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Concur Technologies (NASDAQ:CNQR)

Q3 2011 Earnings Call

July 27, 2011 5:00 pm ET

Executives

John Torrey - EVP of Corporate

S. Singh - Chairman and Chief Executive Officer

Frank Pelzer - Chief Financial Officer and Principal Accounting Officer

Analysts

Laura Lederman - William Blair & Company L.L.C.

David Hilal - FBR Capital Markets & Co.

Michael Huang - Needham & Company, LLC

Brian Schwartz - ThinkEquity LLC

John Kraft - D.A. Davidson & Co.

Ross MacMillan - Jefferies & Company, Inc.

Gregory Dunham - Crédit Suisse AG

Matthew Coss - Piper Jaffray Companies

Unknown Analyst -

Chaitanya Yaramada - Robert W. Baird & Co. Incorporated

Operator

Good evening. My name is Allie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Concur Technologies Fiscal Year 2011 Third Quarter Earnings Release Conference Call. [Operator Instructions] I would now like to turn the conference over to your host, Mr. John Torrey. Sir, you may begin your call.

John Torrey

Thank you, operator. Good afternoon, and welcome, everyone to the Concur Earnings Conference Call for our third quarter of fiscal 2011. My name is John Torrey, Executive Vice President of Corporate Development for Concur. This call includes presentation slides that will accompany our prepared remarks. To access these slides, please log on to our website at concur.com. Other information of interest to investors, including our SEC filings, press releases and recent investor presentations can be found on the Investor Relations page of our website.

We are now on Slide 1. Our speakers for the call today are Steve Singh, our Chairman and Chief Executive Officer; and Frank Pelzer, our Chief Financial Officer. After their prepared statements today, we will 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 this Slide 2 and our filings with the Securities and Exchange Commission, 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.

Please now advance to Slide 3. At this time, I'd like to turn the call over to Steve Singh. Steve?

S. Singh

Thank you, John. Good afternoon, everyone. Before I get to the details, let me give you the 4 highlights to take away from our call today: First, we had an exceptionally strong quarter. Revenue and revenue growth were ahead of our expectations. And even while we ramp investments at an unprecedented level for us, earnings were exactly as planned as operating margin remains best in class. But perhaps most importantly, new customer growth was significantly ahead of our expectations.

Second, as we look ahead, we expect the new customer momentum we saw in Q3 to continue into Q4, driven by demand from all customer segments and geographies, with notably strong demand across large global organizations.

Third, the accelerating revenue and customer growth that we're seeing in our business in 2011 and what we expect to see in 2012 is being driven by our core business, which is the Concur Travel & Expense offering, serving our core markets, which is the managed travel market in North America and in Europe.

Fourth, we are very pleased with the early progress and results we've seen across the new growth opportunities we're investing in, namely the expansion of our managed travel services into new geographic markets and industries and our entry into the unmanaged travel market. Over the next 3 to 5 years, we expect these additional growth opportunities to both expand our addressable market and be additive to the growth rate being delivered by our core business.

Please turn to the next slide. Drilling down into Q3, there are a number of items to highlight. First, revenue grew 19.3% year-over-year and reached an all-time high at $89.5 million. As is typical, our outperformance was driven in part by faster-than-expected deployments of new customers and in part by stronger-than-expected transactional volume. It's worthwhile to note that the better-than-expected revenue growth rate we saw in Q3 comes on top of a tough comp as revenue in the same quarter of last year grew 20% year-over-year.

Strong revenue growth led to non-GAAP EPS for the quarter of $0.29 per share, which was exactly as planned, as we were successful in investing excess margin against our growth initiatives.

New customer growth, which is the key leading indicator for our business, was exceptionally strong, exceeding our internal expectations, driven by strong demand across all customer segments, geographies and our major channel partners.

Now there are a few things to bring out here. First, this is a lead indicator for revenue growth in the first half of calendar 2012. Second, even as we've continued to grow our internal distribution capacity, a significantly greater percentage of our direct sales organization has already achieved its annual target as compared to the same time last year. I look forward to what we can accomplish as we enter our seasonally strongest quarter for new customer growth. Third, our relationship with our strategic distribution partners continues to flourish. Our partnership with American Express continues to grow and with a quarter left to go, we are confident that this will mark the third straight year of substantive year-over-year growth. Also, as is typical each June quarter, our partnership with ADP drove compelling new customer growth.

Now as several of you know, each year, we amend the ADP partnership to account for the ongoing dynamics in the marketplace and the new products and services that we can deliver to our mutual customers and prospects. This year, we amended the agreement to move from a reseller agreement to a referral agreement, which has the effect of expanding the number of reps at ADP that can drive leads to Concur sales organization. This new agreement affords us the capacity to directly sell and service our customers and deliver new innovation and value at the rate at which our customers wish to consume that innovation. Not surprisingly, deal flow increased substantively upon the transition to the new agreement. As we've stated in the past, building a direct relationship with our customers is central to our strategy and central to capitalizing on the consumerization of the enterprise.

Looking ahead to fiscal Q4, we expect the new customer momentum we saw in Q3 to continue, and that demand is being driven across all geographic markets and across companies of all sizes, including large national and multinational customers. Please turn to the next slide.

