at December 31, 1999, partially offset
by an increase in our short-term capital lease obligations due to
our increased software and equipment financing.
Liquidity and Capital Resources
Net cash used in operating activities was $22.3
million and $4.5 million in the three months ended December 31,
1999 and 1998, respectively, representing an increase of $17.8
million, or 394%. Net cash used by operating activities in these
periods was primarily a result of funding our ongoing operations,
the timing of vendor payments and an increase in our accounts
receivable balance.
Our investing activities have consisted primarily of
purchases of property and equipment and marketable securities.
Property and equipment acquisitions, including those acquired
under capital leases, totaled $4.4 million and $675,000 in the
three months ended December 31, 1999 and 1998, representing an
increase of $3.7 million. We financed a significant portion of our
acquisitions of property and equipment through capital leases,
which consist primarily of computer hardware and software for our
increasing employee base as well as for our management information
systems. We anticipate that we will continue experiencing an
increase in our capital expenditures and lease commitments
consistent with our anticipated growth in operations,
infrastructure and personnel. Additionally, we purchased
marketable securities totaling $11.3 million during the three
months ended December 31, 1999 with the proceeds received from
public offerings of our common stock. Marketable securities
consist primarily of corporate bonds and commercial
paper.
Cash used by financing activities was $66,000 in the
three months ended December 31, 1999, compared with cash provided
by financing activities of $44.0 million in the three months ended
December 31, 1998. Cash used by financing activities in the three
months ended December 31, 1999, was due to repayments on bank debt
and capital lease obligations totaling $1.2 million, offset by
$1.1 million in cash received from the issuance of common stock.
In the three months ended December 31, 1998, cash provided by
financing activities consisted primarily of initial public
offering (“IPO”) proceeds totaling $37.4 million,
proceeds totaling $2.6 million from the exercise of warrants
concurrent with the IPO and $5.0 million from bank and stockholder
financings.
We have a line of credit with a bank for $4.0 million
that expires in March 2000. The line of credit bears interest at
the lending bank’s prime rate plus 1.5%. Borrowings are
limited to the lesser of 80% of eligible accounts receivable or
$4.0 million and are secured by substantially all of our
non-leased assets. As of December 31, 1999, we had not borrowed
under the line of credit; however, there was a standby letter of
credit outstanding for $450,000. Approximately $3.6 million
remained available under this line as of December 31,
1999.
In September 1997, we entered into a $1.0 million
senior term loan facility with the same bank with which we have
the line of credit, pursuant to the terms of a security and loan
agreement. In April 1998, the senior term loan facility was
amended to allow for additional borrowings up to a total of $3.0
million. The facility, which bears interest at the lending bank
’s prime rate less 1.0%, matures on February 15, 2001.
Payments were interest only through February 15, 1999, at which
time we started to pay off the facility in 24 equal monthly
principal payments plus interest. The loan agreement contains
certain financial restrictions and covenants, with which we are
currently in compliance. As of December 31, 1999, the outstanding
indebtedness under the loan agreement was $1.8
million.
In July 1997, we entered into a subordinated loan
and security agreement with the same company with which we lease
capital equipment in the principal amount of $1.5 million that
bears interest at an annual rate of 8.5%. In May 1998, this
agreement was amended to allow for additional borrowings of $3.5
million. The notes are due in varying monthly installments through
April 2002, and contain certain restrictions and covenants, with
which we are currently in compliance. At December 31, 1999, the
outstanding indebtedness under the subordinated loan agreement was
$3.3 million.
We also have an existing equipment line of credit with
a bank, which is no longer available for additional borrowings.
Principal payments of approximately $32,000, plus interest which
accrues at the prime rate plus 1.5%, are due monthly through
October 2001. At December 31, 1999, the outstanding indebtedness
under the equipment line of credit was $313,000.
In September 1998, we entered into an additional
subordinated promissory note agreement with the same company with
which we lease capital equipment in the principal amount of $2.0
million. The note bears interest at 11%, payments are due in
monthly installments of approximately $65,000 including interest,
and the note matures in November 2001. At December 31, 1999, the
outstanding indebtedness under the subordinated loan agreement was
$1.4 million.
On August 11, 1998, we issued a warrant to American
Express Travel Related Services Company, Inc. (“TRS”) to
purchase shares of our Series E Preferred Stock. In connection
with our IPO in December 1998, this warrant was converted into a
warrant to purchase 2,325,000 shares of our common stock. In
December 1998, TRS exercised a portion of the warrant to purchase
225,000 shares at $11.625 per share and on October 15, 1999, a
portion of the warrant to purchase 700,000 shares expired. TRS may
acquire 700,000 additional shares at any time on or before January
15, 2001 at a cash purchase price of $50.625 per share and 700,000
shares at any time on or before January 15, 2002 at a cash
purchase price of $85.00 per share.
