Concur (CNQR) 10-Q 2014 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2014

OR

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

For the transition period from            to             

Commission file number 000-25137

_________________________________

Concur Technologies, Inc.

(Exact name of Registrant as specified in its charter)

___________________________________ 

Delaware	91-1608052
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)
601 108th Avenue NE, Suite 1000 Bellevue, Washington	98004
(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.    þ  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).    þ 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.

Large accelerated filer	þ	Accelerated filer	¨
Non-accelerated filer	¨  [Do not check if a smaller reporting company]	Smaller reporting company	¨

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

Number of shares of the registrant’s common stock outstanding as of August 1, 2014: 57,036,165

CONCUR TECHNOLOGIES, INC.

FORM 10-Q

For the quarter ended June 30, 2014

INDEX

	Page
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Statements of Operations	2
Consolidated Statements of Comprehensive Income (Loss)	3
Consolidated Balance Sheets	4
Consolidated Statements of Cash Flows	5
Notes to Consolidated Financial Statements	6
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	19
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	30
ITEM 4. CONTROLS AND PROCEDURES	30
PART II. OTHER INFORMATION	31
ITEM 1. LEGAL PROCEEDINGS	31
ITEM 1A. RISK FACTORS	31
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	41
ITEM 6. EXHIBITS	42
SIGNATURE	43

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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						Nine Months Ended
	June 30,						June 30,
	2014			2013			2014			2013
Revenue	$	178,365		$	138,710		$	510,965		$	388,878
Expenses:
Cost of operations	59,988			36,545			179,492			108,105
Sales and marketing	71,243			56,111			215,599			166,571
Systems development and programming	21,034			12,724			62,967			40,750
General and administrative	25,904			20,924			76,361			60,836
Revaluation of contingent consideration	(627		)	(6,109		)	(2,270		)	(3,977		)
Amortization of intangible assets	5,251			4,715			15,723			13,718
Total expenses	182,793			124,910			547,872			386,003
Operating income (loss)	(4,428		)	13,800			(36,907		)	2,875
Other income (expense):
Interest income	573			502			2,047			1,546
Interest expense	(11,133		)	(6,870		)	(33,016		)	(16,966		)
Gain (loss) from equity investments, net	13,291			(589		)	11,025			(1,957		)
Other, net	(192		)	(22		)	(1,006		)	(583		)
Total other income (expense)	2,539			(6,979		)	(20,950		)	(17,960		)
Income (loss) before income tax	(1,889		)	6,821			(57,857		)	(15,085		)
Income tax expense (benefit)	(1,663		)	4,237			22,947			2,502
Consolidated net income (loss)	(226		)	2,584			(80,804		)	(17,587		)
Less: loss attributable to noncontrolling interest	194			231			571			725
Net income (loss) attributable to Concur	$	(32	)	$	2,815		$	(80,233	)	$	(16,862	)
Net income (loss) per share attributable to Concur common stockholders:
Basic	$	—		$	0.05		$	(1.42	)	$	(0.30	)
Diluted	—			0.05			(1.42		)	(0.30		)
Weighted average shares used in computing net income (loss) per share:
Basic	56,876			55,845			56,505			55,506
Diluted	56,876			59,290			56,505			55,506

See Notes to Consolidated Financial Statements.

2

Concur Technologies, Inc.

Consolidated Statements of Comprehensive Income (Loss)

(In thousands)

(Unaudited)

	Three Months Ended						Nine Months Ended
	June 30,						June 30,
	2014			2013			2014			2013
Consolidated net income (loss)	$	(226	)	$	2,584		$	(80,804	)	$	(17,587	)
Other comprehensive income (loss), before tax
Foreign currency translation adjustments	1,239			(281		)	2,449			(2,487		)
Unrealized gain (loss) on available-for-sale investments	9			(7		)	(1		)	(46		)
Other comprehensive income (loss), before tax	1,248			(288		)	2,448			(2,533		)
Tax effect	—			(2		)	136			(9		)
Other comprehensive income (loss), net of tax	1,248			(286		)	2,312			(2,524		)
Comprehensive income (loss)	1,022			2,298			(78,492		)	(20,111		)
Less: comprehensive loss attributable to noncontrolling interest	196			231			565			780
Comprehensive income (loss) attributable to Concur	$	1,218		$	2,529		$	(77,927	)	$	(19,331	)

See Notes to Consolidated Financial Statements.

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Concur Technologies, Inc.

Consolidated Balance Sheets

(In thousands, except per share amounts)

(Unaudited)

	June 30, 2014			September 30, 2013
Assets
Current assets:
Cash and cash equivalents	$	475,032		$	301,696
Short-term investments	341,338			531,065
Accounts receivable, net of allowance of $4,846 and $3,567	126,791			106,587
Deferred tax assets, net	23,645			43,987
Deferred costs and other assets	59,757			55,341
Total current assets	1,026,563			1,038,676
Non-current assets:
Property and equipment, net	97,297			82,414
Investments	116,112			101,756
Deferred costs and other assets	61,735			51,082
Intangible assets, net	108,232			123,297
Deferred tax assets, net	4,566			3,255
Goodwill	330,698			324,454
Total assets	$	1,745,203		$	1,724,934
Liabilities and equity
Current liabilities:
Accounts payable	$	16,588		$	15,036
Customer funding liabilities	45,335			37,039
Accrued compensation	40,927			30,142
Acquisition-related liabilities	32			2,231
Acquisition-related contingent consideration	1,000			3,182
Other accrued expenses and liabilities	30,310			34,537
Deferred revenue	106,636			88,550
Convertible senior notes, net	275,868			265,426
Total current liabilities	516,696			476,143
Non-current liabilities:
Convertible senior notes, net	397,144			381,807
Deferred rent and other long-term liabilities	11,694			10,373
Deferred revenue	10,704			15,499
Tax liabilities	27,122			22,832
Total liabilities	963,360			906,654
Temporary equity: convertible senior notes	11,632			22,074
Concur stockholders’ equity:
Common stock, $0.001 par value per share	57			56
Authorized shares: 195,000
Shares issued and outstanding: 56,891 and 56,044
Additional paid-in capital	990,110			939,423
Accumulated deficit	(221,912		)	(141,679		)
Accumulated other comprehensive income (loss)	491			(1,815		)
Total Concur stockholders’ equity	768,746			795,985
Noncontrolling interest	1,465			221
Total equity	770,211			796,206
Total liabilities, temporary equity and stockholders’ equity	$	1,745,203		$	1,724,934

See Notes to Consolidated Financial Statements.

4

Concur Technologies, Inc.

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

	Three Months Ended						Nine Months Ended
	June 30,						June 30,
	2014			2013			2014			2013
Operating activities:
Consolidated net income (loss)	$	(226	)	$	2,584		$	(80,804	)	$	(17,587	)
Adjustments to reconcile consolidated net income (loss) to net cash provided by operating activities:
Amortization of intangible assets	5,251			4,715			15,723			13,718
Depreciation and amortization of property and equipment	10,182			7,648			28,958			21,351
Accretion of discount and issuance costs on notes	8,719			4,913			25,779			11,312
Share-based compensation	16,990			14,684			67,066			46,131
Revaluation of contingent consideration	(627		)	(6,109		)	(2,270		)	(3,977		)
Deferred income taxes	(4,453		)	4,769			19,903			1,552
Excess tax benefits from share-based compensation	(31		)	(352		)	(452		)	(717		)
Loss (gain) from equity investments	(13,291		)	589			(11,025		)	1,957
Payments of contingent consideration	—			—			—			(591		)
Changes in operating assets and liabilities, net of effects from acquisitions:
Accounts receivable, net	(9,349		)	(9,169		)	(19,927		)	(16,558		)
Deferred costs and other assets	(5,325		)	(3,769		)	(9,396		)	(8,114		)
Accounts payable	1,335			(1,327		)	3,087			334
Accrued liabilities	5,977			(1,197		)	10,332			(12,507		)
Deferred revenue	10,319			10,035			13,384			15,458
Net cash provided by operating activities	25,471			28,014			60,358			51,762
Investing activities:
Purchases of investments	(125,412		)	(317,926		)	(633,406		)	(571,111		)
Maturities of investments	257,752			137,465			822,795			349,950
Increase (decrease) in customer funding liabilities	(6,648		)	2,910			8,029			11,039
Investments in and loans to unconsolidated affiliates	(1,750		)	—			(28,914		)	(17,326		)
Proceeds from sale of cost method investments	16,677			—			16,677			—
Capital expenditures	(12,641		)	(19,558		)	(39,420		)	(40,547		)
Payments for acquisitions, net of cash acquired	(1,250		)	—			(3,810		)	(9,564		)
Payments of contingent consideration related to acquisition of Etap	—			—			—			(1,266		)
Net cash provided by (used in) investing activities	126,728			(197,109		)	141,951			(278,825		)
Financing activities:
Equity issuance costs	—			(120		)	—			(120		)
Proceeds from borrowings on convertible senior notes, net	—			474,949			—			474,949
Proceeds from warrants	—			23,753			—			23,753
Payments for convertible senior note hedges	—			(58,161		)	—			(58,161		)
Investment in consolidated joint venture by noncontrolling interest	—			619			1,809			619
Payments on repurchase of common stock	(484		)	(450		)	(925		)	(651		)
Net proceeds from share-based equity award activity	323			615			2,142			2,035
Proceeds from employee stock purchase plan activity	988			767			2,674			2,351
Minimum tax withholding on restricted stock awards	(3		)	(15		)	(31,988		)	(19,362		)
Excess tax benefits from share-based compensation	31			352			452			717
Payments of contingent consideration	—			—			—			(2,497		)
Repayments on capital leases	(2,066		)	—			(3,899		)	—
Net cash provided by (used in) financing activities	(1,211		)	442,309			(29,735		)	423,633
Effect of foreign currency exchange rate changes on cash and cash equivalents	780			(701		)	762			(1,891		)
Net increase in cash and cash equivalents	151,768			272,513			173,336			194,679
Cash and cash equivalents at beginning of period	323,264			224,440			301,696			302,274
Cash and cash equivalents at end of period	$	475,032		$	496,953		$	475,032		$	496,953
Supplemental cash flow information:
Cash paid for interest	$	4,816		$	3,594		$	9,706		$	7,188
Income tax payments, net	1,076			1,172			3,520			4,574

See Notes to Consolidated Financial Statements.

5

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,” the “Company,” “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, 2012 and 2013 as “2012” and “2013” and our fiscal year ending September 30, 2014 as “2014.” All dollar, option, and share amounts are reported in thousands, unless otherwise noted.

Description of the Company

We are the 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 processes and providing visibility into expense management, travel management, 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. By providing easy-to-use mobile solutions, we help make business travel easier and more productive for our customers’ employees. Our solutions adapt to individual employee preferences, while scaling to meet the needs of companies from small to large.

Concur, the Concur logo, Concur Connect platform, Concur T&E Cloud, Smart Expense, TripIt, GlobalExpense, TRX, and GDSx, 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, its wholly-owned subsidiaries, and its majority-owned subsidiary. We hold a controlling interest (75% voting interest) in our Japanese joint venture 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. Noncontrolling interest of $1.5 million and $0.2 million as of June 30, 2014 and September 30, 2013, respectively, is reflected in stockholders’ equity. All intercompany accounts and transactions, including those of Concur Japan, were eliminated in consolidation.

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, 2013, filed with the Securities and Exchange Commission on November 13, 2013.

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 the determination of the best estimate of selling price of the deliverables included in multiple-deliverable revenue arrangements, valuing assets and liabilities acquired through business combinations, determining the 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, valuing strategic investments and determining the other-than-temporary impairments for such investments, deferring certain revenue and costs,

6

share-based compensation, valuing allowances for accounts receivable, estimating useful lives of property and equipment, and estimating product warranties. Actual results could differ from these estimates.

Recently Adopted Accounting Guidance

In April 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360) (“ASU 2014-08”). ASU 2014-08 raises the threshold for a disposal to qualify as discontinued operations and requires new disclosures for individually significant disposal transactions that do not meet the definition of a discontinued operation. Under the new standard, companies report discontinued operations when they have a disposal that represents a strategic shift that has or will have a major impact on operations or financial results. ASU 2014-08 will be applied prospectively and is effective for annual periods, and interim periods within those years, beginning after December 15, 2014 with early adoption permitted. We early adopted ASU 2014-08 beginning in the fiscal quarter ended June 30, 2014. The adoption did not have a significant impact on our consolidated financial statements.