As we've stated for the last several earnings calls, we see a number of significant growth opportunities within the business travel & expense management market. First and foremost, we continue to see a significant opportunity to expand our customer base in the markets we currently serve. Second, we see a number of large and interesting markets outside of North America and are focused on expanding our global presence. Third, we believe the SMB market can and will be a material portion of our revenue and earnings base over the next decade. Fourth, we see a significant opportunity to deliver compelling value to the business traveler while they're on their trip. Fifth, we are focused on creating a high-value ecosystem through the Concur Connect Platform that connects our customer, partners and suppliers together in a manner that drives value for all members of the ecosystem. And finally, over the course of the next several years, we see a significant new opportunity to serve government entities at the federal and regional level across North America and Western Europe. We view our successful execution in these 6 growth areas as both opportunities for growth and as the continued establishment of a foundation from which Concur and its partners could continue to drive innovation and compelling value for our mutual customers.

Please turn to the next slide. Our objective over the next 5 years is to become the market-leading provider of travel & expense management services in each major economy. To that end, we are investing in and continue to see compelling success in markets such as Australia, Singapore, Hong Kong, France, Germany and the U.K. as our transaction volume and local customer wins continues to grow substantively in each market.

Earlier this year, we established Concur Japan and Concur India. And over the next 3 years, we'll continue to build out our local distribution, development and service capacity in each of these major markets. Over the next 3 years, Concur Japan and Concur India will be significant investment arenas. But over the next decade, we expect both markets to be a significant portion of our goal of revenue. And while it's still our expectation that it will take into mid-2012 to see meaningful traction and local customer wins in early 2013 to see related revenue contributions, we are very pleased to have signed our first handful of customers in each market.

As you know, earlier this month, we acquired GlobalExpense, reflecting our strategic commitment to being a great local provider in each major economic market. GlobalExpense is a fantastic expense management company with a particular expertise in receipt validation, VAT and income tax compliance and U.K. tax legislation. With the acquisition, we added approximately 100 people to the Concur team, and we expect to add nearly $500,000 in revenue in Q4, as well as nearly $5 million in revenue in fiscal 2012. And while the primary focus of GlobalExpense's services will continue to be U.K.-centric, with time, we will extend those services to other local markets in Europe.

Please turn to the next slide. As you know, we acquired TripIt this past January. TripIt, in combination with Breeze and the Concur Connect Platform, affords us the opportunity to penetrate and monetize the unmanaged travel market, which is comparable in size to the managed travel market, from which we derive the vast majority of our revenues today.

Even as we monetize TripIt, Breeze and the Concur Connect Platform today, reaching scale is critical to enabling appreciable and then compelling revenue contribution from this portion of our business. In the case of TripIt, we think we'll reach an interesting scale at roughly 10 million users. When we acquired the company, TripIt had roughly 2 million users. In the March quarter, we added 500,000 users. In the June quarter, we added better than 500,000 more users. We're on track today to double the TripIt user base by the end of calendar 2011.

And while the revenue contribution from TripIt remains very modest in fiscal '11, we expect it to become a more meaningful contributor to revenue in fiscal 2013 and beyond. Also in June, we crossed another important milestone for TripIt. We now have over 1 million mobile users.

With the delivery of TripIt for business and the ongoing innovation we're driving into the TripIt offering, we are excited about the contribution that TripIt can make to our overall business over the next few years and how the combination of TripIt, Breeze and the Concur Connect Platform can help us capitalize on the unmanaged travel market opportunity.

Please turn to the next slide. As cloud computing replaces client server architectures and as mobile devices bring computing to every corner of the world, the rate of innovation is accelerating. And the primary purpose of the Concur Connect Platform is to accelerate that delivery of innovation to travelers and to businesses, whether that innovation is driven by Concur, our customers, our partners or third-party developers.

The Concur Connect Platform enables customers, partners and third-party developers to connect to and extend Concur's technology solutions with a diverse set of applications and services. This past February, we launched the first phase of the Concur Connect Platform, and today, customers are implementing services, ranging from realtime integration into their financial systems to realtime updates of billable codes used in computing expense reports to integration with sales force.com.

Last quarter, we announced a partnership with thetrainline.com, the leading online retailer of rail content in the U.K. We introduced the Receipt Store, which enables users as well as third-party developers to send receipt images from any source to a central receipt repository and easily assign them to specific line items on an expense report. More recently, we announced the partnership with and an investment in Yapta, a leading provider of airfare and hotel rate tracking services.

Over the next few quarters, we will continue to expand the breadth and depth of customers, partners and third-party developers that are using Concur Connect to deliver new services that companies and travelers can take advantage of to make their traveling expense experience better.

Please turn to the next slide. With the widespread adoption and intrinsic economic benefits of cloud computing, we all know that more organizations are turning to cloud computing services to automate routine business processes. That trend is not exclusive to the private sector. Increasingly, government organizations are turning to commercial cloud computing offerings that can deliver a compelling set of services at market competitive prices while enabling a better end-user experience, all while driving transparency and accountability.

As you know, we are the leading provider of expense management services to the French government, serving the Ministry of Education, Agriculture, Interior and Ministry of Justice, as well as the Cabinet of the Prime Minister. Here in the U.S., we serve the U.S. Postal Service and various state and local government organizations, such as the state of Georgia. Over the past year, we have steadily ramped our investment in pursuit of serving a broader range of federal and regional government entities in North America and Western Europe.

