Concur 10Q 2012 Q1 Quarterly report

Concur (CNQR) Inactive 10-Q2012 Q1 Quarterly report

Content analysis

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)



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

For the quarterly period ended December 31, 2011



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

For the transition period from to

Commission file number 000-25137

_________________________________

Concur Technologies, Inc.

(Exact name of Registrant as specified in its charter)

___________________________________



Delaware		91-1608052
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)
18400 NE Union Hill Road Redmond, Washington		98052
(Address of principal executive offices)		(Zip Code)

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes ¨ No

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

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

Number of shares of the registrant’s common stock outstanding as of February 3, 2012: 54,519,296

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CONCUR TECHNOLOGIES, INC.

FORM 10-Q

December 31, 2011

INDEX

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Concur Technologies, Inc.

Consolidated Statements of Operations

(In thousands, except per share amounts)

(Unaudited)



	Three Months Ended December 31,
	2011			2010
Revenues	$	100,384		$	80,235
Expenses:
Cost of operations	28,970			22,125
Sales and marketing	40,345			27,700
Systems development and programming	9,723			7,275
General and administrative	15,167			12,454
Revaluation of contingent consideration	(2,439		)	—
Amortization of intangible assets	3,965			1,720
Total expenses	95,731			71,274
Operating income	4,653			8,961
Other income (expense):
Interest income	482			683
Interest expense	(4,755		)	(4,560		)
Loss from equity investments	(496		)	—
Other, net	(478		)	(181		)
Total other expense	(5,247		)	(4,058		)
Income (loss) before income tax	(594		)	4,903
Income tax expense	353			1,252
Consolidated net income (loss)	(947		)	3,651
Less: Loss attributable to noncontrolling interest	79			—
Net income (loss) attributable to Concur	$	(868	)	$	3,651
Net income (loss) per share attributable to Concur common stockholders:
Basic	$	(0.02	)	$	0.07
Diluted	(0.02		)	0.07
Weighted average shares used in computing net income (loss) per share:
Basic	54,096			52,444
Diluted	54,096			54,714

See notes to Consolidated Financial Statements.

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Concur Technologies, Inc

Consolidated Balance Sheets

(In thousands, except per share amounts)

(Unaudited)



	December 31, 2011			September 30, 2011
Assets
Current assets:
Cash and cash equivalents	$	247,888		$	370,157
Short-term investments	221,293			185,392
Restricted cash	537			852
Accounts receivable, net of allowance of $1,094 and $1,307	70,885			66,963
Deferred tax assets	14,767			9,831
Deferred costs and other assets	40,800			32,865
Total current assets	596,170			666,060
Non-current assets:
Property and equipment, net	48,684			45,975
Investments	50,930			51,426
Deferred costs and other assets	34,939			35,049
Intangible assets, net	118,907			55,179
Deferred tax assets	17,884			22,970
Goodwill	279,915			279,192
Total assets	$	1,147,429		$	1,155,851
Liabilities and equity
Current liabilities:
Accounts payable	$	9,484		$	8,906
Customer funding liabilities	27,229			38,563
Accrued compensation	13,364			25,706
Acquisition-related liabilities	6,480			3,968
Other accrued expenses and liabilities	21,080			23,546
Deferred revenues	58,009			55,888
Total current liabilities	135,646			156,577
Non-current liabilities:
Senior convertible notes, net	242,419			239,461
Deferred rent and other long-term liabilities	626			744
Deferred revenues	16,419			16,381
Acquisition-related contingent consideration	32,842			33,490
Tax liabilities	9,442			9,367
Total liabilities	437,394			456,020
Equity:
Concur stockholders’ equity:
Common stock, $0.001 par value per share	54			54
Authorized shares: 195,000
Shares issued and outstanding: 54,139 and 54,065
Additional paid-in capital	824,767			811,888
Accumulated deficit	(111,147		)	(110,279		)
Accumulated other comprehensive loss	(4,730		)	(3,008		)
Total Concur stockholders’ equity	708,944			698,655
Noncontrolling interest	1,091			1,176
Total equity	710,035			699,831
Total liabilities and equity	$	1,147,429		$	1,155,851

See notes to Consolidated Financial Statements.

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Concur Technologies, Inc.

Consolidated Statements of Cash Flow

(In thousands)

(Unaudited)



	Three Months Ended December 31,
	2011			2010
Operating activities:
Consolidated net income (loss)	$	(947	)	$	3,651
Adjustments to reconcile consolidated net income (loss) to net cash provided by operating activities:
Amortization of intangible assets	3,965			1,720
Depreciation and amortization of property and equipment	5,296			4,556
Accretion of discount and issuance costs on notes	2,958			2,760
Net recovery of sales allowances	(213		)	(358		)
Share-based compensation	11,714			6,545
Revaluation of contingent consideration	(2,439		)	—
Deferred income taxes	84			1,391
Excess tax benefits from share-based compensation	(36		)	(145		)
Loss from equity method investments	496			—
Changes in operating assets and liabilities, net of effects from acquisitions:
Accounts receivable	(3,918		)	806
Deferred costs and other assets	(1,022		)	(1,195		)
Accounts payable	602			(971		)
Accrued liabilities	(12,530		)	(7,955		)
Deferred revenues	2,347			101
Net cash provided by operating activities	6,357			10,906
Investing activities:
Purchases of investments	(122,250		)	(82,946		)
Maturities of investments	86,306			104,504
Decrease in customer funding liabilities, net of changes in restricted cash	(11,030		)	(29,573		)
Investment in and loans to unconsolidated affiliates	(6,864		)	(2,272		)
Capital expenditures	(7,550		)	(4,776		)
Payments for acquisitions, net of cash acquired	(67,460		)	(108		)
Net cash used in investing activities	(128,848		)	(15,171		)
Financing activities:
Payments on repurchase of common stock	(598		)	—
Net proceeds from share-based equity award activity	642			765
Proceeds from employee stock purchase plan activity	533			381
Minimum tax withholding on restricted stock awards	(116		)	—
Excess tax benefits from share-based compensation	36			145
Repayments on capital leases	—			(199		)
Net cash provided by financing activities	497			1,092
Effect of foreign currency exchange rate changes on cash and cash equivalents	(275		)	137
Net decrease in cash and cash equivalents	(122,269		)	(3,036		)
Cash and cash equivalents at beginning of period	370,157			329,098
Cash and cash equivalents at end of period	$	247,888		$	326,062
Supplemental cash flow information:
Cash paid for interest	$	3,594		$	3,773
Income tax payments (receipts), net	139			(83		)

See notes to Consolidated Financial Statements.

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Concur Technologies, Inc.

Notes to Consolidated Financial Statements

(In thousands, unless otherwise noted)

(Unaudited)

Note 1. Description of the Company and Basis of Presentation

Throughout these consolidated financial statements Concur Technologies, Inc. is referred to as “Concur,” “we,” “us” and “our.” We report our operating results on the basis of a fiscal year that starts October 1 and ends September 30. We refer to our fiscal years ended September 30, 2009, 2010, 2011 and 2012, as, “2009,” “2010,” “2011” and “2012.” All dollar, option and share amounts are reported in thousands, unless otherwise noted.

Description of the Company

We are a leading global provider of integrated travel and expense management solutions for companies of all industries and sizes worldwide. Our core mission is to continuously innovate to reduce the costs for our customers and enhance the user experience for travelers. Our easy-to-use cloud computing solutions help companies and their employees control costs, save time, and boost productivity by streamlining the expense management, travel procurement, itinerary management, and invoice management processes. By capturing and reporting on activity throughout the travel and expense management process, our solutions provide detailed information to help clients effectively negotiate with vendors, create budgets, and manage compliance. Our solutions adapt to individual employee preferences, while scaling to meet the needs of companies from small to large.

Concur, the Concur logo, TripIt and GlobalExpense, as well as a number of other names and brands that are not referenced in these consolidated financial statements, are trademarks or registered trademarks of Concur or its affiliates. Other parties’ marks are the property of their respective owners and should be treated as such.

Basis of Presentation

These consolidated financial statements include the accounts of Concur and its wholly-owned subsidiaries on a consolidated basis. All intercompany accounts and transactions were eliminated in consolidation. In addition, we established a Japanese joint venture during 2011 and hold a controlling interest (75% voting interest) in Concur (Japan) Ltd., (“Concur Japan”). We recorded a noncontrolling interest in the consolidated statements of operations for the noncontrolling investors’ interests in the operations of Concur Japan. We recorded a noncontrolling interest of $1,091 and $1,176 as of December 31, 2011, and September 30, 2011 respectively, in stockholders’ equity.

We have prepared the accompanying unaudited consolidated financial statements in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial reporting. In our opinion, we have included all adjustments necessary for a fair presentation. These adjustments consist of normal recurring items. Our unaudited consolidated financial statements are not necessarily indicative of results that may be expected for any other interim period or for the full year. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2011, filed with the Securities and Exchange Commission on November 17, 2011.

Reclassifications

Certain amounts previously presented for prior periods have been reclassified to conform to current presentation.

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

Use of Estimates

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

Recently Adopted Accounting Pronouncements

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Effective October 2011, we adopted Accounting Standards Update No. 2010-29, Disclosure of Supplementary Pro Forma Information for Business Combinations (Topic 805)—Business Combinations (ASU 2010-29), which improves the consistency in how the pro forma disclosures are calculated. Additionally, ASU 2010-29 enhances the disclosure requirements and requires description of the nature and amount of any material, nonrecurring pro forma adjustments directly attributable to a business combination. These additional requirements became effective October 1, 2011, for business combinations for which the acquisition date is after the effective date. The adoption of this accounting update did not have any impact on our consolidated financial statements.

