Concur Technologies' CEO Discusses F2Q2014 Results - Earnings Call Transcript

Apr.29.14 | About: Concur Technologies, (CNQR)

Concur Technologies, Inc. (NASDAQ:CNQR)

F2Q2014 Earnings Conference Call

April 29, 2014 5:00 PM ET

Executives

Todd Friedman – VP, IR

Steve Singh – CEO and Chairman

Rajeev Singh – President and COO

Frank Pelzer – CFO

Analysts

Michael Nemeroff – Credit Suisse

Steve Ashley- Robert W. Baird

Brent Thill – UBS Investment Bank

Jobin Matthews – Deutsche Bank

Samad Samana – FBR Capital Markets

Michael Huang – Needham & Company

Ross MacMillan – Jefferies & Company

Operator

Good day, ladies and gentlemen, and welcome to the Concur Technologies’ Second Quarter Fiscal 2014 Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded. I would now like to turn the conference – turn you over to your host for today’s conference Mr. Todd Friedman. Sir, you may now begin the call.

Todd Friedman

Thank you, operator. Good afternoon, everyone, and welcome to the call. Today, we’re discussing Concur’s results for the second quarter of fiscal 2014. This call includes presentation slides that will accompany our prepared remarks. To access these slides as well as the Press Release and 8-K from today’s earnings, please visit the Investors section of our website at concur.com.

We are now on Slide 1. Our speakers for the call today are Steve Singh, our Chairman and Chief Executive Officer; Rajeev Singh, our President and Chief Operating Officer; Frank Pelzer, our Chief Financial Officer. After their prepared statements today, we’ll host a brief question-and-answer session.

Please now advance to Slide 2. Before we get started, we want to remind you that during the course of this conference call, we will discuss our business outlook and make other forward-looking statements regarding our current expectations of future events and the future financial performance of the company. These forward-looking statements are based on information available to us as of today’s date and are subject to risk and uncertainty. We encourage you to review the details on the Slide 2 and our filings with the Securities and Exchange Commission, which are available at sec.gov, for additional information or risk factors that could cause actual results to differ materially from our current expectations and the forward-looking statements expressed or implied during this conference call. We assume no duty or obligation to update these forward-looking statements, even though our situation may change in the future.

On the call today, we will also be discussing certain non-GAAP financial measures. Reconciliations of those measures to their comparable GAAP measures can be found in the table within our Press Release.

With that, I’ll now turn the call over to Steve.

Steve Singh

Thank you, Todd. Good afternoon everyone and thank you for joining us. Raj, Frank and I are excited to update you on the business and highlight our progress on key elements of Concur’s long-term business strategy.

As such, during the course of the earnings call, we are going to focus our remarks on three topics. First, we just delivered an exceptional Q2, beating our estimates for revenue, earnings, cash flow from operations, free cash flow and new customer growth. The first half of the fiscal year was marked by exceptionally strong growth rate and even as we face some tougher year-over-year comps in the second half, which is typical, fiscal 2014 is lining up to be the best top line growth rate we will have delivered in the past half decade.

Additionally, as you understand from our bookings model, we are already starting to sign business that will drive revenue growth into fiscal 2015. Second, as we prepare for our Annual Fusion Conference and Analyst Day next week, it’s been interesting for me to reflect on how much has changed in our business in the – in the past 12 months.

We’ve shifted from a company that sells market defining products and services to one that is delivering market defining products and services on an open platform that can be leveraged by our community or partners. We’ve grown headcount by 1,200 people. We’ve grown revenue by 31% and we grew our customer base by 30% adding more than 5,000 new customers.

We have grown our pace of investment and we’ve expanded our network of partnerships around the world all for the purpose of improving the value we can collectively deliver to our mutual customers.

At Fusion, we’re going to talk to our customers and partners about Concur today, but also about the opportunity we share to completely reinvent the entire corporate, travel and expense management industry. We’ll provide a preview of that event on today’s call.

And third, we want to give you an update on our financial and business objectives for the remainder of fiscal 2014. Please turn to the next slide.

So let’s start with the quarter. Compelling long-term opportunities such as the one we are pursuing are enabled and realized by consistent and great execution against a compelling vision. In Q2, we saw our business momentum and track record of strong execution continue.

Revenue grew 31% year-over-year to over $167 million, ahead of our guidance. As usual, revenue growth was driven by the consistency and efficiency of our deployments.

Driven by stronger than expected revenue growth, non-GAAP EPS was $0.15 a share, a penny ahead of our guidance. We continue to invest in future growth opportunities, such as the Concur T&E Cloud platform, TripLink, sales and distribution capacity and our Big Data initiatives. Cash flow from operations and free cash flow were both well ahead of our expectations.

In fact, the overall business environment remains consistent with what we’ve seen for the past few years. We continue to see strong demand for our products and services. We continue to see exceptionally strong retention rates, we continue to see win rates consistent with our 10-year historical average, we continue to see the majority of our customers buying a broad suite of services from us.

We are seeing great early traction around new markets such as Japan and our SMB initiatives and new initiatives such as TripLink, ExpenseIt, and the Concur T&E Cloud. We’ll give you more color on each of these a little later on the call.