Today, for the first time in nearly 10 years, the U.S. government has an active procurement process for integrated travel booking and expense management services to automate the entirety of the agencies of the federal government. The GSA has indicated that they intend to make 1 or 2 awards for the so-called ETS2 program with the term of the award being 15 years. The value of the overall contract has been estimated to be roughly $1.5 billion, and with the award scheduled for spring 2012.

We believe we're in a strong position to receive either a single award or a joint award and are investing to win as much of the award as possible over the 15-year term of the award. We've taken a very thoughtful and measured approach to serving government organizations and believe that if we execute exceptionally well, Concur's Government business could generate more than $100 million per year in revenue. We'll keep you apprized as the award process evolves.

So with that, if you please turn to the next slide, I'd like to turn the call over to Frank, who'll provide you details on Q3 results as well as our business outlook. Frank?

Frank Pelzer

Thank you, Steve, and good afternoon, everyone. I would like to convey 4 key messages in my prepared comments this afternoon. First, our core business drove strong financial and operational results in Q3 continue in the year with higher-than-expected revenue and earnings which achieved our expectations. Second, we continue to expect the revenue growth for the fiscal year to track according to the expectations that we've discussed for the past 3 earnings calls, resulting in Q4 being the best year-over-year growth rate quarter that we have experienced since the start of the recession. Third, I would like to review the impact of Q2's strategic investments on our financial results and the corresponding reconciliation from GAAP to non-GAAP. And finally, we will continue to use the business's operating leverage to ramp investment in our 6 growth initiatives to further drive top line growth rates in the coming years.

If you would, please advance to Slide #11 and let's look at Q3 results. As a reminder, GlobalExpense did not close until the beginning of Q4 so none of its operating results are included in our Q3 financial statements. Q3 revenue was above our expectations at $89.5 million, growing 19.3% year-over-year and 5.7% quarter-over-quarter, our highest sequential growth rate in over a year. Recognized revenues in the quarter benefited from strong transaction volume, excellent traction and new customer deployments and existing customers adding new services. Customer retention rates were again strong for the quarter, consistent with our historical averages in the high 90s.

Please advance to the next slide. Unless otherwise stated, please note that all of my comments reference non-GAAP operating metrics. Investment and support of our outlined growth initiatives, offset by economies of scale inherent in our business model, drove gross margins to 72% for the quarter. Our stated goal at the beginning of the year was to take incremental margin in the business and reinvest heavily in distribution and product capabilities.

In the quarter, we continued this trend. Our sales and marketing expense increased 38% year-over-year, reflecting our ongoing and sizable investment in distribution. Our R&D expense increased 18% year-over-year, driven by growth in headcount to drive the innovation curve in our industry. Our G&A expense increased 7% year-over-year, reflecting infrastructure investment to support our global growth.

Even with all these investments, operating margin increased approximately 200 basis points in the quarter to approximately 20%. With our higher-than-expected revenue and accelerated investment, Q3 pretax earnings per share met our expectations at $0.29.

Please advance to the next slide. Cash flow from operations totaled $16.3 million for Q3, equivalent to last quarter. And after capital investments of $8.2 million, free cash flow was $8.1 million for Q3. Our balance sheet continues to be very strong and provides us tremendous leverage to continue to extend our market and our leadership position.

Cash and short-term investments, net of customer funding liabilities, decreased approximately $11.8 million due to funds that we had in trust to complete the GlobalExpense acquisition in the beginning of July. Driven entirely by new customer growth, days sales outstanding ended at 66 in the middle of our 60- to 70-day expected range. Based on the overall growth in the business, deferred revenue grew to approximately $68 million by quarter end, reflecting approximately 16.4% growth over the same period of the prior year.

Please advance to Slide 14. Now let's turn the discussion to our outlook for Q4 and the fiscal 2011 as a whole. As a reminder, our core business is driven by our ability to sell, implement and then bill for our services. Our average implementation timeframe is 6 months. Therefore, several quarters typically pass between the time we contract with customers and when we begin to recognize revenue from their transactions.

Due to the record bookings we experienced at the end of FY '10 and the beginning of FY '11, we expect Q4 revenue to grow approximately 22% year-over-year. This includes approximately $500,000 of revenue contribution from GlobalExpense. With 22% revenue growth in Q4, we expect the fiscal year 2011 revenue to grow approximately 19% year-over-year compared to fiscal 2010.

As we stated at the start of the fiscal year, we expect to invest in excess earnings of our annual target against our 6 growth initiatives. As such, we expect non-GAAP pretax net income per share to be $0.37 for Q4, which includes approximately $0.03 of dilution from merger and acquisition-related activities. We now expect non-GAAP operating margin will be 21% or more for the full year, driven by 50 basis points of dilution from acquisitions.

As Steve mentioned, strong customer demand and corresponding excellent sales execution were significantly ahead of our expectations. The matching principle of GAAP requires us to defer the cost of acquiring revenue over the same timeframe we defer the revenue. For us, sales commissions costs represent the majority of our deferred costs. Therefore, as the business grows, we experience higher cash outflow paying commissions than the associate expense on the income statement in the quarter.

