Concur 10Q 2008 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark one)

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

For the quarterly period ended March 31, 2008

¨	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 0-25137

Concur Technologies, Inc.

(Exact name of Registrant as specified in its charter)


Delaware		91-1608052
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

18400 NE Union Hill Road Redmond, Washington		98052
(Address of principal executive offices)		(Zip Code)

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

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

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

Large accelerated filer ¨ Accelerated filer x Non-accelerated filer ¨ Smaller reporting company ¨

[Do not check if a smaller reporting company]

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

Number of shares of the registrant’s common stock outstanding as of April 30, 2008: 43,092,106

CONCUR TECHNOLOGIES, INC.

FORM 10-Q

March 31, 2008

INDEX


		Page
PART I. FINANCIAL STATEMENTS

ITEM 1. FINANCIAL STATEMENTS
Income Statements for the Three and Six Months Ended March 31, 2008 and 2007		3
Balance Sheets as of March 31, 2008, and September 30, 2007		4
Cash Flow Statements for the Three and Six Months Ended March 31, 2008 and 2007		5
Notes to 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		31
ITEM 4. CONTROLS AND PROCEDURES		31

PART II. OTHER INFORMATION		32

ITEM 1. LEGAL PROCEEDINGS		32
ITEM 1A. RISK FACTORS		32
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		43
ITEM 6. EXHIBITS		43

SIGNATURE		44

Concur^®, Concur^® Expense, Concur^® Travel & Expense, Concur^® Cliqbook Travel, Concur^® Vendor Payment, Concur^® Connect, and Concur^® ExpenseLink, among others, are registered trademarks and/or registered service marks of Concur or one of its subsidiaries, in the United States and other countries. Other parties’ marks are the property of their respective owners and should be treated as such.

PART I. FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

Concur Technologies, Inc.

Income Statements

(In thousands, except per share amounts)

(Unaudited)


	Three Months Ended March 31,						Six Months Ended March 31,
	2008			2007			2008			2007
Revenues:
Subscription	$	50,832		$	27,901		$	97,375		$	53,394
Consulting and other		2,831			2,949			5,640			6,696

Total revenues		53,663			30,850			103,015			60,090
Expenses:
Cost of operations		17,827			10,910			33,810			21,287
Sales and marketing		13,935			8,058			27,092			15,089
Systems development and programming		5,872			3,739			11,813			7,621
General and administrative		8,264			4,090			15,104			8,697
Amortization of intangible assets		1,547			785			3,113			1,608

Total expenses		47,445			27,582			90,932			54,302

Operating income		6,218			3,268			12,083			5,788
Other income (expense):
Interest income		180			213			430			395
Interest expense		(421	)		(346	)		(853	)		(713	)
Other, net		67			65			(59	)		94

Total other expense, net		(174	)		(68	)		(482	)		(224	)

Income before income tax		6,044			3,200			11,601			5,564
Income tax expense		2,340			1,855			4,515			3,226

Net income	$	3,704		$	1,345		$	7,086		$	2,338

Net income per share:
Basic	$	0.08		$	0.04		$	0.16		$	0.06
Diluted		0.08			0.03			0.15			0.06
Weighted average shares used in computing net income per share:
Basic		43,686			37,090			43,762			36,782
Diluted		47,349			40,521			47,604			40,341

See notes to financial statements.

Concur Technologies, Inc.

Balance Sheets

(In thousands, except per share amounts)


	March 31, 2008			September 30, 2007
		(Unaudited	)
Assets
Current assets:
Cash and cash equivalents	$	17,470		$	168,835
Restricted cash		901			—
Accounts receivable, net of allowance of $5,811 and $2,766		40,280			31,460
Prepaid expenses		3,882			1,797
Current portion of deferred income taxes		9,074			2,657
Other current assets		10,225			8,448

Total current assets		81,832			213,197
Property and equipment, net		32,366			24,066
Intangible assets, net		42,191			10,604
Goodwill		177,366			57,128
Deferred income tax assets, net of current portion		37,675			28,264
Deposits and other long-term assets		12,607			12,223

Total assets	$	384,037		$	345,482

Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	4,191		$	4,193
Customer funding liabilities		18,616			—
Accrued compensation		8,503			11,492
Acquisition-related liabilities		4,194			700
Other accrued liabilities		6,989			4,655
Current portion of long-term debt		1,656			—
Current portion of deferred rent		396			399
Current portion of deferred revenues		28,131			21,560

Total current liabilities		72,676			42,999
Long-term debt, net of current portion		30,596			5,369
Deferred rent, net of current portion		2,255			2,428
Deferred revenues, net of current portion		10,887			10,326

Total liabilities		116,414			61,122

Commitments and contingencies
Stockholders’ equity:
Convertible preferred stock, par value $0.001 per share Authorized shares: 5,000; No shares issued or outstanding		—			—
Common stock, $0.001 par value per share Authorized shares: 60,000 Shares issued and outstanding: 43,074 and 43,699		43			44
Additional paid-in capital		421,646			445,324
Accumulated deficit		(154,926	)		(162,012	)
Accumulated other comprehensive income		860			1,004

Total stockholders’ equity		267,623			284,360

Total liabilities and stockholders’ equity	$	384,037		$	345,482

See notes to financial statements.

Concur Technologies, Inc.

Cash Flow Statements

(In thousands)

(Unaudited)


	Three Months Ended March 31,						Six Months Ended March 31,
	2008			2007			2008			2007
Operating activities:
Net income	$	3,704		$	1,345		$	7,086		$	2,338
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of intangible assets		1,547			785			3,113			1,608
Depreciation		3,727			2,141			7,398			4,073
Allowance for uncollectible accounts receivable		473			493			1,732			786
Share-based compensation expense		2,310			1,069			3,358			2,297
Deferred income taxes		2,105			1,887			4,134			3,150
Changes in operating assets and liabilities, net of effects from acquisition:
Accounts receivable		(106	)		569			(636	)		231
Prepaid expenses and other assets		77			(1,745	)		(1,502	)		(2,429	)
Accounts payable		306			(145	)		(444	)		31
Accrued liabilities		(643	)		3,031			(8,396	)		599
Deferred revenues		4,331			1,355			5,933			3,625

Net cash provided by operating activities		17,831			10,785			21,776			16,309

Investing activities:
Net decrease in restricted cash balances		1,994			—			1,763			—
Net increase in customer funding liabilities		(14	)		—			(2,491	)		—
Purchases of property and equipment		(3,194	)		(3,075	)		(5,674	)		(5,539	)
Payments for acquisition, net of cash acquired		(904	)		(7,750	)		(161,850	)		(7,750	)

Net cash used in investing activities		(2,118	)		(10,825	)		(168,252	)		(13,289	)

Financing activities:
Net proceeds from share-based award activity		646			5,033			3,025			5,511
Proceeds from employee stock purchase plan activity		355			231			583			419
Payments on repurchase of common stock		(30,888	)		(1,853	)		(30,888	)		(1,853	)
Net proceeds from borrowings		7,812			—			23,210			—
Repayments on borrowings and capital leases		(408	)		(595	)		(831	)		(1,212	)

Net cash provided by (used in) financing activities		(22,483	)		2,816			(4,901	)		2,865

Effect of foreign currency exchange rate changes on cash and cash equivalents		252			6			12			233

Net increase (decrease) in cash and cash equivalents		(6,518	)		2,782			(151,365	)		6,118
Cash and cash equivalents at beginning of period		23,988			19,670			168,835			16,334

Cash and cash equivalents at end of period	$	17,470		$	22,452		$	17,470		$	22,452

Supplemental cash flow information:
Cash paid for interest	$	263		$	81		$	349		$	358
Income tax payments, net		73			—			124			—

See notes to financial statements.

NOTES TO FINANCIAL STATEMENTS

March 31, 2008

(Unaudited)

Note 1. Description of the Company and Basis of Presentation

Throughout these financial statements Concur Technologies, Inc. is referred to as “Concur,” “we,” “us” and “our.” We report our operating results on a fiscal year basis that starts October 1 and ends September 30. We refer to our fiscal years ended September 30, 2007, 2008, 2009 and 2010, as “2007,” “2008,” “2009” and “2010.” All dollar, option and share amounts are reported in thousands, unless otherwise noted.

Description of the Company

We are a leading global provider of on-demand Employee Spend Management solutions. Our integrated travel and expense software solutions enable organizations to control costs by automating the processes used to manage employee spending. Our solutions unite online travel procurement with automated expense reporting, streamline corporate event management, and optimize the process of managing vendor payments, employee check requests and direct reimbursements. Our unified approach to managing these processes provides our customers with visibility into their employee spending, which helps them analyze trends, influence budget decisions, improve forecasting, and monitor and enforce compliance with their corporate policies and external regulations, such as the Sarbanes-Oxley Act.

Our core mission is to continuously innovate to reduce the costs of employee spend management for our customers. We work closely with our customers to identify opportunities to increase the value of our solutions by streamlining the travel procurement, expense reporting and vendor payment processes, reducing operating costs, improving internal controls, enhancing the overall user experience and user adoption rates and enabling customers to gain greater insight into their spending patterns through comprehensive analytics. We have broadened our existing suite of solutions by introducing new solutions and features including the following:

•

Concur^® Travel & Expense, our solution that fully integrates our flagship products, Concur^® Expense and Concur^® Cliqbook Travel. We believe that Concur Travel & Expense is the most effective solution available for providing a single seamless process for managing travel procurement and expense reporting within a business.

•

Smart Expense™, a new feature of our One Touch Business Travel™, in which the click that books the travel reservation simultaneously begins the expense reporting process. As travel occurs, Smart Expense automatically populates expense reports with information reconciled from three sources of expense information: itinerary data captured at the time of booking; corporate card charges incurred by the employee; and electronic receipts captured directly from the supplier.

•

Concur^® Vendor Payment, our solution that automates, simplifies and reduces the costs of entering, approving and managing the payment of vendor invoices. We believe the long-term opportunity of this solution is comparable to that of our core travel and expense management solution.

•

Concur^® Connect, our global platform that connects over 100,000 suppliers of travel content and services to our travel and expense solutions, boosting adoption of online travel procurement by our customers’ users. A number of these suppliers also provide us with electronic receipts that can be used to generate Smart Expenses.

We offer our solutions through flexible delivery models that range from highly configurable to standardized. We sell our solutions primarily as subscription services. We market and sell our solutions worldwide through our direct sales organization and indirect distribution channels such as strategic resellers.

Gelco Acquisition

On October 1, 2007, we completed our acquisition of H-G Holdings, Inc. and its subsidiaries, including Gelco Information Network, Inc. (collectively, “Gelco”), pursuant to the Agreement and Plan of Merger, dated July 27, 2007, between Concur and H-G Holdings, Inc. (“Merger Agreement”). Gelco’s suite of solutions includedExpenseLink andTravel Manager. Gelco provided a flexible on-demand expense management solution that enables organizations to control costs by gaining processing efficiencies, capturing spending data for analysis and ensuring policy compliance. Gelco offered different levels of outsourcing and is capable of providing a full range of services to streamline the expense management process, including: expense data capture, multi-currency reimbursement, card payment processing, reporting and analysis, receipt imaging and management, and auditing. In addition, Gelco’sExpenseLink offered customer payment processing services and enhanced auditing and analytics features that are complementary to our offerings. We refer to this acquisition as the “Gelco Acquisition.”

Basis of Presentation

These accompanying financial statements present our results of operations, financial position and cash flows on a consolidated basis. These unaudited financial statements include the accounts of Concur and its subsidiaries. We have eliminated all intercompany accounts and transactions in these financial statements.

During the three months ended March 31, 2008, we determined that an adjustment was needed to record additional state and local taxes payable. As a result we recorded a charge of $874 to general and administrative expense during the three months ended March 31, 2008. We believe the adjustment was not material to the current or any earlier reported period.