With over 23,000 customers and an opportunity to increase that tenfold before we even approach 25% market penetration, we remain excited not just about our growth opportunities, but also about the steady state operating margins that we can deliver from a cloud-based business model in a market where we are the clear leader.

Please turn to the next slide. While our quarterly financials are driven primarily by deployments and underlying transactional trend, both of which were strong in the quarter, the health of our business for the forward year is driven by new customer demand. We were very pleased with the demand environment we saw in Q1 and in Q2. In fact, driven by the strength of bookings and the current demand environment, we are on track to have bookings growth in fiscal 2014 to be comparable to what we saw in fiscal 2013 which gives us comfort that we will maintain our targeted long-term growth rates into fiscal 2015 and across the $1 billion revenue mark in fiscal 2016.

In Q2, we saw very strong bookings in both the enterprise and SMB customer segments. And while we saw strength in all geographies, we saw stronger-than-expected growth in the US, key markets in EMEA and in Japan. In fact, we added roughly 1,500 new customers including VMware, LivePerson, Boston University, Mitsui, the New York Yankees and Chevron.

We also signed one of the largest chemical manufacturers in Japan as Concur Japan continues to perform ahead of our expectations.

We also continue to progress our deployments against the ETS2 contract. At this point, we are well into the implementation process with most of the agencies we signed in fiscal 2013. As of today, we have more than 10 agencies live, some in early stages of production and others in pilot. This is consistent with our expectations and past comments. And while we don’t expect any material contribution from the ETS2 contract to fiscal 2014 revenues, the progress we have made gives us even greater visibility into fiscal 2015.

Our expanding distribution footprint and growing market presence in both the private and public sector is helping to drive the pipeline growth that’s sustaining sales productivity and fueling our hiring plans. These data points affirm our bullish view for the demand environment for our products and services.

Please turn to the next slide. I’m pleased to report that we’re also executing very well against our long-term growth initiatives. We saw a continued momentum around TripLink, our open booking initiative and the Concur T&E Cloud, our open platform initiative.

TripLink and the Concur T&E Cloud will both be heavily featured at Fusion next week. We’re seeing strong support from the industry, from developers, from TMCs, from suppliers, from solution providers, all who recognize the value of opening up the travel and expense ecosystem with the goal of delivering better innovation, collaboration and efficiency.

I’m not going to focus too much on TripLink today because we have some great news planned for next week, but the momentum remains strong as we cross the 1,000 customers who have now signed up for TripLink. We look for some exciting announcements around TripLink next week at the Fusion conference.

Please turn to the next slide. Our platform team also saw continuous success this quarter as more customers tap into the rich array of resources and solutions available to them through the app center and the Concur T&E Cloud. In fact, nearly 1,000 corporate clients are now using apps delivered to through the Concur app center from partners that are integrated into the Concur T&E Cloud. In fact one of the best apps available is from Concur. It’s called ExpenseIt.

The response to ExpenseIt has been incredible. In the second quarter, we doubled the number of corporate customers and quadrupled the number of users. Much like TripIt, there’s a wow factor when someone uses ExpenseIt for the first time and sees how much it changes the way they think about filing their expense reports.

The platform has also seen particular strength in a few areas where the value of an open approach is immediately recognizable. For instance, last quarter, we talked about the success one of our customers had with Universal VAT to more closely examine their VAT reclamations. We’re seeing a number of VAT analytics companies connecting to the platform and rapid client adoption of those solutions.

We’re also seeing strong traction in the live sciences space. With our specific rules and regulations, the physicians and facilities have to follow. Those solutions such as R-Squared which is focused on the SMB community fulfill a very specific yet a very important need.

Previously, those vendors and those customers would have needed to search for each other individually and integrate and deploy their solutions one at a time. By connecting to the Concur platform, we are more easily able to connect with each other, access through a secure data and achieve rapid benefit.

Another area that’s seeing strong client adoption and partner connections is Single Sign-On and Identity Management. This is a category that already was well representative of the platform with vendors such as Ping Identity, Octa [ph] and Centrify and became even strong in Q2 with the addition of Microsoft Azure and OneLogin.

Like TripLink, we’ll spend a lot more time at Fusion talking to customers introducing them to our platform partners.

With that, I’d like to bring Raj onto the call to talk about Fusion and give you a preview of what we’re planning to discuss with our customers next week. Raj?

Rajeev Singh

Thank you, Steve. Next week, Fusion will be in New Orleans at the Convention Center with more than 2,500 attendees. More than 100 of them partners either presenting in sessions or showcasing their solutions that are expo delivering hundreds of individual consulting sessions and driving breakouts focused on vertical industries like higher Ed, life science, government and oil and gas.

We look at this time as an essential opportunity to lay out our product and technology strategy for the future while at the same time cultivating a feedback loop from our clients that hone and perfects our strategy.

Over the years, our customers have impressed you helping us to understand what they need today and what they’ll need in the future. In return, we’ve been able to grow the suite of services we provide them each year leveraging our trust and relationship into a more meaningful position within their businesses. We view that feedback loop as essential to our success as a company and as a driver for our usually high retention rates.