Recently Issued Accounting Pronouncements Not Yet Adopted

In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (Topic 820)—Fair Value Measurement (ASU 2011-04), to provide a consistent definition of fair value and ensure that the fair value measurement and disclosure requirements are similar between U.S. GAAP and International Financial Reporting Standards. ASU 2011-04 changes certain fair value measurement principles and enhances the disclosure requirements particularly for level 3 fair value measurements. The guidance will become effective for us with the reporting period beginning October 1, 2012, and should be applied prospectively. We are currently evaluating the impact of adopting ASU 2011-04 on our consolidated financial statements.

In June 2011, the FASB issued guidance on presentation of comprehensive income. The new guidance eliminates the current option to report other comprehensive income and its components in the statement of changes in equity. Instead, an entity will be required to present either a continuous statement of net income and other comprehensive income or in two separate but consecutive statements. The new guidance will be effective for us with the reporting period beginning October 1, 2012, and will have presentation changes only.

In September 2011, the FASB issued guidance to amend and simplify the rules related to testing goodwill for impairment. The revised guidance allows an entity to make an initial qualitative evaluation, based on the entity's events and circumstances, to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The results of this qualitative assessment determine whether it is necessary to perform the currently required two-step impairment test. The new guidance is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted. Adoption of this guidance is not expected to have a material impact on our consolidated financial statements.

Note 3. Net Income (Loss) Per Share

We calculate basic net income (loss) per share by dividing net income (loss) attributable to Concur for the period by the weighted-average number of shares of common stock outstanding during the period. Diluted net income (loss) per share attributable to Concur is computed giving effect to all potential weighted average diluted common stock, including options, restricted stock units, warrants and the convertible senior notes. The dilutive effect of outstanding awards and convertible securities is reflected in diluted earnings per share by application of the treasury stock method. The computation of basic and diluted net income (loss) per share is as follows:



	Three Months Ended December 31,
	2011			2010
Net income (loss) attributable to Concur	$	(868	)	$	3,651
Weighted average number of shares outstanding:
Basic	54,096			52,444
Dilutive effect of share-based equity award plans ⁽¹⁾	—			2,270
Diluted	54,096			54,714
Net income (loss) per share attributable to Concur common stockholders:
Basic	$	(0.02	)	$	0.07
Diluted	(0.02		)	0.07

⁽¹⁾The weighted average number of diluted shares outstanding for the three month ended December 31, 2011, does not include the dilutive effect of share-based equity award plans of 1,933 because the effect would have been anti-dilutive.

We excluded the shares below from the calculations of diluted net income (loss) per share because their inclusion would have an anti-dilutive impact. The conversion or exercise of the potential common shares are excluded when, for example, their exercise prices, unrecognized compensation and tax benefits exceed the average market price of our common stock for the

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period. The potential common shares will be included in the future when the inclusion has a dilutive impact on the Company's earnings per share.



	Three Months Ended December 31,
	2011	2010
Incremental common shares from senior convertible notes	1,348	1,350
Warrant issued as part of senior convertible notes	5,500	5,500

Note 4. Property and Equipment

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



	December 31, 2011			September 30, 2011
Land and building	$	5,980		$	5,972
Leasehold improvements	5,946			5,935
Computer hardware	24,506			23,565
Computer software	63,883			59,039
Furniture and equipment	1,609			1,592
Property and equipment, gross	101,924			96,103
Less: accumulated depreciation	(53,240		)	(50,128		)
Property and equipment, net	$	48,684		$	45,975

Depreciation expense totaled $5.3 million and $4.6 million for the three months ended December 31, 2011 and 2010, respectively.

Note 5. Investments

Our investment portfolio primarily includes strategic investments in privately-held companies. We account for our strategic investments under either the cost or equity method. Total cost method investments were $33.8 million as of December 31, 2011, and $33.9 million as of September 30, 2011. Total equity method investments were $17.1 million as of December 31, 2011, and $17.5 million as of September 30, 2011.

Note 6. Goodwill

The changes in the carrying balance of goodwill for the three months ended December 31, 2011, were as follows:



Balance as of September 30, 2011	$	279,192
Addition — Etap earn-out ⁽¹⁾	2,697
Other adjustments ⁽²⁾	(1,974		)
Balance as of December 31, 2011	$	279,915

⁽¹⁾ On August 1, 2009, we completed the acquisition of Etap-On-Line (“Etap Acquisition”). The purchase price was subject to specified earn out provisions to be determined over a three year period ending September 30, 2012. We recorded a $2.7 million earn out as additional goodwill for the three months ended December 31, 2011. We considered the earn-out amounts as additional contingent consideration and recorded them in goodwill as incurred.

⁽²⁾ Other adjustments represent primarily the impact of foreign currency translation for instances when goodwill is recorded in foreign entities whose functional currency is also their local currency. These goodwill balances are translated into U.S. dollars using exchange rates in effect at period end. Adjustments related to foreign currency translation are included in other comprehensive income (loss).

In the fourth quarter of 2011, we completed the acquisition of GlobalExpense Limited (“GlobalExpense”) for total cash consideration of $19.2 million. In addition, the estimated fair value of the contingent consideration was $2.6 million which was included in the total purchase price. The total preliminary purchase price and the fair value of the contingent consideration were primarily allocated to goodwill of $11.4 million and intangible assets of $10.4 million. The initial purchase price allocation is preliminary as of December 31, 2011, pending finalization of valuation reports and deferred tax calculations.

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Changes to amounts recorded as assets or liabilities, may result in a corresponding adjustment to goodwill.

Note 7. Intangible Assets

During the first quarter of 2012, we acquired intangible assets and accounted for them as acquisition of assets because the acquired assets did not constitute a business according to the definition of a business under ASC Topic 805, Business Combinations. We recorded the total acquisition costs, including cash payments for the acquired assets and the related transaction costs, of $67.3 million as an intangible asset. This amount has been assigned to customer relationships and has an estimated useful life of 9 years.

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



Description	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount as of December 31, 2011		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount as of September 30, 2011
Trade name and trademarks	$	2,922	$	(553	)	$	2,369	$	2,926	$	(457	)	$	2,469
Technology	25,261		(14,379		)	10,882		24,848		(13,117		)	11,731
Customer relationships	125,122		(19,466		)	105,656		57,995		(17,016		)	40,979
Total	$	153,305	$	(34,398	)	$	118,907	$	85,769	$	(30,590	)	$	55,179

For the three months ended December 31, 2011 and 2010, we recorded amortization expense of $4.0 million and $1.7 million in our consolidated statement of operations. The following table presents the estimated future amortization expense related to intangible assets held at December 31, 2011:



Years Ending September 30,	Amortization of Intangible Assets
2012 (January 1, 2012, through September 30, 2012)	$	13,728
2013	17,556
2014	15,917
2015	15,692
2016	13,338
Thereafter	42,676
Total	$	118,907

Note 8. Customer Funding Liabilities

We draw funds from and make payments on behalf of our customers for employee expense reimbursements and related corporate credit card payments. We hold these funds in cash and record our obligation to make these expense reimbursements and payments on behalf of our customers as Customer Funding Liabilities.

Note 9. Debt

In March 2010, we issued $287.5 million principal amount of our 2.50% senior convertible notes due April 15, 2015 (“Notes”). All amounts from the issuance of the Notes were settled in April 2010.

The Notes are governed by an Indenture, dated April 6, 2010 (“Indenture”), between Concur and Wells Fargo Bank, National Association, as trustee. The Notes will mature on April 15, 2015, unless earlier repurchased or converted, and bear interest at a rate of 2.50% per year payable semi-annually in arrears on April 15 and October 15 of each year, commencing October 15, 2010.

The Notes are convertible into cash and shares of our common stock at an initial conversion rate of 19.10 shares of common stock per $1,000 principal amount of Notes, which represents an initial conversion price of approximately $52.35 per share, subject to adjustment. Prior to January 15, 2015, conversion is subject to the satisfaction of certain conditions set forth below. Holders of the Notes who convert their Notes in connection with a fundamental change (as defined in the Indenture) will, under certain circumstances, be entitled to a make-whole premium in the form of an increase in the conversion rate. Additionally, in the event of a fundamental change, holders of the Notes may require Concur to repurchase all or a portion of their Notes at a repurchase price equal to 100% of the principal amount of Notes, plus accrued and unpaid interest, if any, to, but not including, the fundamental change repurchase date (as defined in the Indenture).

Holders of the Notes may convert their Notes on or after January 15, 2015, until the close of business on the second

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scheduled trading day immediately preceding the maturity date. The conversion rate will be subject to adjustment in some events but will not be adjusted for accrued interest. Upon conversion, we will satisfy our conversion obligation by delivering cash and shares of common stock, if any, based on a daily settlement amount (as defined in the Indenture). Prior to January 15, 2015, holders of the Notes may convert their Notes under any of the following conditions:

•

during any calendar quarter commencing after June 30, 2010, (and only during such calendar quarter), if the last reported sale price of common stock for 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the preceding calendar quarter is greater than or equal to 130% of the applicable conversion price on each applicable trading day;


•	during the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of the Notes for each day of that five consecutive trading day period was less than 98% of the product of the last reported sale price of common stock and the applicable conversion rate on such day; or


•	upon the occurrence of specified corporate events.

In accounting for the issuance of the Notes, we separated the Notes into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of a similar liability that does not have an associated convertible feature. The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the par value of the Notes as a whole. The excess of the principal amount of the liability component over its carrying amount (“debt discount”) is accreted to interest expense over the term of the Note. The equity component will not be remeasured as long as it continues to meet the conditions for equity classification.

