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Concur Technologies, Inc (NASDAQ:CNQR)

Q3 2014 Earnings Conference Call

August 4, 2014 17:00 ET

Executives

Todd Friedman - VP, IR

Steve Singh - Chairman & CEO

Rajeev Singh - President & COO

Frank Pelzer - CFO

Analysts

Steve Ashley - Robert W. Baird

Michael Nemeroff - Credit Suisse

Brent Thill - UBS

Samad Samana - FBR Capital Markets

Karl Keirstead - Deutsche Bank

Kash Rangan - Bank of America Merrill Lynch

Brian Peterson - Raymond James

Jeff Captain - Stifel Nicolaus

Operator

Good day ladies and gentlemen and thank you for your patience. You have joined Concur Technologies’ third quarter fiscal 2014 conference call. (Operator Instructions). I would now like to turn the call over to your host, Vice President of Investor Relations, Mr. Todd Friedman. Sir, you may begin.

Todd Friedman

Thank you, operator. Good afternoon, everyone, and welcome to the call. Today, we’re happy to discuss Concur’s most recent financial results, our business outlook and our strategy. This call includes presentation slides that will accompany our prepared remarks. To access these slides as well as the Press Release and the 8-K from today’s earnings, please visit the Investors section of our website at concur.com.

We are now on Slide 1. The speakers for the call today are Steve Singh, our Chairman and CEO; Rajeev Singh, our President and COO; Frank Pelzer, our CFO. 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 SEC which are available at sec.gov, for additional information on 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 on 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 another exceptional quarter, beating our estimates for revenue, earnings, cash flow from operations, free cash flow and new customer growth. Driven by continued strength across the business we are raising our fiscal 2014 revenue growth target to 27%. Additionally new customer bookings continue to grow at a rapid pace which as you well know gives us confidence in our ability to sustain very strong growth rates into fiscal 2015 and beyond.

Second, Concur is at the forefront of one of the most important technology shifts that our industry has seen in decades. Over the course of the past year and the past quarter in particular we have seen the travel industry embrace key initiatives, such as our app center, the Concur platform and TripLink. That momentum is driving a better customer experience, a personalized channel model for the delivery of travel content and it's expanding the range of opportunities available to those investing in delivering on the vision of the Perfect Trip. And third, we want to give you an update on our financial and business objectives for the remainder of fiscal 2014.

With that please turn to the next slide, so let’s start with the quarter. In short it was another great quarter as we saw our business momentum and track record of strong execution continue. Revenue grew 28% year-over-year to a $177 million nicely ahead of our guidance. As usual our revenue growth was driven by the consistency and efficiency of our deployments.

Driven by stronger than expected revenue growth non-GAAP EPS was $0.25 a penny ahead of our guidance. Cash flow from operations and free cash flow were both well ahead of our expectations. Our retention rates remain exceptionally high, our win rates are consistent with our 10 year historical average and the competitive landscape has not changed very much over that time.

In fact the overall core business continues to operate consistently and predictably. The demand for our products and services continues to be very strong and in fact as we expand our reach demand is actually growing. With the majority of our customers buying a broad suite of services from us. The investments we’re making in future growth opportunities such as the Concur platform, TripLink and our sales and distribution capacity continue to gain significant traction providing additional visibility into sustainable future revenue growth.

With that let me turn the call over to Concur’s President and Chief Operating Officer. Rajeev Singh to walk you through the key business highlights for the quarter. Raj?

Rajeev Singh

Thank you Steve. Please turn to the next slide, let’s start the business update with discussion on bookings and customer acquisition. Over the course of the first nine months of the fiscal year, we’re adding roughly 1500 new clients per quarter and seeing strength in every core segment that we serve. We see incredible potential in growth markets like Concur Japan and our small and mid-sized company business unit based on their continued strong performance.

Not surprisingly our core enterprise business continues to be one of the biggest drivers of our growth. In fact we added a number of new enterprise clients this quarter including mark key clients like one of the largest technology companies in the world, a leading consulting and outsourcing company and a global manufacturing company. We continue to see great traction in Japan as that market is in a foot race with leading EMEA markets to become our second largest geographic market in terms of new customer bookings.