We currently anticipate that for the foreseeable
future we will continue to experience significant growth in our
operating expenses related to augmenting our sales and marketing
operations, increasing research and development and extending our
professional service capabilities. We also anticipate developing
new distribution channels, improving our operational and financial
systems, entering new markets for our products and services, and
possibly acquiring or investing in complementary businesses,
products or technologies or investing in joint ventures. Such
expenditures will be a material use of our cash resources. We
believe that our existing cash and cash equivalents and marketable
securities and available bank borrowings will be sufficient to
meet our anticipated cash needs for working capital and capital
expenditures for at least the next 12 months. Thereafter, we may
require additional funds to support our working capital
requirements or for other purposes and may seek to raise such
additional funds through private or public sales of securities,
strategic relationships, bank debt, financing under leasing
arrangements, or otherwise. If additional funds are raised through
the issuance of equity securities, stockholders may experience
additional dilution, or such equity securities may have rights,
preferences, or privileges senior to those of the holders of our
common stock. There can be no assurance that additional financing
will be available on acceptable terms, or at all. If adequate
funds are not available or are not available on acceptable terms,
we may be unable to develop or enhance our products, take
advantage of future opportunities, or respond to competitive
pressures or unanticipated requirements, which could have a
material adverse effect on our business, financial condition and
operating results.
YEAR 2000 COMPLIANCE
Background of Year 2000 Issues
Many installed computer systems and software products,
as originally developed, were unable to distinguish between
twentieth century dates and twenty-first century dates because
such systems were developed using two digits rather than four to
represent the applicable year. For example, a computer program
with date-sensitive software would recognize a date using “00
” as the year 1900 rather than the year 2000. Such an error
would result in system failures or miscalculations causing
disruptions of operations, including, among other things, a
temporary inability to process translations, send invoices or
engage in similar normal business activities. As a result, many
companies’ software and computer systems were in need of an
upgrade or replacement in advance of the millennium date change in
order to comply with such “Year 2000”
requirements.
Along with many other similar companies, our business
depends on the operation of numerous systems with the potential to
be affected by Year 2000-related problems. Those systems include,
among others:
|
Ÿ
|
hardware and software systems we use to deliver products
and services to customers, including our proprietary software
systems as well as software supplied by third
parties;
|
|
Ÿ
|
communications networks such as the Internet and private
intranets;
|
|
Ÿ
|
internal systems that our customers and suppliers use in
the management of their businesses;
|
|
Ÿ
|
software products we sell to customers;
|
|
Ÿ
|
the
hardware and software systems we use internally in the
management of our business; and
|
|
Ÿ
|
non-information technology systems and services, such as
power, telephone systems and building systems.
|
In November 1998, we established a Year 2000
Compliance Task Force (the “Task Force”), composed of
high-level representatives of the product management, information
systems, technical services and legal departments. The Task Force
was charged with the responsibility of formulating and
implementing our Year 2000 readiness, and working to ensure the
Year 2000 readiness of our operations, products and relationships.
The phases of our Year 2000 program have been as
follows:
|
Ÿ
|
assignment of responsibility for external issues, such as
products we developed and licensed to customers, and internal
issues, such as systems, facilities, equipment, software, and
legal audit;
|
|
Ÿ
|
inventory of all aspects of our operations and
relationships subject to the Year 2000 problem;
|
|
Ÿ
|
comprehensive analysis, including impact analysis and
cost analysis, of our Year 2000 readiness, as well as business
contingency planning; and
|
|
Ÿ
|
remediation and subsequent testing.
|
We instituted a thorough testing program for our
software products with reference to the Year 2000 compliance
specifications established by the British Standards Institute
’s DISC PD-2001. In the course of our ongoing testing, we
discovered several minor Year 2000 issues that were promptly
resolved with patches or updates provided at no charge to
authorized licensees. We have maintained a plan to discontinue
support of some very early product versions not currently
shipping; however, our customer base was duly notified of this
fact via our Web site and via written correspondence. Our
technical support, product development and consulting personnel
were on-call for the first few days of January 2000 to handle Year
2000 problems experienced by our customers in connection with one
of our software products.
We have now completed all four phases of our Year 2000
compliance program. Through the first few months of 2000 we plan
to continue to test our current and future products by applying
our Year 2000 compliance criteria and to take any necessary
corrective actions, as appropriate.
Remaining Risks Related to Year 2000
Issues:
Shortly after the millennium date change, some of our
customers reported minor problems with our software products that
appear to have been related to Year 2000 problems. In each case,
these minor problems were resolved at no charge to the affected
customers. However, we may yet be subject to claims based on Year
2000 problems in other companies’ products, other
as-yet-unreported Year 2000 problems alleged to be found in our
products, Year 2000-related issues arising from the integration of
multiple products within an overall system, or other
as-yet-unreported Year 2000-related claims. We expect that this
uncertainty about the extent of Year 2000 problems will continue
through fiscal 2000. The total cost of resolving Year 2000-related
issues and contingency plan promulgation may yet become material
and could harm our business.
Although we have not been a party to any litigation or
arbitration proceeding to date involving our products or services
and related to Year 2000 compliance issues, there can be no
assurance that we will not in the future be required to defend our
products or services in such proceedings, or to negotiate
resolutions of claims based on Year 2000 issues. The costs of
defending and resolving Year 2000-related disputes, regardless of
the merits of such disputes, and any liability for Year
2000-related damages, including consequential damages, would have
a material adverse effect on our business, results of operations
and financial condition.