In July 2013, the FASB issued ASU 2013-11, Income Taxes (Topic 740),Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists(a consensus of the Financial Accounting Standards Board Emerging Issues Task Force) (“ASU 2013-11”). ASU 2013-11 requires the netting of unrecognized tax benefits (“UTBs”) against a deferred tax asset for a loss or other carryforwards that would apply in settlement of the uncertain tax positions. UTBs are required to be netted against all available same-jurisdiction losses or other tax carryforwards that would be utilized, rather than only against carryforwards that are created by the UTBs. ASU 2013-11 is effective for interim and annual periods beginning after December 15, 2013. We early adopted ASU 2013-11, effective October 1, 2013, on a prospective basis. The adoption did not have a significant impact on our consolidated financial statements.

In February 2013, the FASB issued ASU 2013-02, Other Comprehensive Income (Topic 220), Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (“ASU 2013-02”). ASU 2013-02 requires entities to present (either on the face of the income statement or in the notes to the consolidated financial statements) the significant effects on the line items of the income statement for amounts reclassified out of accumulated other comprehensive income. We adopted ASU 2013-02 effective October 1, 2013. The adoption did not have a significant impact on our consolidated financial statements.

Recent Accounting Guidance Not Yet Adopted

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). ASU 2014-09 provides a five-step analysis of transactions to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 will be effective for us beginning October 1, 2017. We are currently evaluating the impact on our consolidated financial statements upon adoption.

In March 2013, the FASB issued ASU 2013-05, Foreign Currency Matters (Topic 830), Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity (a consensus of the FASB Emerging Issues Task Force) (“ASU 2013-05”). ASU 2013-05 requires that the parent release any related cumulative translation adjustment into net income only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided. ASU 2013-05 will be effective for us beginning October 1, 2014. We do not anticipate material impacts on our consolidated financial statements upon adoption.

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 convertible senior notes, using the treasury stock method.

The computation of basic and diluted net income (loss) per share is as follows:

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	Three Months Ended June 30,					Nine Months Ended June 30,
	2014			2013		2014			2013
Net income (loss) attributable to Concur	$	(32	)	$	2,815	$	(80,233	)	$	(16,862	)
Weighted average number of shares outstanding:
Basic	56,876			55,845		56,505			55,506
Dilutive effect of share-based equity awards	—			1,525		—			—
Dilutive effect of 2015 convertible senior notes	—			1,715		—			—
Dilutive effect of warrants associated with 2015 convertible senior notes	—			205		—			—
Diluted	56,876			59,290		56,505			55,506
Net income (loss) per share attributable to Concur common stockholders:
Basic	$	—		$	0.05	$	(1.42	)	$	(0.30	)
Diluted	—			0.05		(1.42		)	(0.30		)

We excluded certain shares from the computation of diluted net income (loss) per share because the effect of these shares would have been anti-dilutive. The following table details the shares of potential common stock outstanding, which were excluded from the computation of diluted net income (loss) per share for the three and nine month periods then ended.

	Three Months Ended June 30,		Nine Months Ended June 30,
	2014	2013	2014	2013
Share-based equity awards	2,666	—	2,666	2,950
2015 convertible senior notes	5,491	—	5,491	5,491
Warrants associated with the 2015 convertible senior notes	5,491	—	5,491	5,491
2018 convertible senior notes	4,662	4,662	4,662	4,662
Warrants associated with the 2018 convertible senior notes	4,662	4,662	4,662	4,662

Under the treasury stock method, the 2015 and 2018 convertible senior notes have a dilutive impact on net income per share when the average stock price for the period exceeds the respective conversion price for the 2015 and 2018 convertible senior notes (see Note 9 of these Notes to Consolidated Financial Statements).

We also have entered into note hedge transactions in connection with our 2015 and 2018 convertible senior notes (“2015 Note Hedges” and “2018 Note Hedges,” respectively, and together, the “Note Hedges”) with respect to our common stock (discussed in Note 9 of these Notes to Consolidated Financial Statements), to minimize the impact of potential economic dilution upon conversion of our 2015 and 2018 convertible senior notes. The Note Hedges were outstanding during the three and nine months ended June 30, 2014 and 2013. Since the beneficial impact of the Note Hedges was anti-dilutive, they were excluded from the calculation of diluted net income (loss) per share.

Note 4. Property and Equipment

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

	June 30, 2014			September 30, 2013
Land and building	$	7,133		$	6,277
Computer hardware	32,334			33,985
Computer software	112,980			89,307
Furniture and equipment	4,673			3,603
Leasehold improvements	14,279			11,830
Property and equipment, gross	171,399			145,002
Less: accumulated depreciation	(74,102		)	(62,588		)
Property and equipment, net	$	97,297		$	82,414

Depreciation expense of property and equipment totaled $10.2 million and $29.0 million for the three and nine months ended June 30, 2014, respectively, and $7.6 million and $21.4 million for the same periods in 2013.

Note 5. Investments

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Our investment portfolio primarily includes strategic investments in privately-held companies. We account for our strategic investments under either the cost or equity method of accounting. Our equity method investment balance is adjusted each period to recognize our proportionate share of investee net income or loss, including adjustments to recognize certain differences between our carrying value and our equity in the investee’s net assets at the date of investment.

Total equity and cost method investment balances recorded as of June 30, 2014 and September 30, 2013 were as follows:

	June 30, 2014		September 30, 2013
Equity method investments	$	26,776	$	25,407
Cost method investments	89,336		76,349
Total investments	$	116,112	$	101,756

During the three months ended June 30, 2014, we sold our equity interest in Buuteeq, Inc. As a result, we recorded a cost method investment related gain of $14.6 million.

During the nine months ended June 30, 2014, we also invested an additional $17.8 million in the preferred stock of our cost method investees. As our additional investments in preferred stock do not meet the definition of in-substance common stock, they are accounted for using the cost method of accounting.

No other-than-temporary impairment charge was recorded for the three and nine months ended June 30, 2014 and 2013.

Other Investments

We generally invest our excess cash in investment grade short- to intermediate-term fixed-income securities and money market funds. For further information, see Note 12 of these Notes to Consolidated Financial Statements.

Note 6. Goodwill

The changes in the carrying balance of goodwill for the nine months ended June 30, 2014 were as follows:

Balance as of September 30, 2013	$	324,454
Purchase accounting adjustments (1)	4,697
Other adjustments (2)	1,547
Balance as of June 30, 2014	$	330,698

⁽¹⁾During the nine months ended June 30, 2014, we revised the purchase price allocation for our 2013 acquisitions. The measurement periods for purchase price allocations end as soon as information on the facts and circumstances becomes available, but do not exceed 12 months.

⁽²⁾ Largely represents the impact of foreign currency translation for instances when goodwill is recorded in foreign entities whose functional currency is also their local currency. 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).

Goodwill amounts are tested for impairment at least annually during the second fiscal quarter. No impairments were recorded for the three and nine months ended June 30, 2014 and 2013.

Note 7. Intangible Assets

The following table presents our intangible assets as of the dates specified below:

	June 30, 2014							September 30, 2013
Description	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Trade name and trademarks	$	3,904	$	(1,735	)	$	2,169	$	3,886	$	(1,368	)	$	2,518
Technology	46,201		(26,635		)	19,566		45,694		(22,427		)	23,267
Customer relationships	142,155		(55,658		)	86,497		141,586		(44,074		)	97,512
Total	$	192,260	$	(84,028	)	$	108,232	$	191,166	$	(67,869	)	$	123,297

Amortization expense totaled $5.3 million and $15.7 million for the three and nine months ended June 30, 2014, respectively, and $4.7 million and $13.7 million for the same periods in 2013.

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The following table presents the estimated future amortization expense related to intangible assets held at June 30, 2014:

Years Ending September 30,	Amortization of Intangible Assets
2014 (July 1, 2014 through September 30, 2014)	$	5,226
2015	20,853
2016	18,499
2017	16,980
2018	15,823
Thereafter	30,851
Total	$	108,232

Note 8. Customer Funding Liabilities

We draw funds from and make payments on behalf of our customers for employee expense reimbursements, related corporate credit card payments, and vendor 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

The following table presents our outstanding debt:

	June 30, 2014										September 30, 2013
	Principal		Unamortized Discount			Notes Issuance Costs			Carrying Value		Principal		Unamortized Discount			Notes Issuance Costs			Carrying Value
2015 Notes	$	287,500	$	(10,513	)	$	(1,119	)	$	275,868	$	287,500	$	(19,898	)	$	(2,176	)	$	265,426
2018 Notes	488,750		(82,813		)	(8,793		)	397,144		488,750		(96,660		)	(10,283		)	381,807
Total	$	776,250	$	(93,326	)	$	(9,912	)	$	673,012	$	776,250	$	(116,558	)	$	(12,459	)	$	647,233

2015 Convertible Senior Notes

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

The 2015 Notes are governed by an indenture, dated April 6, 2010 (“2015 Indenture”), between Concur and Wells Fargo Bank, National Association, as trustee. The 2015 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 2015 Notes are convertible into cash and up to 5.5 million shares of our common stock at an initial conversion rate of approximately 19.10 shares of common stock per $1,000 principal amount of the 2015 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 2015 Notes who convert their 2015 Notes in connection with a fundamental change (as defined in the 2015 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 2015 Notes may require the Company to repurchase all or a portion of their 2015 Notes at a repurchase price equal to 100% of the principal amount of the 2015 Notes, plus accrued and unpaid interest, if any, to, but not including, the fundamental change repurchase date (as defined in the 2015 Indenture).

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

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• 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 2015 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.

Our common stock price exceeded 130% of the applicable conversion price for at least 20 trading days during the 30 consecutive trading day period ending on the last trading day of the quarter ended March 31, 2014. Accordingly, the 2015 Notes were convertible at the holders’ option for the quarter ended June 30, 2014 and were classified as a current liability on the consolidated balance sheets as of March 31, 2014. As of June 30, 2014, none of the 2015 Notes have been repurchased or converted.

For at least 20 trading days during the 30 consecutive trading day period ended June 30, 2014, the Company’s common stock price exceeded 130% of the applicable conversion price on each applicable trading day. Accordingly, the 2015 Notes are convertible at the holders’ option for the quarter ending September 30, 2014. The 2015 Notes are classified as a current liability on the consolidated balance sheets as of June 30, 2014.

In accounting for the issuance of the 2015 Notes, we separated the 2015 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 excess of the principal amount of the liability component over its carrying amount (“2015 Notes Discount”) is amortized to interest expense over the term of the 2015 Notes. The remaining term of the 2015 Notes is approximately nine months at June 30, 2014. 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 2015 Notes as a whole.

A portion of the equity component attributable to the conversion feature of the 2015 Notes was classified in temporary equity as of June 30, 2014 and September 30, 2013. The amount classified as temporary equity was equal to the difference between the principal amount and carrying value of the 2015 Notes.

Further, in accounting for the transaction costs related to the issuance of the 2015 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 2015 Notes, and transaction costs allocated to the equity component were netted with the equity component in additional paid-in capital (“2015 Notes Issuance Costs”). The carrying amounts of the equity component, net of transaction costs, were $44.7 million and $34.3 million at June 30, 2014 and September 30, 2013, respectively.

The following table presents the interest expense related to the 2015 Notes for the three and nine months ended June 30, 2014 and 2013, respectively:

	Three Months Ended June 30,						Nine Months Ended June 30,
	2014			2013			2014			2013
Contractual interest expense	$	1,797		$	1,797		$	5,391		$	5,391
Amortization of notes issuance costs	356			458			1,057			1,114
Accretion of notes discount	3,185			3,028			9,385			8,771
	$	5,338		$	5,283		$	15,833		$	15,276
Effective interest rate of the liability component	7.73		%	7.73		%	7.73		%	7.73		%

The net proceeds from the 2015 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 2015 Note Hedges, partially offset by proceeds of $26.1 million from our sale of 2015 Warrants. These transactions are defined and described in more detail below. We expect to continue to use the net proceeds of the 2015 Notes for general corporate purposes, including potential acquisitions and strategic transactions.

Based on the closing prices of the Company’s common stock of $93.34 on June 30, 2014, the if-converted value of the 2015 Notes exceeded their principal amount by approximately $225.1 million.

2015 Note Hedges

To minimize the impact of potential economic dilution upon conversion of the 2015 Notes, we entered into the 2015 Note Hedges with respect to our common stock. We paid $60.1 million for the 2015 Note Hedges. The 2015 Note Hedges cover approximately 5.5 million shares of our common stock at a strike price of $52.35 per share subject to anti-dilution adjustments and are exercisable upon conversion of the 2015 Notes. The 2015 Note Hedges will expire upon the maturity of the 2015 Notes. The 2015 Note Hedges are intended to reduce the potential economic dilution upon conversion of the 2015 Notes in the

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event that the market value per share of our common stock, as measured under the 2015 Notes, at the time of exercise is greater than the conversion price of the 2015 Notes.

2015 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 (“2015 Warrants”), subject to anti-dilution adjustments. The 2015 Warrants will expire upon the maturity of the 2015 Notes. We received proceeds of $26.1 million from the sale of the 2015 Warrants. If the market value per share of our common stock, as measured under the 2015 Warrants, exceeds the strike price of the 2015 Warrants, the 2015 Warrants will have a dilutive effect on our net income per share. The 2015 Warrants had an anti-dilutive effect on our net loss per share for the three and nine months ended June 30, 2014 and for the nine months ended June 30, 2013.