Our SMB business continued to show great progress and is on track to become 50% of our new customer bookings in the years ahead. Over the first three quarters of fiscal 2014 we have already welcomed more new clients to the Concur family that we did in all of fiscal ’13 with our strongest quarter yet to come.

Please turn to the next slide, one of the drivers of our growth in customer acquisition is the strong and lasting partnerships we have formed with businesses like ADP and American Express. In Q3 we added another very important partner IBM. Obviously IBM serves one of the world’s largest customer base with many blue-chip customers leveraging their vast portfolio solutions and services.

For a number of years IBM offered a stand-alone expense management solution to their global customer base. Through our partnership we will work to move those customers to Concur’s global integrated and travel expense management solution. In fact we have already seen a number of IBM customers embrace the Concur product and platform.

We believe this partnership will continue to drive meaningful value for both our companies and fair more importantly for our mutual clients for years to come. Our government business continues to progress very nicely, we now have more than half of our ETS2 agency customers live and in production. As you well know these are large complex deployments. We worked hand in hand with our government agency partners and the GSA to deliver state of the art travel and expense management solutions to the travelers across the government.

We’re certainly thankful for the incredible support of our agency partners in making this deployment successful. This effort will have a lasting positive impact for the agencies and how they operate and it will serve as a strong foundation for Concur’s success for many years to come.

During the quarter we also hosted Fusion our annual customer conference in the largest gathering of travel buyers in the industry. We were pleased to see many of you at the conference and hope you found it to be a valuable experience.

As always the conference is a great forum for us to spend time with our customers and chart our path for the years ahead. We also had the opportunity to bring together 100s of partners that are building incredible solutions around the Concur platform. We were excited to know as many of you did the beginnings of the platform being created by customers, Concur and our developer partners collaborating in close quarters over the course of the week. That collaboration is driving incredible value for clients.

Please turn to the next slide. Within the corporate travel and expense market our vision is what we call The Perfect Trip. The idea of the Perfect Trip is simple that traveler should have the data and tools they need, when they need it to optimize the value of their trip. While the vision for the Perfect Trip may have started with Concur it has been borrowed, built upon and advanced by leaders across our industry. In fact the vision that everyone can advance and everyone owns. And as members of the ecosystem add their ingredient, their value, they have the opportunity to benefit as they should all while advancing our industry and giving everyone else the opportunity to benefit.

The concept of the Perfect Trip is encapsulated in three simple ideas, it should be connected across suppliers and systems that talk to one another automatically and in real time. All of the suppliers and systems I touch should be aware of whom I’m, who I work for, what my preferences are and at what context. And this is for obvious reasons so I can get corporate discounts, so my company knows where I’m. So my expense report can filed automatically.

It should be effortless when my united flight lands I should be asked if I want Uber to pick me up and take me to the hotel. In fact while I’m walking to the car I should be checked into the Westin hotel that I'm staying at and have my room keys automatically sent to my smartphone or smartcard.

And the Perfect Trip should be transparent, I want to see all the choices that matter me, that have the data I need to make my own decisions for my travel needs. And that’s what our customers want and that is where our industry is headed.

Please turn to the next slide, Concur has an opportunity to be integral to that vision and that opportunity. Over the past few months we have announced a number of transformative partnerships with companies like Starwood Hotels, United Airlines, Airbnb and Uber, in each instance we’re working with our customers to manage spend that is happening outside of their traditional corporate systems.

We’re making the business travel experience effortless for you and me as travelers and we’re helping our supplier partners have a more personalized relationship with a broader group of customers than traditional channels can afford. Now when you link your accounts at suppliers like Starwood, IHG, Marriott, United, Airbnb, or Uber, to your Concur account, you will get your corporate rate no matter where you book. You will get personalized recommendations that will make your trip planning experience better.