We have prepared the accompanying unaudited financial statements in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial reporting. In our opinion, we have included all adjustments necessary for a fair presentation. These adjustments consist of normal recurring items. Our unaudited financial statements are not necessarily indicative of results that may be expected for any other interim period or for the full year. These unaudited financial statements should be read in conjunction with the financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2007, filed with the Securities and Exchange Commission (“SEC”) on December 14, 2007.

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

Use of Estimates

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

Significant Accounting Policies

We discuss our significant accounting policies, which include business combinations, revenue recognition, allowances for uncollectible accounts receivable, share-based compensation and income taxes, in our Annual Report on Form 10-K for the fiscal year ended September 30, 2007, filed with the SEC on December 14, 2007.

Impairment of Goodwill

We test goodwill for impairment in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 142,Goodwill and Other Intangible Assets (“SFAS 142”). SFAS 142 requires that goodwill not be amortized, but instead tested for impairment at the reporting unit level at least annually and more frequently upon the occurrence of certain events, as defined by SFAS 142. We have one reporting unit. The annual goodwill impairment test is a two-step process. First, we determine if the carrying value of our related reporting unit exceeds fair value, which would indicate that goodwill may be impaired. If we then determine that goodwill may be impaired, we compare the implied fair value of the goodwill to its carrying amount to determine if there is an impairment loss. We conducted our most recent test for impairment as of March 31, 2008, and we determined that goodwill was not impaired.

Recently Adopted Accounting Pronouncements

Accounting for Uncertainty in Income Taxes

On October 1, 2007, we adopted the provisions of the Financial Accounting Standards Board (“FASB”) Interpretation No. 48 (“FIN 48”),Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109, which provides a financial statement recognition threshold and measurement attribute for a tax position taken or expected to be taken in a tax return. Under FIN 48, we may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. FIN 48 also provides guidance on derecognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, and income tax disclosures.

The adoption of FIN 48 had no material impact on our financial statements. As of March 31, 2008, there were no unrecognized tax benefits. Historically, we have not incurred any material interest or penalties associated with tax matters, and no material interest or penalties were recognized during the three and six months ended March 31, 2008. We classify interest and penalties associated with tax matters as additional interest expense and as additional penalties rather than as part of income taxes. Tax years that remain open for examination include 2003, 2004, 2005 and 2006. In addition, tax years from 1994 to 2002 may be subject to examination in the event we utilize our net operating loss carryforwards from those years in our current or future year tax returns. We do not expect to have any significant changes to unrecognized tax benefits over the next 12 months.

Recently Issued Accounting Pronouncements

Fair Value Measurements

In September 2006, the FASB issued SFAS No. 157,Fair Value Measurements (“SFAS 157”). SFAS 157 defines fair value, establishes a framework and gives guidance regarding the methods used for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. We are required to adopt SFAS 157 in the first quarter of 2009. We are evaluating the impact of adopting SFAS 157 on our financial statements.

In February 2007, the FASB issued SFAS No. 159,The Fair Value Option for Financial Assets and Financial Liabilities(“SFAS 159”). SFAS 159 gives entities the option to measure eligible financial assets and financial liabilities at fair value on an instrument by instrument basis, that are otherwise not permitted to be accounted for at fair value under other accounting standards. The election to use the fair value

option is available when an entity first recognizes a financial asset or financial liability. Subsequent changes in fair value must be recorded in earnings. SFAS 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. We are required to adopt SFAS 159 in the first quarter of 2009. We are evaluating the impact of adopting SFAS 159 on our financial statements.

Business Combinations and Noncontrolling Interests in Consolidated Financial Statements

In December 2007, the FASB issued SFAS No. 141 (revised 2007),Business Combinations (“SFAS 141R”). SFAS 141R requires the acquiring entity in a business combination to recognize all the assets acquired and liabilities assumed in the transaction at fair value as of the acquisition date. SFAS 141R is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. We are required to adopt SFAS 141R in the first quarter of 2010. We are evaluating the impact of adopting SFAS 141R on our financial statements.

In December 2007, the FASB issued SFAS No. 160,Noncontrolling Interests in Consolidated Financial Statements (“SFAS 160”). SFAS 160 requires all entities to report noncontrolling interests as equity in the financial statements. SFAS 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on of after December 15, 2008. We are required to adopt SFAS 160 in the first quarter of 2010. We are evaluating the impact of adopting SFAS 160 on our financial statements.

Note 3. Net Income Per Share

We calculate basic net income per share by dividing net income by the weighted-average number of shares of common stock outstanding during the period. We calculate diluted net income per share by dividing net income by the weighted-average number of shares of common stock outstanding during the period, plus any dilutive effect from share-based compensation awards and warrants outstanding during the period, under the treasury stock method. The following table presents the computation of basic and diluted net income per share:


	Three Months Ended March 31,				Six Months Ended March 31,
	2008		2007		2008		2007
Net income	$	3,704	$	1,345	$	7,086	$	2,338
Weighted average number of shares outstanding:
Basic		43,686		37,090		43,762		36,782
Dilutive effect of share-based award plans (1)		3,663		3,431		3,842		3,559

Diluted		47,349		40,521		47,604		40,341

Net income per share available to common stockholders:
Basic	$	0.08	$	0.04	$	0.16	$	0.06
Diluted		0.08		0.03		0.15		0.06

(1)

For the three and six months ended March 31, 2008, we did not exclude any options to purchase Concur common stock from the calculations of diluted earnings per share. For the three and six months ended March 31, 2007, we excluded 0.5 and 0.9 million options to purchase Concur common stock from the calculations of diluted earnings per share. We excluded these options because the exercise price for those options was above the average market price of our stock and including these options in the diluted earning per share calculation would have had an anti-dilutive effect.

Note 4. Business Acquisition

On October 1, 2007, we completed our acquisition of Gelco. Gelco provides a flexible on-demand expense management solution that enables organizations to control costs by gaining processing efficiencies, capturing spending data for analysis and ensuring policy compliance. Gelco offers different levels of outsourcing and is capable of providing a full range of services to streamline the expense management process, including: expense data capture, multi-currency reimbursement, card payment processing, reporting and analysis, receipt imaging and management, and auditing.

We have included Gelco’s operating results in our income statements from the date of the acquisition. We present pro forma results of operations for Gelco because the effect of this acquisition was material to Concur on a standalone basis.

Our total purchase price of $168.6 million consisted of the following components:


Purchase Price (in millions)
Merger consideration	$	130.1
Assumed liabilities		35.8
Acquisition-related transaction costs		2.7

Total purchase price	$	168.6

Certain aspects of the purchase price and purchase price allocations are preliminary and have been made using initial estimates. These estimates are the responsibility of management. Adjustments of the purchase price may be made in accordance with the terms of the Merger Agreement. In addition, finalization of these initial estimates may result in adjustments to the allocation of the purchase price if the adjustments are determined within one year of the purchase date, or the purchase price allocation period. In accordance with the terms of the Merger Agreement, $16.5 million has been held in escrows and hold backs as of October 1, 2007, and will be released to Concur or to the shareholders of Gelco as specified in the Merger Agreement terms.

We made cash payments of $0.5 million and $161.4 million for the three and six months ended March 31, 2008. This included merger consideration of $130.1 million and assumed liabilities and acquisition-related transaction costs of $34.8 million, net of $3.5 million of cash acquired for the six months ended March 31, 2008. As of March 31, 2008, acquisition-related transaction costs and assumed liabilities of $3.9 million remained on our balance sheet for the Gelco Acquisition.

During the three and six months ended March 31, 2008, we made cash payments totaling $0.4 million related to our 2006 acquisition of Outtask. As of March 31, 2008, acquisition-related liabilities of $0.3 million remained on our balance sheet for the acquisition of Outtask.

Preliminary Purchase Price Allocation

Our preliminary purchase price allocation of Gelco’s net tangible and identifiable intangible assets is based upon the estimated fair value of those assets as of October 1, 2007. We allocated the excess of purchase price over the identifiable intangible and net tangible assets to goodwill. The following table presents the preliminary allocation of the total purchase price consideration:


Purchase Price Allocation (in millions)
Cash and cash equivalents	$	3.5
Restricted cash		2.7
Accounts receivable		9.9
Prepaid and other current assets		2.6
Property and equipment		10.0
Goodwill		120.2
Deferred income tax assets		20.0
Other intangible assets		34.7

Total assets		203.6

Accounts payable		(0.3	)
Customer funding liabilities		(21.5	)
Other accrued liabilities		(7.4	)
Deferred revenue		(1.3	)
Capital leases		(4.5	)

Total liabilities		(35.0	)

Total	$	168.6

Tangible Assets Acquired and Liabilities Assumed

We have estimated the fair value of certain tangible assets acquired and liabilities assumed. Some of these estimates are subject to change, particularly those estimates relating to the allowance for uncollectible accounts receivable, deferred revenues and deferred taxes. Adjustments to the allowance for uncollectible accounts receivable, deferred revenues and deferred taxes may be required during the purchase price allocation period.

Intangible Assets

We recorded $120.2 million of goodwill, which includes a reduction of $20.0 million related to the valuation allowance for deferred tax assets as a result of the expected increase in earnings due to the Gelco Acquisition. In addition, we recorded $34.7 million of acquired intangible assets in our financial statements. The acquired intangible assets include $27.9 million of customer relationships with an expected life of 11 years, $6.5 million of technology-based intangible assets with an expected useful life of four years and $0.3 million of other intangible assets with an expected life of two years.

Pro Forma Results

The unaudited financial information in the table below summarizes the combined results of operations for Concur and Gelco, on a pro forma basis, as though the companies had been combined as of the beginning of the period presented. The unaudited pro forma financial information combines the results of Concur and Gelco for the three and six months ended March 31, 2007. The following table presents the pro forma financial information for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of the period presented:


Pro Forma Results	Three Months Ended March 31, 2007		Six Months Ended March 31, 2007
Revenues	$	43,207	$	85,631
Net income (loss)		625		(1,900	)
Net income (loss) per share	$	0.01	$	(0.05	)

During the six months ended March 31, 2007, Gelco incurred legal fees and settlement costs for $4.3 million to settle all claims associated with a lawsuit with a former stockholder.

Note 5. Property and Equipment

Our property and equipment consisted of the following:


	March 31, 2008			September 30, 2007
Land and building	$	5,350		$	—
Computer hardware		15,244			11,309
Computer software		32,422			27,982
Furniture and equipment		1,249			1,224
Leasehold improvements		5,034			4,935

Property and equipment, gross		59,299			45,450
Less: accumulated depreciation		(26,933	)		(21,384	)

Property and equipment, net	$	32,366		$	24,066

On October 1, 2007, the Gelco Acquisition contributed the following property and equipment:


Land and building	$	5,350
Computer hardware		3,934
Computer software		628
Furniture and equipment		59

Total property and equipment	$	9,971

Note 6. Intangible Assets

Our intangible assets arise from our business acquisitions. The following table presents our intangible assets as of March 31, 2008, and September 30, 2007:


	March 31,			September 30,
Intangible assets	2008			2007
Gross carrying amount	$	48,600		$	19,600
Accumulated amortization		(6,409	)		(8,996	)

Intangible asset, net	$	42,191		$	10,604

The following table presents the components of our intangible assets as of March 31, 2008.


Description	Fair Value		Accumulated Amortization		Net Book Value as of March 31, 2008		Weighted Average Useful Life (in years)
Trade name and trademarks	$	200	$	200	$	—	1.0
Technology		12,700		3,175		9,525	4.8
Non-compete agreements		500		275		225	2.0
Customer relationships		35,200		2,759		32,441	11.0

Total	$	48,600	$	6,409	$	42,191

For the three and six months ended March 31, 2008, we recorded amortization expense of $1.5 million and $3.1 million in our income statements, and $0.8 million and $1.6 million for the three and six months ended March 31, 2007.