This year will be no different. It has been almost exactly a year since we last met this group in Las Vegas in 2013. Since then the company has materially progressed our strategic product initiatives and finalizing the integration of multiple acquisitions which are now imbedded in our broader offering strategy. We intend to unveil how our customers can take advantage of the plethora of new capabilities to drive advantage for their business.

Please turn to the next slide. Our strategy has always been based on a fairly fundamental idea. We deliver cloud services that help businesses and individuals focused on the things that really matter. We can divide it in three simple words–transparent, effortless and connected.

Transparent, if an employee spends money on behalf of the company, the company ought to have incredible transparency into that cost. And if there are hidden fees, unclaimed discounts or bad employee behavior, the company ought to get a clean look.

Effortless, when an employee spends money, Concur ought to help that person make good decisions for helping them see their best or right or most compliant option in a simple way. And along the way, we’re going to make their experience as an employee perfect.

And lastly connected, everything we provide and all the features and functionality that our partners contribute to the experience all deliver via an integrated technology stack that only one company on the planet can deliver whether you’re talking about invoices, travel or expenses as I mentioned extremely simple.

Please turn to the next slide. These objectives are incredibly aligned with the way our clients think about solving their business problems. As the network effect of our platform efforts have begun to take hold, we have made incredible progress in each of these areas. Fusion is our opportunity to share our progress.

Today, I’ll give you a sneak peak to what we’ll be talking about. In the area of transparency via recent acquisitions and through our own significant efforts in R&D, we’re delivering new analytics capabilities which can combine and correlate feeds from a rich variety of data sources across the industry.

Now, if you want to pull in a data feed from your travel management company in Estonia and your credit card provider in South Africa along with the T&E information from Concur and match it all up for seamless reporting, you can do it easily without needing to cobble together a bunch of different [ph] data feeds and technology integrations. And when third-party platform partner adds data to the system, it automatically correlates.

Openness has its advantages.

As it relates to effortless, nothing is easier than the ExpenseIt product that we launched this past year. As Steve mentioned, customer uptake has been incredible and we expect it to be the hit of the show at Fusion. End users simply snap a picture of their receipt and is automatically itemized and put on their expense report including the dreading hotel receipt, a seemingly thousands of line items.

And via platform partnership with American Express, now you can instantly swipe your American Express corporate card anywhere, ExpenseIt lets you know that you need to be grabbing a picture of that receipt.

And as it relates to connected, no company in the industry has made more progress in pulling together an end-to-end travel and expense ecosystem than Concur. At Fusion, we will for the first time be able to demonstrate the incredible power of a completely integrated technology stack that can deliver messages to employees anywhere in the world either from their TMC, the corporation or both with a seamless messaging platform, can anticipate trip disruption and help your TMC or your traveler change their travel plans before they are inconvenienced. Or could give you visibility and control over travel transactions work regardless of where they’re booked.

Please turn to the next slide. These are just some of the things that we’re going to share with our clients this week. We could not be more excited to share the progress we have made in progressing our strategy. For those of you who are attending the Analyst Day preview event, I look forward to seeing you there.

With that, let me turn the call over to our CFO, Frank Pelzer to walk you through Q2 details and our business outlook. Frank?

Frank Pelzer

Thank you, Raj and good afternoon everyone. Today, I would like to review our results for fiscal Q2, 2014, as well as discuss our outlook for the remainder of the year. Our core business drove strong financial and operational results in Q2. In the quarter, our non-GAAP revenue grew over 31% year-over-year, nicely ahead of our expectations.

Non-GAAP operating margin was approximately 7% and non-GAAP pretax income per share was $0.15. Cash flow from operations excluding the impact of cash paid for acquisition-related expenses, excess tax benefits and non-controlling interest was over $23 million. We continue to execute against our investment objectives designed to further drive our top line growth and expand our role in the trillion dollar corporate travel market.

Our focus on investing and growth continues to be validated by the global demand we are experiencing for our services and the ecosystem that is quickly building around our platform. Finally, the successful execution of our strategy is creating a foundation for sustainable growth for the years to come. If you would, please advance to this slide titled "Revenue Summary" and let’s look at Q2 results.

Unless otherwise stated, please note that all of my comments reference non-GAAP operating metrics. Q2 revenue was ahead of our expectation at $167 million growing over 31% year-over-year and 4% sequentially. Please note that this excludes $2.5 million of revenue from operations acquired from TRX that we intend to divest.

For GAAP purposes, we were not able to classify these operations as discontinued at quarter end that we may be able to achieve discontinued operations presentation at a future point in time. Recognized revenues in the quarter benefitted from excellent traction and new customer deployments, existing customers adding new services and solid transactional volume. Customer retention rates were again strong for the quarter consistent with our historical averages in the high 90s.

The following comments refer to the next two slides. Gross margin was consistent with our expectation at approximately 67% for the quarter, down year-over-year primarily as a result of investments and growing our professional services organization. Gross margin is a reflection of the economies of scale inherent in our business model with high margin products offset by investments made to support our growth initiatives.