Your company gets visibility into entire trip so they can provide duty of care services and your reservations flow automatically into TripIt and into your expense report.

Please turn to the next slide, we had a chance to share these announcements last week at the Global Business Traveler Association conference. GBTA is a 7000 person conference that includes suppliers, TMCs, OTAs, GDSs, buyers, travelers and developers. To be sure the concept of the Perfect Trip open booking and Concur TripLink were top of mind for many of the attendees. We’re pleased to see partners overwhelmingly embrace the opportunity to work together across an open platform to deliver on a vision that customers are embracing, the Perfect Trip.

Today we’re pleased to be working with nearly 20 TMCs globally true innovators who are the next generation of travel management companies. In fact last month for the first time one of our TMC partners sold TripLink to one of their clients directly which is truly reflective of the shift we’re seeing in our industry. Delivering on the vision of the Perfect Trip will take the cooperation of the entire industry working together to seamlessly share data to efficiently hand off critical customer information to enable development of new solutions that increase the value of the services we all deliver but when the customer experience is made radically better our industry moves to embrace the opportunity. Needless to say we’re excited about the years ahead.

Please turn to the next slide. With that let me turn the call over to our CFO, Frank Pelzer to walk you through the Q3 details and our business outlook. Frank?

Frank Pelzer

Thank you Raj. Good afternoon everyone. Today I would like to review our results for fiscal Q3, 2014 as well as discuss outlook for the remainder of the year. Our core business drove strong financial and operational results in Q3, in the quarter on our non-GAAP revenue grew approximately 28% year-over-year nicely ahead of our expectations.

Non-GAAP operating margin was approximately 10% and non-GAAP pretax income per share was $0.25, cash flow from operations excluding the impact of cash paid for acquisition related expenses, excess tax benefits and non-controlling interest was over 26 million. We continue to execute against our investment objectives designed to further drive top line growth and expand our role in the trillion dollar corporate travel market. Our focus on investing in growth continues to be validated by the global demand we’re experiencing for our services and the ecosystem that we’re quickly building around our platform. Finally the successful execution of our strategy is creating a foundation for sustainable growth for years to come.

If you would please advance to the slide titled, Revenue Summary and let’s look at Q3 results. Unless otherwise stated, please note that all of my comments reference non-GAAP operating metrics. Q3 revenue was nicely ahead of our expectation at a 177 million growing approximately 28% year-over-year and 6% quarter-over-quarter. Please note that this excludes approximately $1.4 million of revenue from operations acquired from TRX that we divested or intend to divest. In the quarter we adopted new FASB guidance which changes the requirements for reporting discontinued operations.

As a result we no longer anticipate reporting divested TRX business components as discontinued operations in the future. However we will continue to split out the results for the TRX business that we do not anticipate being part of our long term business and reported on a pro forma basis. Recognized revenues in the quarter benefited from excellent transaction in the 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 and it was approximately 69% for the quarter which is down year-over-year primarily as a result of investments in growing our professional service organization but up from 67% in Q2. 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 stated repeatedly our goal is to invest across the business to expand our distribution and product capabilities. For Q3, sales and marketing expense increased 21% year-over-year reflecting our ongoing and sizeable investment to expand our capacity to reach prospects and customers.

Research and development expense increased 59% year-over-year driven by growth in headcount to accelerate the innovation curve in our industry. G&A expense increased 43% year-over-year reflecting investments in corporate infrastructure to support our global growth.

Operating margin in Q3 was approximately 10% in-line with our expectation. The higher than expected revenue combined with our ongoing commitment to reinvest upside as much as possible resulted in Q3 pretax earnings per share up $0.25 ahead of our $0.24 per share expectation.

Please advance to 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 acquisitions and other related activities, excess tax benefits and non-controlling interest was over 26 million ahead of our expectations. Capital expenditures were approximately 12.6 million or approximately 7% of quarterly revenue. Free cash flow was approximately 13.6 million for the quarter ahead of our expectations.