Estimated amortization expense for the remaining estimated useful life of the acquired assets is as follows as of March 31, 2008:


Years ending September 30,	Amortization of Intangible Assets
2008 (1)	$	3,082
2009		6,165
2010		5,933
2011		5,588
2012		3,445
Thereafter		17,978

Total	$	42,191

(1)	The estimated amortization for 2008 covers the six month period from April 1, 2008, through September 30, 2008.

Note 7. Debt

The following table presents the components of our debt outstanding as of March 31, 2008, and September 30, 2007:


	March 31,		September 30,
Debt	2008		2007
Capital leases	$	3,673	$	—
Revolving credit facility		28,579		5,369

Total debt		32,252		5,369
Current portion of capital leases		1,656		—

Long-term debt, excluding current portion	$	30,596	$	5,369

On June 1, 2007, we entered into a Credit Agreement (“Credit Agreement”) with a financial institution. The Credit Agreement provided for a revolving credit facility for up to $50 million and expired in June 2010, or such earlier date as provided in the Credit Agreement. At our option, the interest rate on the revolving credit facility is equal to either (1) the greater of the Federal Funds Rate plus 0.5% and the financial institution’s publicly announced prime rate at that time, or (2) the London Interbank Offered Rate (“LIBOR”) divided by the result of 1.00 less the Federal Reserve System’s maximum reserve percentage for Eurocurrency funding. We granted security interests in substantially all of our assets as collateral for the loans under the Credit Agreement. The Credit Agreement requires compliance with certain covenants, which limit among other things our ability to consummate a sale of assets, make changes in our capital structure and pay out dividends.

On October 1, 2007, we amended and restated our Credit Agreement (“Amended Credit Agreement”) and increased the maximum size of the revolving credit facility to $70.0 million and extended the expiration to September 2012, or earlier as provided in the Amended Credit Agreement. In addition, on October 1, 2007, we incurred additional indebtedness in the aggregate principal amount of $19.5 million under the Amended Credit Agreement in connection with the Gelco Acquisition.

As of March 31, 2008, and September 30, 2007, we were in compliance with all loan covenants under the terms of each of the Credit Agreement and Amended Credit Agreement.

Note 8. Commitments

The following table summarizes our future minimum commitments under non-cancelable contracts at March 31, 2008, and the effects such obligations are expected to have on cash flows in future periods:


Years ended September 30,	Operating Leases		Purchase Obligations
2008 (1)	$	1,309	$	738
2009		2,507		1,475
2010		2,492		356
2011		2,292		—
2012		2,171		—
2013 and thereafter		1,437		—

Total	$	12,208	$	2,569

(1)	The commitments for 2008 cover the six month period from April 1, 2008, through September 30, 2008.

Operating Leases

We lease office space and equipment under non-cancelable operating leases. We lease our current headquarters in Redmond, Washington under an operating lease that expires on May 31, 2013. The lease agreement for our headquarters in Redmond, Washington provides for an eight-year term with an option to renew for an additional five years. As of March 31, 2008, we also leased office space in the United States in the states of California, Georgia, Illinois, Minnesota, New Jersey, Texas and Virginia, and internationally in the countries of Australia, Belgium, the Czech Republic, Germany and the United Kingdom.

Purchase Obligations

We have future minimum purchase obligations under arrangements with third parties who provide hosting infrastructure services in connection with the provision of our subscription service offerings.

Note 9. Income Taxes

On October 1, 2007, we adopted the provisions of FIN 48, which provides a financial statement recognition threshold and measurement attribute for a tax position taken or expected to be taken in a tax return. Under FIN 48, we may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. FIN 48 also provides guidance on derecognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, and income tax disclosures.

The adoption of FIN 48 had no material impact on our financial statements. As of March 31, 2008, there were no unrecognized tax benefits. Historically, we have not incurred any material interest or penalties associated with tax matters and no material interest or penalties were recognized during the three and six months ended March 31, 2008. We classify interest and penalties associated with tax matters as other expense rather than as part of income taxes. Tax years that remain open for examination include 2003, 2004, 2005 and 2006. In addition, tax years from 1994 to 2002 may be subject to examination in the event we utilize the net operating loss carryforwards from those years in its current or future year tax returns. We do not expect to have any significant changes to unrecognized tax benefits over the next 12 months.

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

We assess the likelihood that we will be able to recover our deferred tax assets. We consider all available evidence, both positive and negative, including historical levels of income, expectations and risks associated with estimates of future taxable income, ongoing, prudent and feasible tax planning strategies in assessing the amount of the valuation allowance. If recovery is not likely, we record a valuation allowance against the deferred tax assets that we estimate will not ultimately be recoverable. Because of the expected increase in earnings from the Gelco Acquisition, we were able to release $20.0 million in valuation allowance as of March 31, 2008. This resulted in a decrease in goodwill by a corresponding amount. Our effective tax rate differs from the U.S. statutory rate primarily due to the deferred tax valuation allowance on our foreign subsidiaries. Our effective tax rate is also affected by share-based compensation and other non-deductible expenses.

As of March 31, 2008, we believe it was more likely than not that the amount of the deferred tax assets recorded on our balance sheet would ultimately be recovered. In the event that actual results differ from our estimates or we adjust our estimates in future periods, our operating results and financial position could be materially affected.

Note 10. Share-based Compensation

Our 2007 Equity Incentive Plan (“Equity Plan”) provides for grants of stock options, restricted stock, stock bonuses, stock appreciation rights (“SARs”) and restricted stock units (“RSUs”). As of March 31, 2008, we had 2.4 million shares of common stock reserved for future grants under our Equity Plan, excluding shares of common stock reserved for future issue under our Employee Stock Purchase Plan.

On October 1, 2005, we adopted the provisions of SFAS No. 123 (Revised 2004),Share-based Payment (“SFAS 123R”), requiring us to recognize expense related to the fair value of our share-based compensation awards. We elected to use the modified prospective transition method as permitted by SFAS 123R and therefore have not restated our financial results for prior periods. Under this transition method, share-based compensation expense includes compensation expense for all share-based compensation awards granted prior to, but not vested as of September 30, 2005, based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123,Accounting for Stock-Based Compensation. Share-based compensation expense for all share-based compensation awards granted subsequent to September 30, 2005, was based on the grant date fair value estimated in accordance with the provisions of SFAS 123R. We recognize compensation expense for all equity awards on a straight line basis over the vesting term of the award, net of estimated forfeitures.

Estimates of fair value are not intended to predict actual future events or the value ultimately realized by employees who receive these awards and subsequent events are not indicative of the reasonableness of our original estimates of fair value. In determining the estimated forfeiture rates for share-based awards, we periodically conduct an assessment of the actual number of share awards that have been forfeited to date as well as those expected to be forfeited in the future. We consider many factors when estimating expected forfeitures, including the type of award, the employee class and historical experience. The estimate of share awards that will ultimately be forfeited requires significant judgment and to the extent that actual results or updated estimates differ from our current estimates, such amounts will be recorded as a cumulative adjustment in the period such estimates are revised.

We have calculated an additional paid in capital (“APIC”) pool pursuant to the provisions of SFAS 123R. The APIC pool represents the excess tax benefits related to share-based compensation that are available to absorb future tax deficiencies. We include only those excess tax benefits that have been realized in accordance with SFAS No. 109,Accounting for Income Taxes. If the amount of future tax

deficiencies is greater than the available APIC pool, we will record the excess as income tax expense in our income statements. For the three and six months ended March 31, 2008 and 2007, we did not record any tax deficiencies against the APIC pool. Excess tax benefits or tax deficiencies are a factor in the calculation of diluted shares used in computing dilutive income per share.

The following table presents our share-based compensation expense resulting from equity awards that we recorded in our income statements for the three and six months ended March 31, 2008 and 2007:


	Three Months Ended March 31,				Six Months Ended March 31,
	2008		2007		2008		2007
Cost of operations	$	438	$	328	$	684	$	650
Sales and marketing		913		225		1,296		608
Systems development and programming		300		173		454		348
General and administrative		659		343		924		691

Total	$	2,310	$	1,069	$	3,358	$	2,297

Net cash proceeds from the exercise of stock options were $0.6 million and $3.0 million for the three and six months ended March 31, 2008, and $5.0 million and $5.5 million for the three and six months ended March 31, 2007. For the three and six months ended March 31, 2008 and 2007, we did not realize any income tax benefit from stock option exercises. In accordance with SFAS 123R, we present excess tax benefits from the exercise of stock options, if any, as financing cash flows rather than operating cash flows.

The following table presents our stock option activity for the six months ended March 31, 2008:


	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding as of September 30, 2007	5,109		$	7.73
Exercised	(408	)		7.41
Forfeited or expired	(48	)		11.67

Outstanding as of March 31, 2008	4,653			7.72	4.72	$	108,547

Exercisable as of March 31, 2008	4,115		$	7.10	4.35	$	98,568

During the three and six months ended March 31, 2008 and 2007, we did not grant any stock option awards. The aggregate intrinsic value in the table above represents total pretax intrinsic value (i.e., the difference between our closing stock price on March 31, 2008, and the weighted average exercise price of the outstanding options, multiplied by the number of shares subject to the outstanding options) that would have been received by the option holders had all option holders exercised their options on March 31, 2008. Changes in the intrinsic value are based on fluctuations in the fair market value of our common stock. For the six months ended March 31, 2008, the total intrinsic value of options exercised was $11.4 million.

The following table presents a summary of RSU awards for the six months ended March 31, 2008:


	Shares		Weighted Average Fair Value
Outstanding as of September 30, 2007	284		$	17.86
Granted	564			30.50
Cancelled	(12	)		18.21

Outstanding as of March 31, 2008	836		$	26.38

As of March 31, 2008, we expect $16.5 million of total unrecognized compensation costs related to non-vested stock options and RSUs to be recognized over a weighted average period of 1.5 years. For the six months ended March 31, 2008, the total fair value of options and RSUs vested was $1.4 million, compared to $2.7 million for the six months ended March 31, 2007.

Note 11. Comprehensive Income

The following table presents the components of our comprehensive income:


	Three Months Ended March 31,				Six Months Ended March 31,
	2008		2007		2008			2007
Net income	$	3,704	$	1,345	$	7,086		$	2,338
Other comprehensive income:
Foreign currency translation gain (loss)		65		8		(144	)		230

Total comprehensive income	$	3,769	$	1,353	$	6,942		$	2,568

Note 12. Segment Reporting

We operate in and report on one segment, which is on-demand Employee Spend Management Solutions based upon the provisions of SFAS No. 131,Disclosure about Segments of an Enterprise and Related Information.We market our services and products primarily in the United States and operate in a single industry segment. For the three and six months ended March 31, 2008 and 2007, no single customer accounted for more than 10% of our total revenues. The following table presents our revenues by geographic region:


	Three Months Ended March 31,				Six Months Ended March 31,
	2008		2007		2008		2007
United States	$	48,438	$	27,107	$	91,800	$	52,826
Europe		2,933		2,680		6,609		4,997
Other		2,292		1,063		4,606		2,267

Total revenues	$	53,663	$	30,850	$	103,015	$	60,090

Note 13. Customer Funding Liabilities

We make payments on the behalf of our customers for the funding on employee expense reimbursements from amounts held in cash and equivalents on our balance sheet. We record our obligation to make these employee expense reimbursement payments on behalf of our customers as customer funding liabilities. As of March 31, 2008, we had $18.6 million in customer funding liabilities. Some of our customers require that we maintain restricted bank accounts for the funding of employee expense reimbursements we will make on their behalf. Amounts held in these accounts are recorded as restricted cash.