As we have stated repeatedly, our goal is to invest across the business to expand our distribution and product capabilities. For Q2, sales and marketing expense increased 27% year-over-year reflecting our ongoing and sizable investment to expand our capacity to reach prospects and customers.

Research and development expense increased 47% year-over-year driven by growth in headcount to accelerate the innovation curve in our industry. G&A expense increased 33% year-over-year reflecting investments in corporate infrastructure to support our global growth.

Operating margin in Q2 was approximately 7% in line with our expectation. The higher than expected revenue, combined with our planned reinvestment of the upside resulted in Q2 pretax earnings per share of $0.15 ahead of our $0.14 per share expectation.

Please advance to the slide titled "Cash flow summary." Cash flow from operations and free cash flow were also ahead of our expectations for the quarter, primarily driven by continued strong performance for the business. Cash flow from operations for the quarter, excluding cash paid for acquisition, other related activities, excess tax benefits and non-controlling interest was over $23 million, ahead of our expectations.

Capital expenditures were approximately $14.5 million or approximately 8.7% of quarterly revenue. Free cash flow was approximately $9 million for the quarter, ahead of our expectation. Our cash position is very strong and provides us tremendous leverage to continue to expand our market and our leadership position.

Cash and short-term investments, net of customer funding liabilities, ended the quarter at $745 million, down from last quarter mainly due to cash use for tax holding on vested RSUs and perfect trip on investments.

Day sales outstanding ended at 62, at the low end of our 60- to 70-day expected range, primarily due to strong collections. As we have mentioned in the past, please note that deferred revenue is not an accurate measure of bookings growth since we build the vast majority of our customers monthly. That said, deferred revenue grew over – to over $107 million at quarter end, reflecting approximately 16% growth over the same period of the prior year.

I would also like to note that our GAAP results for the quarter include the impact of a one-time non-cash charge of approximately $31 million to establish evaluation allowance against our US Federal and state deferred tax assets. As a result, we posted the second quarter GAAP loss per share of $0.99.

Please note that this is a non-cash item and excluded from our non-GAAP results.

Many of you may have heard other companies such as Salesforce.com discuss this accounting treatment in the past. For those of you who are not familiar, I’ll provide some context. Defer tax assets on the balance sheet represent the value of tax deductions and credits to offset future tax liabilities. These assets include deductible temporary tax differences, tax credits and net operating loss carry boards.

US GAAP requires companies to regularly assess their ability to recognized deferred tax assets by evaluating certain criteria. These criteria include whether the company has accumulative pretax GAAP loss in recent history as well as the timing and likelihood of near-term GAAP and tax profitability.

After performing this analysis in Q2, we determined that the valuation allowances was required as near-term realization of these assets is less likely than not. Just to be clear, our deferred tax assets have expiry dates many years into the future. Therefore we maintain the ability to utilize these assets at some point to offset future tax liabilities if and when they occur.

The total valuation allowance impact on the second quarter GAAP EPS was a loss of approximately $0.55 per share and the resulting GAAP tax rate was a negative 123%. Until the valuation allowance is reversed, our GAAP tax rate will likely fluctuate from quarter to quarter.

Please advance to the next slide. Let’s now turn the discussion to expectations for Q3 and the full year. As Steve mentioned, demand for our services has remained strong. On the strength of our results in the first half of the year, we are maintaining our expectation that FY ‘14 revenue will grow approximately 26% year-over-year. For Q3, we also expect total revenue to grow approximately 26% year-over-year. We believe we have a large and strategic window of opportunity to further strengthen our leadership position especially in new markets around the globe, our government business and new service offerings associated with our Concur T&E Cloud platform.

As demonstrated by first half results, we are finding good people to hire in good areas in which to invest capital. As a result and which those two quarters left in the fiscal year, we are narrowing our guidance for operating margin for FY ‘14 to a range of 10% to 12%.

Given the strong demand environment, we are experiencing, we will continue to invest at a healthy rate and encourage you to model operating margins for the bottom of this range. As stated last quarter, we expect Q3 to be in this range. We now expect Q4 to be at the high end or above our tightened range. We still intend to invest every dollar above our revenue guidance back into the business with a floor of 10% operating margin for the year as a whole.

Our revenue and operating margin expectations result in non-GAAP pretax earnings per share of at least $0.93 in FY ‘14. We expect Q3 to contribute $0.24 of the total for the year. I will remind everyone that as a business, we target annual non-GAAP operating margin and EPS goals and are less focused on variations that happen quarter to quarter.

Let me now turn to cash flows. The cash generating dynamics of our business continue to be strong and the cash flow from operations should continue to be largely linked to non-GAAP earnings. With strong revenue growth offset by a higher rate of investment, we continue to expect cash flow from operations excluding acquisition of the related cost, the excess tax benefits from share based compensation and non-controlling interest for FY ‘14 to be at least $72 million.

Regarding our tax rate, we still have a large NOL balance. For FirstCall consensus purposes, we encourage you to use the 35% federal statutory rate but recognize that this does not reflect the taxes we pay. For FY ‘14, we expect cash income tax payments to be a single digit percentage of pro forma pretax income. For FY ‘14, we expect to spend 8% to 9% of revenue on capital expenditures due to infrastructure investments including global facilities, data centers and information system enhancements.