Our cash position is very strong and provides us tremendous leverage to continue to expand our market and leadership position. Cash in short term investments, net of customer funding liabilities ended the quarter at 771 million up from last quarter mainly due to cash flow from operations and gross proceeds of 16.7 million from a Perfect Trip fund investment, the sale of Buuteeq to Priceline. Day sales outstanding ended at 65, in the middle of our 60 to 70 day expected range.

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 to over a 117 million at quarter end reflecting approximately 14% growth over the same period of the prior year.

Please advance to the next slide, now let’s turn the discussion to expectations for Q4 and for the full year. As Steve mentioned demand for our services has remained strong. On the strength of our results year-to-date we’re now increasing our expectation for FY ’14 revenue growth to be approximately 27% year-over-year. For Q4 we expect total revenue to grow approximately 21% 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 our year-to-date results we are finding good people to hire and good areas in which to invest capital. As a result we’re confident that we will achieve our operating margin target for FY ’14 of approximately 10%. We expect Q4 operating margin to be 12%. Our revenue in operating margin expectations result to non-GAAP pretax earnings per share of $0.32 for Q4 and at least $0.93 for FY ’14.

Now let me turn to cash flows, the cash generating dynamics of our business continue to be strong and cash flow from operations should continue to be largely linked to non-GAAP earnings. With strong revenue growth somewhat offset by a higher rate of investment we’re increasing our expectation for cash flow from operations excluding acquisition and other related costs, the excess tax benefits from share based compensation and non-controlling interest for FY ’14 to be at least $85 million which compares to our previous guidance of at least $72 million.

Regarding our tax rate, we still have a large NOL balance. For first call consensus purpose, we encourage you to use the 35% federal statutory rate but recognize 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 the whole of FY ’14 we now expect to spend approximately 8% of revenue on capital expenditures due to infrastructure investments including global facilities, data center and information system enhancements. Driven by an exceptional first three quarters and our proven ability to execute well, we’re excited about our capacity to drive meaningful innovation and long term value for our customers and shareholders.

Now I would like to turn the call back over to Steve for closing comments. Steve?

Steve Singh

Thank you Frank. Well we were very pleased with Q3 results, that’s not what we’re focused on. What’s truly exciting about our performance, in the first nine months of this year is not in what it says about this fiscal year. It's in what it says about Concur’s future. We’re reinventing one of the larger industry verticals in the world, corporate travel. By delivering a compelling set of services on an open platform that allows every member of the ecosystem to benefit from the work of the others all for the benefit of our mutual customers.

The momentum we’re seeing across our industry to work together to deliver on the Perfect Trip should now be obvious and undeniable and that drum beat will only get louder from here.

The ultimate measure of industry transformation is whether customers embrace the vision. Well last year we added 4000 new customers, this year we’re seeing roughly 1500 new customers join the Concur family every quarter and as we look ahead to the next few years we expect to be welcoming 5000 new customers to the Concur family every quarter.

Thank you all for your ongoing support of our company. With that operator let’s open the call to questions.

Question-and-Answer Session

Operator

(Operator Instructions). Our first question comes from Steve Ashley of Robert W. Baird. Your line is open.

Steve Ashley - Robert W. Baird

I would like to ask about the ETS2 business, you mentioned that half of the customers are now deployed. Is that in terms of numbers is that a number that’s now in the 30s or teens, or just where is that number maybe you can remind us and then more importantly, how many of the customers that are deployed are fully rolled out at this point?

Rajeev Singh

As you know in the ETS2 business we recognize revenues as the transactions as they occur. So where we’re today is about half of the 70% plus of the total transactional business that we have signed, about half of that is now fully deployed and that's not too dissimilar to that 70% half of that 70% on the transactions. Having said that we’re in very, very early stages of roll out and very early stages of broad based uses across the agencies and so we are very comfortable with our view that it's really in fiscal ’15 but you start to see the benefit of these ETS2 deployments hitting our P&L and it's really fiscal ’17 that you start to see the majority of that economic benefit.