We also reviewed our internal management information
and other systems in order to identify any products, services or
systems that were not Year 2000 compliant. To assist us in this
initiative, we retained the services of a Year 2000 consulting
firm which assisted with all four phases of our Year 2000 program.
To date, we have not encountered any material Year 2000 problems
with our computer systems or any other equipment that might be
subject to such problems. We have received responses to compliance
verification requests from substantially all of the material
external vendors supplying software and information systems to us
to whom we circulated such requests. The purpose of these requests
was to determine the readiness of third parties’ remediation
of their own Year 2000 issues. We also established contingency
plans for continuing operations in the event problems with third
party vendors arose and for handling Year 2000 problems that were
not detected and corrected prior to their occurrence. Despite our
efforts, however, we may yet find that we did not foresee all
significant Year 2000 problems and such unforeseen problems may
have a material adverse effect on our business.
RISK FACTORS THAT MAY AFFECT RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Our short operating history and significant
losses make our business difficult to evaluate.
We are still in the early stages of our development,
so evaluating our business operations and our prospects is
difficult. We incorporated in 1993 and have incurred net losses in
each quarter since then. We shipped our first product in fiscal
1995, and since fiscal 1997 have derived substantially all of our
revenues from licenses of our Concur Expense product and related
services, and to a lesser degree, the sale of licenses and
services relating to Concur Human Resources. To compete
effectively, we expect to devote substantial financial and other
resources to expanding our sales and marketing, research and
development and professional services organizations. These
investments may never produce a profit. We incurred net losses
totaling $17.3 million in the three months ended December 31,
1999, and incurred net losses of $46.5 million, $26.2 million and
$7.6 million in fiscal 1999, 1998 and 1997, respectively. As of
December 31, 1999, we had an accumulated deficit of $107.1
million. We expect to continue to incur net losses for the
foreseeable future. Despite substantial net operating loss
carry-forwards as of December 31, 1999, tax laws will likely limit
their use in the future upon the occurrence of certain events,
including a significant change in ownership interests.
Our operating results fluctuate widely and are
difficult to predict.
We find it difficult to forecast quarterly license
revenues because our sales cycle, from initial evaluation to
delivery of software, is lengthy and varies substantially from
customer to customer. In the past our quarterly operating results
have fluctuated significantly, and we expect them to continue to
fluctuate in the future. Our licensed software products, from
which we derive most of our revenues, are typically shipped when
orders are received, so our license backlog at the beginning of
any quarter in the past represented only a small portion of that
quarter’s expected license revenues. This has made and will
continue to make license revenues in any quarter difficult to
forecast because they depend on orders booked and shipped in that
quarter. Moreover, we have historically recognized a substantial
percentage of revenues in the last month of the quarter,
frequently in the last week or even the last days of the quarter,
and we expect this trend to continue for as long as our licensed
software products represent a substantial part of our overall
business. Any shortfall from anticipated revenues or any delay in
the recognition of revenues could result in significant variations
in operating results from quarter to quarter.
If revenues or operating results fall below our
expectations in a particular quarter, our stock price could fall.
In the fourth quarter of fiscal 1999, our license and service
revenues did, in fact, fall below our own and the consensus of
securities analysts’ estimates for the quarter and, as a
result, the price of our stock experienced a sharp decline. In the
first quarter of fiscal 2000, our license revenues and operating
results fell below our own and the consensus of securities analysts
’ estimates for the quarter and, as a result, the price of
our stock experienced another sharp decline. If our revenues or
operating results fall below our own estimates or below the
consensus of analysts’ estimates in an upcoming quarter, our
stock price could experience a more substantial and lasting
decline, harming our business significantly in terms of, among
other things, diminished employee morale and public image. See
“—We are at risk of securities class action litigation
due to our stock price volatility.”
We have been public for only a short time and
our stock price has been volatile.
We completed our initial public offering in December
1998. Since then, the market price of our common stock has been
highly volatile and is subject to wide fluctuations. We expect our
stock price to continue to fluctuate:
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in
response to quarterly variations in operating
results;
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in
reaction to announcements of technological innovations, new
products or significant agreements by us or our
competitors;
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because
of market conditions in the enterprise software and eCommerce
industries;
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in
reaction to changes in financial estimates by securities
analysts, and our failure to meet or exceed the expectations of
analysts or investors; and
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as a
result of the active trading of our stock by online day
traders.
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We are at risk of securities class action
litigation due to our stock price volatility.
In the past, securities class action litigation has
often been brought against companies following periods of
volatility in the market price of their securities. We may in the
future be the target of similar litigation, either due to prior
volatility associated with our failure to meet consensus analysts
’ estimates for revenues for the fourth quarter of fiscal
1999 or our failure to meet consensus analysts’ estimates for
license revenues and operating results for the first quarter of
fiscal 2000 due to future volatility in our stock price.
Securities litigation could result in substantial costs and divert
management’s attention and resources.
We rely heavily on sales of one
product.