2018 Convertible Senior Notes

During the quarter ended June 30, 2013, we issued $488.8 million principal amount of our 0.50% convertible senior notes due June 15, 2018 (“2018 Notes”). All amounts from the issuance of the 2018 Notes were settled during the quarter ended June 30, 2013.

The 2018 Notes are governed by an indenture, dated June 4, 2013 (“2018 Indenture”). The 2018 Notes will mature on June 15, 2018, unless earlier repurchased or converted, and bear interest at a rate of 0.50% per year payable semi-annually in arrears on June 15 and December 15 of each year, commencing December 15, 2013.

The 2018 Notes are convertible into cash and up to 4.7 million shares of our common stock at an initial conversion rate of approximately 9.54 shares of common stock per $1,000 principal amount of the 2018 Notes, which represents an initial conversion price of approximately $104.85 per share, subject to adjustment. Prior to March 15, 2018, conversion is subject to the satisfaction of certain conditions set forth below. Holders of the 2018 Notes who convert their 2018 Notes in connection with a fundamental change (as defined in the 2018 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 2018 Notes may require the Company to repurchase all or a portion of their 2018 Notes at a repurchase price equal to 100% of the principal amount of the 2018 Notes, plus accrued and unpaid interest, if any, to, but not including, the fundamental change repurchase date (as defined in the 2018 Indenture).

Holders of the 2018 Notes may convert their 2018 Notes on or after March 15, 2018 until the close of business on the second scheduled trading day immediately preceding the maturity date. The conversion rate will be subject to adjustment in some events but will not be adjusted for accrued interest. Upon conversion, we will satisfy our conversion obligation by delivering cash and shares of common stock, if any, based on a daily settlement amount (as defined in the 2018 Indenture). Prior to March 15, 2018, holders of the 2018 Notes may convert their 2018 Notes under any of the following conditions:

• during any calendar quarter commencing after September 30, 2013, 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 2018 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 applicable conversion rate on such day; or

• upon the occurrence of specified corporate events.    

During the three months ended March 31, 2014, none of the above conditions were achieved. Accordingly, the 2018 Notes were not convertible at the holders’ option for the quarter ended June 30, 2014 and were classified as a non-current liability on the consolidated balance sheets as of March 31, 2014. As of June 30, 2014, none of the 2018 Notes have been repurchased or converted.

During the three months ended June 30, 2014, none of the above conditions were achieved. Accordingly, the 2018 Notes are not convertible at the holders’ option for the quarter ending September 30, 2014, and the 2018 Notes are classified as a non-current liability on the consolidated balance sheets as of June 30, 2014.

In accounting for the issuance of the 2018 Notes, we separated the 2018 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 excess of the principal amount of the liability component over its carrying amount (“2018 Notes Discount”) is amortized to interest expense over the term of the 2018 Notes. The remaining term of the 2018 Notes is approximately four years at June 30, 2014. 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 2018 Notes as a whole. The equity component will not be remeasured as long as it continues to meet the conditions for equity classification.

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In accounting for the transaction costs related to the issuance of the 2018 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 2018 Notes, and transaction costs allocated to the equity component were netted with the equity component in additional paid-in capital (“2018 Notes Issuance Costs”). The carrying amount of the equity component, net of transaction costs, was $99.6 million at June 30, 2014 and September 30, 2013.

The following table presents the interest expense related to the 2018 Notes for the three and nine months ended June 30, 2014 and 2013, respectively:

	Three Months Ended June 30,						Nine Months Ended June 30,
	2014			2013			2014			2013
Contractual interest expense	$	611		$	176		$	1,833		$	176
Amortization of notes issuance costs	502			139			1,490			139
Accretion of notes discount	4,676			1,288			13,847			1,288
	$	5,789		$	1,603		$	17,170		$	1,603
Effective interest rate of the liability component	5.75		%	5.75		%	5.75		%	5.75		%

The net proceeds from the 2018 Notes were approximately $474.9 million after payment of the initial purchasers’ discounts and offering expenses. From these net proceeds, we used a net total of approximately $34.4 million, which included $58.2 million to pay for the cost of the 2018 Note Hedges, partially offset by proceeds of $23.8 million from our sale of 2018 Warrants. These transactions are defined and described in more detail below. We expect to continue to use the net proceeds of the 2018 Notes for general corporate purposes, including potential acquisitions and strategic transactions.

Based on the closing prices of the Company’s common stock of $93.34 on June 30, 2014, the if-converted value of the 2018 Notes was less than their principal amount.

2018 Note Hedges

To minimize the impact of potential economic dilution upon conversion of the 2018 Notes, we entered into 2018 Note Hedges with respect to our common stock. We paid $58.2 million for the 2018 Note Hedges. The 2018 Note Hedges cover approximately 4.7 million shares of our common stock at a strike price of $104.85 per share subject to anti-dilution adjustments and are exercisable upon conversion of the 2018 Notes. The 2018 Note Hedges will expire upon the maturity of the 2018 Notes. The 2018 Note Hedges are intended to reduce the potential economic dilution upon conversion of the 2018 Notes in the event that the market value per share of our common stock, as measured under the 2018 Notes, at the time of exercise is greater than the conversion price of the 2018 Notes.

2018 Warrants

Separately, we entered into warrant transactions, whereby we sold warrants to acquire up to 4.7 million shares of our common stock at a strike price of $138.48 per share (“2018 Warrants”), subject to anti-dilution adjustments. The 2018 Warrants will expire upon the maturity of the 2018 Notes. We received proceeds of $23.8 million from the sale of the 2018 Warrants. If the market value per share of our common stock, as measured under the 2018 Warrants, exceeds the strike price of the 2018 Warrants, the 2018 Warrants will have a dilutive effect on our net income per share. The 2018 Warrants had an anti-dilutive effect on our net loss per share during the periods stated.

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 are subject to income taxes in the United States and numerous foreign jurisdictions. The overall effective tax rate will continue to be dependent upon the geographic distribution of our earnings or losses and changes in tax laws or interpretations of these laws in these operating jurisdictions. We monitor the assumptions used in estimating the annual effective tax rate and make adjustments, if required, throughout the year. If actual results differ from the assumptions used in estimating our annual effective income tax rate, future income tax expense could be materially affected.

For the three and nine months ended June 30, 2014, our effective tax rates of 88.0% and -39.7%, respectively, differed from the U.S. federal statutory rate primarily due to earnings in lower-tax jurisdictions for which no U.S. taxes have been provided because such earnings are planned to be reinvested outside the U.S. and revaluation of the contingent consideration which is not subject to income taxes. These differences were partially offset by losses in tax jurisdictions where we have recorded a valuation allowance on deferred tax assets, losses in our Dutch licensing company, expenses not deductible for tax

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purposes, and equity investment losses where we are not able to record a tax benefit, measured against a pretax loss for the year.

We regularly assess the need for a valuation allowance against our deferred tax assets. In making that assessment, we consider both positive and negative evidence related to the likelihood of realization of the deferred tax assets to determine, based on the weight of available evidence, whether it is more-likely-than-not that some or all of the deferred tax assets will not be realized. In evaluating the need for a valuation allowance, we consider our cumulative loss in recent years as a significant piece of negative evidence. Such objective evidence limits the ability to consider other subjective evidence such as our projections for future growth. As a result, in the second quarter of 2014, we established a valuation allowance against our total U.S. deferred tax assets balance as of December 31, 2013, net of U.S. deferred tax liabilities. We will continue to assess the likelihood that the deferred tax assets will be realizable at each reporting period and the valuation allowance will be adjusted accordingly.

For the three and nine months ended June 30, 2013, our effective tax rates of 62.1% and -16.6%, respectively, differed from the U.S. federal statutory rate primarily due to losses in tax jurisdictions where we are not able to record a tax benefit, losses in tax jurisdictions where we have recorded a valuation allowance on deferred tax assets, and expenses not deductible for tax purposes. These differences were partially offset by the recognition of a tax benefit resulting from legislation enacted January 2, 2013 retroactively reinstating the research and development tax credit, revaluation of the contingent consideration, and earnings in lower-tax jurisdictions for which no U.S. taxes have been provided because such earnings are planned to be reinvested indefinitely outside the U.S., measured against a pretax loss for the year.

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. We do not believe that it is reasonably possible that the estimates of unrecognized tax benefits will change significantly in the next 12 months. Tax positions for Concur and its subsidiaries are subject to income tax audits by multiple tax jurisdictions throughout the world. 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 restricted stock, stock options, stock bonuses, stock appreciation rights, and restricted stock units (“RSUs”). As of June 30, 2014, we had 4.1 million shares of common stock reserved for future grants under our Equity Plan. Based on our Equity Plan design, the 4.1 million shares of common stock equates to approximately 2.7 million RSUs reserved for future grants, which we generally use as long-term employee incentive and retention tools.

Our share-based awards generally vest over four years and are subject to the employee’s continued employment with Concur. The vesting of certain RSUs is subject to the achievement of specified Company-wide performance goals. On a quarterly basis, we estimate the probability of achieving specified performance goals (including estimating the level of achievement) to determine the probable number of RSUs that may ultimately vest. We adjust our estimate on a quarterly basis, if necessary, until the achievement of the performance goals is known at the end of the measurement period. The amount of share-based compensation recognized in each reporting period can vary based on the level of achievement or expected level of achievement of the specified performance goals. We also estimate forfeiture rates at the time of grants and revise the estimates in subsequent periods if actual forfeitures differ from our estimates. We record share-based compensation net of estimated forfeitures.

During the three months ended December 31, 2013, certain senior executives received RSU grants that will vest based on Company-wide performance goals and service conditions (“2014 Performance-based RSUs”). The number of 2014 Performance-based RSUs shall be determined based on the achievement of Company-wide goals for 2014. In order to vest, the low end of the predetermined Company-wide goals must be met. Therefore, participants in the 2014 Performance-based RSUs may receive a range of zero to approximately 0.3 million shares depending on the actual achievement level of performance goals. No additional performance-based RSUs were granted since the first quarter of 2014.

The following table presents our share-based compensation resulting from equity awards that we recorded in our consolidated statements of operations:

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	Three Months Ended June 30,				Nine Months Ended June 30,
	2014		2013		2014		2013
Cost of operations	$	2,868	$	1,349	$	12,441	$	5,410
Sales and marketing	7,480		7,213		30,603		22,198
Systems development and programming	2,166		1,250		8,642		4,857
General and administrative	4,476		4,872		15,380		13,666
Total share-based compensation	$	16,990	$	14,684	$	67,066	$	46,131

The following table presents our stock option activity for the nine months ended June 30, 2014 (in thousands, except weighted average exercise price and weighted average remaining contractual term):

	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding as of September 30, 2013	419		$	12.39
Exercised	(187	)	11.45
Outstanding as of June 30, 2014	232		$	13.14	1.39	$	18,604
Exercisable as of June 30, 2014	232		$	13.14	1.39	$	18,604

The following table presents a summary of RSU award activity for the nine months ended June 30, 2014 (in thousands, except weighted average share value):

	Shares		Weighted Average Share Value
Outstanding as of September 30, 2013	3,025		$	66.38
Granted (1)	377		100.42
Vested and released	(936	)	62.24
Cancelled	(40	)	68.13
Outstanding as of June 30, 2014	2,426		$	73.24

⁽¹⁾ Includes 2014 Performance-based RSUs granted during the period.

As of June 30, 2014, we had $79.2 million of unrecognized share-based compensation, net of estimated forfeitures, which is expected to be recognized over a weighted average period of 1.2 years.

Note 12. Fair Value Measurements

The accounting guidance for fair value measurements establishes a three-tier fair value hierarchy, categorizing the inputs used to measure fair value.

The hierarchy can be described as follows:

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

• Level 2 - inputs other than the quoted prices in active markets that are observable either directly or indirectly, 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 for 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, cost and equity 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.

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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 sheets. Cash equivalents consist of financial instruments that have original maturities of 90 days or less. Short-term investments consist of financial instruments with maturities greater than 90 days, but less than one year.

Our financial assets and liabilities measured at fair value as of June 30, 2014, are summarized below:

	Fair Value Measurement Using						Assets/Liabilities at Fair Value
	Level 1		Level 2		Level 3
Assets:
Cash equivalents (1):
Money market funds	$	131,010	$	—	$	—	$	131,010
Time deposits	36,650		—		—		36,650
Commercial paper	—		132,419		—		132,419
Total cash equivalents	167,660		132,419		—		300,079
Short-term investments:
Commercial paper	—		242,268		—		242,268
Certificates of deposit	—		63,084		—		63,084
Other fixed income securities	—		35,986		—		35,986
Total short-term investments	—		341,338		—		341,338
Liabilities:
Acquisition-related contingent consideration	$	—	$	—	$	1,000	$	1,000

⁽¹⁾ Included in cash and cash equivalents in the consolidated balance sheets as of June 30, 2014, in addition to $175.0 million of cash.