Steve Ashley - Robert W. Baird

And then in terms of bookings you have talked about then being strong and you’ve talked the core enterprise business continuing to be good. You had talked in earlier calls about hoping to get to a bookings rate, 40% for this year excluding the government business. Are we still on track to get to a number like that?

Rajeev Singh

Yes we feel very comfortable with where bookings are at and that kind of growth percentage is a 40% growth percentage is something we’re comfortable with. In fact I think I’ve mentioned in the call that in the first nine months of the fiscal year we’ve actually signed more new customers to the Concur product suite than we did in all of fiscal ’13 and then obviously we’re heading into our strongest quarter from a seasonality perspective, the strongest quarter that we have.

Steve one last thing on the government side, I don’t know if you have noticed but obviously the DoD you had asked the quarter so go about it, the DoD finally came out with an RFI and so we obviously hope to see that but it's still very, very early stages and we promise you an update once we heard on where the RFI was.

Operator

Thank you. Our next question comes from Michael Nemeroff of Credit Suisse. Your line is open.

Michael Nemeroff - Credit Suisse

Steve, I get asked the question a lot about your penetration both in actually in three segments, the enterprise in the U.S. specifically and international could you just give us sense for what you think your penetration rates are and where you see that going over the next 3 to 5 years?

Steve Singh

Mike I appreciate the question. Obviously, we’re in the very early stages of market penetration no matter how you define the market unless your definition of the market is the five largest companies in the United States and so our view is -- look we have tremendous growth opportunities in the U.S. enterprise market opportunity, in the enterprise segment of each of the EMEA markets, the enterprise segment of Japan, the enterprise segment of India and so just tremendous growth opportunities there. In fact the enterprise business continues to be the largest single driver of growth across all the different opportunities that we’re investing in.

In fact this quarter I think Raj mentioned that, hey, look we signed one of the largest technology companies in the world. As a client we signed one of the largest manufacturing companies in the world as a client, one of the largest consulting companies in the world as a client. So we’re seeing tremendous growth there. Having said that we also see tremendous opportunities in the SMB space, that’s a business that market segment that not only we are seeing great traction in the U.S., we’re also seeing great traction across key markets of Europe and that with time will become 50% of the new bookings that we sign in any given quarter.

Having said that it's a moving ball, because our enterprise business continues to be very, very strong.

Michael Nemeroff - Credit Suisse

Just one follow-up for Frank if I may, the gross margin this quarter very nice snapback from the 67.3% last quarter where I think you were saying not to expect maybe plus or minus a 100 basis points this quarter. Just curious if the bulk of the implementation service is specifically around the GSA, was weighing on it last quarter and whether you’re through most of that by now and what we should expect for it going forward?

Frank Pelzer

Michael, I think specifically to the GSA we continue to work through that, we have got as Steve mentioned half deployed, there is another half to go and there is still 30% to win and so I don’t necessarily expect this to be a quarterly thing but over a longer period of time you will see the additional leverage come through from some of those investments we have made. We continue to view customer service as a primary focus for the business and we will continue to invest in that. We’re obviously happy with the uptick but we think that that’s really inherent leverage that we have in the business coming through form the revenue outperformance.

Operator

Thank you. Our next question comes from Brent Thill of UBS. Your line is open.

Brent Thill - UBS

Steve I just want to follow-up on the mid-market, I know you know that market well from your own business and obviously being a board member of Cornerstone. They have talked about that business to be more profitable for them over the long haul than the enterprise business. I’m just curious and there are number of stated questions on the call about as you shift to the mid-market can you be as profitable there as you’re in the enterprise market. I’m just curious if you could offer your perspective on the economic value of those mid-markets just considering.

Steve Singh

Absolutely. I think I have certainly heard that question before that can the SMB business be anywhere near as profitable as the enterprise business and I would maybe offer the following perspective. I think a lot of the folks that asked that question are used to traditional enterprise software businesses. They had very different accounting models and very different distribution cost related to the delivering on premise offering in to their market.