Note 14. Contingencies

Litigation

complaint in August 2007 and a motion for class certification in six focus cases in September 2007. In November 2007, defendants in the six focus cases filed a motion to dismiss the complaint for failure to state a claim, which the district court denied in March 2008. All matters in this lawsuit, including any settlement proposal, await further determination by the court. If a new complaint is filed against us, we would continue to defend ourselves vigorously. Any liability we incur in connection with this lawsuit could materially harm our business and financial position and, even if we defend ourselves successfully, there is a risk that management’s distraction in dealing with this lawsuit could harm our results.

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, including but not limited to certain time and geography-based scope limitations and a right for us to replace an infringing product. We also enter into similar limited indemnification terms in agreements with certain strategic business partners and vendors. We account for potential warranty claims in accordance with the guidance in SFAS No. 5,Accounting for Contingencies, and base our estimates on historical experience and current expectations. To date, we have experienced minimal warranty claims and have not had to reimburse any customers for any losses related to the limited indemnification described above.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ThisManagement’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 theFinancial Statements and Notes that are included with this report. Also, the discussion ofCritical Accounting Policies and Estimates in this section is an integral part of the analysis of our results of operations and financial condition.

Throughout this MD&A, we refer to Concur Technologies, Inc. as “Concur,” “we,” “us” and “our.” We report our operating results on a fiscal year basis that starts October 1 and ends September 30. We refer to our fiscal years ended September 30, 2007, 2008, 2009 and 2010, as “2007,” “2008,” “2009” and “2010.” All dollar, option and share amounts are reported in thousands, unless otherwise noted.

Special Note Regarding Forward-Looking Statements

This document contains forward-looking statements regarding our plans, objectives, expectations, intentions, future financial performance, future financial condition and other statements that are not historical facts, including, without limitation, statements relating to our expectations regarding the components of our total revenues and our operating expenses for the remainder of 2008 and our expectation with respect to our liquidity and capital resources for the next 12 months. 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. Examples of such risks and uncertainties are described in Part II, Item 1A, “Risk Factors,” and elsewhere in this report, as well as in our other filings with the United States 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. Except as required by law, we assume no obligation or duty to update any such forward-looking statements.

Overview

We are a leading provider of on-demand Employee Spend Management services. Our integrated travel and expense software solutions enable organizations to control costs by automating the processes used to manage employee spending. Our solutions unite online travel procurement with automated expense reporting, streamline corporate event management, and optimize the process of managing vendor payments, employee check requests and direct reimbursements. Our unified approach to managing these processes provides our customers with visibility into their employee spending, which helps them analyze trends, influence budget decisions, improve forecasting, and monitor and enforce compliance with their corporate policies and external regulations, such as the Sarbanes-Oxley Act.

On October 1, 2007, we completed our acquisition of H-G Holdings, Inc. and its subsidiaries, including Gelco Information Network, Inc. (collectively, “Gelco”), pursuant to the Agreement and Plan of Merger, dated July 27, 2007, between Concur and H-G Holdings, Inc. (“Merger Agreement”). Gelco’s suite of solutions includedExpenseLink andTravel Manager. Gelco provided a flexible on-demand expense management solution that enables organizations to control costs by gaining processing efficiencies, capturing spending data for analysis and ensuring policy compliance. Gelco offered different levels of outsourcing and is capable of providing a full range of services to streamline the expense management process, including: expense data capture, multi-currency reimbursement, card payment processing, reporting and analysis, receipt imaging and management, and auditing. In addition, Gelco’sExpenseLink offered customer payment processing services and enhanced auditing and analytics features that are complimentary to our offerings. We refer to this acquisition as the “Gelco Acquisition.”

We generate our revenues predominantly from the delivery of subscription services, and to a much lesser degree from consulting services and other services (which includes the sale of software licenses). Subscription revenues as a percentage of total revenues increased to 94.7% and 94.5% for the three and six months ended March 31, 2008, compared to 90.4% and 88.9% for the same periods in 2007. This reflects the market’s continued shift toward the purchase of our services as subscription services rather than software licenses. Our subscription services revenues are recognized over the time period we provide our services to customers, in contrast to license revenues, which typically are recognized upon software delivery to the customer.

Our strategic focus in 2008 is to continue to grow our core subscription business and to reduce our cost of deploying and operating our services as a percentage of revenue. We expect our subscription revenues to increase in 2008 compared to 2007, on both an absolute basis and as a percentage of total revenues, due to anticipated growth in demand as well as the Gelco Acquisition. We expect our sales and marketing expenses to increase on both an absolute basis and as a percentage of revenues in 2008 compared to 2007, primarily reflecting our continued emphasis on growing our sales and marketing personnel to support expected demand and the creation of additional awareness in our target market.

We operate in and report on one segment, which is on-demand Employee Spend Management solutions.

RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 2008 AND 2007

Selected Financial Data

The following table presents financial data derived from our unaudited income statements as a percentage of total revenues for the periods indicated.


	Three Months Ended March 31,				Six Months Ended March 31,
	2008		2007		2008		2007
Revenues:
Subscription	94.7	%	90.4	%	94.5	%	88.9	%
Consulting and other	5.3		9.6		5.5		11.1

Total revenues	100.0		100.0		100.0		100.0
Expenses:
Cost of operations	33.2		35.4		32.8		35.4
Sales and marketing	26.0		26.1		26.3		25.1
Systems development and programming	10.9		12.1		11.5		12.7
General and administrative	15.4		13.3		14.7		14.5
Amortization of intangible assets	2.9		2.5		3.0		2.7

Total expenses	88.4		89.4		88.3		90.4

Operating income	11.6		10.6		11.7		9.6
Other income (expense):
Interest income	0.4		0.7		0.5		0.7
Interest expense	(0.8	)	(1.1	)	(0.8	)	(1.2	)
Other, net	0.1		0.2		(0.1	)	0.2

Total other expense, net	(0.3	)	(0.2	)	(0.4	)	(0.3	)

Income before income tax	11.3		10.4		11.3		9.3
Income tax expense	4.4		6.0		4.4		5.4

Net income	6.9	%	4.4	%	6.9	%	3.9	%

Results of Operations

Revenues


	Three Months Ended March 31,						Six Months Ended March 31,
	2008		2007		Change		2008		2007		Change
Subscription	$	50,832	$	27,901	82.2	%	$	97,375	$	53,394	82.4	%
Consulting and other		2,831		2,949	(4.0	%)		5,640		6,696	(15.8	%)

Total revenues	$	53,663	$	30,850	73.9	%	$	103,015	$	60,090	71.4	%


	Three Months Ended March 31,								Six Months Ended March 31,
	2008		%		2007		%		2008		%		2007		%
United States	$	48,438	90.2	%	$	27,107	87.9	%	$	91,800	89.1	%	$	52,826	87.9	%
Europe		2,933	5.5	%		2,680	8.7	%		6,609	6.4	%		4,997	8.3	%
Other		2,292	4.3	%		1,063	3.4	%		4,606	4.5	%		2,267	3.8	%

Total revenues	$	53,663	100.0	%	$	30,850	100.0	%	$	103,015	100.0	%	$	60,090	100.0	%

Subscription Revenues. Subscription revenues consist of fees paid for subscription services, and to a much lesser degree the amortization of set-up fees paid to us in connection with those services, amortization of fees paid for software maintenance services under software license arrangements and in multiple element subscription arrangements where there is no vendor specific objective evidence of fair value for an undelivered subscription element. Subscription revenues are affected by pricing, the number of new customers, customer contract durations and our customer retention rate.

Subscription revenues increased 82.2%, or $22.9 million, for the three months ended March 31, 2008, and 82.4%, or $44.0 million, for the six months ended March 31, 2008, compared to the same periods in 2007. These increases were primarily due to the increased number of customers, as a result of the Gelco Acquisition and reflecting new customers for our subscription services. The growth in customers reflects increased market demand for our subscription services and high rates of retention of existing subscription customers. We believe this demand reflects the market’s growing awareness of our on-demand Employee Spend Management solutions and the increasing acceptance of outsourced services, driven in part by limited information technology capital budgets.

We expect subscription revenues to grow in 2008, on an absolute basis and as a percentage of total revenues, as a result of the growing demand for our subscription service offerings as well as our planned increase in spending on sales and marketing.

Consulting and Other Revenues. Consulting revenues consist of fees for client services, which include system implementation and integration, planning, data conversion, training and documentation of procedures. Consulting revenues are affected predominantly by the number and complexity of on-premise license customer upgrade implementations. Recognition of consulting revenues can also be affected by circumstances in which consulting fees in multiple element arrangements require deferral or are deemed to be subscription related. Other revenues consist of fees earned from sales of our software licenses.

Consulting and other revenues decreased primarily reflecting a decrease in demand for consulting services as a result of fewer implementations of upgrades and enhancements for existing license customers as virtually all of our new customers utilize our subscription services and a growing number of our historic license customers transition to our subscription services.

We anticipate that consulting and other revenues in 2008 will be lower overall compared to 2007 in absolute dollars and as a percentage of revenues, primarily as a result of fewer existing customers upgrading their on-premise license software and the market’s continued shift in demand from licensed to subscription services.

International Revenues. Revenues from customers outside the United States represented 10% and 11% of total revenues for the three and six months ended March 31, 2008. Historically, fluctuations in foreign currency exchange rates have not had a material effect on our operating results. We expect our international revenues to grow in the near term, as our products and services continue to gain acceptance in international markets, due in part to the expansion of international functionality within our solutions.

Expenses


	Three Months Ended March 31,						Six Months Ended March 31,
	2008		2007		Change		2008		2007		Change
Cost of operations	$	17,827	$	10,910	63.4	%	$	33,810	$	21,287	58.8	%
Sales and marketing		13,935		8,058	72.9	%		27,092		15,089	79.5	%
Systems development and programming		5,872		3,739	57.0	%		11,813		7,621	55.0	%
General and administrative		8,264		4,090	102.1	%		15,104		8,697	73.7	%
Amortization of intangible assets		1,547		785	97.1	%		3,113		1,608	93.6	%

Total operating expenses	$	47,445	$	27,582	72.0	%	$	90,932	$	54,302	67.5	%

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

Cost of operations expenses as a percentage of total revenues decreased to 33.2% and 32.8% for the three and six months ended March 31, 2008, compared to 35.4% for the same periods in 2007. Cost of operations expenses increased by 63.4%, or $6.9 million, for the three months ended March 31, 2008, and 58.8%, or $12.5 million, for the six months ended March 31, 2008, compared to the same periods in 2007. These increases are primarily attributable to the Gelco Acquisition on October 1, 2007. Total salaries and related expenses increased 45.3%, or $3.1 million, for the three months ended March 31, 2008, and 47.1%, or $6.1 million, for the six months ended March 31, 2008, compared to the same periods in 2007. These increases were primarily due to the Gelco Acquisition and an increase in personnel count. Co-location and related telecommunications costs increased by 121.1%, or $0.8 million, for the three months ended March 31, 2008, and 125.8%, or $1.7 million, for the six months ended March 31, 2008, compared to the same periods in 2007. These increases were primarily due to the organic growth in our subscription business and the Gelco Acquisition. Depreciation, facilities and overhead allocation expenses increased by 135.7%, or $1.3 million, for the three months ended March 31, 2008, and 141.4%, or $2.6 million, for the six months ended March 31, 2008, compared to the same periods in 2007. These increases were primarily due to the Gelco Acquisition. In addition, equipment and software expenses increased by 265.2%, or $1.0 million, for the three months ended March 31, 2008, and 231.9%, or $1.9 million, for the six months ended March 31, 2008, compared to the same periods in 2007. These increases were primarily due to the Gelco Acquisition.

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

Sales and Marketing. Sales and marketing expenses consist of salaries and related expenses (including sales commissions and travel related expenses) and allocated overhead costs associated with our sales and marketing personnel and, to a lesser extent, miscellaneous sales and marketing costs, such as advertising, trade shows and other promotional activities.