Since 1997, we have generated substantially all of our
revenues from licenses and services related to our Concur Expense
product. We believe that Concur Expense revenues will continue to
account for a large portion of our revenues for the foreseeable
future. Our future financial performance and revenue growth will
depend upon the successful development, introduction and customer
acceptance of new and enhanced versions of Concur Expense, Concur
Procurement, Concur Human Resources and other applications, and
our business could be harmed if we fail to deliver the
enhancements to our current and future products that customers
want. In particular, our business could be harmed if we are unable
to establish our Concur Procurement product in the corporate
procurement software market. Within our current suite of
offerings, Concur Procurement is of critical strategic importance
because some customers view this application as more strategic to
their business and the license fees associated with it tend to be
significantly larger than for the others. Perhaps as a result,
where our customers’ software buying decisions are linked
together, these decisions are more typically led by their
procurement software buying decision than by their evaluation of
either travel and entertainment expense management or human
resources solutions. As a result, we believe that an inability to
compete effectively in the procurement software market could
significantly hamper our future financial performance and revenue
growth.
We face significant competition.
The market for our products is intensely competitive
and rapidly changing. Direct competition comes from independent
software vendors of business-to-business electronic commerce
software, travel and entertainment expense management, corporate
procurement applications and human resources self-service
applications, and from providers of enterprise resource planning (
“ERP”) software applications that have or may be
developing travel and entertainment expense management, corporate
procurement products and human resources self service
applications. Many of our competitors have longer operating
histories, significantly greater financial, technical, marketing
and other resources, significantly greater name recognition and a
larger installed base of customers than we do. Moreover, a number
of our competitors, particularly major ERP vendors, have
well-established relationships with our current and potential
customers as well as with systems integrators and other vendors
and service providers. Some of our competitors in the
business-to-business electronic commerce field are establishing
commerce or purchasing networks involving suppliers, customers and
partners and effectively excluding other companies that do not
participate in these commerce networks. These competitors may also
be able to respond more quickly to new or emerging technologies
and changes in customer requirements, or to devote greater
resources to the development, promotion and sale of their
products, than we can. We also face indirect competition from
potential customers’ internal development efforts and have to
overcome their reluctance to move away from existing paper-based
systems.
Our expansion into the corporate procurement
application and human resources self-service application markets
is risky.
We added Concur Procurement to our product line in
1998 and we added Concur Human Resources in 1999. To date,
substantially all of our revenues have come from Concur Expense.
Our future revenue growth depends on our ability to license Concur
Procurement and Concur Human Resources to new customers and to our
existing base of Concur Expense customers. Potential and existing
customers may not purchase Concur Procurement or Concur Human
Resources for many reasons, including:
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an
absence of desired functionality;
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the
costs of and time required for implementation;
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incompatibility of these applications with customers
’ preferred technology platforms;
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possible software defects; and
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customers lacking the necessary hardware, software or
intranet infrastructure.
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Further, we must overcome some significant obstacles
to expand into the market for corporate procurement applications
and human resources self-service applications,
including:
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competitors that have more experience and better name
recognition;
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the
limited experience of our sales and consulting personnel in
these markets; and
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our
limited reference accounts in these markets.
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Our business could be harmed if we fail to deliver
enhancements to Concur Procurement and Concur Human Resources that
customers want. In addition, our business could also be harmed if
our expansion into these newer markets and resulting broadening of
our focus causes Concur Expense, upon which we continue to rely
for most of our revenues, to lose market share to our competitors
that are solely or primarily focused on travel and entertainment
expense management software applications. This broadening of focus
could also harm us by causing us to spread our limited resources
across to many initiatives and diverting management time and
attention required to execute any given initiative
properly.
Our effort to sell products as an Internet-based
application service provider under our ASP and Internet outsourced
models may fail and we may face related security
issues.
In addition to licensing our software applications, we
have recently begun offering them as an Internet-based application
service provider (“ASP”), under our ASP and Internet
outsourced versions. With these versions we price our products on
a subscription basis to companies seeking to outsource their
workplace eCommerce business applications. These business models
are unproven and represent a significant departure from the
strategies traditionally employed by us and other enterprise
software vendors. We have no experience selling products or
services in this manner, and our efforts to develop these business
models have diverted, and are expected to continue to divert, our
financial resources and management time and attention. In
connection with these versions of our software applications, we
have engaged third-party service providers to perform many of the
necessary services as independent contractors, and we are and will
be responsible for monitoring their performance. We have limited
experience outsourcing services or other important business
functions in the past, and independent contractors may not perform
those services adequately. If any service provider delivers
inadequate support or service to our customers, our reputation
could be harmed. In addition, we plan to use resellers to market
the ASP and Internet outsourced versions of our products. We have
limited experience utilizing resellers and we may not be
successful in this effort.
If customers determine that our products are not
scalable, do not provide adequate security for the dissemination
of information over the Internet, or are otherwise inadequate for
Internet-based use, or if for any other reason customers fail to
accept our products for use on the Internet or on a subscription
basis, our
business will be harmed. In connection with the ASP and Internet
outsourced versions of our software applications, we expect to
receive confidential information, including 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 for which we are
responsible. Any such lapse in security could expose us to
litigation, loss of customers or other harm to our business. In
addition, any person who is able to circumvent our security
measures could misappropriate proprietary or confidential customer
information or cause interruptions in our operations. We may be
required to incur significant costs to protect against security
breaches or to alleviate problems caused by breaches. Further, a
well-publicized compromise of security could deter people from
using the Internet to conduct transactions that involve
transmitting confidential information. Our failure to prevent
security breaches, or well-publicized security breaches affecting
the Web in general, could significantly harm our business,
operating results and financial condition.