Our financial assets and liabilities measured at fair value as of September 30, 2013, are summarized below:

	Fair Value Measurement Using						Assets/Liabilities at Fair Value
	Level 1		Level 2		Level 3
Assets:
Cash equivalents (1):
Money market funds	$	9,095	$	—	$	—	$	9,095
Time deposits	41,647		—		—		41,647
Commercial paper	—		146,424		—		146,424
Total cash equivalents	50,742		146,424		—		197,166
Short-term investments:
Commercial paper	—		385,223		—		385,223
Certificates of deposit	—		96,833		—		96,833
Other fixed income securities	—		49,009		—		49,009
Total short-term investments	—		531,065		—		531,065
Liabilities:
Acquisition-related contingent consideration	$	—	$	—	$	3,182	$	3,182

⁽¹⁾ Included in cash and cash equivalents in the consolidated balance sheets as of September 30, 2013, in addition to $104.5 million of cash.

Our valuation techniques used to measure the fair values of our financial instruments that are classified as Level 1 in the table above were derived from quoted market prices as active markets for these instruments exist. Our valuation techniques used to measure the fair values of our financial instruments that are classified as Level 2 in the table above were derived from non-binding market consensus prices that are corroborated by observable market data and quoted market prices for similar instruments.

As of June 30, 2014, we had $341.3 million of short-term available-for-sale investments whose net carrying values approximated their fair values, due to the short-term nature of the instruments.

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Acquisition-Related Contingent Consideration

We estimate the fair value of acquisition-related contingent consideration using various valuation approaches including the probability-weighted discounted cash flow approach. 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. Changes in the fair value of contingent consideration are recorded as income or expense in the consolidated statements of operations.

As part of our 2013 acquisitions, we agreed to pay additional cash consideration of up to $5.5 million to the former shareholders of acquired entities based on the achievement of certain revenue targets. The fair value of the contingent consideration was estimated by applying a probability-weighted discounted cash flow approach, which utilizes significant inputs that are unobservable in the market. Key assumptions include our assessment of the weighted probability of achieving certain revenue targets at each reporting period. This contingent consideration was included in the current acquisition-related contingent consideration on our consolidated balance sheets.

The following table presents a reconciliation of the contingent consideration measured at fair value using significant unobservable inputs (Level 3) as of June 30, 2014:

Balance as of September 30, 2013	$	3,182
Total losses (gains):
Recorded as revaluation of contingent consideration	(2,270		)
Foreign currency translation	88
Balance as of June 30, 2014	$	1,000

The following table presents a reconciliation of the contingent consideration measured at fair value using significant unobservable inputs (Level 3) as of June 30, 2013:

Balance as of September 30, 2012	$	22,692
Contingent consideration issued at business combination	3,049
Total gains:
Recorded as revaluation of contingent consideration	(3,977		)
Recorded as compensation expense	(2,945		)
Balance as of June 30, 2013	$	18,819

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

During the three and nine months ended June 30, 2014 and 2013, we did not record any other-than-temporary impairments on those assets required to be measured at fair value on a nonrecurring basis.

Other Fair Value Disclosures

The fair values of the 2015 Notes and 2018 Notes were estimated using Level 2 inputs based on quoted market prices in markets that are not active. The fair values of the 2015 Notes and 2018 Notes are primarily affected by our stock price and stated interest rate as compared to the market rate. The following table presents the carrying value and fair values of the 2015 Notes and 2018 Notes as of the dates specified below:

	June 30, 2014				September 30, 2013
	Carrying Value		Fair Value		Carrying Value		Fair Value
2015 Notes	$	275,868	$	521,453	$	265,426	$	610,219
2018 Notes	397,144		544,956		381,807		590,777

Note 13. Equity

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:

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	Attributable to Concur			Noncontrolling Interest			Total Equity
Equity at September 30, 2013	$	795,985		$	221		$	796,206
Investment by noncontrolling interest partners	—			1,809			1,809
Comprehensive income (loss):
Net loss	(80,233		)	(571		)	(80,804		)
Foreign currency translation adjustments	2,443			6			2,449
Unrealized loss on available-for-sale investments, net of tax	(137		)	—			(137		)
Comprehensive loss	(77,927		)	(565		)	(78,492		)
Share-based transactions and compensation expense	41,171			—			41,171
Temporary equity reclassification	10,442			—			10,442
Repurchase of common stock	(925		)	—			(925		)
Equity at June 30, 2014	$	768,746		$	1,465		$	770,211
	Attributable to Concur			Noncontrolling Interest			Total Equity
Equity at September 30, 2012	$	704,599		$	581		$	705,180
Investment by noncontrolling interest partners	—			619			619
Comprehensive income (loss):
Net loss	(16,862		)	(725		)	(17,587		)
Foreign currency translation adjustments	(2,432		)	(55		)	(2,487		)
Unrealized loss on available-for-sale investments, net of tax	(37		)	—			(37		)
Comprehensive loss	(19,331		)	(780		)	(20,111		)
Equity component of convertible senior notes, note hedges and warrants	50,064			—			50,064
Share-based transactions and compensation expense	33,175			—			33,175
Temporary equity reclassification	10,468			—			10,468
Repurchase of common stock	(651		)	—			(651		)
Equity at June 30, 2013	$	778,324		$	420		$	778,744

Immaterial Correction of Balance Sheet Classification

Certain prior period amounts have been adjusted to correct the prior period classification and conform to the current year presentation. In the accompanying September 30, 2013 balance sheet, $22.1 million has been reclassified from permanent equity to temporary equity. This is also reflected in the schedule of changes in equity presented above as Equity at September 30, 2013 has been adjusted accordingly. Additionally, the balance in Equity at September 30, 2012 has been reduced by $35.9 million attributable to temporary equity as of September 30, 2012.

GAAP requires that when convertible debt is redeemable and the net liability recognized within the current liabilities on the balance sheet is less than the amount that would be payable in cash to holders of convertible notes, upon conversion, an excess of the amount payable over the carrying amount shall be reclassified from permanent to temporary equity. This revision, which management has determined to be immaterial, had no impact on previously reported sales, operating expenses, net loss, net loss per share, operating cash flow or cash position.

Note 14. Geographic Data

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

For the three and nine months ended June 30, 2014 and 2013, no single customer accounted for more than 10% of our total revenue. The following table presents our revenue by geographic region:

	Three Months Ended June 30,				Nine Months Ended June 30,
	2014		2013		2014		2013
United States	$	149,067	$	117,820	$	427,260	$	328,936
Europe	20,500		14,734		58,832		43,124
Other	8,798		6,156		24,873		16,818
Total revenue	$	178,365	$	138,710	$	510,965	$	388,878

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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

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

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

ITEM 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 to Consolidated Financial Statements that are included in Item 1 of this report. Also, the discussion of “Critical Accounting Policies and Estimates” in this section is an integral part of the analysis of our results of operations and financial condition.

Throughout this MD&A, we refer to Concur Technologies, Inc. as “Concur,” the “Company,” “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, 2012 and 2013 as “2012” and “2013” and our fiscal year ending September 30, 2014 as “2014.” Throughout this MD&A, where we provide discussion of the three and nine months ended June 30, 2014, and we provide data for the same period in the prior year, we refer to the prior period as “2013.” All dollar, option, and share amounts are reported in thousands, unless otherwise noted.

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, of Part II, 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 the 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 processes and providing visibility into expense management, travel management, 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. By providing easy-to-use mobile solutions, we help make business travel easier and more productive for our customers’ employees. Our solutions adapt to individual employee preferences, while scaling to meet the needs of companies from small to large.

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Our strategic focus in 2014 is to continue to grow our core subscription business. We expect our subscription revenue to increase in 2014 compared to 2013 due to anticipated growth in demand and global expansion. We expect total sales and marketing expenses in 2014 to increase in absolute dollars compared to 2013, 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 solutions.

Revenue

Revenue. We generate our revenue from the delivery of subscription services and, to a much lesser degree, professional services provided in connection with subscription services. Revenue is affected by pricing, the number of new customers, customer contract durations, and our customer retention rate.

International Revenue. Revenue from customers outside the United States represented 16% and 15% of total revenue for the three months ended June 30, 2014 and 2013, respectively, and 16% and 15% of total revenue for the nine months ended June 30, 2014 and 2013, respectively. We expect continued growth in our international revenue as our products and services continue to gain acceptance in international markets due to our investment in global distribution and increased global awareness of our products.

Operating Expenses

Cost of Operations. Cost of operations expenses consist primarily of personnel costs and related expenses (including share-based compensation) and allocated overhead and infrastructure costs (including depreciation, occupancy, telecommunications, and computer equipment expense) associated with employees and contractors who provide our subscription and professional services. Cost of operations expenses also include hosting costs and amortization of deferred 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 (including share-based compensation), referral fees, allocated overhead and infrastructure costs associated with our sales and marketing personnel, and other 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 (including share-based compensation) and allocated overhead and infrastructure 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 (including share-based compensation), allocated overhead and infrastructure costs associated with employees and contractors in accounting, finance, human resources, information technologies, legal and facilities, as well as miscellaneous costs, such as professional fees, and public company regulatory compliance costs.

Revaluation of Contingent Consideration. Revaluation of contingent consideration consists of changes in our obligation to transfer additional assets to the former owners of acquired entities if specified future events occur or conditions are met. Contingent consideration is remeasured to fair value at each reporting date with changes included in the consolidated statements of operations.

Amortization of Intangible Assets. Amortization of intangible assets represents the amortization of 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 trade name and trademarks, use of acquired technology, and customer relationships.

Results of Operations

Three Months Ended June 30, 2014 and 2013

Revenue

	Three Months Ended June 30,				Variance Dollars
	2014		2013
Revenue	$	178,365	$	138,710	$	39,655

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	Three Months Ended June 30,
	2014		%		2013		%
United States	$	149,067	83.6	%	$	117,820	85.0	%
Europe	20,500		11.5	%	14,734		10.6	%
Other	8,798		4.9	%	6,156		4.4	%
Total revenue	$	178,365	100	%	$	138,710	100	%

Revenue increased by 28.6%, or $39.7 million, for the three months ended June 30, 2014, compared to the same period in the prior year. This increase was primarily due to growth in the number of customers using our subscription services as well as higher transaction volumes. The growth in the number of customers using our subscription services reflects 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 revenue to continue to grow in 2014 as a result of the growing demand for our subscription service offerings, our planned increase in spending on sales and marketing, and international expansion.

Cost of Operations

	Three Months Ended June 30,						Variance Dollars
	2014			2013
Cost of operations	$	59,988		$	36,545		$	23,443
Percent of total revenue	33.6		%	26.3		%

Cost of operations increased by 64.1%, or $23.4 million, for the three months ended June 30, 2014, 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 $18.8 million, driven by increased headcount of 67% to support our growing customer base, and our 2013 acquisitions. Additionally, share-based compensation increased $1.5 million as a result of increased headcount. Allocated overhead and infrastructure costs increased by $2.4 million to facilitate growth.

As a percentage of total revenue, cost of operations increased to 33.6% during the three months ended June 30, 2014 from 26.3% during the same period in the prior year primarily due to our investments made to grow our implementation resources and to the businesses we acquired during the fourth quarter of 2013, which contribute lower gross margins.

We expect cost of operations to trend downward as a percentage of total revenue 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 2014 compared to 2013 as we continue to expand our capacity to deploy and support additional new customers.

Sales and Marketing

	Three Months Ended June 30,						Variance Dollars
	2014			2013
Sales and marketing	$	71,243		$	56,111		$	15,132
Percent of total revenue	39.9		%	40.5		%

Sales and marketing expenses increased by 27.0%, or $15.1 million, for the three months ended June 30, 2014, 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 $8.3 million, resulting from a headcount increase of 21% as we invested in sales and marketing to acquire new customers and increase penetration within our existing customer base. Customer acquisition costs increased by $1.7 million and advertising and marketing costs increased by $0.7 million. Additionally, in the prior year, we recognized a revaluation gain of $3.6 million on acquisition-related contingent consideration recorded in compensation expense related to the acquisition of TripIt.

We expect total sales and marketing expenses in 2014 to increase in absolute dollars compared to 2013, driven primarily by an increase in sales personnel and marketing programs globally. These increases reflect a key part of our strategic focus in 2014, which is to expand our sales and marketing efforts to create greater awareness of our solutions in our target markets and to support expected demand.