In a cost based model, you ought to be able to deliver services into middle market and small and middle-market companies very, very profitably. In fact that’s being our experience over a number of years is that this is something that can be as profitable if not more profitable than our enterprise customers and now have been in that market for five years we’re very comfortable with that view. In fact I would tell you that Concur is not the only company in the world as you implied. Concur is not the only company in the world that is seeing those kinds of trends in the SMB segment.

Brent Thill - UBS

Okay and maybe just a quick follow-up for Frank. If you look at --

Steve Singh

Brent, one thing I want to make sure that I’m very clear on. You mentioned that the shift to SMB and I want to be clear that nobody should take away from the call that there is some sort of shift at Concur from enterprise to SMB. We want to server customers of any size without cloud based mobile based offering and so we should be able to serve any enterprise no matter what size enterprise we’re and we should be able to serve them effectively and profitably.

Brent Thill - UBS

Okay, and Frank if you look year-to-date on the cost of operations you’re up 57% year-over-year when you take this year-to-date over the last year-to-date. Obviously a big increase as you’re scaling the infrastructure globally and things with the government. Can you just maybe help us understand how you look at these incremental investments? Where the big incremental investment’s gone in such a big increase in the numbers year-to-date that would be helpful. Thank you.

Frank Pelzer

Sure Brent. Again I don’t think this is anything different than what we have been talking about before, we had just a $1 spend works out to be that 57% but this has been how we have modeled the business from the get-go and reflects demand. So we’re going to continue to make those investments and implementation and then customer service.

Operator

Thank you. Our next question comes from Samad Samana of FBR Capital Markets. Your question please.

Samad Samana - FBR Capital Markets

Could you give us an update on TripLink, the amount of customers you added this quarter and whether you've seen any kind of increased interest from customers now that you've added your first airline partner in United?

Steve Singh

Yes absolutely. We saw fantastic traction around TripLink. We added more customers around TripLink this quarter than we have had in any prior quarter and so our view is that in general you’re going to continue to see our customers buy multiple products from us. In fact that suite of services historically was things like Concur Travel and Concur Expense and then obviously we’ve added in things like analytics and Concur Pay. You’re going to start to see TripLink become a standard offering that our customers purchase and deploy as the first set of products that they buy from us and so even though we did fantastic this quarter my sense is if you look at over the next couple of years you’re going to see the same penetration rates around TripLink, that you saw in Concur Travel which is in that 70% kind of range.

So fantastic there, the other thing I would tell you is that, at GBTA, I know that some of you had a chance to attend that. If you think about GBTA back in 2013 and GBTA at 2014 what you are seeing is a massive transformation how not just our customers are looking at TripLink and embracing TripLink but also frankly how suppliers and travel management companies are looking at TripLink. So while the United relationship is a fantastic relationship that we’re very excited about and there will be many more to come, it's being driven by customers embracing the benefit of TripLink and I think there you’ve seen a fantastic acceleration of demand around TripLink over the first 12 to 15 months we have been delivering that product. I think that demand only gets stronger going forward.

Samad Samana - FBR Capital Markets

And Steve as a follow-up, the company has announced a lot of new add-on products over the last 12, 18 months. How are you guys seeing in terms of customer renewals, how much is add-on helping that in terms of your bookings of 40%? How much is adding on contributing to that growth level?

Steve Singh

Look, it's substantive, right? We are seeing obviously great customer growth but we're also seeing new customer growth that’s also embracing multiple product and I don’t think that this should be terrible surprising, there should be a route frankly that what you ought to expect going forward. I would tell you that maybe the right reference point is the same kind of success we saw with Concur Travel you should expect to see with each of our core new products and TripLink being obviously the most public and most notable of those products.

Samad Samana - FBR Capital Markets

And last question for me and then I'll hop out. So with the progress of ETS2, there has been a lot of positive publicity around -- obviously you guys have been working on the contract for while. How has that helped you with traction outside of the federal government, state and local and perhaps international governments? And that's the last question for me.