In accounting for the transaction costs related to the issuance of the Notes, we allocated the total amount incurred to the liability and equity components. Transaction costs allocated to the liability component are being amortized to expense over the term of the Notes, and transaction costs allocated to the equity component were netted with the equity component in additional paid-in capital.

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



	As of December 31, 2011
Liability components:
Principal amount	$	287,500
Less: note discount	(40,566		)
Less: note issuance costs	(4,515		)
Senior convertible notes, net	$	242,419

Equity components	$	57,996
Less: issuance costs	(1,669		)
Additional paid-in capital	$	56,327

Note hedge costs	$	(60,145	)
Warrants proceeds	26,076
Net cost	$	(34,069	)

The carrying value of our Notes was $242.4 million as of December 31, 2011, which represents the liability component of the $287.5 million principal balance as of December 31, 2011. The total estimated fair value of our Notes at December 31, 2011, was $345.2 million. The fair value was determined based on the average trading price per $100 of the Notes as of the last day of trading for the first quarter of fiscal 2012.

The following table presents the interest expense recognized related to the Notes for the three months ended December 31, 2011:

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	Three Months Ended December 31, 2011
Contractual interest expense	$	1,797
Amortization of debt issuance costs	311
Accretion of debt discount	2,647
	$	4,755
Effective interest rate of the liability component	7.73		%

The net proceeds from the Notes were approximately $279.0 million after payment of the initial purchasers’ discounts and offering expenses. From these net proceeds, we used a net total of approximately $34.1 million which included $60.1 million to pay for the cost of the Note Hedge offset by proceeds of $26.1 million from our sale of Warrants. These transactions are described in more detail below. We expect to use the net proceeds of the Notes for general corporate purposes, including potential acquisitions and strategic transactions.

Note Hedges

To minimize the impact of potential economic dilution upon conversion of the Notes, we entered into note hedge transactions (“Note Hedges”) with respect to our common stock. We paid $60.1 million for the Note Hedges. The Note Hedges cover approximately 5.0 million shares of our common stock at a strike price of $52.35 subject to anti-dilution adjustments, and are exercisable upon conversion of the Notes. The Note Hedges will expire upon the maturity of the Notes. The Note Hedges are intended to reduce the potential economic dilution upon conversion of the Notes in the event that the market value per share of our common stock, as measured under the Notes, at the time of exercise is greater than the conversion price of the Notes.

Warrants

Separately, we entered into warrant transactions, whereby we sold warrants to acquire up to 5.5 million shares of our common stock at a strike price of $73.29 per share (“Warrants”), subject to anti-dilution adjustments. The Warrants will expire upon the maturity of the Notes. We received proceeds of $26.1 million from the sale of the Warrants. If the market value per share of our common stock, as measured under the Warrants, exceeds the strike price of the Warrants, the Warrants will have a dilutive effect on our net income per share.

Note 10. Income Taxes

We base the provision for income taxes in our interim consolidated financial statements on estimated annual effective tax rates in the tax jurisdictions where we operate. We monitor the assumptions used in estimating the annual effective tax rate and makes adjustments, if required, throughout the year. If actual results differ from the assumptions used in estimating our annual effective income tax rates, future income tax expense could be materially affected. For the three months ended December 31, 2011, our effective tax rate of (59.4)% differs from the U.S. federal statutory rate primarily due to the relative mix of earnings or losses within the tax jurisdictions in which we operate, losses in tax jurisdictions where we are not able to record a tax benefit, as well as various book expenses which are not deductible for tax purposes.

For the three months ended December 31, 2010, our effective tax rate of 25.5% varies from the statutory rate due to the recognition of a tax benefit resulting from legislation enacted December 17, 2010 retroactively reinstating the research and development tax credit, recognizing income in lower foreign income tax rate jurisdictions, offset in part by a reserve for uncertain tax positions and state income taxes.

We measure and recognize uncertain tax positions. To recognize such positions we first determine if it is more likely than not that the position will be sustained on audit. We then measure the benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement. Tax positions for Concur and its subsidiaries are subject to income tax audits by multiple tax jurisdictions throughout the world. We do not believe that it is reasonably possible that the estimates of unrecognized tax benefits will change significantly in the next twelve months. However, an adverse resolution of one or more uncertain tax positions in any period could have a material impact on the results of operations for that period.

Note 11. Share-based Compensation

Our 2007 Equity Incentive Plan (“Equity Plan”) provides for grants of stock options, restricted stock, stock bonuses, stock appreciation rights and restricted stock units (“RSUs”). As of December 31, 2011, we had 5.2 million shares of common stock reserved for future grants under our Equity Plan, excluding shares of common stock reserved for future issue under our 2008 Employee Stock Purchase Plan. We recognize compensation expense for equity awards on a straight line basis over the requisite service period of the award.

We have calculated an additional paid in capital (“APIC”) pool that represents the excess tax benefits related to share-

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based compensation that are available to absorb future tax deficiencies. We include those excess tax benefits in APIC only when they have been realized. If the amount of future tax deficiencies is greater than the available APIC pool, we will record the excess deficiencies as income tax expense in our consolidated statements of operations. Excess tax benefits or tax deficiencies, to the extent realized, are a factor in the calculation of diluted shares used in computing dilutive income per share.

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



	Three Months Ended December 31,
	2011		2010
Cost of operations	$	1,595	$	653
Sales and marketing	6,141		3,361
Systems development and programming	1,231		818
General and administrative	2,747		1,713
Total share-based compensation	$	11,714	$	6,545

Net cash proceeds from the exercise of stock options were $0.6 million for the three months ended December 31, 2011, and $0.8 million for the same period in the prior year. For the three month periods ended December 31, 2011 and 2010, we realized a state income tax benefit in APIC from exercises of stock options and vesting of RSUs. We presented excess tax benefits from the exercise of stock options and vesting of RSUs, as financing cash flows and a corresponding reduction in operating cash flows.

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



	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding as of September 30, 2011	986		$	10.50
Exercised	(71	)	9.02
Forfeited or expired	—
Outstanding as of December 31, 2011	915		10.61		3.04	$	36,773
Exercisable as of December 31, 2011	915		$	10.61	3.04	$	36,773

The total intrinsic value of the options exercised during the three months ended December 31, 2011 and 2010, was $2.6 million and $8.0 million, respectively

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

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



	Shares		Weighted Average Share Value
Outstanding as of September 30, 2011	2,535		$	41.90
Granted	—		—
Vested and released	(5	)	50.63
Cancelled	(38	)	38.83
Outstanding as of December 31, 2011	2,492		$	41.93

As of December 31, 2011, we expected total unrecognized share-based compensation costs net of estimated forfeitures of $51.6 million, and we expect to recognize the non-vested equity awards expense over a weighted average period of 0.9 years.

Note 12. Fair Value Measurements

The accounting guidance for fair value measurements and its subsequent updates establishes a three-tier fair value

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hierarchy, categorizing the inputs used to measure fair value.

The hierarchy can be described as follows:


•	Level 1- observable inputs such as quoted prices in active markets;

•

Level 2- inputs other than the quoted prices in active markets that are observable either directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and


•	Level 3- unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

Assets and liabilities recognized or disclosed at fair value in our consolidated financial statements on a nonrecurring basis include items such as property and equipment, equity and cost method investments, and other assets. These assets are measured at fair value if determined to be impaired. The fair values of these investments are determined based on valuation techniques using the best information available, and may include quoted market prices, market comparables, and discounted cash flow projections. An impairment charge is recorded when the cost of the investment exceeds its fair value and this condition is determined to be other-than-temporary.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

We have highly liquid investments classified as cash equivalents and short-term investments included in our consolidated balance sheet. Cash equivalents consist of money market instruments and commercial paper that have original maturities of 90 days or less.

We also invest in commercial paper with maturities greater than 90 days but generally mature within 270 days. Such instruments are classified within Level 2 of the fair value hierarchy.

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



	Fair value measurement using						Assets/Liabilities at
	Level 1		Level 2		Level 3		fair value
Assets:
Money market accounts ⁽¹⁾	$	70,546	$	—	$	—	$	70,546
Commercial paper ⁽²⁾	—		194,062		—		194,062
Other fixed income securities ⁽²⁾	—		123,610		—		123,610
Total	$	70,546	$	317,672	$	—	$	388,218
Liabilities:
Acquisition-related contingent consideration	$	—	$	—	$	32,842	$	32,842

⁽¹⁾ Included in cash and cash equivalents on our consolidated balance sheets.

⁽²⁾ Included in either cash and cash equivalents or short-term investments on our consolidated balance sheets.

Our financial assets and liabilities measured at fair value as of September 30, 2011, are summarized below:



	Fair value measurement using						Assets/Liabilities at
	Level 1		Level 2		Level 3		fair value
Assets:
Money market accounts ⁽¹⁾	$	58,336	$	—	$	—	$	58,336
Commercial paper ⁽²⁾	—		272,583		—		272,583
Other fixed income securities ⁽²⁾	—		122,785		—		122,785
Total	$	58,336	$	395,368	$	—	$	453,704
Liabilities:
Acquisition-related contingent consideration	$	—	$	—	$	33,490	$	33,490

⁽¹⁾ Included in cash and cash equivalents on our consolidated balance sheets.

⁽²⁾ Included in either cash and cash equivalents or short-term investments on our consolidated balance sheets.

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Our valuation techniques used to measure the fair values of our money market funds that were classified as Level 1 in the table above were derived from quoted market prices as substantially all of these instruments have maturity dates (if any) within one year from our date of purchase and active markets for these instruments exist. Our valuation techniques used to measure the fair values of commercial paper and other fixed income securities listed in the table above, generally all of which mature within one year and the counterparties to which have high credit ratings, were derived from the following: non-binding market consensus prices that are corroborated by observable market data and quoted market prices for similar instruments.