Due to higher-than-expected customer bookings growth in Q3, which we expect to continue in Q4 and the dilution from acquisitions, we now expect the full year of cash flow from operations will total between $78 million and $82 million. Please note that this excludes the effects of one-time acquisition, other related costs that are included in cash flow from operations but split out in our GAAP to non-GAAP reconciliation statement.

With the incremental investments we are making and the growth initiatives that Steve mentioned, we now expect capital expenditures of approximately $31 million to $33 million for the fiscal year 2011. We expect free cash flow to total between $45 million to $51 million for the year.

As we mentioned last quarter, the effects of the TripIt acquisition have rendered our effective tax rate meaningless for the next few years. We expect our cash tax rate to remain in the low-single-digits for the foreseeable future as we continue to utilize NOLs to offset the taxable income of the business. For IBIT's consensus purpose, consider using the 35% federal statutory rate, but recognize this does not reflect the taxes we pay.

Please advance to Slide #15. As a reminder, we made several investments in Q2 that impacted our financial statements and make current comparisons to periods earlier than fiscal Q2 2011 challenging. I would like to spend a few minutes providing more clarity on specific income statement items that can be found in our GAAP to non-GAAP reconciliations. Let me begin with the effects of the TripIt acquisition. As discussed last quarter, we acquired TripIt with a structure that results in a potential contingent cash payout after 30 months, the amount of which, if any, depends on our stock price performance. This deal feature creates a contingent liability on our balance sheet. GAAP requires us to remeasure the fair market value of the liability each quarter and report the change in value in our income statement.

For example, in this quarter, the movement in our stock price, from March 31 to June 30, theoretically raises the final cash payout, creating a loss for the quarter of $2.7 million. As a reminder, recall that last quarter, we reported a gain of $1.3 million related to this contingent liability. Please note that the ultimate cash payout will be determined by the earlier of our stock price reaching the level where this contingent liability is extinguished or the level of our stock price near the end of the 30-month measurement period. Between now and then, we will continue to measure the change in liability from quarter-to-quarter and record the gain or loss on our income statement.

Another item related to the TripIt acquisition is $3.4 million in compensation expense as a result of continued employment terms for certain employees who were former shareholders of TripIt. This amount was included within the total TripIt deal consideration but GAAP requires us to run it through our income statement.

Last quarter, we also made strategic investments in Concur Japan and Cleartrip. Our controlling interest in the Concur Japan JV requires us to consolidate the entity's financial statements into our results. 100% of the revenues and expenses run through our operating results. Our partners' noncontrolling interest is broken out below the net income line on our income statement.

Our investment in Cleartrip requires us to record a portion of that investment using the equity method of accounting. We record this portion of TripIt's net income in the other income portion of our income statement. We back out the effects of both the Japan JV and Cleartrip investments in our GAAP to non-GAAP reconciliation statement in our press release.

Finally, we incurred approximately $1 million of acquisition and other related costs for the quarter. As a reminder, these expenses primarily consist of professional service fees, travel expenses and other one-time direct costs associated with strategic activity, in which we may deploy capital.

Please advance to Slide 16. In closing, the 19.3% year-over-year revenue growth rate for Q3 was ahead of our expectation, while the $0.29 of pro forma pretax earnings achieved our expectations. We continue to experience strength in new business generation from our core business that will continue to benefit our top line growth in future quarters. Using the strong operating leverage of the core business, we continued and will continue to invest in our 6 growth initiatives, which should bear additional rewards over the medium to long term.

We expect Q4 revenue to grow approximately 22% year-over-year, the highest year-over-year growth rate we have experienced since the beginning of the recession. And finally, we have strong balance sheet with significant cash reserves. Our general capital strategy continues to be to use our balance sheet wisely to aggressively pursue the growth of our market.

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

S. Singh

As the accelerating revenue and customer growth rates can attest to, we see significant growth opportunities in the markets we serve today.

Our leadership position and the strength of our business model affords us the opportunity to invest in multiple new growth opportunities, namely the expansion of our managed travel services into new geographic markets and industries and our entry into the unmanaged travel market.

Over the next 3 to 5 years, we expect these additional growth opportunities to both expand our addressable market and be additive to the growth rate being delivered by our core business. And while we're excited about the multiple new growth opportunities we're investing in, we know that those opportunities are made available through great execution within our core market quarter after quarter and year after year.

As we enter the final quarter of our fiscal year, we believe that execution will continue as our expected Q4 growth rate of 22% will be the highest growth rate for the company since before the start of the recession, even while the company has become 50% larger.

Clearly, we are very pleased with the performance of the business and excited about the coming quarter and fiscal 2012. However, there are macro risks ahead. While it will be easy to gloss over the negative impact of not having a realistic plan to deal with federal and state budget deficits, it'd be unwise to assume no macro risk. But what the great recession taught us is that we are more than capable of performing in the top 10% of companies in nearly any economic climate.

Operator, we would now like to open the call for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from David Hilal with FBR.

David Hilal - FBR Capital Markets & Co.

[Technical Difficulty]

It was about American Express, right? These guys have done a really good job in a larger enterprise market for you. But we've seen them cohost some symposiums targeting small businesses and with the Breeze product. I don't remember you guys talking much about that. So maybe you could just share what you're doing with AMEX to go downstream and work the Breeze product into the SMB world?