Even if our strategy of offering products to customers
over the Internet proves successful, some of those Internet
customers may be ones that otherwise might have bought our
software and services through our traditional licensing
arrangements. Any such shift in potential license revenues to
either the ASP or the Internet outsourced model, which are
unproven and potentially less profitable, could harm our business.
In addition, as an increasing proportion of our business moves to
these business models, our revenues may be inconsistent and hard
to predict, given that revenues under this new business model are
recognized ratably over the contract term whereas most of our
revenues under the traditional licensing arrangements are
recognized in the same quarter that the contract is
signed.
We have limited experience selling our products
as a suite and our Concur eWorkplace model may
fail.
We recently introduced Concur eWorkplace, which
integrates Concur Expense and Concur Procurement, and, ultimately,
will integrate Concur Human Resources, as a suite of applications.
Prior to that introduction, we had not sold our products as a
suite, and we do not know whether customers will prefer to buy our
products this way. In an effort to increase overall revenues, we
expect to offer our integrated suite of applications at prices
that will be lower than would be the case for the applications
sold separately. This may have the effect of reducing per-user
revenues. We have also found that selling our products as a suite
has lengthened our sales cycle because the sale is more complex
and is more likely to involve information technology specialists
and, in some cases, higher-level decision-makers at the
prospective customer. We do not anticipate that the trend toward
longer sales cycles will abate in the foreseeable future. Because
we are inexperienced selling our products this way, we cannot
predict whether it will harm our business.
Our lengthy sales cycle could adversely affect
our revenue growth.
Because of the high costs involved, customers for
enterprise software products typically commit significant
resources to an evaluation of available software applications and
require us to expend substantial time, effort and money educating
them about the value of our products and services. The time
between initial contact with a potential customer and the ultimate
sale, our sales cycle, typically ranges from six to fifteen
months. As a result of our lengthy sales cycle, we have only a
limited ability to forecast the timing and size of specific sales.
In addition, customers may delay their purchases from a given
quarter to another as they elect to wait for new product
enhancements. Any delay in completing, or failure to complete,
sales in a particular quarter or fiscal year could harm our
business and could cause our operating results to vary
significantly. See “—Our operating results fluctuate
widely and are difficult to predict.”
We rely on third party software that is
difficult to replace.
Some of the software we license from third parties
would be difficult to replace. In particular, in order to offer
our customers our suite of workplace eCommerce software
applications, we license technology from third parties. This
software may not continue to be available on commercially
reasonable terms, if at all. The loss or
inability to maintain any of these technology licenses could result
in delays in the sale of our products and services until
equivalent technology, if available, is identified, licensed and
integrated, which could harm our business.
It is important for us to establish and maintain
strategic relationships.
To offer products and services to a larger customer
base than we can reach through direct sales, telesales and our
internal marketing efforts, we depend on strategic referral and,
in the future, strategic reseller relationships. If we were unable
to maintain our existing strategic referral relationships or enter
into additional strategic referral or reseller relationships, we
would have to devote more resources to the distribution, sale and
marketing of our products and services. Our success depends in
part on the ultimate success of our strategic referral and
reseller partners and their ability to market our products and
services successfully. A number of our Concur Expense sales have
come through referrals from American Express, but American Express
is not obligated to refer any potential customers to us, and it
has, and may continue to, enter into strategic relationships with
other providers of expense reporting and corporate procurement
applications. In the developing field of business-to-business
electronic commerce, strategic business relationships with key
suppliers and others are critical to the successful establishment
of commerce or buying networks that may become the source of
multiple revenue opportunities for their participants. If we are
unable to establish such relationships and our competitors have
these relationships, our workplace eCommerce business strategy
would be harmed. Many of our strategic partners have multiple
strategic relationships, and they may not regard us as significant
for their businesses. In addition, our strategic partners may
terminate their respective relationships with us, pursue other
partnerships or relationships, or attempt to develop or acquire
products or services that compete with our products or services.
Further, our existing strategic relationships may interfere with
our ability to enter into other desirable strategic
relationships.
We have limited experience with large-scale
deployment, which is important to our future
success.
To date, only a limited number of customers have fully
deployed Concur Expense, Concur Procurement and Concur Human
Resources. We think that the ability of large customers to roll
out our products across large numbers of users is critical to our
success. If our customers cannot successfully implement
large-scale deployments, or they determine that our products
cannot accommodate large-scale deployments, our business will be
harmed. Similarly, because only a limited number of customers are
using the ASP version of our product offering, we do not have
assurance that our ASP product would be able to support a large
volume of users or transactions and our business would be harmed
by any failure in this regard.
Year 2000 considerations among our customers and
potential customers may reduce our sales.