Systems Development and Programming

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	Three Months Ended June 30,						Variance Dollars
	2014			2013
Systems development and programming	$	21,034		$	12,724		$	8,310
Percent of total revenue	11.8		%	9.2		%

Systems development and programming costs increased by 65.3%, or $8.3 million, for the three months ended June 30, 2014, 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 $5.5 million, driven by increased headcount of 28% to upgrade and extend our service offerings and develop new technologies. Further, depreciation of fixed assets increased by $1.4 million as we invested more heavily in our infrastructure to accommodate expected future growth. Additionally, share-based compensation increased $0.9 million.

In response to the demand for our subscription services, the majority of our systems development resources are focused on developing internal-use software used to provide services to our customers. We capitalize costs in accordance with accounting principles generally accepted in the United States (“GAAP”) for software developed or obtained for internal use and amortize it over its estimated useful life. Capitalized internal-use software costs, net of amortization, increased by $3.9 million, from $52.2 million at March 31, 2014 to $56.1 million at June 30, 2014.

We anticipate that recognized systems development and programming costs in 2014 will increase in absolute dollars compared to 2013 as we continue to focus on product innovation.

General and Administrative

	Three Months Ended June 30,						Variance Dollars
	2014			2013
General and administrative	$	25,904		$	20,924		$	4,980
Percent of total revenue	14.5		%	15.1		%

General and administrative expenses increased by 23.8%, or $5.0 million, for the three months ended June 30, 2014, compared to the same period in the prior year. The growth in absolute dollars was primarily due to an increase of $4.6 million in personnel costs and related expenses, driven by an increase in headcount of 43% to support our growth. Further, allocated overhead and infrastructure costs increased by $1.0 million to facilitate growth. The increase was partially offset by a decrease of $0.8 million in professional fees.

We expect the absolute dollar amount of general and administrative expenses to increase in 2014 compared to 2013 due to increases in personnel costs and infrastructure costs related to the growth of our business.

Revaluation of Contingent Consideration

	Three Months Ended June 30,						Variance Dollars
	2014			2013
Revaluation of contingent consideration	$	(627	)	$	(6,109	)	$	5,482
Percent of total revenue	(0.4		)%	(4.4		)%

For the three months ended June 30, 2014, revaluation of contingent consideration consisted of a gain of $0.6 million, relating to the revaluation of our 2013 acquisitions due to the change in our assessment of the weighted probability of achieving certain revenue targets at each reporting period.

For the three months ended June 30, 2013, revaluation of contingent consideration consisted of a gain of $6.1 million, primarily related to the acquisition of TripIt, which was subsequently paid in 2013. The change in inputs applied to the valuation of contingent consideration included the change in our stock price and stock volatility.

Amortization of Intangible Assets

	Three Months Ended June 30,						Variance Dollars
	2014			2013
Amortization of intangible assets	$	5,251		$	4,715		$	536
Percent of total revenue	2.9		%	3.4		%

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Amortization of intangible assets increased by 11.4%, or $0.5 million, for the three months ended June 30, 2014, compared to the same period in the prior year, primarily due to intangible asset additions obtained through acquisitions during the fourth quarter of 2013.

Interest Income, Interest Expense, Gain (Loss) from Equity Investments, and Other

	Three Months Ended June 30,						Variance Dollars
	2014			2013
Interest income	$	573		$	502		$	71
Interest expense	(11,133		)	(6,870		)	(4,263		)
Gain (loss) from equity investments, net	13,291			(589		)	13,880
Other, net	(192		)	(22		)	(170		)
Total other income (expense), net	$	2,539		$	(6,979	)	$	9,518

Using the equity method of accounting, we record gains (losses) from equity investments in our consolidated statements of operations. Losses from equity investments primarily include our proportionate share of investee losses, adjustments to recognize certain differences between our carrying value and our equity in the investee’s net assets at the date of investment, impairments, and other adjustments required by the equity method.

During the three months ended June 30, 2014, we recorded a gain of $14.6 million related to the sale of our equity interest in Buuteeq, Inc. that we accounted for under the cost method of accounting.

For the three months ended June 30, 2014, interest expense primarily consisted of interest on the 2.50% convertible senior notes due April 15, 2015 (“2015 Notes”) and interest on the 0.50% convertible senior notes due June 15, 2018 (“2018 Notes”). For the three months ended June 30, 2013, interest expense primarily consisted of interest on the 2015 Notes. Foreign currency transaction gains (losses) are included in the consolidated statements of operations under other income (expense).

Income Tax Expense

	Three Months Ended June 30,						Variance Dollars
	2014			2013
Income tax expense (benefit)	$	(1,663	)	$	4,237		$	(5,900	)
Effective tax rate	88.0		%	62.1		%

For the three months ended June 30, 2014, our effective tax rate of 88.0% differed from the U.S. federal statutory rate primarily due to earnings in lower-tax jurisdictions for which no U.S. taxes have been provided because such earnings are planned to be reinvested outside the U.S. and revaluation of the contingent consideration which is not subject to income taxes. These differences were partially offset by losses in tax jurisdictions where we have recorded a valuation allowance on deferred tax assets, losses in our Dutch licensing company, expenses not deductible for tax purposes, and equity investment losses where we are not able to record a tax benefit, measured against a pretax loss for the quarter.

For the three months ended June 30, 2013, our effective tax rate of 62.1% differed from the U.S. federal statutory rate primarily due to losses in tax jurisdictions where we are not able to record a tax benefit, losses in tax jurisdictions where we have recorded a valuation allowance on deferred tax assets, and expenses not deductible for tax purposes. These differences were partially offset by the recognition of a tax benefit resulting from legislation enacted January 2, 2013 retroactively reinstating the research and development tax credit, revaluation of the contingent consideration which is not subject to tax, and earnings in lower-tax jurisdictions for which no U.S. taxes have been provided because such earnings are planned to be reinvested indefinitely outside the United States, measured against a pretax income for the quarter.

We are subject to income taxes in the United States and numerous foreign jurisdictions. The overall effective tax rate will continue to be dependent upon the geographic distribution of our earnings or losses and changes in tax laws or interpretations of these laws in these operating jurisdictions. We monitor the assumptions used in estimating the annual effective tax rate and make adjustments, if required, throughout the year. If actual results differ from the assumptions used in estimating our annual effective income tax rate, future income tax expense could be materially affected.

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. We do not believe that it is reasonably possible that the estimates of unrecognized tax benefits will change significantly in the next 12 months. Tax positions for Concur and its subsidiaries are subject to income tax audits by multiple tax jurisdictions throughout the world. 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.

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Nine Months Ended June 30, 2014 and 2013

Revenue

	Nine Months Ended June 30,				Variance Dollars
	2014		2013
Revenue	$	510,965	$	388,878	$	122,087

	Nine Months Ended June 30,
	2014		%		2013		%
United States	$	427,260	83.6	%	$	328,936	84.6	%
Europe	58,832		11.5	%	43,124		11.1	%
Other	24,873		4.9	%	16,818		4.3	%
Total revenue	$	510,965	100	%	$	388,878	100	%

Revenue increased by 31.4%, or $122.1 million, for the nine months ended June 30, 2014, compared to the same period in the prior year. This increase was primarily due to growth in the number of customers using our subscription services as well as higher transaction volumes. The growth in the number of customers using our subscription services reflects 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 revenue to continue to grow in 2014 as a result of the growing demand for our subscription service offerings, our planned increase in spending on sales and marketing, and international expansion.

Cost of Operations

	Nine Months Ended June 30,						Variance Dollars
	2014			2013
Cost of operations	$	179,492		$	108,105		$	71,387
Percent of total revenue	35.1		%	27.8		%

Cost of operations increased by 66.0%, or $71.4 million, for the nine months ended June 30, 2014, 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 $54.6 million driven by increased headcount of 75% to support our growing customer base and our 2013 acquisitions. Share-based compensation increased $7.0 million as a result of increased headcount. Allocated overhead and infrastructure costs increased by $6.3 million to facilitate growth. Further, transaction costs that we incur in connection with our subscription services increased by $3.0 million primarily related to the volume of transaction activity.

As a percentage of total revenue, cost of operations increased to 35.1% during the nine months ended June 30, 2014 from 27.8% during the same period in the prior year primarily due to investments made to grow our implementation resources and to businesses acquired during the fourth quarter of 2013, which contribute lower gross margins.

We expect cost of operations to trend downward as a percentage of total revenue 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 2014 compared to 2013 as we continue to expand our capacity to deploy and support additional new customers.

Sales and Marketing

	Nine Months Ended June 30,						Variance Dollars
	2014			2013
Sales and marketing	$	215,599		$	166,571		$	49,028
Percent of total revenue	42.2		%	42.8		%

Sales and marketing expenses increased by 29.4%, or $49.0 million, for the nine months ended June 30, 2014, 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 $26.0 million, resulting from a headcount increase of 21% to acquire new customers and increase penetration within our existing customer base. There was an increase in share-based compensation of $8.4 million, customer acquisition costs increased by $6.9 million, advertising costs increased by $2.7 million, and allocated overhead and

24

infrastructure costs increased by $1.9 million. Additionally, in the prior year, we recognized a revaluation gain of $2.6 million on acquisition-related contingent consideration recorded in compensation expense related to the acquisition of TripIt.

We expect total sales and marketing expenses in 2014 to increase in absolute dollars compared to 2013, driven primarily by an increase in sales personnel and marketing programs globally. These increases reflect a key part of our strategic focus in 2014, which is to expand our sales and marketing efforts to create greater awareness of our solutions in our target markets and to support expected demand.

Systems Development and Programming

	Nine Months Ended June 30,						Variance Dollars
	2014			2013
Systems development and programming	$	62,967		$	40,750		$	22,217
Percent of total revenue	12.3		%	10.5		%

Systems development and programming costs increased by 54.5%, or $22.2 million, for the nine months ended June 30, 2014, 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 $13.7 million, driven by increased headcount of 26% to upgrade and extend our service offerings and develop new technologies. Additionally, there was an increase in share-based compensation of $3.8 million. Further, depreciation of fixed assets increased by $3.5 million as we invested more heavily in our infrastructure to accommodate expected future growth.

In response to the demand for our subscription services, the majority of our systems development resources are focused on developing internal-use software used to provide services to our customers. We capitalize costs in accordance with GAAP for software developed or obtained for internal use and amortize it over its estimated useful life. Capitalized internal-use software costs, net of amortization, increased by $10.6 million, from $45.5 million at September 30, 2013 to $56.1 million at June 30, 2014.

We anticipate that recognized systems development and programming costs in 2014 will increase in absolute dollars compared to 2013 as we continue to focus on product innovation.

General and Administrative

	Nine Months Ended June 30,						Variance Dollars
	2014			2013
General and administrative	$	76,361		$	60,836		$	15,525
Percent of total revenue	14.9		%	15.6		%

General and administrative expenses increased by 25.5%, or $15.5 million, for the nine months ended June 30, 2014, compared to the same period in the prior year. The growth in absolute dollars was primarily due to an increase of $11.9 million in personnel costs and related expenses, driven by an increase in headcount of 41% to support our growth. Additionally, allocated overhead and infrastructure costs increased by $3.6 million to facilitate our growth and there was an increase in share-based compensation of $1.7 million. The increase was partially offset by a decrease of $1.9 million in professional fees.

We expect the absolute dollar amount of general and administrative expenses to increase in 2014 compared to 2013 due to increases in personnel costs and infrastructure costs related to the growth of our business.

Revaluation of Contingent Consideration

	Nine Months Ended June 30,						Variance Dollars
	2014			2013
Revaluation of contingent consideration	$	(2,270	)	$	(3,977	)	$	1,707
Percent of total revenue	(0.4		)%	(1.0		)%

For the nine months ended June 30, 2014, revaluation of contingent consideration consisted of a gain of $2.3 million, relating to the revaluation of our 2013 acquisitions due to the change in our assessment of the weighted probability of achieving certain revenue targets at each reporting period.

For the nine months ended June 30, 2013, revaluation of contingent consideration related to the acquisition of TripIt and consisted of a gain of $4.0 million due to the change in valuation inputs such as our stock price and stock volatility. The TripIt contingent consideration was subsequently paid in 2013.

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Amortization of Intangible Assets

	Nine Months Ended June 30,						Variance Dollars
	2014			2013
Amortization of intangible assets	$	15,723		$	13,718		$	2,005
Percent of total revenue	3.1		%	3.5		%

Amortization of intangible assets increased by 14.6%, or $2.0 million, for the nine months ended June 30, 2014, compared to the same period in the prior year, primarily due to intangible asset additions obtained through acquisitions during the 12 months ended September 30, 2013.