Sales and marketing expenses as a percentage of total revenues decreased to 26.0% for the three months ended March 31, 2008, compared to 26.1% for the same period in 2007. Sales and marketing expenses as a percentage of total revenues increased to 26.3% for the six months ended March 31, 2008, compared to 25.1% for the same period in 2007. Sales and marketing expenses increased by 72.9%, or $5.9 million, for the three months ended March 31, 2008, and 79.5%, or $12.0 million, for the

six months ended March 31, 2008, compared to the same periods in 2007. These increases were primarily attributable to an increase in sales personnel and marketing programs, as well as the Gelco Acquisition. Total salaries and related expenses increased by 66.9%, or $4.2 million, for the three months ended March 31, 2008, and 64.0%, or $7.5 million, for the six months ended March 31, 2008, compared to the same periods in 2007. Share-based compensation increased by 308.1%, or $0.7 million, for the three months ended March 31, 2008, and 115.3%, or $0.7 million, for the six months ended March 31, 2008, compared to the same periods in 2007. In addition, costs for advertising and marketing increased by 119.0%, or $0.7 million, for the three months ended March 31, 2008, and 175.0%, or $2.1 million, for the six months ended March 31, 2008, compared to the same periods in 2007. These increases were primarily attributable to the Gelco Acquisition.

We expect total sales and marketing expenses in 2008 to increase as a percentage of revenue and in absolute dollars compared to 2007, driven primarily by an increase in sales personnel and marketing programs. These increases reflect a key part of our strategic focus in 2008, which is to ensure that we expand our sales and marketing efforts to support expected demand and to create additional awareness in our target markets.

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

Systems development and programming costs decreased as a percentage of total revenues to 10.9% and 11.5% for the three and six months ended March 31, 2008, compared to 12.1% and 12.7% for the same period in 2007. Systems development and programming costs increased 57.0%, or $2.1 million, for the three months ended March 31, 2008, and 55.0%, or $4.2 million, for the six months ended March 31, 2008, compared to the same periods in 2007. These increases were primarily due to the Gelco Acquisition. Salaries and related expenses increased by 69.5%, or $1.7 million, for the three months ended March 31, 2008, and 64.0%, or $3.2 million, for the six months ended March 31, 2008, compared to the same periods in 2007 due to additional headcount and the Gelco Acquisition. Depreciation, facilities and overhead allocation expense increased by 41.4%, or $0.5 million, for the three months ended March 31, 2008, and 45.4%, or $1.1 million, for the six months ended March 31, 2008, compared to the same periods in 2007. These increases were primarily due to the Gelco Acquisition.

In response to growing demand for our subscription services, the majority of our systems and development resources are focused on developing internal-use software used to provide these services to our customers. We capitalize costs for corporate software developed or obtained for internal use and amortize it over its useful life. Capitalized internal-use software costs, net of amortization, increased $0.9 million, from $12.5 million at September 30, 2007, to $13.4 million at March 31, 2008.

We anticipate that recognized systems development and programming costs in 2008 will increase in absolute dollars compared to 2007 as we continue to increase our investment in product innovation and enhancement.

General and Administrative. General and administrative expenses consist of salaries and related expenses and allocated overhead costs, all associated with employees and contractors in finance, human resources, legal, information technology and facilities, and, to a lesser extent, miscellaneous costs, such as professional fees and public company regulatory compliance costs.

General and administrative expenses as a percentage of total revenues increased to 15.4% and 14.7% for the three and six months ended March 31, 2008, compared to 13.3% and 14.5% for same periods in 2007. General and administrative expense increased by 102.1%, or $4.2 million, for the three months ended March 31, 2008, and 73.7%, or $6.4 million, for the six months ended March 31, 2008, compared to the same periods in 2007. Total salaries and related expenses increased by 73.5%, or $2.1 million, for the three months ended March 31, 2008, and 66.8%, or $3.4 million, for the six months ended March 31, 2008, compared to the same periods in 2007. These increases were primarily driven by increases in personnel count related to the growth of our business and the Gelco Acquisition. Depreciation, facilities, and overhead allocation expenses increased by 65.5%, or $0.6 million, for the

three months ended March 31, 2008, and 77.0%, or $1.4 million, for the six months ended March 31, 2008, compared to the same periods in 2007. In addition, other expenses, which include license and tax expense, increased by 655.4%, or $1.1 million, for the three months ended March 31, 2008, and 138.6%, or $1.2 million, for the six months ended March 31, 2008, compared to the same periods in 2007. These increases were primarily driven by an adjustment of $0.9 million to record additional state and local taxes payable and the growth of our business and the Gelco Acquisition.

We expect the absolute dollar amount of general and administrative expenses to increase in 2008 compared to 2007 due to increases in personnel costs related to the Gelco Acquisition and growth of our business.

Amortization of Intangible Assets. Amortization of intangible assets represents the amortization of the intangible assets from acquisitions, which includes Outtask, Inc. (“Outtask”) in January 2006 and Gelco in October 2007. We are amortizing our intangible assets as non-cash charges to operations for Outtask over an expected useful life of 8.2 years and for Gelco over an expected useful life of 9.6 years, which is consistent with the timing and level of expected cash flows attributed to customer relationships, use of acquired technology, trade name and trademarks, and non-compete agreements.

Interest Income, Interest Expense and Other


	Three Months Ended March 31,								Six Months Ended March 31,
	2008			2007			Change		2008			2007			Change
Other income (expense):
Interest income	$	180		$	213		(15.5	%)	$	430		$	395		8.9	%
Interest expense		(421	)		(346	)	21.7	%		(853	)		(713	)	19.6	%
Other, net		67			65		3.1	%		(59	)		94		(162.8	%)

Total other expense, net	$	(174	)	$	(68	)	155.9	%	$	(482	)	$	(224	)	115.2	%

Interest Income, Interest Expense and Other. The increase in interest expense is due to debt financing we used to acquire Gelco and for the purchases of our outstanding common stock during the three and six months ended March 31, 2008. We record fluctuations in exchange rate gains and losses in Other.

Income Tax Expense


	Three Months Ended March 31,						Six Months Ended March 31,
	2008		2007		Change		2008		2007		Change
Income tax expense	$	2,340	$	1,855	26.1	%	$	4,515	$	3,226	40.0	%

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

Financial Condition

Our total assets increased by 11.2%, or $38.6 million, to $384.0 million at March 31, 2008, from $345.5 million at September 30, 2007. Our cash and cash equivalents decreased by 89.7%, or $151.4 million, to $17.5 million at March 31, 2008, from $168.8 million at September 30, 2007. Our cash and cash equivalent balance at September 30, 2007, included $144.9 million of proceeds from our equity offering of 5.4 million shares of Concur common stock, which we used to fund the Gelco Acquisition. Our cash flow activity is described in more detail in the “Liquidity and Capital Resources” section below. Our

accounts receivable balances, net of allowances of $5.8 million and $2.8 million, were $40.3 million at March 31, 2008, and $31.5 million at September 30, 2007, representing an increase of 28.0%, or $8.8 million, this increase was primarily due to the Gelco Acquisition. Our property and equipment, net of accumulated depreciation, increased to $32.4 million at March 31, 2008, from $24.1 million at September 30, 2007.

Our total current liabilities increased by 69.0%, or $29.7 million, to $72.7 million at March 31, 2008, from $43.0 million at September 30, 2007. This increase was primarily due to $18.6 of customer funding liability, $6.6 million of the current portion of our deferred revenues and $3.5 million of acquisition related liabilities.

Our common stock and additional paid in capital decreased by 5.3%, or $23.7 million, to $421.6 million at March 31, 2008, from $445.3 million at September 30, 2007. The decrease reflects $30.9 million used to repurchase shares of our outstanding common stock, partially offset by proceeds received from the exercise of stock options under our stock-based compensation plans and the sale of stock under our employee stock purchase plan.

Liquidity and Capital Resources

Our available sources of liquidity as of March 31, 2008, consisted principally of cash and cash equivalents totaling $17.5 million. In addition, we have a revolving credit facility, which is discussed in more detail below.

Our operating cash inflows consist of payments received from our customers related to our subscription and other product offerings. Our operating cash outflows consist of employee salaries, payments to vendors directly related to subscription and license services, payments under arrangements with third parties who provide hosting infrastructure services in connection with our subscription services offerings, related sales and marketing and administrative costs, cost of operations and systems development and programming costs. Net cash provided by operating activities was $17.8 million and $21.8 million for the three and six months ended March 31, 2008, compared to $10.8 million and $16.3 million for the same periods in 2007. These increases in cash provided by operating activities were primarily due higher net income for the three and six months ended March 31, 2008, compared to the same periods in 2007.

Our investing activities used $2.1 million and $168.3 million in the three and six months ended March 31, 2008, compared to $10.8 million and $13.3 million for the same periods in 2007. Investing activities for the three and six months ended March 31, 2008, included $0.9 million and $161.9 million in payments for the Gelco Acquisition and our acquisition of Outtask, Inc. Investing activities for the three and six months ended March 31, 2007, included $7.8 million of cash payments to the shareholders of Outtask, Inc. Purchases of property and equipment were $3.2 million and $5.7 million for the three and six months ended March 31, 2008. The change in customer funding liabilities resulted in a decrease in cash provided of $2.5 million for the six months ended March 31, 2008.

Our financing activities used $22.5 million and $4.9 million in the three and six months ended March 31, 2008, compared to our financing activities providing $2.8 million and $2.9 million for the same periods in 2007. Financing activities included $30.9 million in cash used for purchases of our common stock during the three and six months ended March 31, 2008. Proceeds from financing activities included $7.8 million and $23.2 million from our revolving credit facility, during the three and six months ended March 31, 2008, which we used to help fund the Gelco Acquisition and to repurchase our common stock. The exercise of stock options provided $0.6 million and $3.0 million for the three and six months ended March 31, 2008.

On June 1, 2007, we entered into a Credit Agreement (“Credit Agreement”) with a financial institution. The Credit Agreement provided for a revolving credit facility for up to $50 million and expired in June 2010, or such earlier date as provided in the Credit Agreement. At our option, the interest rate on the revolving credit facility is equal to either (1) the greater of the Federal Funds Rate plus 0.5% and the financial institution’s publicly announced prime rate at that time, or (2) the London Interbank Offered Rate (“LIBOR”) divided by the result of 1.00 less the Federal Reserve System’s maximum reserve percentage for Eurocurrency funding. We had granted security interests in substantially all of our assets as collateral

for the loans under the Credit Agreement. The Credit Agreement requires compliance with certain covenants, which limit among other things our ability to consummate a sale of assets, make changes in our capital structure and pay out dividends. As of September 30, 2007, we had an outstanding balance of $5.4 million.

On October 1, 2007, we amended and restated our Credit Agreement (“Amended Credit Agreement”) and increased the maximum size of the revolving credit facility to $70.0 million and extended the expiration to September 2012, or earlier as provided in the Amended Credit Agreement. In addition, on October 1, 2007, we incurred additional indebtedness in the aggregate principal amount of $19.5 million under Amended Credit Agreement in connection with the Gelco Acquisition.

As of March 31, 2008, and September 30, 2007, we were in compliance with all loan covenants under the terms of the Amended Credit Agreement and Credit Agreement.

Our Board of Directors has authorized a stock repurchase program (the “Repurchase Program) that expires in January 2009. During the three months ended March 31, 2008, we repurchased and retired 1.1 million shares of our outstanding common stock under the Repurchase Program. As of March 31, 2008, 1.5 million shares remained eligible for repurchase under the Repurchase Program. Repurchases under the stock repurchase program may be made from time to time in the open market based on market conditions. Any repurchases will be made at the then-current market prices and repurchased shares will be retired. During the three and six months ended March 31, 2007, we repurchased and retired 0.1 million shares of our outstanding common stock under the Repurchase Program.