Through the first half of 2000, we expect to
experience reduced sales of products as customers and potential
customers put a priority on correcting Year 2000 problems and
therefore defer purchases of our products until later in 2000. As
a result, demand for our products may be particularly volatile and
unpredictable for early 2000.
We may not meet our expectations for the Seeker
Software acquisition.
Our acquisition of Seeker Software Inc., in June 1999,
was a significant investment. In connection with the acquisition,
we recorded in the third quarter of fiscal 1999 a charge to
operating expenses of approximately $8.9 million for direct and
other acquisition-related costs pertaining to the transaction.
Acquisition costs consisted primarily of financial advisor fees
for both companies, attorneys, accountants, financial printing and
other related charges. In the future, we may incur additional
costs of integrating the business of Seeker Software with our
business. We plan to integrate the Seeker Software business with
our own, including product development efforts focused on fully
integrating Concur Human Resources into Concur eWorkplace. We also
expect to be able to sell our newly acquired Concur Human
Resources applications to some of the existing
customers of our Concur eWorkplace, Concur Expense and Concur
Procurement products, and to sell Concur eWorkplace, Concur
Expense and Concur Procurement to existing customers of Concur
Human Resources. However, we may fail to achieve our expectations.
In particular, we may encounter substantial difficulties and
financial risks such as:
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difficulty assimilating the technology of the combined
companies;
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problems retaining key technical and managerial
personnel;
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additional operating losses and expenses of the acquired
business; and
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impairment of relationships with existing customers,
business partners and employees.
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In addition, recent actions and comments from the
Securities and Exchange Commission have indicated that it is
scrutinizing the application of the pooling of interests method of
accounting for business combinations. While we believe we are in
compliance with the rules and related guidelines as they currently
exist, we can provide no assurance that the Commission will not
challenge our conclusions and ultimately seek to treat this
transaction under the purchase method of accounting for business
combinations. This could result in the restatement of financial
statements requiring the recording of goodwill and related
amortization expense and as such could have a material negative
impact on our financial results for the periods subsequent to the
acquisition. There can be no assurance that we will be successful
in overcoming these or any other problems or risks in connection
with the acquisition of Seeker Software. Mergers and acquisitions
of high-technology companies are inherently risky, and no
assurance can be given that our previous or future acquisitions
will be successful and will not adversely affect our financial
condition or results of operations.
Future acquisitions might harm our
business.
As part of our business strategy, we might seek to
acquire or invest in businesses, products or technologies that we
feel could complement or expand our business. If we identify an
appropriate acquisition opportunity, we might not be able to
negotiate the terms of that acquisition successfully, finance it,
or integrate it into our existing business and operations. We have
completed only two acquisitions to date: 7Software and Seeker
Software. We may not be able to select, manage or absorb any
future acquisitions successfully. Further, the negotiation of
potential acquisitions, as well as the integration of an acquired
business, will divert management time and other resources. We may
have to use a substantial portion of our available cash to
consummate an acquisition. On the other hand, if we consummate
acquisitions through an exchange of our securities, our
stockholders could suffer significant dilution. In addition, we
cannot assure you that any particular acquisition, even if
successfully completed, will ultimately benefit our
business.
We may experience difficulties in introducing
new products and upgrades.
Through our acquisition of Seeker Software in June
1999, we added Concur Human Resources to our product suite. We
expect to add additional workplace eCommerce applications to our
product suite by acquisition or internal development, and to
develop enhancements to our existing applications. We have
experienced delays in the planned release dates of our software
products and upgrades, and we have discovered software defects in
new products after their introduction. New products or upgrades
may not be released according to schedule, or may contain defects
when released. Either situation could result in adverse publicity,
loss of sales, delay in market acceptance of our products or
customer claims against us, any of which could harm our business.
If we do not develop, license or acquire new software products, or
deliver enhancements to existing products on a timely and
cost-effective basis, our business will be harmed.
We may encounter problems with respect to the
hosting, management and security of our Concur Commerce Network
infrastructure.
We are contracting with a third party to expand, host,
manage and maintain our Concur Commerce Network infrastructure.
Services provided by the third party include web server hosting,
maintaining
communications lines and managing network data centers. If our
relationship or agreement with this third party is terminated for
any reason, we would have to obtain similar services from another
provider or perform these functions ourselves. We may not
successfully obtain or perform these services on a timely and
cost-effective basis. Because our Concur Commerce Network
infrastructure is serviced by a third party, we are be entirely
dependent on that party to manage and maintain our network
infrastructure and to provide security for it, so this component
of our business depends on that third party. In addition, as with
our ASP and Internet outsourced business models, we may, with
respect to our Concur Commerce Network, encounter security
problems that could significantly harm our business, operating
results and financial condition. See “—Our effort to
sell products as an Internet-based application service provider
under our ASP and Internet outsourced models may fail and we may
face related security issues.”
Our products might not be compatible with all
major platforms, which could inhibit sales.
We must continually modify and enhance our products to
keep pace with changes in hardware and software platforms,
database technology and electronic commerce technical standards.
As a result, uncertainties related to the timing and nature of new
product announcements, introductions or modifications by vendors
of operating systems, back-office applications, and browsers and
other Internet-related applications could hurt our business. In
addition, our products are not currently based upon the Java
programming language, an increasingly widely used language for
developing Internet applications. We have made a strategic
decision not to develop a fully Java-based product at this time.