Acquisition-related Contingent Consideration

We estimate the fair value of acquisition-related contingent consideration using various valuation approaches including the Monte Carlo Simulation approach and discounted cash flow model. Acquisition related contingent consideration liabilities are classified as Level 3 liabilities, because we use unobservable inputs to value them, reflecting our assessment of the assumptions market participants would use to value these liabilities. The unrealized gains and losses related to the contingent consideration in these acquisitions are included in operating expenses in our consolidated statements of operations.

TripIt Contingent Consideration

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

Changes in the Top-Up Payment liability since the acquisition date were recorded in the consolidated statements of operations. On a quarterly basis, we re-measure the fair value of the contingent Top-Up Payment and any changes in contingent consideration are recorded in the consolidated statements of operations.

The following table presents a reconciliation of TripIt contingent consideration liability measured at fair value using significant unobservable inputs (Level 3) as of December 31, 2011:



Balance as of September 30, 2011	$	30,972
Total (gains) and losses
Recorded as revaluation of contingent consideration	(2,790		)
Recorded as compensation expense	1,915
Balance as of December 31, 2011	$	30,097

As of December 31, 2011, the total fair value of the acquisition-related contingent consideration associated with TripIt was $30.9 million, of which $30.1 million is recorded as a liability. The remaining of $0.8 million is compensation related and will be recorded during the remaining requisite service period.

GlobalExpense Contingent Consideration

As part of the GlobalExpense acquisition, we will potentially make additional payments totaling up to £2.0 million in cash, based on the achievement of certain revenue targets related to GlobalExpense's service through September 30, 2012. The following table presents a reconciliation of GlobalExpense contingent consideration measured at fair value using significant unobservable inputs (Level 3) as of December 31, 2011:



Balance as of September 30, 2011	$	2,518
Change in fair value, recorded as revaluation of contingent consideration	351
Foreign currency translation	(124		)
Balance as of December 31, 2011	$	2,745

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Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

During the three months ended December 31, 2011, we did not record any other-than-temporary impairments on those assets required to be measured at fair value on a nonrecurring basis.

Note 13. Equity and Comprehensive Income (Loss)

The following table shows the changes in equity attributable to both Concur and the noncontrolling interest in our consolidated subsidiary in which we have control, but not total ownership interest.



	Attributable to Concur			Noncontrolling Interest			Total Equity
Equity at September 30, 2011	$	698,655		$	1,176		$	699,831
Comprehensive Income (loss):
Net income (loss)	(868		)	(79		)	(947		)
Foreign currency translation adjustment	(1,714		)	(6		)	(1,720		)
Net unrealized loss on investments, net of tax	(8		)	—			(8		)
Comprehensive loss	(2,590		)	(85		)	(2,675		)
Share-based transactions and compensation expense	13,352			—			13,352
Repurchase of common stock	(473		)	—			(473		)
Equity at December 31, 2011	$	708,944		$	1,091		$	710,035

	Attributable to Concur			Noncontrolling Interest			Total Equity
Equity at September 30, 2010	$	637,826		$	—		$	637,826
Comprehensive income (loss):
Net income	3,651			—			3,651
Foreign currency translation adjustment	(630		)	—			(630		)
Net unrealized gain on investments, net of tax	4			—			4
Comprehensive income	3,025			—			3,025
Share-based transactions and compensation expense	8,977			—			8,977
Equity at December 31, 2010	$	649,828		$	—		$	649,828

Note 14. Geographic Data

We market our services and products primarily in the United States and operate in a single industry segment. For the three months ended December 31, 2011 and 2010, no single customer accounted for more than 10% of our total revenues. The following table presents our revenues by geographic region:



	Three Months Ended December 31,
	2011		2010
United States	$	84,837	$	69,659
Europe	11,728		7,372
Other	3,819		3,204
Total revenues	$	100,384	$	80,235

Note 15. Contingencies

Product Warranty and Indemnification Obligations

We provide services and software solutions to our customers under sales contracts, which usually include a limited warranty regarding product and service performance and a limited indemnification of customers against losses, expenses and liabilities from damages that may be awarded against them if our services or software are found to infringe upon a patent, copyright, trademark, or other proprietary right of a third party. The contracts generally limit the scope of and remedies for such indemnification obligations in a variety of industry-standard respects. We also enter into similar limited indemnification terms in agreements with certain strategic business partners and vendors. To date, we have experienced minimal warranty claims and have not had significant reimbursements to any customers for any losses related to the limited indemnification described above.

Legal Matters

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From time to time we are involved in legal proceedings that arise in the ordinary course of our business. Any such proceedings, whether meritorious or not, could be time consuming, costly, and result in the diversion of significant operational resources or management time.

Although the outcomes of legal proceedings are inherently difficult to predict, we are not currently involved in any legal proceeding in which the outcome, in our judgment based on information currently available, is likely to have a material adverse effect on our business or financial position.

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

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

Throughout this MD&A, we refer to Concur Technologies, Inc. as “Concur,” “we,” “us” and “our.” We report our operating results on a fiscal year basis that starts October 1 and ends September 30. We refer to our fiscal years ended September 30, 2009, 2010, 2011 and 2012, as “2009,” “2010,” “2011” and “2012.” Throughout this MD&A, where we provide discussion of the three months ended December 31, 2011, and we provide data for the same period in the prior year, we will refer to the prior period as “2010.” All dollar, option and share amounts are reported in thousands, unless otherwise noted.

Special Note Regarding Forward-Looking Statements

This document contains forward-looking statements regarding our plans, objectives, expectations, intentions, future financial performance, future financial condition, and other statements that are not historical facts. These statements can be identified by our use of the future tense, or by forward-looking words such as “may,” “will,” “expect,” “anticipate,” “believe,” “intend,” “estimate,” “continue” and other similar words and phrases. These forward-looking statements involve many risks and uncertainties, described in Item 1A, Risk Factors, as well as in our other filings with the Securities and Exchange Commission (“SEC”). The occurrence of any of these risks and uncertainties may cause our actual results to differ materially from those anticipated in our forward-looking statements, which could have a material adverse effect on our business, results of operations, and financial condition. All forward-looking statements included in this report are based on information available to us as of the date of this report. We undertake no obligation to revise or update any such forward-looking statements for any reason.

Overview

We are a leading provider of integrated travel and expense management solutions for companies of all industries, sizes and geographies. Our core mission is to reduce costs for our customers and enhance the user experience for travelers, leveraging continuous innovation. Our easy-to-use cloud computing solutions help companies and their employees control costs, save time, and boost productivity by streamlining the expense management, travel procurement, itinerary management, and invoice management processes. By capturing and reporting on activity throughout the travel and expense management process, our solutions provide detailed information to help clients effectively negotiate with vendors, create budgets, and manage compliance.

Our strategic focus in 2012 is to continue to grow our core subscription business and to reduce our cost of deploying and operating our services as a percentage of revenue. We expect our subscription revenues to increase in 2012 compared to 2011 due to anticipated growth in demand. We expect total sales and marketing expenses in 2012 to increase in absolute dollars compared to 2011, driven primarily by an increase in sales personnel and marketing programs globally.

We operate in and report on one segment, which is integrated travel and expense management.

Revenues

Revenues. Revenues consist primarily of fees paid for subscription services. To a much lesser degree, revenues also include the amortization of set-up fees paid to us in connection with subscription services. Revenues are affected by pricing, the number of new customers, customer contract durations and our customer retention rate.

Portions of our revenues are generated from sales made through our referral partners. When we assume a majority of the business risks associated with performance of the contractual obligations, we record the revenues on a gross basis and amounts paid to our referral partners are recognized as sales and marketing expenses. Our assumption of such business risks is evidenced when, among other things, we take responsibility for delivery of the product or service, establish pricing of the arrangement and are the primary obligor in the arrangement. Our judgment as to whether we have assumed the majority of the business risks associated with performance of the contractual obligations materially affects how we report revenues and expenses.

International Revenues. Revenues from customers outside the United States represented 15% of total revenues for the three months ended December 31, 2011, compared to 13% for the same period in the prior year. We expect our international revenues to grow in the near term, as our products and services continue to gain acceptance in international markets due to our

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Etap Acquisition, GlobalExpense Acquisition, our investment in global distribution and increased global awareness of our products. Historically, fluctuations in foreign currency exchange rates have not had a material effect on our total revenues.

Operating Expenses

Cost of Operations. Cost of operations expenses consist primarily of personnel costs and related expenses and allocated overhead costs (including depreciation, occupancy, insurance, telecommunications and computer equipment expenses) associated with employees and contractors who provide our subscription and consulting services. Cost of operations expenses also include co-location and related telecommunications costs, royalties, and amortization of deferred set-up costs that we incur in connection with our subscription services.

Sales and Marketing. Sales and marketing expenses consist of personnel costs (including sales commissions) and related expenses, referral fees and allocated overhead costs associated with our sales and marketing personnel, miscellaneous sales and marketing costs, such as advertising, trade shows and other promotional activities.

Systems Development and Programming. Systems development and programming costs consist of personnel costs and related expenses and allocated overhead costs associated with employees and contractors engaged in software engineering, program management and quality assurance.

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

Revaluation of Contingent Consideration. Revaluation of contingent consideration consists of changes in value of our acquisition-related contingent consideration liability that is not subject to a continued employment requirement. The changes in the fair value of the contingent consideration subject to the continued employment requirement are recognized as compensation expense. We remeasure this contingent consideration each quarter, with any changes in the fair value recorded as income or expense.