S. Singh

Sure. So I think we'll start with this, the AMEX relationship is very, very strong. We are seeing -- there is year-over-year growth in the contribution that we're getting as far as leads. Of course, as you recall, our sales team actually closes its own deals. And those leads really come across almost every segment of the market so it's not exclusive just to our Concur travel & expense offering. It's also us driving leads increase [ph] . Also, we are seeing -- there are tens of thousands of prospects that are coming not just from AMEX but, frankly, from other sources as well and seeing good solid lead traction move from each product.

David Hilal - FBR Capital Markets & Co.

All right. Now, let me ask you about the Government business. That's a big number that I'm sure jumped out to everybody, granted it's over many years. But what percent of that award do you think is likely, maybe a range, what's a likely range that you think you could win as part of that award? And then your $100 million a year comment, when do you think you'd get to that level?

Frank Pelzer

Sure. So let's make sure we understand, that $100 million a year comment refers to our presence across all government contracts that we'd be bidding for, whether that's the U.S. or outside of the U.S. To speak a little bit to some details around the U.S. procurement process. This is -- for those of you who may not be familiar with the details, I'll try to hit the highlights of it. The U.S. government had ETS1 [E-Gov Travel Service 1] in place more than a decade ago and with the expiration of ETS1, obviously, ETS2 was being put in place and we are actually bidding for the ETS2 contract. There's just some small details underneath this. We acquired the company back in 2007 called Gelco. Gelco is actually a provider for the federal agencies prior to ETS1. With ETS1, it lost its government accreditation for being a supplier to the federal agency. Although if you think about what actually happened during ETS1, the 3 new providers to the government attempted to deploy their products across federal agencies. They had very little success. The Gelco product continued to be used across a lot of those agencies. And then for ETS2 -- by the way, in that ETS1 model, there was no revenue stream to Concur for that. This is a contract that Gelco had prior to us acquiring the company and was a licensed contract for ETS1. With ETS2, we're obviously bidding on this. We think that it'll come down to 2 bidders for that contract, us and one other company. Our view is that, look, we're in a fantastic position to deliver automated travel booking and expense recording services to federal agencies. And as far as what percentage we will get, that remains to be seen. Obviously, we've ramped our investments over the last several quarters to be in a great position to win the award or as much of the award as is appropriate. As the ETS2 program has become -- has come closer to actually being awarded, we have actually ramped our investments further. So in Q3 and then obviously again in Q4, we'll ramp those investments even further. We expect the award to be granted roughly spring 2012 and are optimistic that we can certainly get a very significant piece of that business. Again, the whole contract's worth roughly $1.5 billion, and we feel like across all the government agencies, both in North America and Europe, that we are either working with or intend to work with those $100 million a year businesses over that full decade.

David Hilal - FBR Capital Markets & Co.

So just to clarify, that $1.5 billion, is that going to be awarded to either both bidders, split someway or to one? Or will more than 2 participants...

Frank Pelzer

No. Typically, it works to the following. It's typically there's a group of selected approved vendors, and we think that approved vendor will just be 1 or 2 and we believe we can be -- we certainly can be one of those. That's number 1. Number 2 is then the agencies are -- have the option of, saying okay, now in order to automate travel bookings expense report, you may use this service -- one of either vendor A or vendor B. And then we obviously, will compete within that environment to win each agency within the award.

Operator

Your next question comes from Ross MacMillan with Jefferies.

Ross MacMillan - Jefferies & Company, Inc.

Can we just recap on the ADP change? And I understand what you said going from reseller to sort of the arrangement. But could you just maybe outline in more color what that means both from a distribution standpoint and from an economic standpoint?

S. Singh

Sure, sure. So obviously, we have, for a number of years, enjoyed a fantastic relationship with ADP. It's a reseller relationship, meaning that ADP takes the Concur Expense product into their customer base. They sell it into their customer base. We service and deploy that customer and maintain the service for that customer on an ongoing basis. One of the challenges in a reseller agreement is that resellers often have competing priorities, and they have to invest -- they actually will drive sales of a partner's products. What we found was that the more ADP sales reps who are actually referring the product, obviously -- and these are the more the product, the more the sales will go up, obvious. What we engaged in when you say, look, what we've got an opportunity here is to deliver this product into all of your customers but what we need to do is really enable our sales team to actually go sell to those customers. So we moved the referral agreement which allows all of the ADP's sales force to drive leads to Concur's sales teams, which, by the way, is the largest distribution capacity within government expense management market. And then our team will go in and sell that customer and then, frankly, from there, the process is exactly the same as it has been historically, which is we will service and support and deploy at that customer. From an economics perspective, obviously, because we will now be doing the selling, the economics are greater for us but this is only for customers going forward from here. So the new customers that we're selling. Now, the real test about whether or not this change is positive is what actually happens from the date of that agreement changes. And we modified that agreement roughly in the May time period. And what we saw was literally the best June quarter ever in ADP's relationship. So we were very happy with the transition. ADP is very happy with the transition, and we think there's tremendous opportunity to move forward from here and keep driving the number of customers as leads, more actively from ADP, are up.

Ross MacMillan - Jefferies & Company, Inc.