Steve Singh

Yes absolutely. Well obviously it's incredibly beneficial. The success we’re seeing around serving our civilian agency customers through the ETS2 contract is not only confidence building for other government agencies that are looking to automate the travel and expense process. It's also obviously -- there is a tremendous resources that can be applied to these additional opportunities. The other thing that’s important to think about is that the success we’re seeing around ETS2 our public sector initiative around ETS2 is also very, very beneficial not just to other public sector opportunities it's very beneficial to our initiatives around the university market. In fact, we continue to see very, very strong growth across the higher end.

Operator

Thank you. Our next question comes from Karl Keirstead of Deutsche Bank.

Karl Keirstead - Deutsche Bank

Looks like one of the highlights during the quarter was the announcement of the IBM partnership. Raj, you mentioned that during the quarter, you've seen a number of customers embrace the Concur platform. I'm wondering if you could be more specific. Have you seen any actually decide on or begin conversions? And how often optimistic are you that you'll get a good chunk of them at some point in fiscal '15? Thank you.

Steve Singh

We have seen about 10 customers since the IBM announcement signup with Concur. So we’re actually seeing fantastic traction and progress not just at the customer side frankly but also across our relationship with IBM. We’re obviously driving value for each other as well as obviously our mutual customers. I think that our expectation certainly is that we will get the super majority of all those prior IBM GERS customers to convert over to Concur Travel and Expense but frankly that’s not where our relationship with IBM should stop and that’s not the way you got to think about that relationship. You got to think about it in terms of the global customer base that they serve. So it's not just their GERS product set but also their consulting organization and the BPO organization and we have an opportunity to work across those organizations to bring the Concur Travel and Expense service into each of those customers as well and of course they are equally interested in working with Concur on the implementation side of those customer deployments.

Karl Keirstead - Deutsche Bank

Great. Congrats on that GERS deal.

Steve Singh

Thank you.

Operator

Thank you. Our next question comes from Kash Rangan of Merrill Lynch. Your line is open.

Kash Rangan - Bank of America Merrill Lynch

Steve, a few things for you. One, with respect to growth, I think you talked about fiscal '16 and $1 billion revenue level and I'm just curious if I should be extrapolating from the fiscal '14 guidance the growth rate comes up to about 21ish percent. Is that $1 billion just a rough ballpark number or if I take that, I get to about 20% or 21% of growth rate, so that's the first part of my question.

Second is, as it relates to the government contract, you implied that fiscal '15 is when we could to start to see the revenue production. If that's the case, how should we think about the growth rate of your underlying business vis-a-vis the government? And third and final, sorry about this, the open platform sounds like a very interesting concept. Perhaps you could talk about the dislocation you intend to bring into this market vis-a-vis the GDS offerings and the value provided by Sabre and (indiscernible). Thank you so much.

Steve Singh

So let’s hit the $1 billion question first, I think our comment was fiscal ’16 would be at least a $1 billion. It wasn’t meant to be exactly a $1 billion and so I wouldn’t take Q4 fiscal ’14 guidance as somehow that’s the guidance for the next several years. I think that will be a terribly incorrect assumption. The way we look at is, we think our long term growth rates should be consistent with our targets and obviously we can continue to invest and execute the way we have been. We have an opportunity obviously to do better than that.

On the government opportunity, the way to think about this is that the ETS2 revenue stream in total I think this was something that we highlighted couple of years ago relative to the total opportunity at full penetration. We have obviously won about 70% of that business to-date and you should think about at full deployment about 70% of that total opportunity would be revenue to Concur. Obviously we still want to go after that remaining 30% and still feel like we can do a wonderful job in serving those agencies.

On top of that there is obviously a great cross-sell opportunity of our additional products and services, selling those into our ETS2 clients and as far as thinking about the years and how this layers in, think about fiscal ’15 as the first time you started to see some substantive revenues coming out of the ETS2 contract that are laying into our growth rate and fiscal ’17 you will start to see the majority of those revenue opportunities layering into the P&L.