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

Results of Operations

Three months ended December 31, 2011 and 2010

Revenues



	Three Months Ended December 31,				Variance Dollars
	2011		2010		Variance Dollars
Revenues	$	100,384	$	80,235	$	20,149



	Three Months Ended December 31,
	2011		%		2010		%
United States	$	84,837	84.5	%	$	69,659	86.8	%
Europe	11,728		11.7	%	7,372		9.2	%
Other	3,819		3.8	%	3,204		4.0	%
Total revenues	$	100,384	100	%	$	80,235	100	%

Revenues increased 25.1%, or $20.1 million, for the three months ended December 31, 2011, compared to the same period in the prior year. This increase was primarily due to the growth in the number of customers for our subscription services as a result of higher market demand for our subscription services and high rates of retention of existing subscription customers. We believe this demand reflects the market’s growing awareness of our integrated travel and expense management solutions and the increasing acceptance of outsourced services.

We expect revenues to continue to grow in 2012 as a result of the growing demand for our subscription service offerings and our planned deployments from new business sold in previous quarters.

Cost of Operations

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	Three Months Ended December 31,						Variance Dollars
	2011			2010			Variance Dollars
Cost of operations	$	28,970		$	22,125		$	6,845
Percent of total revenues	28.9		%	27.6		%

Cost of operations as a percentage of total revenues increased to 28.9% for the three months ended December 31, 2011, compared to 27.6% for the same period in the prior year. Cost of operations increased by 30.9%, or $6.8 million, for the three months ended December 31, 2011, compared to the same period in the prior year. The growth in absolute dollars was primarily due to an increase in personnel costs and related expenses of $4.2 million, an increase of $1.9 million in initial set-up costs that we incur and then amortize in connection with our subscription services, and an increase of $0.5 million in infrastructure and allocated overhead costs, primarily due to increased headcount to support the growing customer base.

We expect cost of operations expenses to trend down as a percentage of total revenues over the long term as the incremental cost to deploy and support each new customer is expected to decrease due to economies of scale anticipated in our subscription service model infrastructure. We anticipate that cost of operations will increase in absolute dollars in 2012 as we continue to expand our capacity to deploy and support additional new customers.

Sales and Marketing



	Three Months Ended December 31,						Variance Dollars
	2011			2010			Variance Dollars
Sales and marketing	$	40,345		$	27,700		$	12,645
Percent of total revenues	40.2		%	34.5		%

Sales and marketing expenses as a percentage of total revenues increased to 40.2% for the three months ended December 31, 2011, compared to 34.5% for the same period in the prior year. Sales and marketing expenses increased by 45.6%, or $12.6 million, for the three months ended December 31, 2011, compared to the same period in the prior year. The growth in absolute dollars was primarily due to an increase in personnel costs and related expenses of $8.4 million, an increase of $2.0 million in customer acquisition costs and amortization of those costs, and an increase of $1.7 million in contingent consideration associated with the TripIt Acquisition that is subject to service requirements (see Note 12 to the consolidated financial statements). These increases were primarily due to additional headcount and adding new customers and increasing penetration within our existing customer base.

We expect total sales and marketing expenses in 2012 to increase in absolute dollars compared to 2011, driven primarily by an increase in sales personnel and marketing programs globally. These increases reflect a key part of our strategic focus in 2012, which is to expand our sales and marketing efforts to create greater awareness of our subscription services in our target markets and to support expected demand.

Systems Development and Programming



	Three Months Ended December 31,						Variance Dollars
	2011			2010			Variance Dollars
Systems development and programming	$	9,723		$	7,275		$	2,448
Percent of total revenues	9.7		%	9.1		%

Systems development and programming costs as a percentage of total revenues increased to 9.7% for the three months ended December 31, 2011, compared to 9.1% for the same period in the prior year. Systems development and programming costs increased by 33.6%, or $2.4 million, for the three months ended December 31, 2011, compared to the same period in the prior year. The growth in absolute dollars was primarily due to an increase in personnel costs and related expenses of $1.5 million with an additional $0.2 million of contingent consideration in relation to the TripIt Acquisition that is subject to service requirements (see Note 12 to consolidated financial statements). Furthermore, allocated overhead and infrastructure costs increased by $0.8 million. These increases were primarily due to an increase in headcount in order to upgrade and extend our service offerings and develop new technologies.

In response to the demand for our subscription services, the majority of our systems and development resources are focused on developing internal-use software used to provide these services to our customers. We capitalize costs in accordance with accounting principles generally accepted in the United States (“GAAP”) for software developed or obtained for internal

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use and amortize it over its estimated useful life. Capitalized internal-use software costs, net of amortization, increased $3.1 million, from $27.0 million at September 30, 2011, to $30.1 million at December 31, 2011.

We anticipate that recognized systems development and programming costs in 2012 will increase in absolute dollars compared to 2011 as we continue to focus on product innovation and enhancement.

General and Administrative



	Three Months Ended December 31,						Variance Dollars
	2011			2010			Variance Dollars
General and administrative	$	15,167		$	12,454		$	2,713
Percent of total revenues	15.1		%	15.5		%

General and administrative expenses as a percentage of total revenues decreased to 15.1% for the three months ended December 31, 2011, compared to 15.5% for the same period in the prior year. General and administrative expenses increased by 21.8%, or $2.7 million, for the three months ended December 31, 2011, compared to the same period in the prior year. The growth in absolute dollars was primarily due to an increase of $2.5 million in personnel costs and related expenses. These increases were the result of expenses for additional personnel to support our growth and other general and administrative costs.

We expect the absolute dollar amount of general and administrative expenses to increase in 2012 compared to 2011 due to increases in personnel costs related to the growth of our business.

Revaluation of Contingent Consideration



	Three Months Ended December 31,						Variance Dollars
	2011			2010			Variance Dollars
Revaluation of contingent consideration	$	(2,439	)	$	—		$	(2,439	)
Percent of total revenues	(2.4		)%	0.0		%

Revaluation of contingent consideration consisted of a gain of $2.4 million primarily relating to the TripIt acquisition for the three months ended December 31, 2011. On a quarterly basis, we re-measure the fair value of the contingent consideration associated with the TripIt acquisition and GlobalExpense acquisition. The change in the assumptions applied in the valuation during the current period, primarily the increase in our stock price, resulted in the change in the fair value of the contingent consideration relating to the TripIt acquisition.

Amortization of Intangible Assets



	Three Months Ended December 31,						Variance Dollars
	2011			2010			Variance Dollars
Amortization of intangible assets	$	3,965		$	1,720		$	2,245
Percent of total revenues	3.9		%	2.1		%

Amortization of intangible assets represents the amortization of the intangible assets from acquisitions. We are amortizing our intangible assets as charges to operations over an expected useful life which is consistent with the timing and level of expected cash flows attributed to customer relationships, use of acquired technology and trade name and trademarks. Amortization of intangible assets increased for the three months ended December 31, 2011, compared to the same period in the prior year, due to the additional intangible assets acquired in the first quarter and other acquisitions completed in 2011.

Interest Income, Interest Expense, Loss from Equity Investments and Other

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	Three Months Ended December 31,						Variance Dollars
	2011			2010			Variance Dollars
Interest income	$	482		$	683		$	(201	)
Interest expense	(4,755		)	(4,560		)	(195		)
Loss from equity investments	(496		)	—			(496		)
Other, net	(478		)	(181		)	(297		)
Total other expense, net	$	(5,247	)	$	(4,058	)	$	(1,189	)

We record realized gains and losses on fluctuations in exchange rates in the other income (expense) section of the consolidated statements of operations. The loss from equity investments resulted from investments made in privately held companies in 2011. Under the equity method, we record our investment at cost and adjust the carrying amount of the investment to recognize our proportionate share of net income or loss, including adjustments to recognize certain differences between our carrying value and our equity in net assets, into our consolidated statements of operations after the date of investment.

Income Tax Expense



	Three Months Ended December 31,						Variance Dollars
	2011			2010			Variance Dollars
Income tax (benefit) expense	$	353		$	1,252		$	(899	)
Effective tax rate	(59.4		)%	25.5		%

For the three months ended December 31, 2011, our effective tax rate of (59.4)% differs from the U.S. federal statutory rate primarily due to the relative mix of earnings or losses within the tax jurisdictions in which we operate, losses in tax jurisdictions where we are not able to record a tax benefit, as well as various book expenses which are not deductible for tax purposes.

We are subject to income taxes in the U.S. and numerous foreign jurisdictions. We make estimates and judgments in determining income tax expense for financial statement purposes. We also make estimates and judgments in the calculation of certain tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes.

Liquidity and Capital Resources

Our available sources of liquidity as of December 31, 2011, consisted principally of cash, cash equivalents and short-term investments totaling $469.2 million.

Our cash flows were as follows:



	Three Months Ended December 31,
	2011			2010			$ Change
Cash provided by (used in):
Operating activities	$	6,357		$	10,906		$	(4,549	)
Investing activities	(128,848		)	(15,171		)	(113,677		)
Financing activities	497			1,092			(595		)

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Our operating cash inflows consist of payments received from our customers related to our subscription and other product offerings. Our operating cash outflows consist of payment of compensation to employee, payments to vendors directly related to our services, payments under arrangements with third parties who provide hosting infrastructure services in connection with our subscription service offerings, related sales and marketing and administrative costs, cost of operations and systems development and programming costs. The changes in operating cash flows are also impacted by the non-cash expense items such as depreciation, amortization and expense associated with stock-based compensation awards and revaluation of contingent considerations. Net cash provided by operating activities was $6.4 million for the three months ended December 31, 2011, compared to $10.9 million for the same period in the prior year. The decrease in cash provided by operating activities was primarily driven by changes in assets and liabilities of $5.3 million, which was mainly resulted from the increase in accounts receivable from increased billings and a decrease in accrued liabilities attributed to the timing of expenses incurred.