Driven by an exceptional first half of the year and our proven ability to execute well, we are excited about the back half of the year and our capacity to drive meaningful innovation and long-term value for our customers and our shareholders. Now, I’d like to turn the call back over to Steve for closing comments.

Steve?

Steve Singh

Thanks, Frank. Clearly, we had an exceptional Q2 and we expect that momentum to continue into the second half of the fiscal year. We are comfortable with our full-year revenue and earnings outlook and we have an opportunity to deliver another year of compelling bookings growth that will drive visibility and compelling growth into fiscal 2015.

But the most important thing to take away from today’s call and to understand about Concur is that we are reinventing one of the larger industry verticals in the world, corporate travel. We are, always have been and always will be a product company. Across the technology landscape, history shows that the greatest product companies often get the chance to become platform companies simply by virtue of the pervasive user experience that they enable.

Those platforms enable healthy, vibrant and large ecosystems that drive value for every participant. Our platform is creating an ecosystem for corporate travel. Hundreds of developers are innovating on our platform. Millions of individual travelers and thousands of customers have accessed to new wildly compelling services via our platform.

As customers embrace the platform, our industry embraces our platform. In fact, we are honored and inspired to have some of the greatest brands in the world building on our open platform.

Together, we are reinventing the corporate travel supply chain to better serve the business traveler, to enable the perfect trip.

We are investing aggressively to deliver this platform and to help transform our industry into what it should be. Quarter after quarter, year after year, that’s what we’re doing all while delivering incredible best-in-class results, fueled by the discipline and focus of my 4,000 colleagues at Concur, by our ecosystem of partners and by our shareholders. Thank you for your support.

With that, operator, let’s open the call for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from the line of Michael Nemeroff from Credit Suisse. Sir, you may now begin.

Michael Nemeroff – Credit Suisse

Hi. Thanks for taking my questions and congratulations on a nice quarter. Steve, just with thousand TripLink customers, that’s a significant number, could you just give a sense of the number of suppliers that are contributing to the TripLink platform and maybe some specific anecdotal feedback regarding the value that some of the customers are getting from that?

And then the follow up for Frank is on the gross margin. I just want to get a sense of how we should be thinking about the next couple of quarters and whether we’ve reached a base level that you feel comfortable on a go-forward basis on that gross margin line or whether it could go further down as the EPS becomes a larger piece of the revenue. Thanks.

Steve Singh

Hey, Mike. Thanks for the question. So first of all, we are very pleased with TripLink’s performance. As you recalled at the beginning of the fiscal year, we had just crossed the 500 mark. And I hope to cross the 1,000 mark by the time we left the fiscal year. So we’re very pleased that halfway through the fiscal year, we’ve now crossed the 1,000 TripLink customers. So that’s a fantastic position to be in.

I will tell you that I want to keep the TripLink comments on the supplier side a bit limited today. We’re going to discuss it more in depth at the Analyst Day and also at the Fusion User Conference. But what we’re finding obviously is continued momentum behind suppliers embracing TripLink and we’ll provide more metrics on who they are and the percentage of the content that’s soon to be [ph] bookable that’s now made available to TripLink at the Analyst Day.

What I will tell you though is when you think about it from a value perspective, the value from a customer’s perspective is very, very meaningful. The customers are looking for fantastic managed travel experience, being able to capture 100% of the data relative to corporate travel, being able to get their corporate rates as it relates to their businesses – business travelers being on the road.

And what TripLink provides obviously is the capacity to say that no matter how you booked, whether you booked through your corporate travel agency or through Concur Travel or through a supplier website, you’re capturing all that information and your program is entirely within compliance.

And that’s really the single biggest value that our corporate customers see and it’s an incredibly important piece of the equation. So that is where our customers are focused, suppliers are obviously focused on being able to deliver more personalized and a better experience to business travelers when they come directly to their website.

Outside of it, I’m going to ask you to please wait till the Analyst Day and we’ll walk through a lot more depth around this. And then I think the other question is on gross margin, so I’ll give that to Frank.

Frank Pelzer

Mike, hey, thanks so much for the question. So I think we are in that range plus or minus 100 basis points for the gross margin. Again, this is not from a revenue composition change. This is from an increase of investment to support implementation and customer support resources. And so it’s a cost component for some of the government business that we’ve won and some of the additional customer support initiatives that we have.

And does that answer your question?

Michael Nemeroff – Credit Suisse

It does. Thanks very much.

Steve Singh

Hey, Mike. This is Steve. Just to make sure that I didn’t mislead you on the TripLink thing. We crossed 500 at the end of Q1, right, and so we’ve actually obviously added more than 500 in the quarter we just finished I think I’ve said at the start of the fiscal year, I meant by the end of that quarter.

Michael Nemeroff – Credit Suisse

Understood. Thanks, Steve.

Steve Singh

Thank you. Operator, next question please?

Operator

Our next question comes from the line of Steve Ashley from Robert Baird.