I guess I was curious as to whether ADP, under a reseller agreement, was getting part of a recurring revenue stream or now whether it's just a bullet payment and you actually take the 100% of the recurring stream.

S. Singh

Sure. So let me just quickly touch upon that. Historically, what has happened is that because ADP is a reseller, they got a percentage of the revenues on an ongoing basis. We recognized revenue from that relationship on a net basis. So we obviously take out any fees we pay ADP and recognize that on a net basis within our revenue stream. Going forward, for all new deals, we will still pay ADP a piece of the revenue, but obviously, a much smaller piece. We will recognize the revenues that we get from these customers on a net of the fees that we pay ADP basis.

Ross MacMillan - Jefferies & Company, Inc.

So still on that basis?

S. Singh

Yes.

Ross MacMillan - Jefferies & Company, Inc.

Okay. And then just one for Frank just on a cash flow revision. I'm trying to understand that, that magnitude of revision is larger by some margin relative to the incremental dilution from this most recent acquisition. And so I think you also made comment around commission dollars to the sales force. So I'm just trying to understand the relative impacts of these 2 elements and any other elements on that cash flow revision?

Frank Pelzer

Sure, Rob. So we didn't split out both. I think you can take a look at the recent solution and probably back into it and then find that the large majority of the balance is associated with the higher commission rate, and again, please keep in mind that we're talking about not only for Q3 but also what we're expecting for Q4 as well.

Operator

Your next question comes from Laura Lederman with William Blair & Company.

Laura Lederman - William Blair & Company L.L.C.

Looking at the government contract, is that an ID/IQ, in other words indefinite delivery/indefinite quantity, so the government agencies, theoretically, don't have to buy anything? And I guess a related question is if it is an ID/IQ, is there any other initiative where the government is saying, you really need to replace those systems? Because I used to cover government services companies. It's an awful area to cover, but I just wanted to understand a little bit about the contract. And also, are you the lead contractor there? And do you have subs or who else are you partnering with? And then I'll follow-up with another.

S. Singh

Sure. I'm going to answer a part of that. Let's again keep in mind that we're still bidding on this contract and the award has yet to be granted. I think the thing that I think is important to bring out here is that the services that the agencies that are using today have some set periods to them, and in fact, it will have to be replaced. And most of the tech providers that will provider us ETS1 are not bidding on ETS2. Having said that, we obviously have a fair bit of experience working with government agencies. As I mentioned, we're the largest provider of travel & expense services into the French government, U.S. Postal Service is our customer, state of Georgia is our customer and number of other state and local agencies. So we take a very calculated approach in how we work with government agencies, all of the leveraging the core technology stack that we're delivering to our broader customer base.

Laura Lederman - William Blair & Company L.L.C.

Can you talk a little bit about any changes with competitive environment? Workday is going public next year and they are talking in a lot of conferences. Do you see them at all in the market?

S. Singh

Laura, can you back up? I didn't hear who you said.

Laura Lederman - William Blair & Company L.L.C.

Workday, I'm sorry. And then just maybe competitively, more broadly, who are you seeing? Who are you not seeing any changes?

S. Singh

Obviously, I know of Workday and I know of the products and services that they are looking to deliver to the customer base. But look, we haven't seen any real substantive change in the competitive landscape. Ultimately, our win rates and our ability to penetrate the customers is really what we focus on. And what we're seeing is that as we've added to our distribution capacity, we are seeing our overall customer wins and value customers continue to increase. Win rates have been relatively consistent in the 75%-plus range.

Operator

Your next question comes from Chaitanya Yaramada from Robert W. Baird.

Chaitanya Yaramada - Robert W. Baird & Co. Incorporated

[Technical Difficulty] This is Chaitanya for Steve Ashley. I had a question on TripIt. If you can comment on the go-to-market strategy for the enterprise market and any color you can provide on how you'll drive adoption within the existing customers and any details on the pricing model for enterprise, that would be great.

S. Singh

Sure. I can provide a limited amount of information. Obviously, our primary focus with TripIt is in combination with Breeze and the Concur Connect platform to go after the unmanaged travel market segment. However, we also see tremendous opportunity to deliver TripIt into our managed travel customers. And frankly, we actually see a fair bit of adoption across the managed travel customer segment, predominantly by individual business travelers who choose to use TripIt. This most recent quarter, we introduced TripIt for business and, frankly, saw some very encouraging early results around TripIt for business, where organizations are looking at purchasing it or have purchased it on a volume basis. But frankly, we're only a few months into that product. So today, I wouldn't say there's any kind of trend lines that I would point to.

Chaitanya Yaramada - Robert W. Baird & Co. Incorporated

Okay, great. And then if you can provide a comment on the Concur Connect platform? What are the next steps for this initiative and any additional color on the rollout to customers?

S. Singh

Yes. So there's really 3 [indiscernible] with Concur Connect platform. We're taking a very calculated approach around this, first and foremost, is working with our customers. We've actually added a significant number of new customers in the most recent quarter, who are now using our web services to actually integrate Concur into their internal applications, very much in line of what we spoke to last quarter, and they range really from integration into financial systems to integration to external products like sales force.com, but we're seeing that on a more broad basis across our customer base. We expect that trend to continue. And frankly in some of those instances where it makes sense, it actually is additive to our transactional revenue per customer. The second phase is really innovating with partners and working with partners and third-party developers to actually take their applications and services and integrate them on top of the Concur Connect platform into our application set. You saw a few announcements around that in the most recent quarter, thetrainline.com, receipt Store is the second. And then you will see additional rollouts of partner relationships over the course of the next several months or next couple of quarters. So right now for the next year, we're really focused on just building scale and making sure that in each of these relationships, we've got a model that works exceptionally well from a customer point of view and then we'll look at how do we drive that to scale once we get in each of those segments of great working examples and how we work with our customers.