Cash flows in investing activities corresponds with purchases, sales, and maturities of investments, cash outlays for acquisitions, capital expenditures, including leasehold improvements, internal-use software and changes in customer funding liabilities, net of the change in restricted cash. Our investing activities used $128.8 million for the three months ended December 31, 2011, compared to $15.2 million for the same period in the prior year. An additional $39.3 million was used in purchases of investments and cash provided by maturities of investments decreased $18.2 million. Capital expenditures were $7.6 million for the three months ended December 31, 2011, compared to $4.8 million for the same period in the prior year. Furthermore, we completed an asset acquisition during the quarter for $67.3 million (see Note 7 to consolidated financial statements). In addition, we had a decrease in customer funding liabilities, net of changes in restricted cash which resulted in a cash outflow of $11.0 million for the three months ended December 31, 2011, compared to $29.6 million of cash used in the same period in the prior year.

Our financing activities provided $0.5 million for the three months ended December 31, 2011, compared to $1.1 million for the same period in the prior year. Cash provided by financing activities for the three months ended December 31, 2011, was primarily due to proceeds from the exercise of employee stock options and employee stock purchase plan of $1.2 million offset by $0.6 million cash used in repurchase of common stock. There was no repurchase of common stock for the three months ended December 31, 2010.

In March 2010, we issued Notes, Note Hedges and Warrants. The Notes will mature on April 15, 2015, unless converted earlier. All amounts in connection with the Notes, Note Hedges, and Warrants were settled in cash in April 2010. As of December 31, 2011, the Notes have not been repurchased or converted. We also have not received any shares under the Note Hedges or delivered cash or shares under the Warrants. For further information, see Note 9 in the consolidated financial statements.

Our Board of Directors previously authorized a stock repurchase program (“Repurchase Program”) that allowed us to repurchase up to 9.0 million shares of our common stock through January 2013. In December 2011, our Board of Directors extended the Repurchase Program for an additional two-year period expiring in January 2015, and increased the number of shares eligible for repurchase by an additional 3.0 million shares to 12.0 million shares. We may repurchase our common stock from time to time in the open market based on market conditions. During the three months ended December 31, 2011, we repurchased and retired 12.8 shares of our outstanding common stock for a total cost of $0.5 million under this program. As of December 31, 2011, 7.1 million shares remained eligible for repurchase under the Repurchase Program.

We believe our cash and cash equivalents, amounts available under existing credit arrangements, as well as expected positive operating cash flows, will be sufficient to meet our anticipated cash needs for normal business operations, working capital needs and capital expenditures for at least the next 12 months. In the longer term, or if we decide to acquire assets or businesses, we may require additional funds and may seek to raise such additional funds through private or public sales of debt or equity securities, or securities convertible or exchangeable into such securities, strategic relationships, bank debt, lease financing arrangements or other available means. There can be no assurances that any such funds will be available or, if they are available, that they will be available on acceptable terms to meet our business needs. If additional funds are raised through the issuance of equity securities, stockholders may experience dilution, or such equity securities may have rights, preferences, or privileges senior to those of the holders of our common stock.

Contractual Obligations and Commercial Commitments

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

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Years ending September 30,	Senior Convertible Notes, including interest		Operating Leases		Purchase Obligations
2012 (January 1, 2012, through September 30, 2012)	$	3,593	$	3,658	$	2,828
2013	7,188		3,844		3,543
2014	7,188		2,379		1,475
2015	294,687		1,797		354
2016	—		1,265		—
2017 and thereafter	—		225		—
Total	$	312,656	$	13,168	$	8,200

Senior Convertible Notes

As of December 31, 2011, investors may require us to repurchase all or a portion of their Notes at a purchase price in cash equal to the full principal amount of the Notes plus any accrued and unpaid interest on or after January 15, 2015, or upon the occurrence of certain events including specified corporate events or trading. For further information, see Note 9 of the consolidated financial statements.

Operating Leases

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

Purchase Obligations

We have future minimum purchase obligations under arrangements with third parties that are enforceable and legally binding. Future obligations are based on contracted commitments.

Acquisition related contingent consideration

Contingent consideration is recorded at fair value on our consolidated balance sheet as of the acquisition dates, and remeasured to fair value each reporting period, with any changes in the value recorded as income or expense. As of December 31, 2011, we had accrued $32.8 million for the fair value of the expected contingent consideration payment for the TripIt acquisition and GlobalExpense acquisition.

As part of the TripIt acquisition, we agreed to pay additional cash consideration, if any, to the former shareholders of TripIt on the Top-Up Payment Date.

As part of the GlobalExpense Acquisition, we agreed to pay additional cash consideration, if any, to the former shareholders of GlobalExpense based on achievement of certain revenue targets through September 30, 2012. We agreed to pay such additional consideration, if any, in fiscal 2013.

Off Balance Sheet Arrangements

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

Critical Accounting Policies and Estimates

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

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

Revenue Recognition

We generate our revenues from the delivery of subscription services, and to a much lesser degree, consulting services. We recognize revenues in accordance with accounting standards for software and service companies.

We recognize revenue when:


•	evidence of an arrangement exists;


•	delivery has occurred;


•	the fees are fixed or determinable; and


•	collection is considered probable.

If collection is not considered probable, we recognize revenues when the fees are collected. If the fees are not fixed or determinable, we recognize revenues as payments become due from the customer. Accordingly, our judgment as to the probability of collection and determinability of fees may materially affect the timing of our revenue recognition and results of operations. If non-standard acceptance periods or non-standard performance criteria are required, we recognize revenue upon the expiration of the acceptance period or satisfaction of the acceptance/performance criteria, as applicable.

Our revenues are typically recognized monthly as the service is provided to the customer and consist of:


•	fees paid for subscription services; and


•	amortization of related set-up fees.

Set-up fees paid by customers in connection with subscription services, as well as the associated direct and incremental costs, such as labor and commissions, are deferred until the customer begins service and is recognized ratably over the expected lives of the customer relationships, which generally range from three to five years. In addition to set-up fees, our deferred revenue balances include subscription fees paid in advance of their recognition and software maintenance fees related to our legacy license offerings.

Consulting services consist of fees for professional services, which relate to system implementation and integration, planning, data conversion, training, and documentation of procedures. In determining whether the consulting services can be accounted for separately from subscription revenue, we primarily consider the timing of when the consulting contract was signed in comparison to the subscription service start date. Consulting services that are sold with the subscription service are recognized ratably over the expected lives of the customer relationships. Consulting services that are sold after the initial contract are typically fixed fee contracts and are recognized as revenue upon delivery. We also sell consulting services under milestone or fixed-fee contracts and, in such cases, recognize consulting revenues as milestones or services are completed.

Revenues are adjusted for estimated sales allowances, which are based on our historical experience, including a review of our experience related to price adjustments and sales credits issued.

Income Taxes

We make estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments occur in the calculation of certain tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes.

We measure and recognize uncertain tax positions. To recognize such positions we must first determine if it is more likely than not that the position will be sustained on audit. We must then measure the benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement. Tax positions for the Company and its subsidiaries are subject to income tax audits by multiple tax jurisdictions throughout the world. We do not believe that it is reasonably possible that the estimates of unrecognized tax benefits will change significantly in the next twelve months. However, an adverse resolution of one or more uncertain tax positions in any period could have a material impact on the results of operations for that period.

Business Combinations

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We are required to allocate the purchase price of acquired companies to the tangible and intangible assets acquired and liabilities assumed as well as to in-process research and development based upon their estimated fair values. This valuation requires management to make significant estimates and assumptions, especially with respect to long-lived and intangible assets.

Critical estimates in valuing intangible assets include but are not limited to estimates about: future expected cash flows from customer contracts, customer lists, distribution agreements, proprietary technology and non-compete agreements; the acquired company’s brand awareness and market position, assumptions about the period of time the brand will continue to be used in our product portfolio; as well as expected costs to develop the in-process research and development into commercially viable products and estimated cash flows from the projects when completed, and discount rates. Our estimates of fair value are based upon assumptions we believe to be reasonable, but which are inherently uncertain and unpredictable. Assumptions may be incomplete or inaccurate, and unanticipated events and circumstances may occur.

Other estimates associated with the accounting for these acquisitions may change as additional information becomes available regarding the assets acquired and liabilities assumed.

Contingent Consideration

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

Accounts Receivable Allowances

We record provisions for estimated sales allowances against subscription and consulting revenues in the period in which the related revenues are recorded. We record our sales allowances based on historical experience, including a review of our experience related to price adjustments and sales credits issued.

We make judgments as to our ability to collect outstanding receivables, and we provide an allowance for doubtful accounts, included in general and administrative expenses. In estimating allowances for doubtful accounts, we consider specific receivables when collection is doubtful, as well as an analysis of our historical bad debt experience and the current economic environment. If the data used to estimate the allowance provided for doubtful accounts does not adequately reflect our future ability to collect outstanding receivables, additional provisions for doubtful accounts may be needed and future results of operations could be materially affected.

New Accounting Standards

See Note 2 of the notes to consolidated financial statements for a full description of new accounting pronouncements, including the respective expected dates of adoption and effects on results of operations and financial condition.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There has been no material change in our market risk during the three months ended December 31, 2011. For additional information, see Item 7A, Quantitative and Qualitative Disclosures About Market Risk, in Part II of our Annual Report on Form 10-K for the year ended September 30, 2011, filed with the SEC on November 17, 2011.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

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

Changes in Internal Control over Financial Reporting

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

Limitation on Effectiveness of Controls

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It should be noted that any system of controls, including disclosure controls and procedures and internal controls over financial reporting, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met. The design of any control system is based, in part, upon the benefits of the control system relative to its costs. Our disclosure controls and procedures were designed to provide reasonable assurance of achieving their objectives and the actual effectiveness of our disclosure controls and procedures is described above.