Steve Ashley– Robert W. Baird

Hi and my congratulations as well. So I would start with a nitty-gritty question, in terms of the revenue contribution from the acquisitions of TRX, TDSX, can you give us any sense of what contribution we might be getting in the period?

Steve Singh

Yes, Steve, I’ll take that. And Frank can jump in wherever he’d like. We obviously had an expectation to begin the year that we laid out for investors. Having said that, we also said, "Hey, look guys, the – those two companies were not long-term growth drivers for our business. And in fact our objective behind that was really the technology platform and [indiscernible] and being able to integrate that technology platform in to our technology stack.

And the purpose behind that is very, very important because it actually enables TripLink to be a much more a robust and complete set of services for our customers. It enables our travel and TripIt products to be able to capture more information as a part of the corporate travel booking process. And so one of the things we’ve been doing is actually not only integrating that across our product lines, but also including that in the – as a bundle, more and more including that as a bundle suite of services that are being delivered into customers.

And that’s the real value for us.

So the challenge is going to be that as you look out over the quarter 4 to 12 months, it’s very considerable that there will be very minimal revenue that was acquired that’s actually left, that it will actually now be integrated into a – what is on a per transaction basis or for that matter, just in varying [ph] to the core services or delivering across that product base.

Steve Ashley– Robert W. Baird

Great. And my last question or my follow up is on the guidance. If you do the math and hopefully I did the math right, you’re guiding 26% revenue growth for the next quarter and for the full year which kind of implies a fourth quarter growth rate something a little less than 20%. And I guess the concern that some of us just might have is that these acquisitions that we just talked about, that will be the quarter that you start to anniversary [ph] those acquisitions.

And so I think what people would be wondering is how much of the guidance is just conservatism and how much of it is the impact of anniversary [ph] these acquisitions.

Steve Singh

Yes. And Steve, obviously our guidance is our guidance and we try very hard to ensure that we deliver guidance that we feel is reasonable and appropriate. Having said that, we beat our guidance for the first two quarters and I think that the other kind of I call it commentary I try to provide. Because I know that there may be an interpretation that says, "Hey, our growth rate is potentially slowing."

The other commentary I try to provide is bookings growth continues to be very, very solid and that as we look out into fiscal ‘15, we expect to be able to maintain our steady pay growth targets, at least maintain them which means that your growth rates on a – for the forward year are obviously meant to be very compelling.

And so I don’t feel any – like there’s anything really inherit in the business that is slowing in fact is actually just the opposite. The last thing I’ll tell you is that keep in mind the comps for Q3 and Q4 are pretty tough compared to last year.

Now if you go back two years ago, the comps were in Q1 and Q2 versus Q3 and Q4 and so sometimes there’s some lumpiness throughout the year, but by and large you see just continued strong growth.

Steve Ashley– Robert W. Baird

That’s really helpful. Thanks so much.

Operator

Our next question comes from the line of Brent Thill from the UBS. Your line is now open.

Brent Thill – UBS Investment Bank

Good afternoon. Steve, just to follow up on TripLink, a lot of questions from the investors around how you measure the financial impact and I know there’re several ways you can look at it, but can you lay it out in terms of how you see it initially on the financial impact and maybe longer term how you’re seeing this impact to some?

Steve Singh

Yes, absolutely. I think in the near term, let’s just – maybe I’ll take two cuts at this, just near term, short term and then where we see the revenue opportunities. Near term, you should expect middle-to-no revenue contribution, just very modest, revenue contribution from TripLink. In the long term, we think that the supply chain optimization or supply chain efficiency that TripLink and other products drive is a very material component of revenue comparable to what we see in our core business.

Having said that, I think that yes, think about TripLink as driving two streams of revenue. One is really the value that we’re delivering to clients just like online booking tool of Concur Travel. We think that there’s an uplift that’s over the – over the reasonable period of time which is season uplift on a transactional basis for the end-user application. And then we think there’s also a transactional opportunity on the supplier side related to TripLink, but we’re in the very, very, very early stages of that piece of it.

So at this point, it’s just a – I wouldn’t count it on any meaningful contribution. But certainly we see that the adoption around TripLink and the adoption of – at the customer side and also on the supplier side is great early trend indicators and great indicators of customer value and supplier value.

Brent Thill – UBS Investment Bank

Okay. And just a quick follow up, as you mentioned that the bookings for ‘14 were tracking similar to ‘13, if I heard this correct, I just want to clarify.

Steve Singh

Yes.

Brent Thill – UBS Investment Bank

And just so I’m clear, in ‘13 I believe you had over 40% bookings growth. So I would imply that – is that – am I mixing apples and oranges or am I on track here [ph]?

Steve Singh

No, you’re not mixing apples and oranges here. We think that the bookings growth we’ll see this will be comparable to the bookings growth we saw last year.

Brent Thill – UBS Investment Bank

Got it. Okay, thank you.

Operator

Our next question comes from the line of Karl Keirstead from Deutsche Bank. Your line is now open.