Accordingly, some features available to products written in Java
may not be available in our products, and this could result in
reduced customer demand.
We depend on our direct sales
model.
We sell our products primarily through our direct
sales force. We believe that there is significant competition for
direct sales personnel with the advanced sales skills and
technical knowledge we need. Our inability to hire competent sales
personnel, or our failure to retain them, would harm our business.
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. In
the future, we intend to develop indirect distribution channels
through third-party distribution arrangements, but we may not be
successful in establishing those arrangements, or they may not
increase revenues. Furthermore, we plan to use resellers to market
our ASP products in particular. We have limited experience
utilizing resellers to date. The failure to develop indirect
channels may place us at a significant competitive
disadvantage.
Our ability to protect our intellectual property
is limited and our products may be subject to infringement claims
by third parties.
Our business depends upon our proprietary technology.
We presently have no patents or patent applications pending. We
rely on a combination of copyright and trademark laws, trade
secrets, confidentiality procedures and contractual provisions to
protect our proprietary information. In some cases, we are using
unregistered marks, and some of the marks that we have filed for
federal registration may not ultimately be registrable. As a
result, we may have incomplete rights to use some of our marks. We
have also taken steps to avoid disclosure of our proprietary
technology by generally restricting customer access to our products
’ source code and requiring all employees and contractors to
enter into confidentiality and invention assignment agreements.
However, some of our customers and partners have received access
to source code versions of our products in order to facilitate
more extensive testing of our products and certain of our former
technical personnel and contractors did not execute such
confidentiality and invention assignment agreements. Further, we
only recently began requiring contractors and temporary employees
to execute our confidentiality agreement rather than executing the
confidentiality agreements maintained by temporary agencies or not
executing any such agreements.
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. 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 these proprietary rights will be
adequate, nor that our competitors will not independently develop
similar technology. In addition, there can be no assurance that
third parties will not claim infringement by us with respect to
current or future products or other intellectual property rights.
Any such claims could have a material adverse effect on our
business, results of operations and financial
condition.
Final Year 2000-related costs are not yet
calculable and certain.
A small number of our customers have reported Year
2000-related difficulties in our software that we consider minor.
Based on our analysis of these reports, we do not expect the costs
associated with resolution of these issues to be material.
However, we may yet be subject to claims based on Year 2000
problems in other companies’ products, other
as-yet-unreported Year 2000 problems alleged to be found in our
products, Year 2000-related issues arising from the integration of
multiple products within an overall system, or other
as-yet-unreported Year 2000-related claims. Accordingly, despite
our testing of our products, our audit of our suppliers and our
completion of our internal compliance efforts, we cannot yet be
sure that we have identified all significant Year 2000 problems
that may emerge and it remains possible that the total cost of
resolving Year 2000-related issues and contingency plan
promulgation may be material and could harm our
business.
We depend on service revenues to increase our
overall revenues; services may not achieve
profitability.
Our service revenues have increased each year as a
percentage of total revenues. Service revenues represented 53.3%
of total revenues for the three months ended December 31, 1999,
and 35.2%, 34.5%, and 27.8% of total revenues for fiscal 1999,
1998 and 1997, respectively. We anticipate that service revenues
will continue to represent a significant percentage of total
revenues however, the percentage of service revenues as a
percentage of total revenues in prior fiscal periods may not be
indicative of levels to be expected in future periods as the
proportion of our service revenues to total revenues will
fluctuate in the future. To a large extent, the level of service
revenues depends upon the ongoing renewals of customer support
contracts by our installed customer base. Customer support
contracts might not be renewed and, if third-party organizations
such as systems integrators become proficient in installing or
servicing our products, consulting revenues could decline. Our
ability to increase service revenues will depend in large part on
our ability to increase the scale of our services organization,
including our ability to successfully recruit and train a
sufficient number of qualified services personnel.
We formed our professional services organization in
1996. Since that time, we have not achieved profitability with
respect to these services. Due to the increasing costs of
operating a professional services organization, we may not be able
to achieve profitability in this part of our business in the near
future, or ever.
We depend on our key employees.
Our success depends on the performance of our senior
management, particularly S. Steven Singh, our President, Chief
Executive Officer and Chairman of the Board, who is not bound by
an employment agreement. Although we maintain key person life
insurance on Mr. Singh in the amount of $1.0 million, the loss of
his services would harm our business. If one or more members of
our senior management or any of our key employees were to resign,
particularly to join or form a competitor, the loss of that
personnel and any resulting loss of existing or potential
customers to that competitor would harm our business.
We must attract and retain qualified
personnel.
Our success depends on our ability to attract and
retain qualified, experienced employees. There is substantial
competition for experienced engineering, sales and consulting
personnel in the market segments in which we compete. Many of our
competitors for experienced personnel have greater financial and
other
resources than we have. In particular, we compete for personnel with
Microsoft Corporation, which is located in the same geographic
area as our headquarters. We also compete for personnel with other
software vendors, including ERP vendors and business-to-business
electronic commerce solution providers, and with consulting and
professional services companies.