Control systems can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. In addition, over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of these and other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

ITEM 1A. RISK FACTORS

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

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

We generated 92% of our total revenues for the three months ended December 31, 2011 from our travel procurement, expense management, and integrated travel procurement and expense management solutions. We expect these solutions to continue to constitute a large percentage of our total revenues even as we expand our service offerings. Our financial performance and business outlook depends on continued market acceptance of these solutions. If customers reduce or cancel their subscriptions for our solutions due to economic conditions or because our competitors (some of which have substantially greater resources than we do) develop new offerings, or if we do not keep up with technological advancements in services and software platforms, delivery models or product features, our revenues could decline. There can be no assurance that our solutions will continue to maintain current levels of market penetration or that we will maintain current levels of revenues from sales of these solutions in the future. There can also be no assurance that we will be able to introduce new solutions successfully, or that any initial interest in such solutions will result in significant revenue or long term success for us.

If the market for integrated travel and expense services develops more slowly than we expect it to, our future revenue and profitability will be harmed.

The market for integrated travel and expense services is developing, and it is not certain whether these services will continue to achieve market acceptance and sustain high demand. Our future revenue and profits depend on increasing customer subscriptions for integrated travel and expense services. The market for integrated travel and expense services may not grow, or may shrink. Our future financial performance and revenue growth depend on the willingness of enterprise customers to use integrated travel and expense services. Many enterprises have internal resources and processes to manage corporate travel and expenses, so they may not perceive the benefit of our external integrated travel and expense management services. Privacy concerns and transition costs are also factors that may affect an enterprise’s decision to subscribe to an external solution. If enterprises do not value the benefit of integrated travel and expense services, then the market for these services will not develop at the rate that we anticipate.

Uncertain and unfavorable global economic conditions may adversely affect our business, financial condition and operating results.

Our financial performance depends, in part, on the state of the global economy, which has deteriorated in the recent past, and which remains uncertain and may deteriorate in the future. Declining levels of global economic activity typically lead to declines in corporate spending on travel, fewer travel and expense transactions, lower information technology spending, and deceased revenue for us. The core factors that affect customer usage and therefore our subscription revenue are unemployment, recession-driven attrition through business failure or acquisition, and travel budget cutbacks.

If unfavorable economic conditions remain uncertain or worsen, our business, financial condition and operating results could be materially and adversely affected.

We face significant competition from companies with longer operating histories and greater resources than we have, and our business, financial condition and operating results will suffer if we fail to compete effectively.

Our principal direct competition comes from independent vendors of corporate travel and expense management software

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and services, as well as financial institutions and enterprise resource planning software vendors that sell products similar to ours along with their suites of other products and services. Some of our competitors may offer services similar to ours at a greatly reduced price to achieve greater sales of other services. Many of our competitors have longer operating histories; more financial, technical, marketing and other resources; greater name recognition; and more customers for their products and services than we do. Some of our competitors, particularly major financial institutions and enterprise resource planning software vendors, have well-established relationships with our current and potential customers, as well as with systems integrators and other vendors and service providers. Our competitors may also be able to respond more quickly to new or emerging technologies and changes in customer requirements, devote greater resources to the development, promotion and sale of their products, or better withstand economic downturns. We also compete with the internal development efforts of potential customers and, at times, have to overcome their reluctance to move away from existing paper-based systems. In addition, we anticipate the entrance of new competitors in the future. This competitive landscape may make it difficult for us to achieve our objective of increasing the number of our customers and expanding our role in the travel supply chain. Increased competition may also result in price reductions, reduced gross margins and change in market share and could have a material adverse effect on our business, financial condition and operating results.

We depend on strategic relationships with reseller and referral partners, so if we do not maintain our existing strategic relationships or enter into new strategic relationships, our revenues could decline.

We depend on strategic reseller and referral relationships to offer products and services to a larger customer base than we can reach through our current direct sales, telesales and internal marketing efforts. Some of our strategic reseller and referral partners are in early stages of operation and, accordingly, it is not certain whether our partners will be able or willing to expend the required effort and resources to market our products and services successfully or provide the volume and quality of orders and lead referrals that we expect. In addition, some of our partners have entered, and may continue to enter, into strategic relationships with our competitors. Further, many of our partners have multiple strategic relationships and they may not regard us as significant for their businesses. Our partners may terminate their respective relationships with us, pursue other partnerships or relationships, or attempt to develop or acquire products or services that compete with our products or services. Our partners also may impair our ability to enter into other desirable strategic relationships. Further, unfavorable global economic conditions may hurt our partners, making them less effective or causing them to modify or cancel their relationships with us.

If we are unable to maintain our existing strategic relationships or enter into new ones, we would have to devote substantially more resources to the distribution, sales and marketing of our products and services, which would increase our costs and decrease our earnings.

Our operating results depend on our ability to grow our subscription services.

Our costs of providing subscription services are relatively fixed in the short term, so we may not be able to adjust expenses quickly enough to offset slowdowns in subscription sales. In addition, delays in deployment of our subscription services may prevent us from recognizing subscription revenue for indeterminate periods of time, even when we have already incurred costs relating to the deployment. Further, we may experience unanticipated increases in costs associated with providing our subscription services to customers over the term of our customer contracts as a result of inaccurate internal cost projections or other factors, which may harm our operating results. If our customers cannot make payments or gain access to credit to make payments, they may be forced to cancel existing subscriptions for our products and services. Some of our sales contracts contain cancellation provisions and, if cancelled, could result in us recognizing substantially less revenue than the aggregate value of those contracts over their terms. If customers terminate subscription agreements before the end of their respective terms, or if we are not able to renew such agreements, our operating results could be adversely affected.

We depend on our relationships with travel suppliers, so adverse changes in our existing relationships could adversely affect our business, financial condition and operating results.

An important component of our business success is our ability to maintain and develop relationships with travel suppliers. Adverse changes in existing relationships, including any impact of the economic recession on the businesses of those suppliers, could reduce the amount, quality and breadth of attractively priced travel products and services that we are able to offer, which could adversely affect our business, financial condition and operating results.

If our customers have concerns over the scalability or security of our products, they may not continue buying our products and our revenues will decline.

If customers believe that our subscription services offerings are not sufficiently scalable, do not provide adequate security for the dissemination of information over the Internet or corporate extranets, or are otherwise inadequate for Internet or extranet use or if, for any other reason, our customers decide not to accept our subscription services for use, our business will be harmed. As part of our subscription services, we receive credit card, travel booking, employee, purchasing, supplier and other financial and accounting data, through the Internet or extranets and there can be no assurance that this information will not be

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subject to computer break-ins, theft and other improper activity that could jeopardize the security of information handled by our products. Any such lapse in security could expose us to litigation, loss of customers, damage to our reputation, or otherwise harm our business.

In addition, any person who circumvents our security measures could steal proprietary or confidential customer information or cause interruptions in our operations. We incur significant costs to protect against security breaches, and may incur significant additional costs to alleviate problems caused by any breaches. Customers’ concerns about security could deter them from using the Internet to conduct transactions that involve confidential information, so our failure to prevent security breaches, or well-publicized security breaches affecting the Internet in general, could significantly harm our business and financial results.

Privacy concerns could result in regulatory changes that may impose additional costs and liabilities on us and limit our use of information.

Many of our travel and expense software solutions collect, store and report information regarding travel procurement and employee spending. Personal privacy has become a significant issue in the United States and many other countries where we operate. Many federal, state and foreign government bodies and agencies have imposed or are considering imposing restrictions and requirements regarding the collection, use and disclosure of personal information obtained from consumers and individuals. Changes to laws or regulations affecting privacy, if applicable to our business, could impose additional costs and liability on us and could limit our use and disclosure of such information. If we were required to change our business activities or revise or eliminate services, our business could be harmed. Privacy concerns, whether valid or not, may inhibit market adoption of our service in certain industries and foreign countries In addition, we may be subject to fines, penalties and potential litigation if we fail to comply with such regulatory restrictions and requirements.

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

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

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

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

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


•	general economic and market conditions;


•	the evolving demand for our solutions;


•	spending decisions by our customers and prospective customers;


•	our ability to manage expenses;


•	the timing of new product releases;


•	changes in our pricing policies or those of our competitors;


•	the timing of large contracts or contract terminations;


•	changes in mix of our offerings;


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


•	costs of developing new products and enhancements;

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•	our ability to adequately provide software solutions on-demand;


•	foreign currency fluctuations; and


•	global political conditions.

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

As part of our business strategy, from time to time we invest in or acquire complementary businesses, joint ventures, products or technologies, and we expect that we will make such investments and acquisitions in the future. For example, our most recent business acquisition occurred in July 2011, when we acquired GlobalExpense, a London-based market leader in Web-based end-to-end expense management.

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


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


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


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


•	potential loss of key employees;


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


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


•	potential unknown liabilities associated with an acquired business or investment;


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


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


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


•	potential write-offs of our investments in acquired assets;


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


•	challenges caused by distance, language and cultural differences.

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

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

Our international operations are an increasingly important part of our business. Customers located outside the United States represented 15% of total revenues for the three months ended December 31, 2011. In addition, a portion of our United States revenue reflects utilization of our services outside of the United States by customers located in the United States. We expect international revenues as a percentage of our total revenues to increase. Our international operations are subject to many difficulties and incremental costs, including:


•	costs to customize our products for foreign markets;


•	foreign currency exchange rate risk;


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


•	different pricing environments;


•	longer sales cycles;


•	greater difficulty in collecting accounts receivable;


•	import and export restrictions and tariffs;


•	adverse tax consequences;


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

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•	regional data privacy laws that apply to the transmission of customer data across international borders;


•	difficulties staffing and managing foreign operations; and


•	regional economic and political conditions.