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

Contractual Obligations and Commercial Commitments

The following table summarizes our outstanding contractual obligations as of March 31, 2008:


	Debt
Years ended September 30,	Revolving Credit Facility		Capital Leases		Operating Leases		Purchase Obligations
2008 (1)	$	—	$	840	$	1,309	$	738
2009		—		1,505		2,507		1,475
2010		—		1,129		2,492		356
2011		—		199		2,292		—
2012		28,579		—		2,171		—
2013 and thereafter		—		—		1,437		—

Total	$	28,579	$	3,673	$	12,208	$	2,569

(1)	The contractual obligations and commercial commitments for 2008 cover the six month period from April 1, 2008, through September 30, 2008.

Off-Balance Sheet Arrangements

We do not maintain any off-balance sheet arrangements.

Critical Accounting Policies and Estimates

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

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

Business Combinations

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

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

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

Revenue Recognition

We generate our revenues from the delivery of subscription services (which include software maintenance services), consulting services and the sale of software licenses. We recognize revenues in accordance with accounting standards for software and service companies.

We recognize revenue when:

•

evidence of an arrangement exists;

•

delivery has occurred;

•

the fees are fixed or determinable; and

•

collection is considered probable.

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

In contractual arrangements that include the provision of multiple elements, we apply the accounting guidance most applicable to the specific arrangement to determine how contract consideration should be measured and allocated to the separate elements in the arrangement. Multiple element arrangements require the delivery or performance of multiple products, services and/or rights to use assets. Generally, separate contracts with the same customer that are entered into at or near the same time are presumed to have been negotiated together and, therefore, are accounted for as a single contractual arrangement in determining how contract consideration should be measured and allocated to the separate elements in the arrangement. Typically, we measure and allocate the total arrangement fee among each of the elements based on their fair value or, if necessary, vendor-specific objective evidence of their fair value (“VSOE”). VSOE is determined by the price charged when an element is sold separately or, in the case of an element not yet sold separately, the price set by authorized management, if it is probable that the price, once established, will not materially change prior to separate market introduction.

Subscription Revenues

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

•

monthly fees paid for subscription services;

•

amortization of related set-up fees;

•

amortization of fees paid for software maintenance services under software license arrangements; and

•

the amortized portion of the related license and consulting fees in certain multiple element subscription arrangements where VSOE does not exist for an undelivered subscription element.

Set-up fees paid by customers in connection with subscription services, as well as the associated direct and incremental costs, such as labor and commissions, are deferred and recognized ratably over the longer of the contractual lives, or the expected lives of the customer relationships, which generally range from two to five years. For those subscription service offerings that have been commercially available for only a short period of time, the contractual lives are used as the best estimate of the expected lives of the customer relationships. We continue to evaluate and adjust the length of these amortization periods as we gain more experience with customer contract renewals and contract cancellations. It is possible that, in the future, the estimates of expected customer lives may change and, if so, the periods over which such subscription set-up fees and costs are amortized will be adjusted. Any such change in estimated expected customer lives will affect our future results of operations.

Software maintenance services include technical support and the right to receive unspecified upgrades and enhancements on a when-and-if available basis. Fees for software maintenance services are typically billed annually in advance of performance of the services with provisions for subsequent automatic annual renewals. We defer the related revenues and recognize them ratably over the respective maintenance terms, which typically are one year.

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

Consulting and Other Revenues

Consulting revenues consist of fees for professional services, which relate to system implementation and integration, planning, data conversion, training and documentation of procedures. Consulting service fees are typically billed and recognized as revenue on a time-and-materials basis. In some instances, we sell consulting services under milestone or fixed-fee contracts and, in such cases, recognize consulting revenues on a percentage-of-completion basis. Consulting revenues are adjusted for estimated sales allowances, which are based on our historical experience, including a review of our experience related to price adjustments and sales credits issued.

In service arrangements that include consulting and subscription services, but not a license of our software, we recognize consulting revenues as they are performed if the consulting services qualify as a separate unit of accounting within the arrangement. The consulting services qualify as a separate unit of accounting if they have value to the customer on a stand-alone basis, there is objective and reliable evidence of the fair value of the subscription services and delivery or performance of the subscription services is considered probable and substantially within our control. We have determined that, in our service arrangements of this type, the consulting services typically qualify as a separate unit of accounting and, accordingly, the consulting revenues are recognized as the services are performed. If the consulting services do not qualify as a separate unit of accounting, the related revenues are combined with the subscription revenues and recognized ratably over the subscription service period. Our judgment as to whether the consulting services qualify as a separate unit of accounting may materially affect the timing of our revenue recognition and our results of operations.

Other revenues consist of fees earned from, and allocable to, grants of licenses to use our software products. We recognize license revenues when evidence of a license arrangement exists, we have delivered the software, the amount of the transaction is fixed or determinable, collection is probable and VSOE exists for any undelivered elements of the arrangement. Elements included in our multiple-element software arrangements consist of various licensed software products and services such as software maintenance services, consulting services and subscription services.

In software license arrangements that include rights to multiple elements, we allocate the total arrangement fee among each of the elements using the residual method, under which revenues are allocated to undelivered elements based on VSOE and the residual amounts of revenue are allocated to the delivered elements. If sufficient VSOE does not exist for the allocation of revenue to the various elements of the arrangement, all revenue from the arrangement is deferred until the earlier of the point at which such sufficient VSOE does exist or all elements of the arrangement have been delivered. If the only undelivered element is software maintenance, the entire fee is recognized ratably as subscription revenue. We are required to exercise judgment in deciding how to interpret the evidence of fair value to determine the allocation of arrangement consideration with respect to a given element and in determining whether an established price is likely to change prior to separate market introduction. These judgments may materially affect the timing of our revenue recognition and results of operations.

In software license arrangements where we also provide consulting services, license revenues are recognized upon delivery of the software, provided that the criteria for recognition of software license revenues described above are met, payment of the license fees is not dependent upon the performance of the consulting services and the consulting services are not essential to the functionality of the software. If we determine that the consulting services are essential to the functionality of the software, or payment of the license fees is dependent upon the performance of the consulting services, then both the license and consulting fees are recognized on a percentage-of-completion basis. We typically do not consider the consulting services we provide in such arrangements to be essential to the functionality of the software and, therefore, license revenues are typically recognized upon delivery of the software and consulting revenues are recognized as the services are performed. Accordingly, our judgment as to whether consulting services should be considered essential to the functionality of the licensed software may materially affect the timing of our revenue recognition and results of operations.

In arrangements where we license our software and also host the licensed software for our customer, a software element is only considered present if our customer has the contractual right to take possession of the software at any time during the hosting period without significant penalty, and it is feasible for our customer to either operate the software on its own hardware or contract with another vendor to host the software. If the arrangement meets these criteria, as well as the other criteria for recognition of license revenues described above, we deem there to be software element present and recognize license revenues when the software is delivered and we recognize the subscription hosting revenues as the hosting service is provided. Hosting set-up fees for such arrangements, as well as the associated direct and incremental costs, are deferred and recognized ratably over the hosting service period. If we determine that a separate software element as described above is not present, we combine the software license fees with the subscription hosting fees and recognize them ratably over the subscription service period, as subscription revenue. Our judgment as to whether we meet the criteria above could have a material affect on the timing and mix of our revenue recognition and on our results of operations.

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

Allowance for Uncollectible Accounts Receivable

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

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

Share-Based Compensation

Our share-based compensation program is a broad-based, long-term retention program that is intended to attract and retain talented employees and align stockholder and employee interests. We rely primarily on four equity compensation plans that provide broad discretion to our Board of Directors to create appropriate equity incentives for members of our Board of Directors and our employees. On October 1, 2005, we adopted the provisions of SFAS 123R,Share-based Payment (“SFAS 123R”), requiring us to recognize expense related to the fair value of our share-based compensation awards. We elected the modified prospective transition method as permitted by SFAS 123R. Under this transition method, stock-based compensation expense for the three and six months ended March 31, 2008 and 2007, includes compensation expense for all share-based compensation awards granted prior to, but not yet vested as of October 1, 2005, based on the grant date fair value estimated in accordance with the original provisions of SFAS 123,Accounting for Stock-based Compensation, and compensation expense for all stock-based compensation awards granted subsequent to October 1, 2005, based on the grant date fair value estimated in accordance with the provisions of SFAS 123R. In accordance with SFAS 123R, we capitalize the portion of our share-based compensation attributed to internal-use software and defer the portion of our share-based compensation associated with activities that generate deferred revenue. Under the provisions of SFAS 123R, our Employee Stock Purchase Plan is deemed non-compensatory. See Note 10 to our financial statements for further detail, including the impact of the adoption of SFAS 123R to our income statements.

Income Taxes

We assess the likelihood that we will be able to recover our deferred tax assets. We consider all available evidence, both positive and negative, including historical levels of income, expectations and risks associated with estimates of future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance. If recovery is not likely, we record a valuation allowance against the deferred tax assets that we estimate will not ultimately be recoverable. A release of valuation allowance as a result of an acquisition is recorded as reduction of goodwill recognized in the acquisition rather than a tax benefit in the income statement.

As of March 31, 2008, we believe it is more likely than not that the amount of the deferred tax assets recorded on our balance sheet will ultimately be recovered. However, should there be a change in our ability to recover our deferred tax assets, our tax provision would increase in the period in which we determine that recovery is not probable.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risks in the ordinary course of our business. These risks include primarily interest rate and foreign exchange risks.

Interest Rate Risk. We have borrowing arrangements with variable rates of interest. We also maintain cash in highly liquid investment vehicles including money market accounts, which bear interest at variable overnight or short term rates. Variable interest rate investment and debt exposes us to differences in future cash flows resulting from changes in market interest rates. Variable interest rate risk can be quantified by estimating the change in cash flows resulting from a hypothetical 100 basis point increase in interest rates.

Our revolving credit facility bears interest at floating rates we select under the terms of the Amended Credit Agreement. As of March 31, 2008, we had $28.6 million in outstanding indebtedness under the Amended Credit Agreement. The revolving credit facility is not hedged with an interest rate swap. On an annual basis, a 100 basis point change in interest rates would result in a change of $0.3 million to annual interest expense, based upon net variable rate borrowings of $28.6 million.

Foreign Currency Risk. We have foreign currency risks related to our revenue and operating expenses denominated in currencies other than the U.S. dollar. We do not believe movements in the foreign currencies in which we transact will significantly affect future net earnings. Foreign currency risk can be quantified by estimating the change in cash flows resulting from a hypothetical 10% adverse change in foreign exchange rates. We believe such a change would not have a material impact on our cash flows of financial instruments that are sensitive to foreign currency exchange risk.

Derivatives. We do not use derivative financial instruments.

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 to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting during the three months ended March 31, 2008, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Limitation on Effectiveness of Controls

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

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

PART II. OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

In July 2001, we and several of our current and former officers were named as defendants in two securities class-action lawsuits based on alleged errors and omissions concerning underwriting terms in the prospectus for our initial public offering. In April 2002, these lawsuits were consolidated with more than 300 similar pending cases filed against companies that completed initial public offerings between 1997 and 2000 and the underwriters that took them public. In July 2003, we decided to participate in a proposed settlement negotiated by representatives of a coalition of issuers named as defendants in similar actions and their insurers. Although we believe that the plaintiffs’ claims have no merit, we decided to participate in the proposed settlement to avoid the cost and distraction of continued litigation. The proposed settlement had been preliminarily approved by the court. However, in December 2006, the court found that six focus cases could not be certified as class actions, but in April 2007 the court acknowledged that it might certify a more limited class. At a June 2007 status conference, the district court terminated the proposed settlement as stipulated among the parties. Plaintiffs filed an amended complaint in August 2007 and a motion for class certification in six focus cases in September 2007. In November 2007, defendants in the six focus cases filed a motion to dismiss the complaint for failure to state a claim, which the district court denied in March 2008. All matters in this lawsuit, including any settlement proposal, await further determination by the court. If a new complaint is filed against us, we would continue to defend ourselves vigorously. Any liability we incur in connection with this lawsuit could materially harm our business and financial position and, even if we defend ourselves successfully, there is a risk that management’s distraction in dealing with this lawsuit could harm our results.