Jobin Matthews – Deutsche Bank

Hi. This is actually Jobin Matthews, sitting in for Karl. Thanks for taking my question. You mentioned there were 10 plus agency’s life on the government contract. Can you talk about what this represents in terms of percentage of the transactions that were available to you guys?

Steve Singh

Yes. I can’t speak to the percentage as it relate to those 10. You know look, here is the things that you want to think about, the 70 plus percentage of the – of the agency transactions that we signed already, that would give you obviously an approximation into the transactional volume or obviously the total revenue opportunity around ETS2. We have however continued to sign new agencies under the ETS2 contract even as late as early part of this month.

And so, we’re continuing to sign additional business within the government agency opportunity, and we’re driving those deployments. Now, keep in mind those deployments are very, very early stage and it’s a – the vast majority of which are in part [ph]. There’s a few relatively smaller agencies that are in production, but even they are at the very early stage of the production. There’s no material contribution that we expect to see in fiscal ‘14 from those – from any of the ETS2 work that we’ve done.

However, what we do take away from it as very, very positive is that these deployments are slightly ahead of our original expectations, which means that as we get into fiscal ‘15, it just gives us greater visibility into the revenue stream we’ll see from ETS2 that will contribute in the ‘15. Having said that, look, I want to just reiterate something we’ve said at least three or four times in the last couple of – last several calls, which is that we really don’t expect to get to that 100% – not 100% but the majority of the transaction where revenue showing up in the P&L into our fiscal ‘17.

Jobin Matthews – Deutsche Bank

Got it. And Steve, in your prepared comments you had said that you have some visibility toward these revenues could be in ‘15. Would it be too early to give us some sense of how material these revenues could be next year?

Steve Singh

Yes. It is too early. I think that you got to think about this and say, between the bookings growth that we’re seeing in our private sector business and the successful deployments that we’re driving in our public sector business, it increases materially the confidence we have into our targeted growth rate in fiscal ‘15, which to be fair is a very unique and a comforting aspects of the Concur business, which is that fundamentally what we’re looking at is as we sign business we have typically about nine months kind of forward view of what that starts to look like in the P&L.

Jobin Matthews – Deutsche Bank

Got it. And one last follow up if I may. So this is related to the civilian agencies that you guys have, the ETS2. Have you guys heard anything on what could happen on maybe a similar contract to the different agencies?

Steve Singh

Yes. So at this point, there really hasn’t been a lot of progress on the Department of Defense opportunity. I would tell you that we will certainly evaluate it. But I think as an investor, you got to be thinking about the DOD opportunity, first of all, it’s just one agency there. So I want to clarify that. It’s just agency that happens to be a gargantuan agency. But that opportunity you got to be thinking about it in the same way you thought about the ETS2 opportunity which is just a multiyear process for bid, for evaluation and for award. And so, that’s a number of years from now.

Jobin Matthews – Deutsche Bank

Got it. Thank you so much, Steve.

Steve Singh

Thank you.

Operator

Our next question comes from the line of Samad Samana from FBR Capital Markets. Your line is now open.

Samad Samana – FBR Capital Markets

Good afternoon, a couple of questions. So of the 1,500 customers that we’re signed in the quarter, could you give us an idea what the mix look like between enterprise and SMB, and update us a little bit on what kind of Fortune 500 penetration looks like today?

Steve Singh

Sure. So there’s no material difference in mix from – in this quarter versus any prior quarter. Obviously as the number of customers in any given quarter grows, by definition, you’re going to see more SMB customers. Having said that, look, our Fortune 5,000 penetration, we’re in a very early stages. And I think it’s – the Fortune 500 penetration we’re in the very early stages. Just to give you an idea, we signed a couple of purely large accounts this quarter. VMware is a very large enterprise customer that we signed. We signed Chevron this quarter. So we’re in the early stages of this.

It is really important differentiation, a really important focus point for you here, we don’t look at our market opportunities just the Fortune 500. Think about the 500 largest companies in Japan, the 500 largest companies in Germany, the 500 largest companies in France, or the UK or the US, we’re in the early stages of penetration at the global enterprise level. In Japan, we saw a great progress in the quarter. We signed our second Japan 1,000 account this last quarter. But we’re in that three accounts into or I guess two accounts into that opportunity.

And so, we’re in the early stages of penetration there in Japan. I would just ask you to step back a little bit when you think about market penetration, you see we got 23,000 customers against an opportunity that at least measured in the several 100,000 and we think it’s closer to 1 million plus.

Samad Samana – FBR Capital Markets

Okay. And then a follow up, in terms of average deal size comparing it over, I call it the [ph] last 12 to 18 months, have you seen deal sizes holding for customers at a constant increase? Are you seeing customers attach more products upfront? Can you give us some more color there?

Steve Singh

Yes, absolutely. We’re seeing price hold very consistent on a unit basis. We’re certainly seeing more customers buy a greater suit of products from us across all segments. And there’s really nothing in the – in the core business that’s changed even modestly over the last several years. We are also seeing frankly our end-user applications like TripIt, and now our most recent version, ExpenseIt, see great adoption. As I mentioned on the call, ExpenseIt is a relatively new product. We doubled the number of customers that have signed up for corporate-wide ExpenseIt licenses, and quadrupled the number of users just in the last three months.