Our ability to sell our solutions into international markets will depend on our ability to develop and support solutions that incorporate the tax laws, accounting practices and currencies of applicable countries. Our international operations also involve foreign currency risks for us. Most of our revenues are denominated in United States dollars, but we believe that an increasing portion of our revenues will be denominated in foreign currencies. Unfavorable economic conditions have been accompanied by increased foreign currency exchange rate volatility. Our international revenues and expenses are currently subject to the risks of foreign currency fluctuations.

Our international operations also increase our exposure to international laws and regulations. If we are unable to comply with foreign laws and regulations, which are often complex and subject to variation and unexpected changes, we could incur unexpected costs and potential litigation. For example, the governments of foreign countries might attempt to regulate our services and products or levy sales or other taxes relating to our activities. In addition, foreign countries might impose tariffs, duties, price controls or other restrictions on foreign currencies or trade barriers, any of which could make it more difficult for us to conduct our business in international markets.

In 2011, we acquired products and services in international markets through our acquisition GlobalExpense Limited and established a Japanese joint venture, Concur Japan. We intend to continue to expand our global sales and marketing activities and enter into relationships with additional international distribution partners. We are in the early stages of developing our distribution channels in markets outside the United States. We may not be able to attract and retain distribution partners that will be able to market our products effectively.

Changes in financial accounting standards or practices may cause adverse, unexpected financial reporting fluctuations and affect our reported financial results.

A change in accounting standards or practices can have a significant effect on our reported results and may even affect our reporting of transactions completed before the change is effective. New accounting pronouncements and varying interpretations of accounting pronouncements have occurred and will occur in the future. Changes to existing rules or the questioning of current practices may adversely affect our reported financial results or the way in which we conduct our business.

If we fail to maintain proper and effective internal controls, our ability to produce accurate and timely financial statements could be impaired, which could adversely affect investor views of us and the value of our common stock.

Ensuring that we have adequate internal financial and accounting controls and procedures in place so that we can produce accurate financial statements on a timely basis is a costly and time-consuming effort that needs to be re-evaluated frequently. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles. However, despite our efforts any failure to maintain or implement required controls could cause us to fail to meet our periodic reporting obligations, or result in material misstatements in our financial information. Any such delays or restatements could cause investors to lose confidence in our reported financial information and lead to a decline in the trading price of our stock.

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

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

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

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

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delay in completing, or failure to complete, sales in a particular quarter or year could harm our business and could cause our operating results to vary significantly.

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

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

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

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

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

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

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

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


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


•	the announcement of a merger or acquisition;


•	fluctuations in our actual and anticipated operating results;


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


•	failing to achieve revenue or earnings expectations;


•	volatility inherent in prices of technology company stocks;


•	adverse publicity; and


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

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

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

Our success depends in large part on our ability to attract, motivate and retain highly qualified personnel. Competition for such personnel is intense and there can be no assurance that we will be successful in attracting, motivating and retaining key personnel. Many of our competitors have greater financial and other resources than us for attracting experienced personnel. We also compete for personnel with other software vendors and consulting and professional services companies. Further, changes

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in applicable stock exchange listing standards relating to obtaining stockholder approval of equity compensation plans could make it more difficult or expensive for us to grant options to employees in the future. We rely on our direct sales force to sell our services and software in the marketplace. We anticipate increasing our direct sales force. There is significant competition for direct sales personnel with the advanced sales skills and technical knowledge we need. If we were not able to hire or retain competent sales personnel our business would suffer. In addition, by relying primarily on a direct sales model, we may miss sales opportunities that might be available through other sales channels, such as domestic and international resellers and strategic referral arrangements. Any inability to hire and retain salespeople or any other qualified personnel, or any loss of the services of key personnel, would harm our business.

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

Our success depends, in part, upon our proprietary technology, processes, trade secrets and other proprietary information and our ability to protect this information from unauthorized disclosure and use. We rely on a combination of patent, copyright, trade secret and trademark laws, confidentiality procedures, contractual provisions and other similar measures to protect our proprietary information. We have issued patents and have patent applications pending in various countries. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or to obtain and use information that we regard as proprietary and third parties may attempt to develop similar technology independently. Policing unauthorized use of our products is difficult, particularly because the global nature of the Internet makes it difficult to control the ultimate destination or security of software or other data transmitted. While we are unable to determine the extent to which piracy of our software products exists, software piracy can be expected to be a persistent problem. In addition, the laws of some foreign countries do not protect our proprietary rights to as great an extent as do the laws of the United States and we expect that it will become more difficult to monitor use of our products as we increase our international presence. There can be no assurance that our means of protecting our proprietary rights will be adequate, or that our competitors will not independently develop similar technology. In addition, there can be no assurance that third parties will not claim infringement by us with respect to current or future products or other intellectual property rights. We have received in the past, and may receive in the future, communications from third parties claiming that we have infringed the intellectual property rights of others. The cost to defend or settle these claims could be material to our business. The outcome of any litigation is inherently uncertain. Any intellectual property claims, with or without merit, could be time-consuming and expensive to resolve, could divert management attention from executing our business plans and could require us to change our technology, change our business practices and/or pay monetary damages or enter into short- or long-term royalty or licensing agreements which may not be available in the future at the same terms or at all. In addition, many of our customer agreements require us to indemnify our customers for third-party intellectual property infringement claims, which would increase the cost to us of an adverse ruling on such a claim. Any adverse determination related to intellectual property claims or litigation could prevent us from offering our solutions to others, or could otherwise have a material adverse effect on our business, financial condition and operating results. In addition, over the past several years, we have made numerous changes in our product names. Although we own registered trademarks in the United States and have filed trademark applications in the United States and in certain other countries, we cannot assure you that our strategy with respect to our trademark portfolio will be adequate to secure or protect all necessary intellectual property.

Provisions in our charter documents and Delaware law could discourage, delay or prevent a change in control of Concur.

Provisions of our certificate of incorporation and bylaws, and of Delaware General Corporation Law, may discourage, delay or prevent a change of control of Concur. For example:


•	our Board of Directors may, without stockholder approval, issue shares of preferred stock with special voting or economic rights;


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


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


•	our stockholders may not take action by written consent;


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


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

•

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

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

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the occurrence of a fundamental change.

We have outstanding indebtedness.

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


•	make it difficult for us to pay other obligations;


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


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


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

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

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

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

In connection with our offering of senior convertible notes due in 2015, we entered into note hedges covering approximately 5.0 million shares of our common stock. We also sold warrants to acquire up to approximately 5.5 million shares of our common stock at an initial strike price of $73.29. The note hedges are intended to reduce the potential economic dilution to our common stock upon conversion of the senior convertible notes. However, the warrants could have a dilutive effect, if the market price per share of our common stock exceeds the strike price of the warrants. The counterparties to our note hedges and warrants are likely to enter into or unwind various derivatives with respect to our common stock, or purchase or sell shares of our common stock or other securities linked to or referencing our common stock in secondary market transactions prior to the maturity of the senior convertible notes. These activities could adversely affect the value of our common stock.

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ITEM 6. EXHIBITS

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



		Incorporated by Reference
Exhibit Number	Exhibit Description	Form	File No.	Date of First Filing	Exhibit Number	Provided Herewith

31.01	Certification of Chief Executive Officer Pursuant to Securities Exchange Act Rule 13a-14(a).	—	—	—	—	X

31.02	Certification of Chief Financial Officer Pursuant to Securities Exchange Act Rule 13a-14(a).	—	—	—	—	X

32.01	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 and Securities Exchange Act Rule 13a-14(b).*	—	—	—	—	X

32.02	Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 and Securities Exchange Act Rule 13a-14(b).*	—	—	—	—	X

101	Consolidated financial statements from the Company’s Quarterly Report on Form 10-Q for the three months ended December 31, 2011, formatted in XBRL.**	—	—	—	—	X

This certification is not deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that Concur specifically incorporates it by reference.


**	The following consolidated financial statements from the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 2011, formatted in XBRL: (i) Consolidated Statements of Operations, (ii) Consolidated Balance Sheets, (iii) Consolidated Statements of Cash Flow, and (iv) Notes to Consolidated Financial Statements.

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SIGNATURE

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

Dated: February 7, 2012



CONCUR TECHNOLOGIES, INC.
By	/s/ Francis J. Pelzer V
	Francis J. Pelzer V
	Chief Financial Officer principal financial officer and duly authorized signatory

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EXHIBIT INDEX




		Incorporated by Reference
Exhibit Number	Exhibit Description	Form	File No.	Date of First Filing	Exhibit Number	Provided Herewith

31.01	Certification of Chief Executive Officer Pursuant to Securities Exchange Act Rule 13a-14(a).	—	—	—	—	X

31.02	Certification of Chief Financial Officer Pursuant to Securities Exchange Act Rule 13a-14(a).	—	—	—	—	X

32.01	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 and Securities Exchange Act Rule 13a-14(b).*	—	—	—	—	X

32.02	Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 and Securities Exchange Act Rule 13a-14(b).*	—	—	—	—	X

101	Consolidated financial statements from the Company’s Quarterly Report on Form 10-Q for the three months ended December 31, 2011, formatted in XBRL.**	—	—	—	—	X


**	The following consolidated financial statements from the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 2011, formatted in XBRL: (i) Consolidated Statements of Operations, (ii) Consolidated Balance Sheets, (iii) Consolidated Statements of Cash Flow, and (iv) Notes to Consolidated Financial Statements.

Positive
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Uncertain
Constraining
Legalese
Litigous
Readability	H.S. freshman Good

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