ITEM 1A.

RISK FACTORS

We operate in a dynamic and rapidly changing business environment that involves substantial risk and uncertainty. The following discussion addresses the risks and uncertainties that could cause, or contribute to causing, actual results to differ materially from expectations. In evaluating our business, readers should pay particular attention to the risks and uncertainties described below and in other sections of this report and in our subsequent filings with the SEC.

We only recently acquired Gelco, so it is difficult to determine what its impact on our financial results will be.

We completed our acquisition of Gelco in October 2007, so we have only a very limited operating history on which to base an evaluation of our combined business and prospects. Our future success will depend on many factors that are outside of our control, such as the following:

•

successful integration of Gelco products and services and personnel with our offerings and business;

•

growth in demand for our suite of services in light of competitive pressures; and

•

the perceived security of our services, technology, infrastructure and practices.

To address these risks we must, among other things:

•

successfully market our suite of services to new and existing customers;

•

attract, integrate, train, retain and motivate qualified personnel;

•

respond to competitive developments;

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successfully introduce new services and enhancements to existing services to address changing market conditions.

We may have difficulties integrating Gelco with our business operations, and the costs we incur may be high.

We may experience difficulties integrating the personnel, products, technologies and operations of Gelco with our own personnel, products, technologies and operations. Those difficulties include:

•

the need to manage more geographically-dispersed operations, such as Gelco’s operations in Minnesota and Virginia;

•

difficulty incorporating Gelco technologies into our operations infrastructure;

•

the difficulty of assimilating Gelco operations and personnel; and

•

the inability to maintain uniform standards, controls, procedures and policies across the larger organization.

If we are unable to address any of these risks successfully, our business could be harmed. Additionally, there is risk that we may incur additional expenses associated with an impairment of a portion of goodwill and other intangible assets due to changes in market conditions for acquisitions.

Because we depend on sales of a relatively small number of our solutions, decreases in demand for any of those solutions could substantially harm our results of operations.

We generated 93% of our total revenues for the six months ended March 31, 2008 from four solutions — Concur Travel & Expense, Concur Expense, Concur ExpenseLink and Concur Cliqbook Travel. We expect these solutions to continue to contribute a similar percentage of our total revenues for the foreseeable future. Our future financial performance and revenue growth is dependent upon continued market acceptance of these solutions and our revenues would decline significantly if competing products achieve greater market acceptance, either because our competitors (some of which have substantially greater resources than we do) develop new offerings, or we do not keep up with

technological advancements in services and software platforms, delivery models or product features. There can be no assurance that our solutions will continue to maintain widespread market penetration or that we will continue to derive significant revenues from sales of such solutions in the future.

Our future performance and revenue growth will depend on the growth of our subscription services.

We anticipate that our future financial performance and revenue growth will depend upon the growth of our subscription services. Subscription revenues represented 95% of our total revenues for the six months ended March 31, 2008. We expect subscription revenues to represent a large majority of our total revenues for the foreseeable future and that our future financial performance and revenue growth will depend, in large part, upon the growth in customer demand for our services. As a result, we have invested significantly in infrastructure, operations and strategic relationships to support on-demand subscription services, which represent a significant departure from traditional software delivery strategies.

If our subscription services business does not grow sufficiently, our cost of revenues may exceed such revenues, which would harm our operating results. Our costs of providing subscription services are relatively fixed in the short-term, so we may not be able to adjust our expenses quickly enough to offset any potential slowdown in subscription sales. In addition, any delays in deployment may prevent us from recognizing subscription revenue for indeterminate periods of time, even when we have already incurred costs relating to the deployment of our subscription services. Further, we may experience unanticipated increases in costs associated with providing our subscription services and software maintenance services to customers over the term of our customer contracts as a result of inaccurate internal cost projections or other factors, which may harm our operating results. Additionally, some of our subscription services contracts contain cancellation provisions and, if cancelled, could result in us recognizing substantially less revenue than the aggregate value of those contracts over their terms. If a customer cancels or otherwise seeks to terminate a subscription or maintenance agreement prior to the end of its term, or if we are unable to renew such an agreement at the end of its term, our operating results in future periods could be substantially harmed.

Our consulting revenues are likely to continue to decline, which could negatively impact our results of operations.

Our consulting and other revenues represented 5% of total revenues for the six months ended March 31, 2008. We anticipate that consulting revenues will continue to decline. The level of consulting revenues depends largely upon demand for our consulting services, which consist of system deployment and integration, planning, data conversion, training and documentation of procedures. Our consulting revenues will continue to decline to the extent sales or upgrades of our subscription services and/or software licenses fluctuate or decline or if third-party organizations such as systems integrators compete with us for the installation or servicing of our offerings. Our ability to increase consulting revenues will depend in large part on our ability to increase the scale of our consulting organization, including our ability to recruit and train a sufficient number of qualified consulting personnel.

We face significant competition from companies that have longer operating histories and greater resources than we do and our business will suffer if we fail to compete effectively.

The market for our solutions is intensely competitive and rapidly changing, so the competitive landscape is complex. Our principal direct competition comes from independent vendors of corporate travel and expense management software and services, as well as financial institutions and enterprise resource planning software vendors that sell products similar to ours along with their suites of other products and services. Many of our competitors have longer operating histories; greater financial, technical, marketing and other resources; greater name recognition and a larger total number of 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. These competitors may also be able to respond more quickly to new or emerging technologies and changes in customer requirements, or to devote greater resources to the development, promotion and sale of their products, than we can. We also face indirect competition from

potential customers’ internal development efforts and, 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. Increased competition may 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 results of operations.

Because we depend upon strategic relationships with third parties, our revenues will decline if we do not sustain and develop these relationships.

We depend on strategic reseller and referral relationships to offer products and services to a larger customer base than we can reach through direct sales, telesales and internal marketing efforts. If we were unable to maintain our existing strategic relationships or enter into new ones, we would have to devote substantially more resources to the distribution, sales and marketing of our products and services, which would increase our costs and decrease our revenues. Our success depends in part on the ultimate success of our strategic reseller and referral partners and their ability to market our products and services successfully. Our existing strategic referral partners are not obligated to refer any potential customers to us. In addition, some of these third parties have entered and may continue to enter, into strategic relationships with our competitors. Further, many of our strategic partners have multiple strategic relationships and they may not regard us as significant for their businesses. Our strategic partners may terminate their respective relationships with us, pursue other partnerships or relationships, or attempt to develop or acquire products or services that compete with our products or services. Our strategic partners also may interfere with our ability to enter into other desirable strategic relationships.

We depend on our relationships with travel suppliers, so any adverse changes in these relationships could adversely affect our business, financial condition and results of operations.

An important component of our business success will depend on our ability to maintain and develop relationships with travel suppliers. Adverse changes in existing relationships, or our inability to enter into new arrangements with these parties on favorable terms, if at all, could reduce the amount, quality and breadth of attractively priced travel products and services that we are able to offer, which could adversely affect our business, financial condition and results of operations.

If our customers have concerns over the scalability or security of our products, they might discontinue buying our solutions and our revenues will decline.

If customers determine that our subscription services offerings are not sufficiently scalable, do not provide adequate security for the dissemination of information over the Internet or corporate extranets, or are otherwise inadequate for Internet or extranet use or if, for any other reason, our customers decide not to accept our subscription services for use, our business will be harmed. As part of our subscription services, we receive credit card, travel booking, employee, purchasing, supplier and other financial and accounting data, through the Internet or extranets and there can be no assurance that this information will not be subject to computer break-ins, theft and other improper activity that could jeopardize the security of information for which we are responsible. Any such lapse in security could expose us to litigation, loss of customers, damage to our reputation, or otherwise harm our business.

In addition, any person who is able to circumvent our security measures could misappropriate proprietary or confidential customer information or cause interruptions in our operations. We may be required to incur significant costs to protect against security breaches or to alleviate problems caused by breaches. Any general concern regarding security in the marketplace could deter customers or prospects from using the Internet to conduct transactions that involve transmitting confidential information. Our failure to prevent security breaches, or well-publicized security breaches affecting the Internet in general, could significantly harm our business, operating results and financial condition.

Privacy concerns are increasing, which could result in regulatory changes that may harm our business.

Personal privacy has become a significant issue in the United States and many other countries in which we operate. The United States and various other countries have recommended restrictions on, or taken actions to restrict, the use of personal information by those collecting such information. Any new or existing privacy laws, if applicable to our business, could impose additional costs and could limit our use and disclosure of such information. If such privacy laws were deemed to apply to us, we may be required to change our activities and revise or eliminate our services, which could significantly harm our business.

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

Significant portions of our operations depend on our ability to protect our computer equipment and the information stored in our computer equipment, offices and hosting facilities against damage from earthquake, floods, fires, power loss, telecommunications failures, unauthorized intrusion and other events. We back up software and related data files regularly and store the back-up files at various off-site locations. However, there can be no assurance that our disaster preparedness will eliminate the risk of extended interruption of our operations.

We have engaged third-party hosting facility providers to provide the hosting facilities and related infrastructure for our subscription services. These hosting facilities are located in several locations in the United States and Australia. We do not control the operation of these hosting facilities. Despite precautions taken at these facilities, the occurrence of a natural disaster, a decision by one of our hosting providers to close a facility without adequate notice to us, or other unanticipated problems at these facilities could result in lengthy interruptions in our services. We also retain third-party telecommunications providers to provide Internet and direct telecommunications connections for our services. Any of these third-party providers may fail to perform their obligations adequately. Any damage to, or failure of, our systems could result in interruptions in our service and/or litigation. Interruptions in our service may reduce our revenue, cause us to issue credits or pay penalties, cause customers to terminate their subscriptions and adversely affect our renewal rates. Our business will be harmed if our customers and potential customers believe our service is unreliable.

It is difficult to determine whether the solutions we have developed as a result of our acquisition of Outtask in 2006 will be successful.

We completed our acquisition of Outtask in 2006 and since then we have introduced our Concur Travel & Expense solution, which fully integrates our respective flagship products. The success of that offering remains unproven, due to the limited time it has been available. In addition, our ability to cross-sell Concur Cliqbook Travel to our customers utilizing Concur Expense, and to cross-sell Concur Expense to our customers utilizing Concur Cliqbook Travel, is unproven. Customer acceptance of products that we develop as a result of our acquisition of Outtask is also dependent upon factors outside our control, such as:

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the perceived security of our services, technology, infrastructure and practices; and

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the significant lead times before new products, services or enhancements, including those that were added through the acquisition of Outtask, begin generating revenues.

If we acquire additional companies, products, or technologies, we expect to face risks associated with those acquisitions.

In the future, we may acquire or make investments in other companies, products, or technologies. We may not realize the anticipated benefits of those acquisitions or investments to the extent that we anticipate, or at all. We may have to incur additional debt or issue additional equity securities to pay for future acquisitions or investments, the issuance of which could be dilutive to our existing stockholders. If any acquisition or investment is not perceived as improving our earnings per share, our stock price may decline. In addition, we may incur non-cash amortization charges from acquisitions, which could harm our operating results. Any completed acquisitions would also require significant integration efforts, diverting our attention from our business operations and strategy.

The growth of the international component of our business subjects us to additional risks associated with foreign operations.