Interest Income, Interest Expense, Gain (Loss) from Equity Investments, and Other

	Nine Months Ended June 30,						Variance Dollars
	2014			2013
Interest income	$	2,047		$	1,546		$	501
Interest expense	(33,016		)	(16,966		)	(16,050		)
Gain (loss) from equity investments, net	11,025			(1,957		)	12,982
Other, net	(1,006		)	(583		)	(423		)
Total other expense, net	$	(20,950	)	$	(17,960	)	$	(2,990	)

Using the equity method of accounting, we record gains (losses) from equity investments in our consolidated statements of operations. Losses from equity investments primarily include our proportionate share of investee losses, adjustments to recognize certain differences between our carrying value and our equity in the investee’s net assets at the date of investment, impairments, and other adjustments required by the equity method.

During the nine months ended June 30, 2014, we recorded a gain of $14.6 million related to the sale of our equity interest in Buuteeq, Inc. that we accounted for under the cost method of accounting.

For the nine months ended June 30, 2014, interest expense primarily consisted of interest on the 2015 Notes and the 2018 Notes. For the nine months ended June 30, 2013, interest expense primarily consisted of interest on the 2015 Notes. Foreign currency transaction gains (losses) are included in the consolidated statements of operations under other income (expense).

Income Tax Expense

	Nine Months Ended June 30,						Variance Dollars
	2014			2013
Income tax expense	$	22,947		$	2,502		$	20,445
Effective tax rate	(39.7		)%	(16.6		)%

For the nine months ended June 30, 2014, our effective tax rate of -39.7% differed from the U.S. federal statutory rate primarily due to losses in tax jurisdictions where we have recorded a valuation allowance on deferred tax assets, losses in our Dutch licensing company, expenses not deductible for tax purposes, and equity investment losses where we are not able to record a tax benefit. These differences were partially offset by earnings in lower-tax jurisdictions for which no U.S. taxes have been provided because such earnings are planned to be reinvested outside the U.S., and revaluation of the contingent consideration which is not subject to income taxes, measured against a pretax loss for the year.

We regularly assess the need for a valuation allowance against our deferred tax assets. In making that assessment, we consider both positive and negative evidence related to the likelihood of realization of the deferred tax assets to determine, based on the weight of available evidence, whether it is more-likely-than-not that some or all of the deferred tax assets will not be realized. In evaluating the need for a valuation allowance, we consider our cumulative loss in recent years as a significant piece of negative evidence. Such objective evidence limits the ability to consider other subjective evidence such as our projections for future growth. As a result, in the second quarter of 2014, we established a valuation allowance against our total U.S. deferred tax assets balance as of December 31, 2013, net of U.S. deferred tax liabilities. We will continue to assess the likelihood that the deferred tax assets will be realizable at each reporting period and the valuation allowance will be adjusted accordingly.

For the nine months ended June 30, 2013, our effective tax rate of -16.6% differed from the U.S. federal statutory rate primarily due to losses in tax jurisdictions where we are not able to record a tax benefit and losses in tax jurisdictions where we have recorded a valuation allowance on deferred tax assets and expenses, which are not deductible for tax purposes. These

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differences were partially offset by the recognition of a tax benefit resulting from legislation enacted January 2, 2013 retroactively reinstating the research and development tax credit, revaluation of contingent consideration which is not subject to tax, and earnings in lower-tax jurisdictions for which no U.S. taxes have been provided because such earnings are planned to be reinvested indefinitely outside the U.S., measured against a pretax loss for the year.

We are subject to income taxes in the U.S. and numerous foreign jurisdictions. The overall effective tax rate will continue to be dependent upon the geographic distribution of our earnings or losses and changes in tax laws or interpretations of these laws in these operating jurisdictions. We monitor the assumptions used in estimating the annual effective tax rate and make adjustments, if required, throughout the year. If actual results differ from the assumptions used in estimating our annual effective income tax rate, future income tax expense could be materially affected.

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. We do not believe that it is reasonably possible that the estimates of unrecognized tax benefits will change significantly in the next 12 months. Tax positions for Concur and its subsidiaries are subject to income tax audits by multiple tax jurisdictions throughout the world. 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.

Liquidity and Capital Resources

Our available sources of liquidity as of June 30, 2014 consisted principally of cash, cash equivalents, money market funds, and short-term investments totaling $816.4 million. Our cash, cash equivalents, and short-term investments are comprised primarily of commercial paper, certificates of deposit, fixed-income securities, and time deposits.

Our cash flows were as follows:

	Three Months Ended June 30,									Nine Months Ended June 30,
	2014			2013			$ Change			2014			2013			$ Change
Cash provided by (used in):
Operating activities	$	25,471		$	28,014		$	(2,543	)	$	60,358		$	51,762		$	8,596
Investing activities	126,728			(197,109		)	323,837			141,951			(278,825		)	420,776
Financing activities	(1,211		)	442,309			(443,520		)	(29,735		)	423,633			(453,368		)

Operating Activities

Our operating cash inflows consist of payments received from our customers related to our subscription and other service offerings. Our operating cash outflows mainly consist of payments of compensation to employees, payments to vendors directly related to our services, related sales and marketing and administrative costs, costs of operations, and systems development and programming costs.

Net cash provided by operating activities was $25.5 million for the three months ended June 30, 2014, compared to $28.0 million for the same period in the prior year. The decrease in operating cash flows was primarily due to increased investment in our continuing growth.

Net cash provided by operating activities was $60.4 million for the nine months ended June 30, 2014, compared to $51.8 million for the same period in the prior year. The increase in operating cash flows was primarily driven by fluctuations in working capital accounts.

Investing Activities

Investing activities generally consist of purchases, sales, and maturities of investments, cash outlays for acquisitions, strategic investments, capital expenditures including leasehold improvements and internal-use software, and changes in customer funding liabilities.

Net cash provided by investing activities was $126.7 million for the three months ended June 30, 2014, compared to net cash used in investing activities of $197.1 million for the same period in the prior year. The change in investing cash flows was primarily driven by net maturities of short-term investments of $132.3 million for the three months ended June 30, 2014, compared to net purchases of short-term investments of $180.5 million for the same period in the prior year. We also received $16.7 million in cash proceeds from the sale of an equity investment during the quarter ended June 30, 2014, which represents a total sale price of $19.4 million less $2.7 million of cash held in escrow.

Net cash provided by investing activities was $142.0 million for the nine months ended June 30, 2014, compared to a use of cash of $278.8 million for the same period in the prior year. The change in investing cash flows was primarily driven by net

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maturities of short-term investments of $189.4 million for the nine months ended June 30, 2014, compared to net purchases of short-term investments of $221.2 million for the same period in the prior year. We also received $16.7 million in cash proceeds from the sale of an equity investment during the nine months ended June 30, 2014.

Financing Activities

Our financing activities generally consist of receipts and repayments of debt to fund our growth and strategic initiatives, proceeds from employee stock purchases and share-based activity, payments to repurchase common stock, minimum tax withholding on restricted stock awards, excess tax benefits from share-based compensation, investments in our consolidated joint venture by the noncontrolling investors, and repayments on capital leases.

Our financing activities used $1.2 million of cash during the three months ended June 30, 2014, compared to cash provided by financing activities of $442.3 million during the same period in the prior year, primarily due to the issuance of the 2018 Notes and associated warrants in the prior year.

Our financing activities used $29.7 million of cash during the nine months ended June 30, 2014, compared to cash provided by financing activities of $423.6 million during the same period in the prior year, primarily due to the issuance of the 2018 Notes and associated warrants in the prior year.

Convertible Senior Notes

During the three months ended March 31, 2010 and during the three months ended June 30, 2013, we issued the 2015 Notes and the 2018 Notes (collectively, the “Notes”), the 2015 Note Hedges and the 2018 Note Hedges (collectively, the “Note Hedges”), and the 2015 Warrants and the 2018 Warrants (collectively, the “Warrants”), respectively, for general corporate purposes, including potential acquisitions and strategic transactions. The 2015 Notes and the 2018 Notes will mature on April 15, 2015 and June 15, 2018, respectively, unless converted earlier. As of June 30, 2014, no Notes have been repurchased or converted. We also have not received any shares under the Note Hedges or delivered cash or shares under the Warrants. For at least 20 trading days during the 30 consecutive trading day period ended on the last trading day of the quarter ended June 30, 2014, our common stock price exceeded 130% of the applicable conversion price on each applicable trading day, for the 2015 Notes. Accordingly, the 2015 Notes will be convertible at the holders’ option for the quarter ending September 30, 2014. The 2015 Notes are classified as a current liability on the consolidated balance sheets as of June 30, 2014. Additionally, a portion of the equity component attributable to the conversion feature of the 2015 Notes, which is equal to the difference between the principal amount and carrying value of the 2015 Notes, is classified in temporary equity on the consolidated balance sheet as of June 30, 2014. The 2018 Notes are classified as a long-term liability on the consolidated balance sheets as of June 30, 2014 as none of the conversion conditions were achieved during the period then ended. For further information, see Note 9 of the Notes to Consolidated Financial Statements.

Stock Repurchase

Our Board of Directors previously authorized a stock repurchase program (“Repurchase Program”) that allowed us to repurchase up to 12.0 million shares of our common stock through January 2015. We may repurchase our common stock from time to time in the open market based on market conditions. During the three and nine months ended June 30, 2014, we repurchased 5.8 thousand and 10.5 thousand of our outstanding common stock, respectively, for $0.5 million and $0.9 million, respectively. During the three and nine months ended June 30, 2013, we repurchased 5.6 thousand shares and 8.8 thousand shares of our outstanding common stock, respectively, for a total cost of $0.5 million and $0.7 million, respectively. As of June 30, 2014, we remain authorized to repurchase up to 7.1 million shares out of the authorized 12.0 million shares under the Repurchase Program.

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

Contractual Obligations and Commercial Commitments

The following table summarizes our outstanding contractual obligations and commercial commitments as of June 30, 2014:

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Years Ending September 30,	2015 Convertible Senior Notes, including Interest		2018 Convertible Senior Notes, including Interest		Lease Commitments		Purchase Obligations
2014 (July 1, 2014 through September 30, 2014)	$	—	$	—	$	6,371	$	1,758
2015	294,687		2,444		15,534		7,811
2016	—		2,444		14,940		4,769
2017	—		2,444		12,519		2,089
2018	—		491,194		11,351		200
Thereafter	—		—		47,193		—
Total	$	294,687	$	498,526	$	107,908	$	16,627

Convertible Senior Notes

Our 2015 Notes and 2018 Notes will mature on April 15, 2015 and June 15, 2018, respectively, unless converted earlier. Certain conditions were satisfied for the 2015 Notes in the quarter ended June 30, 2014, which makes the 2015 Notes convertible at the holders’ option for the quarter ending September 30, 2014. The 2018 Notes are not convertible at the holders’ option for the quarter ending September 30, 2014.

For further information regarding the 2015 Notes and the 2018 Notes, see Note 9 of the Notes to Consolidated Financial Statements.

Leases

We lease office space and equipment under non-cancelable operating leases. We lease our current headquarters in Bellevue, Washington under an operating lease that expires on May 31, 2023. Amounts for both rent and common area maintenance under this lease are included in our contractual obligations in the table above.

We also lease office space throughout the United States and internationally. We do not include amounts for certain operating expenses under these leases, such as common area maintenance.

Capital leases as of June 30, 2014 were immaterial.

Purchase Obligations

We have future minimum purchase obligations under arrangements with third parties that are enforceable and legally binding. Future purchase obligations are related to services to support operations and sales and marketing and are based on contracted commitments.

Contingent Consideration

As part of our 2013 acquisitions, we agreed to pay additional cash consideration to the former shareholders of acquired entities based on the achievement of certain revenue targets through August 31, 2014.

Please see Note 12 of the Notes to Consolidated Financial Statements for a full description of the above mentioned acquisition-related contingent consideration.

Off-Balance Sheet Arrangements

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

Critical Accounting Policies and Estimates

Our condensed consolidated financial statements are prepared in accordance with GAAP. The preparation of these condensed consolidated financial statements requires us to make certain estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. On an ongoing basis, we evaluate our estimates and assumptions. Our actual results may differ from these estimates under different assumptions or conditions.

There were no other significant changes to our critical accounting policies and estimates during the three and nine months ended June 30, 2014 as described in the financial statements contained in the Annual Report on Form 10-K for the year ended September 30, 2013 filed with the SEC on November 13, 2013.

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ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk and Market Interest Risk

There has been no material change in our market risk during the three months ended June 30, 2014. 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, 2013, filed with the SEC on November 13, 2013.

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 Securities Exchange Act of 1934 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 June 30, 2014, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Limitation on Effectiveness of Controls

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

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

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PART II. OTHER INFORMATION

ITEM 1.     LEGAL PROCEEDINGS

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

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

ITEM 1A.     RISK FACTORS

We operate in a dynamic and rapidly changing business environment that involves many risks and substantial uncertainty. The following discussion addresses risks and uncertainties that could contribute to causing actual results to differ from expectations in material ways. In evaluating our business, investors should pay particular attention to risks and uncertainties described below and in other sections of this report, and in our subsequent filings with the SEC. In addition, other events that we do not currently anticipate or that we currently deem immaterial may adversely 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 revenue, and decreased demand for any of those solutions could substantially harm our revenue.