Operator

Your next question comes from the line of Brent Thill with UBS.

Unknown Analyst -

This is John Bien [ph] for Brent Thill. You mentioned strong growth in the new customer additions. Could you talk a little bit more about where that growth was driven from in terms of which channel or source, in whichever way you'd like to categorize? And secondly, if you could update your thoughts on kind of longer-term goal for returning to organic 25% growth?

Frank Pelzer

Sure. So, as far as the June quarter, obviously, we saw a much stronger new customer growth than we anticipated. And that growth really came from virtually every segment that we serve. We saw a stronger growth in large national, multinational accounts. And of course, we saw a fair bit stronger growth in SMB customers as a result of the ADP partnership, which is very typical, in fact, in each June quarter for the last several years, you see a strong performance, and we saw an outsized performance this June quarter. But these are just 2 examples. In order to have materially better performance in the quarter than you expect. Pretty much across the entire business, you got to see good solid performance and that's what we saw. Relative to the mid-20s growth projection, obviously, what we've said in these last several calls is that we expect our year-over-year growth rate to continue to trend up, and we see no reason that shouldn't continue. Obviously, if you look at the quarter we just reported, 19%, some change in revenue growth on top of a 20% growth in the same quarter last year, we're forecasting 22% locking the Q4. And this all, frankly, customer deployments from sales that occurred a few quarters back. So if you look at the strong bookings we just saw in the June quarter, and what we hope to see in the September quarter, these are really second half of mid-2012 to late 2012 added to the revenue streams.

John Kraft - D.A. Davidson & Co.

Okay, and if I could add kind of one more. On the ADP change, so just to clarify, that means, right now, going forward, it's exclusively referrals, so there will no longer be reselling. And in terms of the sales incentives turning to ADP rep, effectively, it's a little bit smaller than if there were just reselling. Did I get that right?

Frank Pelzer

I wouldn't draw that conclusion at all. Just keep in mind that the rep is actually getting a portion of that referral peak but it's all 100% referral now. So we're actually getting a broader range of reps that are actually referring this business.

Operator

Your next question comes from Mark Murphy with Piper Jaffray.

Matthew Coss - Piper Jaffray Companies

This is Matt Coss on for Mark Murphy. Just a couple of questions, one on Yapta. How do you think that might help with the adoption of TripIt Pro? And then as far as acquisitions go, are there any areas that you feel like you'd like to flesh out in your product line or any holes that you think need to be filled?

S. Singh

Sure. So Yapta, obviously, we're very excited about this relationship. They've got a market-leading, price-checking functionality for airfare and also for hotel. And obviously, with the partnership, we actually became an investor in a company with $5 million into the company and are one of its largest shareholders today. What our objective with TripIt and TripIt Pro, and so this is not exclusive to Yapta, our objective in both products is to keep driving the innovation or the value we deliver in each of those products, keep driving it up. And in TripIt Pro, the services like price checking become really valuable services that make TripIt Pro frankly invaluable to the U.S. business traveler. And so while Yapta is a part of TripIt Pro, our objective in TripIt and TripIt Pro is to keep driving more and more functionality into those services, to make it invaluable and indispensable to any business traveler. And so as we do that, the objective is to grow that base of users from where we are today to the 10 million mark that I've referenced in the prepared comments. As I mentioned, we should end the year, end calendar 2011 around 3 million users -- I'm sorry, 4 million users up from 2 million a year ago and our objective is to get the 10 million, if you can get 10 million, we've got some increasing scale that you can start to monetize in very interesting ways. On the M&A front, we don't really share any insights into where we're looking. Obviously, you've got our historical patterns to look at. What I can tell you is we're entirely focused on corporate travel & expense management across the managed travel segment and of course, now, the unmanaged travel segment. So that's our area of focus.

Operator

Your next question comes from Greg Dunham with Credit Suisse.

Gregory Dunham - Crédit Suisse AG

Just one quick one on GlobalExpense. Did I hear you correct that you said 100 people joined? And then a follow-up would be, if that is right, that's $5 million next year. Was there a write-down of deferred or something on that?

S. Singh

Yes, you're right, about 100 people. Keep in mind, this is a business that delivers add-on services like receipt processing and back reclaim as well as tax compliance services into their customer base. So we see this as an add-on piece of functionality to our customer base. And frankly, we think that the GlobalExpense team did a fantastic job serving the U.K. market. And as far as the revenue stream in this quarter, there's obviously a fair bit of write-down related to their revenue stream for purchase accounting, and our estimates, inclusive of any near term write-down for fiscal 2012, is about $5 million of incremental revenue.

Operator

Your next question comes from Brian Schwartz with ThinkEquity.

