Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Concur Technologies (NASDAQ:CNQR)

Q2 2012 Earnings Call

May 02, 2012 5:00 pm ET

Executives

John Torrey - Executive Vice President of Corporate Development

S. Steven Singh - Chairman and Chief Executive Officer

Francis J. Pelzer - Chief Financial Officer and Principal Accounting Officer

Analysts

Laura Lederman - William Blair & Company L.L.C., Research Division

Brent Thill - UBS Investment Bank, Research Division

Richard K. Baldry - Wunderlich Securities Inc., Research Division

Steven M. Ashley - Robert W. Baird & Co. Incorporated, Research Division

Ross MacMillan - Jefferies & Company, Inc., Research Division

John Kraft - D.A. Davidson & Co., Research Division

Thomas Ernst - Deutsche Bank AG, Research Division

Brendan Barnicle - Pacific Crest Securities, Inc., Research Division

Operator

Good afternoon. My name is Allie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Fiscal Year 2012 Second Quarter Earnings Release Call. [Operator Instructions] I would like to turn the conference over to your host for today, Mr. John Torrey, Concur's Executive Vice President of Corporate Development. Sir, you may begin your conference.

John Torrey

Thank you, operator. Good afternoon. We are extremely pleased to welcome everyone to the Concur earnings conference call for our second quarter of fiscal 2012. 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 visit our website at concur.com. Other information of interest to investors, including our SEC filings, press releases and recent investor presentations can be found in the Investor Relations section 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 the prepared statements today, we will host a brief question-and-answer session. [Operator Instructions]

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. Steven Singh

Thank you, John, and good afternoon, everyone. Over the past decade, we've built Concur into one of the world's largest enterprise card application companies. And looking ahead to the next decade, we'll build upon that success and scale by leveraging our investment in content aggregation and delivery, big data and mobile computing. To evolve Concur into not just the leading applications company, but also a platform for content and commerce in the $1 trillion corporate travel market. This is a natural evolution of cloud computing, as megatrends such as cloud, social, mobile, local and big data come together. Central to our success over the next decade are the investments we've made in distribution and our investments in innovation, specifically: the perfect trip [ph]; the Concur T&E Cloud, which is enabled by the Concur Connect platform; and our global travel content strategy; and the integration of our big data strategy across each of these. But before I expand upon these themes, let me tell you about Q2.

Please turn to Slide #4. A few minutes ago, we reported significantly better-than-expected results for Q2 of fiscal 2012, meeting our expectations across the board and raising our revenue, operating margin, earnings and free cash flow expectations for the fiscal year as a whole. Q2 was an exceptional quarter across all key metrics. We grew revenue 28% year-over-year, which was nicely ahead of our expectation of 25% year-over-year growth, and revenue outperformance was driven by a number of factors. Deployments were ahead of schedule, travel transaction volume was significantly ahead of our expectations and we're starting to see early revenue returns on our investments in new markets such as the SMB market and the unmanaged travel market. And as you can see from the chart on the bottom of Slide 4, driven by strong bookings in prior periods. We've seen year-over-year revenue growth rate move up consistently over the past several quarters from 16% in the March 2011 quarter to 19%, to 23%, to 25% and to 28% in the most recent quarter. We're pleased to see the consistent and meaningful expansion of our revenue growth rate on top of what's already the second highest revenue scale in the SaaS [ph] industry. And reflecting the profit discipline that we have long enforced on our business, non-GAAP EPS was $0.33 per share and non-GAAP operating margin was 18.5%, both ahead of our targets, as revenue outperformance dropped to the bottom line.

Please turn to Slide #5. At the start of the fiscal year, we highlighted our plans to significantly ramp investments across the business, with the focus on doubling our distribution capacity by the end of fiscal 2013, to accelerate both our core business and our growth initiatives and on continuing to drive the innovation curve in our industry as we expand our product and content footprint on a global basis, target the unmanaged travel market, invest in the Concur T&E Cloud and deliver on the government T&E Cloud. We're tracking well against each of these investment objectives and we expect to see the increasing benefits of these investments in fiscal 2013, '14 and '15, as we pursue the significant market opportunity that we see in front of us.

To support our growth and innovation objectives, we've now crossed the 2,000 employee mark, and we're looking to bring another 500 individuals on to the Concur team over the remainder of the fiscal year. But even as we increase the size of our team significantly, the strength of our revenue outperformance is driving better-than-expected earnings and operating margin. And at this point, we expect earnings for the full fiscal year to be significantly ahead of our original expectations. And additionally, we are raising our operating margin expectations for the full fiscal year.

Please turn to Slide #6. Let me highlight a few leading indicators. The biggest driver of our growth rate has been, and for many years to come will continue to be, new bookings and the related deployment of those services. New bookings consist of new customer sales and cross-selling into existing customers. We had an exceptionally strong quarter in terms of new bookings, and year-to-date, we are tracking nicely ahead of the 35% bookings growth rate we saw for all of fiscal 2011. More specifically, in Q2, we continue to see a strong demand environment in our core markets across North America, EMEA and our historical APA markets like Australia and Singapore. And on top of the new booking performance in the core business, new customer bookings and cross-selling in the SMB market was significantly ahead of our expectations. Cross-selling into the first phase of the ADP [ph] customer migrations was more than double our expectations. And while still early, bookings in India and Japan continue to track ahead of our expectations. Overall, we are very pleased with the new bookings performance during the quarter and in view of our deployment and revenue recognition model, the visibility that these bookings provide to future revenue growth in Q3 and beyond.