We generated 90% of our total revenue for the three months ended June 30, 2014 from our travel management, expense management, and integrated travel and expense management solutions. We expect these solutions to continue to constitute a large percentage of our total revenue 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 revenue 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 revenue 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 management solutions develops more slowly than we expect it to, our future revenue and profitability will be harmed.

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

Our quarterly revenue 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 revenue 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 domestic and international political, economic, and market conditions;

• new customer adoption, and existing customer renewal, of 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;

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• the timing of large contracts or contract terminations;

• changes in the mix of our offerings and sales channels through which they are sold;

• costs of developing new products and enhancements;

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

• network outages or security breaches caused by natural disasters, acts of war or terrorism, or otherwise;

• adverse tax consequences; and

• foreign currency fluctuations.

Our global operations subject us to risks that may adversely affect our business, financial condition, and operating results.

Our ability to operate on a global basis is an increasingly important part of our business. Customers located outside the United States represented 16% of our total revenue for the three months ended June 30, 2014, and a further portion of our revenue is associated with employees of U.S. customers using our services outside of the United States. We have operations and facilities in many countries and we expect our international operations to continue to expand.

Our international operations are subject to many risks, including:

• costs to customize and localize our products for foreign markets;

• foreign currency exchange rate risk;

• compliance challenges related to the complexity of multiple, conflicting, and changing governmental laws and regulations, including employment, labor, tax, privacy and data protection laws and regulations;

• different pricing environments, longer sales cycles, and longer accounts receivable payment cycles and collections issues;

• import and export restrictions and tariffs;

• adverse tax consequences;

• restrictions on the transfer of funds;

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

• laws and business practices favoring local competitors;

• difficulties in attracting and retaining distribution partners that will be able to market our solutions effectively;

• difficulties in staffing and managing foreign operations;

• local business and cultural factors that differ from U.S. standards and practices and may make it more difficult for us to compete, including business practices that are prohibited by the U.S. Foreign Corrupt Practices Act and other anti-corruption laws and regulations;

• natural disasters or other catastrophic events beyond our reasonable control; and

• the potential for political unrest, terrorism, hostilities, or war.

Our international revenue and expenses are currently subject to the risks of foreign currency fluctuations. Most of our revenue is denominated in U.S. Dollars, but we believe that an increasing portion of our revenue will be denominated in foreign currencies. Unfavorable economic conditions have been accompanied by increased foreign currency exchange rate volatility.

Because we recognize revenue from our subscriptions services over the term of the subscription, downturns or upturns in new business may not be immediately reflected in our operating results.

We generally recognize revenue from customers of our subscription services ratably over the terms of their subscription contracts. As a result, the majority of our quarterly revenue is attributable to service contracts entered into during previous quarters. A decline in new or renewed service agreements in any one quarter will not be fully reflected in our revenue in that quarter but will harm our revenue in future quarters. Consequently, the effect of significant downturns in sales and market acceptance of our subscription services in a particular quarter may not be fully reflected in our operating results until future periods. Our subscription model also makes it difficult for us to rapidly increase our revenue through additional sales in any period, because revenue from new subscription contracts, and from additional orders under existing subscription contracts, must be recognized over the applicable subscription term. In addition, delays or failures in deployment of our subscription services may prevent us from recognizing subscription revenue for indeterminate periods of time. Further, we may experience unanticipated increases in costs associated with providing our subscription services to customers over the term of our subscription contracts as a result of inaccurate internal cost projections or other factors, which may harm our operating results.

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Privacy concerns could result in regulatory changes and impose additional costs and liabilities on us, limit our use of information, and adversely affect our business.

Many of our travel and expense management solutions collect, store, and report information about travel procurement and spending by employees of our customers. Personal privacy has become a significant issue in the United States, Europe, and many other countries where we operate. Many federal, state, and foreign legislatures and government agencies have imposed or are considering imposing restrictions and requirements about the collection, use, disclosure and transmission of personal information obtained from individuals. Changes to laws or regulations affecting privacy or transmission could impose additional costs and liability on us and could limit our use of such information to add value for customers. If we were required to change our business activities or revise or eliminate services, or to implement burdensome compliance measures, our business and results of operations could be harmed. Privacy concerns, whether valid or not, may also inhibit market adoption of our solutions in some industries and foreign countries, harming our growth. In addition, we may be subject to fines, penalties, and potential litigation if we fail to comply with applicable privacy regulations.

The costs of compliance with privacy-related laws and regulations that apply to our customers’ businesses may limit the adoption and use of our solutions and reduce overall demand for them. All of these domestic and international legislative and regulatory initiatives may adversely affect our customers’ ability to collect, store, and report and transmit information regarding travel procurement and employee spending, which could reduce demand for our solutions. The European Union and many countries in Europe have stringent privacy laws and regulations, which may impact our ability to profitably operate in certain European countries. Regulatory burdens of this sort increase our costs and harm our financial results.

Third-party attempts to breach our network or data security, or the existence of any other security vulnerabilities, could damage our reputation and adversely affect our business, financial condition, and operating results.

Our solutions involve storage and transmission of credit card, travel booking, employee, purchasing, supplier, and other data. Unauthorized access or security breaches could result in the loss of information, litigation, indemnity obligations, and other liabilities. While we devote significant resources to protect against security threats and to protect customer information and prevent data loss, if these measures are breached as a result of third-party action, error or otherwise, and someone obtains unauthorized access to our customers’ data, we may incur significant additional costs to remedy the breach, which will reduce our operating margins and expose us to litigation, loss of customers, damage to our reputation, or otherwise harm our business. Even if customers or users perceive there to be security issues associated with our solutions, our revenue or operating results could be harmed. Because techniques used to obtain unauthorized access or sabotage systems change frequently and generally are not identified until they are launched against a target, we may be unable to anticipate these techniques or to implement adequate preventive measures. These issues could negatively affect our ability to attract new customers, cause existing customers to terminate or not renew subscriptions, damage our reputation, cause us to issue customer credits or refunds, or result in lawsuits, regulatory fines or other action or liabilities, any of which could adversely affect our operating results.

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

Our business depends on customers renewing their subscriptions for our solutions, and any decline in our customer renewals may harm our future operating results.

We sell our solutions pursuant to subscription contracts of varying initial terms, ranging from contracts that may be terminated by the customer at any time to contracts with multi-year terms. Our customers have no obligation to renew their subscription contracts after their initial term expires, and they may renew their subscription contracts with shorter terms. In addition, some of our customer contracts contain cancellation provisions and, if canceled, could result in us recognizing substantially less revenue than the aggregate value of those contracts over their terms. Further, if our customers cannot make payments, they may be forced to cancel existing subscriptions for our solutions. We also seek to sell additional solutions to our existing customers.

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As a result, our ability to grow depends upon customers renewing their subscription contracts for our solutions and our ability to sell additional solutions to our current customers. Our customer renewal rates may decline for many reasons, including customer dissatisfaction with our solutions, pricing by us or our competitors, or reductions in our customers’ spending levels. If our customers do not renew their subscription contracts, renew on less favorable terms, or terminate subscriptions early, or if our efforts to sell additional solutions to existing customers are not successful, our revenue may decline and our operating results could be harmed.

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

Our revenue growth and financial performance depend upon the successful development, introduction, and customer acceptance of new and enhanced versions of our solutions, and on our ability to integrate products and services that we acquire into our existing and future solutions. We have experienced, and may in the future experience, delays in the planned release dates of enhancements to our solutions and we have discovered, and may in the future discover, errors in new releases after their introduction. Either situation could result in adverse publicity, loss of sales, delay in market acceptance of our solutions, 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 versions of our solutions, upgrades or other enhancements to our existing solutions 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 introduce and gain market acceptance of new solutions in a timely manner.

For our sales efforts targeted at large enterprise and government agency customers, our sales cycle may become more time consuming and expensive, and we may encounter pricing pressure and implementation challenges, which could harm our business and operating results.

As we target our sales efforts at large enterprise and government agency customers, we will face greater costs, longer sales cycles, and less predictability in completing some of our sales. In these sales, the customer’s decision to use our service may be an enterprise-wide or agency-wide decision and require us to provide more education about the use and benefits of our solutions, as well as education regarding privacy and data protection laws and regulations to prospective customers with international operations. In addition, larger customers may demand more customization, integration services, and features. As a result, these opportunities may require us to devote greater sales support and professional services resources to targeted customers, driving up costs and time required to complete sales and diverting our own sales and professional services resources to a smaller number of larger transactions. Professional services may also be performed by a third party or a combination of our own staff and a third party. If a customer is not satisfied with the quality of work performed by us or a third party or with the type of services or solutions delivered, we could incur additional costs to address the situation, the profitability of that work might be impaired, and the customer’s dissatisfaction with our services could damage our ability to obtain additional work from that customer. In addition, negative publicity related to our customer relationships, regardless of its accuracy, could harm our professional reputation and the results of our business and operating results.

Interruption of our operations, infrastructure, or systems upon which we rely could prevent us from delivering our solutions 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, and other catastrophic events, and to interruption by man-made problems such as civil unrest, terrorism, unauthorized intrusion, and other events. There can be no assurance that our disaster preparedness will prevent significant interruption of our operations.

We engage third-party facility providers for our 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 and payment 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

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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.

We may lose customers or become liable to customers if we have errors, defects or disruptions in our solutions, if we provide poor service, or if our customers have concerns over the scalability of our solutions.

We deliver cloud computing solutions. Errors or defects in the software applications underlying our solutions, a failure of our hosting infrastructure, or other failure in our operational efforts to scale our solutions, may make them unavailable to our customers. Because our customers use our solutions to manage important aspects of their business, any errors, defects, disruptions in service or other performance or scalability problems with our services could adversely impact our customers’ businesses. If we have any errors, defects, disruptions in service or other performance or scalability problems with our solutions, customers could elect not to renew, or delay or withhold payment to us, we could lose future sales or customers may make warranty claims against us, which could result in an increase in our provision for doubtful accounts, an increase in collection cycles for accounts receivable, or costly litigation.

We depend on our relationships with travel suppliers, so adverse changes in existing supplier relationships or our inability to develop new supplier 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 productive commercial relationships with a broad and growing spectrum of travel suppliers. As technology, services and content offerings continue to evolve, we must continue to identify and develop relationships with suppliers that are relevant to our business. Adverse changes in existing relationships, or our inability to develop new relationships, could reduce the amount, quality, and value of the solutions that we are able to offer, which could adversely affect our customers’ adoption of or renewal of our solutions. If we fail to obtain new customers or existing customers do not renew their subscriptions due to the number and kind of travel solutions we offer, our business, financial condition, and operating results could be adversely affected.

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 revenue could decline.

We depend on strategic reseller and referral relationships as a channel through which to offer our solutions 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 the early stages of operation and, accordingly, it is not certain whether they will expend the required effort and resources to market our solutions 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 solutions. 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 solutions, which would increase our costs and decrease our earnings.

We depend on our direct sales force to achieve planned revenue growth in the future, and if our sales force is not successful, our financial condition will be harmed.

We sell our solutions primarily through our direct sales force. Our ability to achieve planned revenue growth in the future will depend upon the success of our direct sales force and our ability to adapt our sales efforts to address the evolving markets for our solutions. If our direct sales force does not perform as expected, our business, financial condition, and operating results could be adversely affected.

We have experienced rapid growth in recent periods. If we fail to manage our growth effectively, we may be unable to execute our business plan, maintain high levels of service, or address competitive challenges adequately.

Our expansion has placed, and future growth will continue to place, a significant strain on our managerial, administrative, operational, and financial infrastructure. We intend to expand our overall business, customer base, headcount, and operations worldwide. We anticipate that additional investments in our infrastructure, research and development, and real estate spending will be required to scale our operations and increase productivity, to address the needs of our customers, to further develop and enhance our solutions, and to scale our business.

Our success will depend in part upon our ability to manage our projected growth effectively. To do so, we must continue

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to increase the productivity of our existing employees and to hire, train, and manage new employees as needed. To manage the expected domestic and international growth of our operations and personnel, we will need to continue to improve our operational, financial and management controls, our reporting systems and procedures, and our utilization of real estate. The additional investments we are making will increase our cost base, which will make it more difficult for us to offset any future revenue shortfalls by reducing expenses in the short term. If we fail to successfully scale our operations and increase productivity, we will be unable to execute our business plan.

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

Our principal direct competition comes from independent vendors of corporate travel and expense management software and services, as well as financial institutions and enterprise resource planning software vendors that sell products similar to our solutions 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. Some of 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.

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 decreased 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.

Our acquisitions of other companies, products, or technologies may result in operating difficulties, dilution, and other harmful consequences that may adversely impact our business and results of operations.