We rely on third party implementation service
providers.
Beginning with fiscal 1999, a significant portion of
the consulting services associated with the implementation of our
software at our customers’ facilities has been performed by
third-party implementation service providers. If we are unable to
establish and maintain effective, long-term relationships with our
implementation providers, or if these providers do not meet the
needs or expectations of our customers, our business would be
seriously harmed. This strategy will also require that we develop
new relationships with additional third-party implementation
providers to provide these services if the number of our customer
implementations continues to increase. Our current implementation
partners are not contractually required to continue to help
implement our solutions. As a result of the limited resources and
capacities of many third-party implementation providers, we may be
unable to establish or maintain relationships with third parties
having sufficient resources to provide the necessary
implementation services to support our needs. If these resources
are unavailable, we will be required to provide these services
internally, which would significantly limit our ability to meet
our customers’ implementation needs. In addition, we cannot
control the level and quality of service provided by our current
and future implementation partners.
There are risks associated with international
operations.
Our international operations are subject to a number
of risks, including:
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costs
of customizing products for foreign countries;
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laws
and business practices favoring local competition;
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dependence on local vendors;
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uncertain regulation of electronic commerce;
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compliance with multiple, conflicting and changing
governmental laws and regulations;
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greater
difficulty in collecting accounts receivable;
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import
and export restrictions and tariffs;
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difficulties staffing and managing foreign
operations;
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multiple conflicting tax laws and regulations;
and
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political and economic instability.
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Our international operations also face foreign
currency-related risks. To date, most of our revenues have been
denominated in U.S. Dollars, but we believe that an increasing
portion of our revenues will be denominated in foreign currencies.
In particular, we expect that an increasing portion of our
international sales may be Euro-denominated. The Euro is still a
relatively new currency and may be subject to economic risks that
are not currently contemplated. We currently do not engage in
foreign exchange hedging activities, and therefore our
international revenues and expenses are currently subject to the
risks of foreign currency fluctuations.
A key component of our business strategy is to expand
our sales and support operations internationally. We employ sales
professionals in London, Paris, Sydney and Toronto and intend to
establish additional international sales offices, expand our
international management, sales and support organizations and
enter into
relationships with additional international remarketers. We are in
the early stages of developing our indirect distribution channels
in markets outside the United States. We may not be able to
attract remarketers that will be able to market our products
effectively. We must also customize our products for local
markets. For example, our ability to expand into the European
market will depend on our ability to develop a travel and
entertainment expense management solution (as well as
business-to-business procurement and human resources self-service
solutions) that incorporates the tax laws and accounting practices
followed in Germany and other European countries, and to develop
workplace eCommerce applications that support the Euro. Further,
if we establish significant operations overseas, we may incur
costs that would be difficult to reduce quickly because of
employee practices in those countries.
Our revenue recognition policy may change when
definitive guidance is available.
We recognize revenues from sales of software licenses
when we sign a non-cancelable license agreement with a customer,
the software is delivered, the vendors’ fee is fixed and
determinable and collection is deemed probable. We recognize
customer support revenues ratably over the customer support
contract term, typically one year, and recognize revenues for
consulting and training services as such services are performed.
We believe our current revenue recognition policies and practices
are consistent with applicable accounting standards. However, full
guidelines for SOP 97-2 and related modifications have not been
issued. Once available, such guidelines could lead to
unanticipated changes in our current revenue accounting practices,
and such changes could materially affect our future revenues and
earnings. See “Our plan to sell products as an Internet-based
applications service provider may fail.”
ITEM 3. QUALITATIVE AND QUANTITATIVE
DISCLOSURES ABOUT MARKET RISK
Our operating results are sensitive to changes in the
general level of U.S. interest rates, particularly since the
majority of our cash equivalents are invested in short-term debt
instruments while certain portions of our outstanding long-term
debt bear interest at variable rates. Based on our marketable
securities portfolio and interest rates at December 31, 1999, a
one percent increase or decrease in interest rates would result in
a decrease or increase of approximately $800,000, respectively, in
the fair value of the marketable securities portfolio. Changes in
interest rates may affect the fair value of the marketable
securities portfolio; however, such gains or losses would not be
realized unless the investments are sold.
PART II. OTHER
INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM
8-K
Exhibit
No.
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Description
of Exhibit
|
| 10.01 |
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1999 Stock
Option Plan |
| 27.01 |
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Financial Data
Schedule. |
Report on Form 8-K
On October 18, 1999, we filed a current report on Form
8-K dated October 5, 1999 under Item 5 regarding the preliminary
announcement of our results of operations for the three months
ended September 30, 1999.
SIGNATURES
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 to sign on behalf of the registrant and as the
principal financial officer thereof.
Dated: February 14, 1999
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CONCUR
TECHNOLOGIES, INC.
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By
/s/ STERLING
R. WILSON
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Chief Financial Officer and
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Executive Vice President of
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EXHIBIT INDEX
Exhibit
No.
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Description
of Exhibit
|
| 10.01 |
|
1999 Stock
Option Plan |
| 27.01 |
|
Financial Data
Schedule |