Samad Samana – FBR Capital Markets

Okay. Nice quarter guys. Thanks.

Operator

Our next question comes from the line of Michael Huang from Needham.

Michael Huang – Needham & Company

Yes. Thank you very much guys. Just a follow up real quick on Japan, I was wondering if you can give us some color on who you’re keying with there. And you had mentioned that you’re trending ahead of expectation. I was wondering what’s helping to drive that performance. Is it – is there something that you can point to whether it’s product or leadership or whatever it might be that it’s helping to contribute to the faster ramp than you would have thought? Thanks.

Steve Singh

Yes, sure, Mike. So a couple things that are really driving our success in Japan, first of all, let’s start off with this, the reality is this is a typically a very high labor – high cost of labor market where a value proposition like the one we deliver is very compelling, being able to drive a tremendous return on investment for any of our customers who are driving enterprise-wide deployment. So that is – by the way, it’s the same value equation we have anywhere else in the world. But obviously it resonates exceptionally well in the Japan market.

In addition to that we actually have a fantastic product suit for that particular market. And this sounds a little bit like motherhood and apple pie, but teams win because of great organizations. And we have a fantastic organization in Japan, led by a compelling CEO who’s not only done a great job building our sales organization but also putting together fantastic partnerships both in the credit card integration side with the leading credit card providers in Japan as well as marking alliances with companies like RocketOn and various travel providers in Japan.

Michael Huang – Needham & Company

Great. Thanks so much, guys.

Operator

(Operator instructions) Our next question comes from the line of Ross MacMillan from Jefferies. Your line is now open.

Ross MacMillan – Jefferies & Company

Thanks a lot. Steve, you mentioned that you’re seeing that progress with ETS2 in terms of agencies that are beginning to move to pilot and go live. I think you also mentioned that you got about 70% of the agencies, 70% plus of the agency signed up. I was just curious at this point what are your – what’s the gating factor for the residual agencies [ph] given that there’s been such a significant shift toward using the Concur and moving toward the Concur platform? Is it just the new ounces [ph] of each individual agency or is there something else that’s sort of prohibiting their more rapid shift? Thanks.

Steve Singh

Yes. Ross, we’re obviously very pleased with the 70% plus position that we have against those transaction opportunities. Having said that, keep in mind that we signed the majority of that prior to the award moving to dual source award, and I think you recall that from prior earnings calls. And so, with the dual source scenario you could tend to have a greater review cycle and greater evaluation process.

Having said that, look, we are continuing to win business within the ETS2 opportunity. And as we continue our deployments and succeed against the deployments, we think that bodes well for winning other portions of that other remaining opportunity. But I do think it’s fair and reasonable to assume that we can’t win 100% of it in a dual source environment. But we certainly are in a fantastic position as of today, and we believe we will still win a nice chunk of what’s left.

Ross MacMillan – Jefferies & Company

Great. And just one for Frank –

Steve Singh

Hey, Ross, one last thing on that. One of the things that I do think it’s important, it’s a point that gets left out that when people look at our ETS2 opportunity and how we’re doing against it, is look, the efforts we’re putting in place there, the R&D resources, the sales and marketing resources, the support and deployment resources, they’re focused not just on ETS2 opportunity but are expanding public sector business. And that public sector business isn’t just a theoretical opportunity one day with the Department of Defense, right? There’s obviously a fantastic public sector opportunities not just at the state and local level in this country, but frankly at across multiple other countries that are looking to drive cost savings in their government operations. Just – this is an important point to just to highlight. And you had a question for Frank [ph]?

Ross MacMillan – Jefferies & Company

Yes, I was going to ask actually – maybe just one for Frank, just on the DSO, I got on the call a bit late. So you may have commented on that, but would love to know just your perspective on the low DSO in the quarter.

Frank Pelzer

Oh, yes, Ross, we try to stay within that 60 to 70-day range. We were at 62. I think we’re happy with it. Again, strong cash collection is really the driver. But that’s been great for the quarter.

Ross MacMillan – Jefferies & Company

So a strong cash collections rather than just the seasonality of the business through the quarter, it was really more cash collection driven?

Frank Pelzer

Correct, yes.

Ross MacMillan – Jefferies & Company

That’s helpful. Thank you.

Operator

We have no further questions in the queue at this time. At this time, I would now like to turn the call over to Steve Singh, for closing remarks.

Steve Singh

All right, thank you very much. Folks, thank you for joining us on the call. All of us here at the company appreciate the support you have for Concur and the objectives we’re up and against [ph]. And to our shareholders, thank you very much for your ongoing support. We look forward to see you not only next week at the analyst day and our fusion but also updating you on the progress of your company at the July earnings call.

Thanks so much. Bye-bye.

Operator

Ladies and gentlemen, thank you for attending today’s conference. This does conclude today’s program. You may all disconnect. And everyone have a wonderful day.

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Concur Technologies, Inc. (CNQR): FQ2 EPS of $0.15 beats by $0.06. Revenue of $167M (+31.1% Y/Y) beats by $1.19M.