As part of our overall business strategy, we have recently acquired, and we expect from time to time in the future to acquire or invest in, complementary businesses, products, and technologies. These transactions could be material to our financial condition and results of operations. We continue to evaluate and expect to make acquisitions and investments in the future.

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

• difficulties integrating the operations, personnel, technologies, products, or infrastructure of acquired businesses with ours;

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

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

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

• expenses related to incorporating acquired technology and rights into our solutions;

• potential liabilities associated with an acquired business;

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

• the tax effects of acquisitions;

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

• 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.

Our failure to address these risks or other problems with acquisitions, investments, and strategic transactions could cause us to fail to realize the anticipated benefits of such transactions, incur unanticipated liabilities, and harm our business generally.

Additionally, we may issue additional equity securities or convertible debt securities to pay for future acquisitions, investments, or other strategic transactions, which could be dilutive to our existing stockholders and affect the trading price of our securities. If any acquisition or other strategic transaction 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 other strategic transactions, our business and financial condition may be seriously harmed.

We invest in companies for strategic reasons and may not realize a return on our investments.

We make investments in companies on a global basis to further our strategic objectives and support key business initiatives. These investments are primarily in private companies and include equity or debt instruments that are largely non-marketable at the time of our investment. The companies in which we invest range from early-stage companies that are still defining their strategic direction to more mature companies with established revenue streams and business models. These companies may fail for a variety of reasons, such as their inability to secure additional funding, obtain favorable terms for future financings, or participate in liquidity events such as public offerings, mergers, or private sales. If any of these companies fail, or if we choose to dispose of our investment at a time when any of these companies is not meeting our objectives or expectations, we could lose all or part of our investment. If the fair value of an investment is below our carrying value and we determine that it is other-than-temporarily impaired, we may be required to record impairment charges that negatively impact our result of operations and financial condition.

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

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

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

Ensuring that we have adequate internal financial and accounting controls and procedures in place so that we can produce accurate financial statements on a timely basis is a costly and time-consuming effort that needs to be re-evaluated frequently. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles in the United States (“GAAP”). 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.

Changes in, or interpretations of, tax rules and regulations may adversely affect our effective tax rates.

Unanticipated changes in our tax rates could affect our future results of operations. Our future effective tax rates could be unfavorably affected by a number of factors, including:

• the jurisdictions in which profits are determined to be earned and taxed;

• losses in jurisdictions for which we are not able to record a tax benefit;

• resolution of issues arising from tax audits;

• changes in the valuation of our deferred tax assets and liabilities, and in deferred tax valuation allowances;

• adjustments to income taxes upon finalization of tax returns;

• increases in expenses not deductible for tax purposes, including write-offs of acquired in-process research and

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development and impairments of goodwill;

• changes in available tax credits;

• changes in tax laws or their interpretation, including changes in the U.S. taxation of foreign income and expenses;

• changes in GAAP; and

• our decision to repatriate non-U.S. earnings for which we have not previously provided for U.S. taxes.

If our goodwill or amortizable intangible assets become impaired we may be required to record a significant charge to earnings.

Under GAAP, we review our amortizable intangible assets for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. Goodwill is required to be tested for impairment at least annually. Factors that may be considered in circumstances indicating that the carrying value of our goodwill or amortizable intangible assets may not be recoverable include a reduction in our market capitalization (as a result of a decline in our stock price) to a level below our consolidated stockholders’ equity as of the applicable balance sheet date, declining future cash flows, and slower growth rates in our industry. We may be required to record a significant charge to earnings in our consolidated financial statements during the period in which any impairment of our goodwill or amortizable intangible assets is determined, resulting in a negative impact on our results of operations.

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 be included in 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 or vesting of equity awards or sales and purchases of any common stock issued upon conversion of the 2015 Notes or the 2018 Notes or in connection with the convertible note hedges and warrant transactions relating to such notes.

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. In the technology industry, there is substantial and continuous competition for engineers with high levels of experience in designing, developing, and managing software and Internet-related services, as well as competition for sales executives and operations personnel. We may not be successful in attracting and retaining qualified personnel. We have from time to time experienced, and we expect to continue to experience, difficulty in hiring and retaining highly skilled employees with appropriate qualifications. If we fail to attract new personnel or fail to retain and motivate our current personnel, our business could be severely harmed.

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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 solutions 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 cloud-based solutions 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 solutions 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 solutions 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 solutions 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.

Litigation or regulatory proceedings could harm our business.

From time to time, we are engaged in litigation and regulatory matters and may face legal claims or regulatory matters involving stockholder, customer, property rights, and other issues on a global basis. Litigation and regulatory proceedings are inherently uncertain, and adverse rulings could result in monetary damages, injunctions that could stop us from selling our solutions or engaging in business practices, or injunctions that require other remedies.

We expect to incur GAAP net losses in the future.

We have incurred net losses in each fiscal year since the year ended September 30, 2011. In addition, we expect our costs to increase as a result of decisions made for our long-term benefit, such as equity awards and business combinations. If our revenue does not grow to offset these expected increased costs, we will not be able to return to profitability and we may continue to incur net losses, on a GAAP basis, in the future.

We have indebtedness in the form of convertible senior notes.

In April 2010, we completed an offering of $287.5 million aggregate principal amount of our 2.50% convertible senior notes due in 2015 (the “2015 Notes”). During the quarter ended June 30, 2013, we issued an additional $488.8 million principal amount of our 0.50% convertible senior notes due June 15, 2018 (the “2018 Notes”). All amounts from the issuance of the 2018 Notes were settled during the quarter ended June 30, 2013.

As a result of these notes offerings, we incurred approximately $287.5 million principal amount of indebtedness, the principal amount of which we may be required to pay at maturity in 2015, and $488.8 million principal amount of indebtedness, the principal amount of which we may be required to pay at maturity in 2018, or, in each of the foregoing, upon the occurrence of a fundamental change (as in the applicable indenture). 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,

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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 2015 Notes or our 2018 Notes may affect the price of our common stock and the value of such notes.

The conversion of some or all of our 2015 Notes or our 2018 Notes will dilute the ownership interest of existing stockholders to the extent we deliver shares of common stock upon conversion. Holders of the outstanding 2015 Notes and the 2018 Notes will be able to convert them only upon the satisfaction of certain conditions prior to January 15, 2015 and March 15, 2018, respectively, and on or after January 15, 2015 or March 15, 2018, respectively, or until the close of business on the second scheduled trading day immediately preceding the respective maturity date of such notes irrespective of such conditions. In the case of the 2015 Notes and the 2018 Notes, we will, upon conversion, pay cash up to the aggregate principal amount of notes to be converted and deliver shares of our common stock in respect of the remainder, if any, of our conversion obligation in excess of such aggregate principal amount. 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 and the value of the notes.

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

In connection with our offering of the 2015 Notes, we entered into note hedges covering approximately 5.5 million shares of our common stock (“2015 Note Hedges”) and sold warrants to acquire up to approximately 5.5 million shares of our common stock at an initial strike price of $73.29 (“2015 Warrants”). In connection with our offering of the 2018 Notes, we entered into note hedges covering approximately 4.7 million shares of our common stock (“2018 Note Hedges” and together with the 2015 Note Hedges, “Note Hedges”) and sold warrants to acquire up to approximately 4.7 million shares of our common stock at an initial strike price of $138.48 (“2018 Warrants” and together with the 2015 Warrants, “Warrants”). These Note Hedges are intended to reduce the potential economic dilution to our common stock upon conversion of the 2015 Notes and the 2018 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 the 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 respective maturity of the 2015 Notes and the 2018 Notes. These activities could adversely affect the value of our common stock.

Provisions in our charter documents, Delaware law, and our 2015 Notes and 2018 Notes 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 2015 Notes and 2018 Notes may delay or prevent a change in control of Concur, because those provisions allow note holders to require us to repurchase such notes upon the occurrence of a fundamental change (as defined in the respective indentures for the 2015 Notes and 2018 Notes).

These anti-takeover defenses could discourage, delay, or prevent a transaction involving a change in control of our company. These provisions could also discourage proxy contests and make it more difficult for stockholders to elect directors

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of their choosing and to cause us to take other corporate actions they desire, any of which, under certain circumstances, could depress the market price of our common stock and the value of the notes.

Our solutions utilize open source software, which may subject us to litigation, require us to re-engineer our solutions, or otherwise divert resources away from our development efforts.

We use open source software in connection with our solutions. From time to time, companies that incorporate open source software into their products have faced claims challenging the ownership of open source software and/or compliance with open source license terms. Therefore, we could be subject to suits by parties claiming ownership of what we believe to be open source software or noncompliance with open source licensing terms. Some open source software licenses require users who distribute open source software as part of their software to publicly disclose all or part of the source code to such software and/or make available any derivative works of the open source code on unfavorable terms or at no cost. While we monitor our use of open source software and try to ensure that none is used in a manner that would require us to disclose the source code or that would otherwise breach the terms of an open source agreement, such use could inadvertently occur and we may be required to release our proprietary source code, pay damages for breach of contract, re-engineer our applications, discontinue sales in the event re-engineering cannot be accomplished on a timely basis, or take other remedial action that may divert resources away from our development efforts, any of which could adversely affect our business.

We typically provide service level commitments under our customer contracts. If we fail to meet these contractual commitments, we could be obligated to provide credits or refunds or face contract terminations, which could adversely affect our revenue.

Our customer agreements typically provide service level commitments, and for some of our larger enterprise and government agency customers, we may provide custom service level commitments. Meeting our commitments on service levels can be costly, and custom service level commitments may involve us in unexpected costs that may adversely affect our financial results. If we are unable to meet stated service level commitments or suffer extended periods of unavailability for our solutions, we may be contractually obligated to provide affected customers with service credits or refunds, or we could face contract terminations. Our revenue could be significantly affected if we suffer unscheduled downtime that exceeds the allowed downtimes under our agreements with our customers. Any extended service outages could adversely affect our reputation, revenue, and operating results.

Any failure to offer high-quality technical support services may adversely affect our relationships with our customers and our financial results.

Once our applications are deployed, our customers depend on our support organization to resolve technical issues relating to our applications. We may be unable to respond quickly enough to accommodate short-term increases in customer demand for support services. We also may be unable to modify the format of our support services to compete with changes in support services provided by our competitors. Increased customer demand for these services, without corresponding revenue, could increase costs and adversely affect our operating results. In addition, our sales process is highly dependent on our applications and business reputation and on positive recommendations from our existing customers. Any failure to maintain high-quality technical support, or a market perception that we do not maintain high-quality support, could adversely affect our reputation, our ability to sell our applications to existing and prospective customers, and our business, operating results, and financial position.

We may not be able to secure additional financing on favorable terms, or at all, to meet our future capital needs.

In the future, we may require additional capital to respond to business opportunities, challenges, acquisitions, or unforeseen circumstances and may choose to engage in equity or debt financings or enter into credit facilities. We may not be able to timely secure additional debt or equity financing on favorable terms, or at all. Any debt financing obtained by us in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and pursue business opportunities, including potential acquisitions. If we raise additional funds through further issuances of equity, convertible debt securities or other securities convertible into equity, our existing stockholders could suffer significant dilution in their percentage ownership of our company, and any new equity securities we issue could have rights, preferences, and privileges senior to those of holders of our common stock. If we are not able to obtain adequate and necessary financing on satisfactory terms, our ability to grow or support our business, or to respond to business challenges, could be significantly limited.

ITEM 2.     UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

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Our Board of Directors previously authorized a stock repurchase program (“Repurchase Program”) that allowed us to repurchase up to 12.0 million shares of our common stock through January 2015. We may repurchase our common stock from time to time in the open market based on market conditions.

The following table presents information relating to repurchases of our common stock during the three months ended June 30, 2014 (in thousands, except for average price paid per share):

Period	Total Number of Shares Repurchased	Average Price Paid per Share		Total Amount Paid
April 1, 2014 - April 30, 2014	—	$	—	$	—
May 1, 2014 - May 31, 2014	5.8	82.93		484
June 1, 2014 - June 30, 2014	—	—		—

As of June 30, 2014, we remain authorized to repurchase up to 7.1 million shares out of the authorized 12.0 million shares under the Repurchase Program.

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 June 30, 2014, 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, as amended, 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 June 30, 2014, formatted in XBRL: (i) Consolidated Statements of Operations, (ii) Consolidated Statements of Comprehensive Income (Loss), (iii) Consolidated Balance Sheets, (iv) Consolidated Statements of Cash Flows, and (v) 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: August 6, 2014

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 June 30, 2014, 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, as amended, 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 June 30, 2014, formatted in XBRL: (i) Consolidated Statements of Operations, (ii) Consolidated Statements of Comprehensive Income (Loss), (iii) Consolidated Balance Sheets, (iv) Consolidated Statements of Cash Flows, and (v) Notes to Consolidated Financial Statements.

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