I think the last question you had was around platform. I think it's really important to, the – the platform is not a concept. It's actually a set of services that we have already been delivering out. We have over 200 applications that are either in development or actually shipping already on the platform. We have a number of partner who have already sold into our clients or frankly where our clients have reached out to them and said, this is a fantastic value add, we would love to actually incorporate that and integrate that into the Concur set of offerings that we’re already consuming and then of course the platform by definition is much more than just the application development environment. Where companies like a -- this is mobile and multiple others are seeing great success but also suppliers right? We’re seeing a tremendous number of suppliers today more than half of all the hotel contacts that our customers consume is now partnering with us around TripLink and on top of the Concur platform to go deliver those pieces of content to our customers no matter how they want to consume it.

We’re seeing obviously our first major airline partnership that was just signed and we’re starting to see each of these become real products and services that our customers are consuming. In fact, Starwood just went live on the product, the IHG is live on the product and so this is -- at this point well beyond the concept. This is something that’s actually we would expect to start driving revenue in fiscal ’15 and where that revenue starts to become very interesting by fiscal ’17.

I hope that answers the group of questions you had?

Kash Rangan - Bank of America Merrill Lynch

It sure does. Thank you so much. Steve.

Operator

Thank you. Our next question comes from Terry Tillman of Raymond James. Your question please.

Brian Peterson - Raymond James

This is Brian Peterson in for Terry. The revenue growth the last few quarters has been really pretty impressive, the 30% to high 20% range. But the OpEx growth has outpaced that. So as we look into 2015, is that a year that you think will start to see a little bit more leverage on the OpEx line? Or should we continue to think that the 30% plus OpEx growth is reasonable going forward?

Frank Pelzer

I think the way to think about is the following. As long as we find compelling opportunities to investing we will continue to invest in those opportunities. Obviously that’s around distribution, it's around products and services and the platform and of course around our customer care organization and these are areas that we think are tremendous opportunities to invest in. They obviously yield tremendous benefit for our customers and clearly for ourselves. Having said that look, we've established for an annual number, the 10% is before the operating margin that we’re comfortable with and it's certainly conceivable that you might see us nudge that up from time to time. But as long as we’re seeing the mid-20s plus growth rate environment that we’re enjoying today we are going to continue to invest at the levels we’re at.

By the way obviously I hope you see that in the context of the -- if you look at our growth rate over the last several years, you see it go from back in 19% or so back in 2010 or 2009 -- its actually 2011 and this year we will end up at least 27%. And so you see great return on that invested capital.

Operator

Our next question comes from Jeff Captain of Stifel. Your line is open.

Jeff Captain - Stifel Nicolaus

I was just reminding -- I was wondering if you could remind us how you monetize TripLink?

Steve Singh

Yes, absolutely. At a high level the way to think about monetization of TripLink is that our customer certainly get tremendous value in integrating the TripLink technology across their current deployments of Concur Travel and Expense and TripIt and so customers certainly see an opportunity will benefit in paying an incremental transactional fee on top of every expense quote that they are processing. It's a very modest increment and then we see a tremendous opportunity to guide value for our supplier partners and we look at that as a transactional fee that's independent of whatever our customers purchase. In fact it's really designed to be a fee that is really optimizing the personalized distribution of travel content and the value that we’re delivering to our supplier partners.

Operator

And as there are no further questions in queue at this time. I would like to turn the call back over to Steve Singh for any closing remarks.

Steve Singh

Thanks very much. I want to make sure that we thank all of our investors for the faith they have put in our company. We have enjoyed building Concur for the benefit obviously not only to our customers but also each of you. Thanks so much for the ongoing trust you put in our company. We look forward to updating you on fiscal Q4 results at the end of the year. Take care everyone.

Operator

Thank you sir and thank you ladies and gentlemen for your participation. That does conclude Concur Technologies’ third quarter fiscal 2014 conference call. You may disconnect your lines at this time. Have a great day.

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Source: Concur Technologies' (CNQR) CEO Steve Singh on Q3 2014 Results - Earnings Call
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