Our international operations, which are subject to risks associated with operating outside of the United States, are becoming an increasingly important component of our business. Revenues from customers outside the United States represented 13% of total revenues for fiscal 2007 and 11% of total revenues for the six months ended March 31, 2008. These international operations are subject to many difficulties and incremental costs, including:

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costs of customizing products for foreign countries;

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laws and business practices favoring local competitors;

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uncertain regulation of electronic commerce;

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

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longer sales cycles;

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greater difficulty in collecting accounts receivable;

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import and export restrictions and tariffs;

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

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difficulties staffing and managing foreign operations; and

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political and economic instability.

Our international operations also face foreign currency-related risks. To date, most of our revenues have been denominated in United States dollars, but we believe that an increasing portion of our revenues will be denominated in foreign currencies. We currently do not engage in foreign exchange hedging activities and, therefore, our international revenues and expenses are currently subject to the risks of foreign currency fluctuations. In addition, our ability to expand into international markets will depend on our ability to develop and support services and products that incorporate the tax laws, accounting practices and currencies of applicable countries.

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

We intend to continue to expand our international sales and marketing activities and enter into relationships with additional international distribution partners. We are in the early stages of developing our indirect distribution channels in markets outside the United States. We may not be able to attract and retain distribution partners that will be able to market our products effectively.

Our quarterly revenues and operating results may fluctuate in future periods and we may fail to meet expectations of investors and public market analysts, which could cause the market price of our common stock to be volatile or to decline.

Our revenues and operating results may fluctuate significantly from quarter to quarter. We believe that period-to-period comparisons of our operating results may not be meaningful and should not be relied on as an indication of our future performance. If quarterly revenues or operating results fall below the expectations of investors or public market analysts, the price of our common stock could decline substantially. Factors that might cause quarterly fluctuations in our operating results include:

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developments in the integration of Gelco;

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the evolving demand for our services and software;

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spending decisions by our customers and prospective customers;

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our ability to manage expenses;

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the timing of new product releases;

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changes in our pricing policies or those of our competitors;

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the timing of large contracts;

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changes in mix of our services and software offerings;

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the mix of sales channels through which our services and software are sold;

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costs of developing new products and enhancements;

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our ability to adequately provide services and software; and

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global economic and political conditions.

Our reported financial results may be adversely affected by changes in accounting principles generally accepted in the United States.

Accounting principles generally accepted in the U.S. are subject to interpretation and change over time. A change in these principles or different interpretation of an existing principle could have a significant effect on our reported financial results and could affect the reporting of transactions completed before the announcement of a change. For example, revenue recognition rules are complex and require significant interpretation by us. Changes in circumstances, interpretations, or accounting principles or guidance may require us to modify our revenue recognition policies. Such modifications could impact the timing of revenue recognition and our operating results. See “Management’s Discussion And Analysis Of Financial Condition And Results Of Operations” regarding our critical revenue recognition policies.

If our internal controls are not effective, there may be errors in our financial information that could require a restatement or delay our SEC filings, and investors may lose confidence in our reported financial information, which could lead to a decline in our stock price.

At the end of 2006 we determined that we had a material weakness in our internal controls, which pertained to controls over changes in accounting principles. At the end of 2007, our auditors have determined that we have adequately remediated this weakness. However, it is possible that we may discover other significant deficiencies or material weaknesses in our internal control over financial reporting in the future. Any failure to maintain or implement required new or improved controls, or any difficulties we encounter in their implementation, 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 our stock price.

Compliance with public company corporate governance and reporting regulations is uncertain and expensive.

Many new laws, regulations and standards, notably those adopted by the SEC and the NASDAQ Stock Market in connection with the Sarbanes-Oxley Act of 2002, impose significant obligations on public companies such as ours. The new laws and regulations have increased the scope, complexity and cost of corporate governance, reporting and disclosure practices and have created uncertainty for companies

such as ours. These new laws, regulations and standards are subject to varying interpretations in many cases due to their lack of specificity and as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies, which could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. Our compliance with these reforms and enhanced new disclosures has resulted in and will likely continue to result in, higher general and administrative expenses and a significant diversion of management time and attention from revenue-generating or cost-reduction activities to compliance activities. If we are not able to prepare for and implement the reforms required by new laws, regulations and standards, our business, operating results and financial condition could be harmed. Further, these laws, regulations and standards may make it more difficult for us to attract and retain qualified members to serve on our board of directors and to attract and retain qualified executive officers, which could harm our business.

Our lengthy sales cycle could adversely affect our financial results.

Because of the high costs involved over a significant period of time, customers for our solutions 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. Our sales cycle, which is the time between initial contact with a potential customer and the ultimate sale, is often lengthy and unpredictable. As a result, we have limited ability to forecast the timing and size of specific sales. In addition, customers may delay their purchases from a given quarter to another as they elect to wait for new product enhancements or due to other 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.

We may not successfully develop or introduce new products or enhancements to existing products, or successfully integrate the Gelco products and services with our offerings, as a result, we may lose existing customers or fail to attract new customers and our revenues may suffer.

Our future financial performance and revenue growth will depend, in part, upon the successful development, introduction and customer acceptance of new and enhanced versions of our products and services and on our ability to integrate the products and services of Gelco into our existing and future products and services. Our business could be harmed if we fail to deliver enhancements to our current and future products and services that our customers desire, or fail to integrate Gelco’s products and services into our existing and future products. From time to time, we experience delays in the planned release dates of enhancements to our products and services and we have discovered errors in new releases after their introduction. New product versions or upgrades may not be released according to schedule, or may contain errors when released. Either situation could result in adverse publicity, loss of sales, delay in market acceptance of our products and services, or customer claims, including, among other things, warranty claims against us, any of which could harm our business. If we do not deliver new product versions, upgrades, or other enhancements to existing products and services on a timely and cost-effective basis, our business will be harmed. We are also continually seeking to develop new offerings. However, we remain subject to all of the risks inherent in product development, including, without limitation, 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 successfully develop new services or products, or to introduce in a timely manner and gain acceptance of such new products or services in the marketplace.

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

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

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

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

Our stock price has experienced high volatility in the past, 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 a number of factors, many of which are outside our control, such as:

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the announcement of a merger or acquisition;

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variations in our actual and anticipated operating results;

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changes in our earnings estimates by analysts;

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failure to achieve earnings expectations;

•

the volatility inherent in stock prices within the emerging sector within which we conduct business; and

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

Stock markets, particularly the NASDAQ Stock Market, have experienced extreme price and volume fluctuations that have affected the market prices of many technology and computer software companies, particularly Internet-related companies. Such fluctuations have often been unrelated or disproportionate to the operating performance of these companies. These broad market fluctuations could adversely affect the market price of our common stock.

Further, 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. In July 2001, we and several of our current and former officers were named as defendants in two securities class-action lawsuits based on alleged errors and omissions concerning underwriting terms in the prospectus for our initial public offering. In April 2002, these lawsuits were consolidated with more than 300 similar pending cases filed against companies that completed initial public offerings between 1997 and 2000 and the underwriters that took them public. In July 2003, we decided to participate in a proposed settlement negotiated by representatives of a coalition of issuers named as defendants in similar actions and their insurers. Although we believe that the plaintiffs’ claims have no merit, we decided to participate in the proposed settlement to avoid the cost and distraction of continued litigation. The proposed settlement has been preliminarily approved by the court. However, in December 2006, the court found that six focus cases could not be certified as class actions, but in April 2007 the court acknowledged that it might certify a more limited class. At a June 2007 status conference, the district court terminated the proposed settlement as stipulated among the parties. Plaintiffs filed an amended complaint in August 2007 and a motion for class certification in six focus cases in September 2007. In November 2007, defendants in the six focus cases filed a motion to dismiss the complaint for failure to state a claim, which the district court denied in March 2008. All matters in this lawsuit, including any settlement proposal, await further determination by the court. If a new complaint is filed against us, we would continue to defend ourselves vigorously. Any liability we incur in connection with this lawsuit could materially harm our business and financial position and, even if we defend ourselves successfully, there is a risk that management’s distraction in dealing with this lawsuit could harm our results.

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, including personnel added through our acquisition of Gelco. Competition for such personnel is intense and there can be no assurance that we will be successful in attracting, motivating and retaining key personnel. Many of our competitors have greater financial and other resources than us for attracting experienced personnel. We also compete for personnel with other software vendors and consulting and professional services companies. Further, recent changes in applicable stock exchange listing standards relating to obtaining stockholder approval of equity compensation plans could make it more difficult or expensive for us to grant options to employees in the future. We rely on our direct sales force to sell our services and software in the marketplace. We anticipate increasing our direct sales force. There is significant competition for direct sales personnel with the advanced sales skills and technical knowledge we need. If we were unable to hire or retain competent sales personnel our business would suffer. In addition, by relying primarily on a direct sales model, we may miss sales opportunities that might be available through other sales channels, such as domestic and international resellers and strategic referral arrangements. Any inability to hire and retain salespeople or any other qualified personnel, or any loss of the services of key personnel, would harm our business.

Our ability to protect our intellectual property is limited and our products may be subject to infringement claims by third parties.

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. Although we have filed six patent applications in various countries, we do not own any issued patents. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or to obtain and use information that we regard as proprietary and third parties may attempt to develop similar technology independently. We provide our licensed customers with access to object code versions of our software and to other proprietary information underlying our software. Policing unauthorized use of our products is difficult, particularly because the global nature of the Internet makes it difficult to control the ultimate destination or security of software or other data transmitted. While we are unable to determine the extent to which piracy of our software products exists, software piracy can be expected to be a persistent problem. In addition, the laws of some foreign countries do not protect our proprietary rights to as great an extent as do the laws of the United States and we expect that it will become more difficult to monitor use of our products as we increase our international presence. There can be no assurance that our means of protecting our proprietary rights will be adequate, or that our competitors will not independently develop similar technology. In addition, there can be no assurance that third parties will not claim infringement by us with respect to current or future products or other intellectual property rights. Any such claims could have a material adverse effect on our business, results of operations and financial condition. 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 do not have assurance that our strategy with respect to our trademark portfolio will be adequate to secure or protect all necessary intellectual property.

Anti-takeover effects of our rights agreement, charter documents and Delaware law could discourage or prevent a change in control of Concur.

We have a shareholder rights agreement in place, under which our stockholders have special rights, in the form of additional voting and beneficial ownership, in the event that a person or group not approved by the board of directors were to acquire, or to announce the intention to acquire 15% or more of our outstanding shares. This plan is designed to have the effect of discouraging, delaying or rendering more difficult an acquisition of us that has not been approved by our Board of Directors.

In addition, there are provisions in our certificate of incorporation and bylaws, as well as provisions in the Delaware General Corporation Law, that may discourage, delay or prevent a change of control. For example:

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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 holders of a majority of our outstanding common stock;

•

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; and

•

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.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Share repurchase

A summary of the repurchase activity during the three months ended March 31, 2008, is as follows:


Period	Total Number of Shares purchased	Average Price Paid Per Share		Total Number of Shares Purchased as part of Publicly Announced Plans or Programs	Maximum Number of Shares that May yet be Purchased Under the Plans or Programs
January 1-31, 2008	—	$	—	—	2,591,159
February 1-29, 2008	610,600		30.71	610,600	1,980,559
March 1-31, 2008	440,000		27.58	440,000	1,540,559

Total	1,050,600	$	29.40	1,050,600

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

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

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 to sign on behalf of the registrant and as the principal financial officer thereof.

Dated: May 6, 2008


CONCUR TECHNOLOGIES, INC.

By		/s/ John F. Adair
		John F. Adair
		Chief Financial Officer

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Litigous
Readability	H.S. freshman Good

Concur (CNQR) Inactive 10-Q2008 Q2 Quarterly report

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