Brian Schwartz - ThinkEquity LLC

I actually just have one question here. Steve, I just wanted to ask you about your appetite. It seems like you've done quite a bit of M&A and strategic investments and new partnerships here in the recent quarters than in the past company history. Can you talk a little bit about your appetite for continuing these type of strategic investments versus potentially just stepping back and kind of absorbing what you've done recently?

S. Singh

Yes, look, we look at M&A deals to the extent that they actually fit within our core strategies. If it doesn't fit within the core strategy, we're not interested. If we can't find a deal that we think makes a lot of sense for our business and actually set up to win for our shareholders and for the selling shareholders, we're not interested. The core business itself is growing at such a nice clip, M&A is not a core component of our strategy. But if the right deal presents itself or if we find an area that we need some additional help in, for example, the GlobalExpense deal was really driven by the fact that we want to drive greater services functionality into the U.K. market because it's required in that market, we will go out and look at those types of deals. And so I would tell you that I wouldn't assume just because we've done a few more deals this quarter, that this fiscal year that, that's going to be the norm from here. It's entirely driven by what we need in each of the market segments and they are great assets to go out and purchase it and put into our organization and more importantly, can we manage them effectively.

Brian Schwartz - ThinkEquity LLC

Then one quick follow-up. I just wanted to kind of ask you about Yapta, and I think it may have been Mark or Matt earlier who was maybe trying to get at this question, and that is, when I do talk to the TripIt Pro users that are out there, they really say that one of the key drivers to adoption and the ROI on TripIt Pro comes from air ticket refund capability. And this is, of course, what Yapta is really best known for. So I'm just trying to better understand kind of the strategy behind this most recent investment?

S. Singh

Well, I mean, you basically just described it. But I think it's more than just that. I think the reality is there's a handful of really great features and services you want available as a TripIt Pro user. While you're on the go, you want to make sure you go deliver those because we want you to be passionate about that product and use it as a regular part of travel. But I just want to make sure we bring up that, I won't limit that just to TripIt Pro. We think that we will continue to add incredible functionality in TripIt Pro but also keep adding great functionality into TripIt. So we've got a broader and broader base of usage. So Yapta is one piece of that equation but there will be other pieces that you'll see whether internally developed or through partnerships that allow us to keep adding more functionality around TripIt Pro.

Operator

Your final question comes from Michael Huang with Needham.

Michael Huang - Needham & Company, LLC

So first of all, so in order for res [ph] to continue to accelerate next year, it sounds like it should be driven by the strength of customer signings this year. But I was just trying to clarify, are any of your longer-term growth opportunities that you mentioned earlier, are they committed to play next year or these all more of 2013? And is there any possibly that any of these guys could represent upside leverage to growth next year?

S. Singh

I think, Michael, the right way of looking at this is that what you can see in 2011 and what we expect in 2012 is really being driven almost entirely by the core business, and so that's customer signings on the Concur Travel & Expense service across the geographies that we serve today. I certainly wouldn't plan on upsides coming from these incremental growth initiatives. I think that's a little bit more optimistic than that we like it to be or that we intend to be. We're just in a fortunate position that we've got an amazing core business that's growing at an accelerated rate and affording us the capacity, frankly, to go invest in other growth opportunities that become additive to our core business's growth rate come 2013 and beyond. And by the way, one last thing, we're doing all that while delivering best in class operating margin. And I think that part is really what I've got to get across is that we have an incredible business that's got incredible gross margin, operating margin leverage opportunities.

Michael Huang - Needham & Company, LLC

And I know, I feel a little bit early to ask this, but as you look at into 2012 and the acceleration that your forecasting curtails in '11, are we going to see the same type of acceleration in 2012 or could it be even something more outside than that?

S. Singh

So here's what I look at. Obviously, we're not providing specific 2012 guidance. Let me give you a couple of data points though to think about. One is keep in mind that in 2011, in the March quarter, we had a little bit of a downward graph as we sunsetted some legacy products so that muted the year-over-year growth rate that we would've otherwise delivered. So that's one piece. And the other piece is the shape of the curve that you see in our growth rate is starting to become very consistent, right? So if you look at the last several years, what you see is Q1 and Q2 tend to be a little bit more modest in terms of year-over-year growth. Q3, Q4 tend to be substantially higher. And so while you won't see the dip down in Q -- in the March quarter next year, you'll definitely see the same basic shape of the curve.

Michael Huang - Needham & Company, LLC

Right, okay. And the last question, just on this sunsetting the legacy product. Have you had a chance to kind of win customers back? Or is there anything you can highlight with respect to any of the customers that were going away a little bit based on the...

S. Singh

Sure. Before I hit that part, obviously, needless to say, it's also important to keep in mind that we're exiting the year at 22% growth in Q4, in fiscal Q4. On the question of sunset customers, it's exactly what we expected, which is basically we will have an opportunity for those customers to offer them our core on-demand products and services. And we are seeing those customers engage and look at those products and services. In fact, we sold one of them in the June quarter. But keep in mind that we have to then go through the deployment process, which is typically about 6 months and then we'll see the revenue stream start to fold in from that.

Operator, thank you, that's it for questions. I want to thank all of our investors and analysts for joining us for our Q3 earnings call. We look forward to updating you on the progress of the business after the end of our fiscal year. Thanks so much.

Operator

Thank you for attending today's conference call. You may now disconnect.

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