Looking ahead to the rest of the fiscal year, and based on the quality of our pipeline, it's our expectation that the demand environment should remain robust as we enter our seasonally strongest quarters for new customer bookings. The strength of bookings growth in early 2011 allowed us to exit Q1 of fiscal 2012 on a $400 million revenue run rate. And the year-to-date strength in bookings we've seen affords us the expectation that we will exit Q1 of fiscal 2013 on a $500 million revenue run rate.

Please turn to Slide #7. A decade ago, in 2002, and I know some of you have been with us that entire time, as we spoke to investors about the transition of the computing industry to cloud computing, it was very much a missionary sale. Today, the concept of cloud computing is second nature to everyone in the industry. As we look ahead to the next decade, we need to look at cloud computing in the context of other major trends, notably mobile, social, local, global and big data. Each of these major trends will be inextricably intertwined. Many cloud computing companies will evolve into far more than application companies. And in the case of Concur, we expect to evolve from a leading applications company to a leading application, content and commerce company. One that can deliver incredible value to business travelers, corporate customers, third-party developers and suppliers, by linking them together in a massively efficient, real-time supply-chain that delivers an incredible user experience. Today, that $1 trillion supply chain is inefficient and anything but a great user experience. We plan on changing that.

Corporate customers struggle with out-of-policy spend, incomplete data and inefficient purchasing mechanisms. Suppliers pay large sums to make their content available for consumption with little to no understanding of the end business traveler. Third-party developers not only lack a scalable efficient channel to reach business travelers, but have no mechanism in which they can leverage relevant data to improve the user experience. And each of you can decide for yourself if there's room for improvement in the technology available to business travelers.

Now don't misunderstand me. The system clearly works in much the same way that the BlackBerry worked. But the iPhone redefined all that by delivering an incredible user experience while enriching a seemingly endless set of cloud services in which all members of the ecosystem could participate and drive value for each other. And we will apply that same higher standard to the travel & expense cloud.

Please turn to Slide #8. Concur's evolution into an applications, content and commerce company will be driven by our product initiatives, and it's happening today. Those product initiatives are the perfect trip, which is a business traveler initiative; the Concur Connect platform, which is a developer and partner initiative; our global content strategy, which is a supplier initiative; and the integration of our big data strategy across each of these, which allows us to integrate these valuable data sets together in a model that improves the experience and value for every member of the supply chain.

Please turn to the next slide. Let me touch upon each of these initiatives. Our ambition over the next decade is to deliver to every business traveler what we call the perfect business trip. The perfect business trip will be booked on a mobile device by merely voicing your travel needs, whether that's a flight, a train, a hotel, car service, dinner reservation or any activity that's part of a normal business trip. Your itinerary will be automatically managed by TripIt, which would of course rebook your flights when canceled or delayed, upgrade your seat where possible, be your concierge for supplier services along the way, check you into the exact hotel room of your choice as you walk off the jetway, allow you to use your cellphone to open your hotel room door and check you out of your room as you came down the elevator and jump into the cab that was booked and paid for via one of the many services integrated into the Concur T&E Cloud. All this will be done based on your corporate policies, your spend patterns and your preferences. And perhaps most noticeably, or unnoticeably, your expense reports would file themselves automatically and throughout your business trip. We're making great progress in delivering innovations for the perfect business trip.

Earlier this year, we launched the first mobile application that allows you to book and complete in-policy air reservations directly from any smartphone or tablet. In fact, if you're a Concur customer, we encourage you to download Concur Mobile. It's getting incredible reviews and will likely become your primary interface into all Concur services.

Earlier today, we announced a new version of TripIt that delivers personalized hotel recommendations for travelers, along with offers on restaurants and other activities near you. The recommendations are based on your preferences and your historical spend patterns. You can book the hotel and reserve the restaurant with a simple click. Not only are we delivering on elements of the perfect trip today, we're seeing customers embrace it. Today, more than 17.5 million business travelers book travel through Concur. And in little more than a year, we've seen 2.5 million business travelers turn to Concur's mobile applications as one of the primary interfaces into our travel itinerary and expense services. And at our user conference next week, we'll have even more innovations to share about our mission to deliver the perfect business trip.

Please turn to Slide #10. We're building out the Concur T&E Cloud through investments in the Concur Connect platform and our global content strategy so business travelers can leverage the power of Concur's T&E Cloud and consume content from all corners of the world, an innovative services from the brightest minds in the industry. We've highlighted many partners over the past several quarters, and this quarter, leading solution providers such as AdvantageMS, Healthcare Data Solutions, MedPro Systems, Porzio Pharmaceutical and R-Squared announced the integration to the Concur T&E Cloud to provide enhanced capabilities to support compliance with the Patient Protection and Affordable Care Act. To accelerate the delivery of compelling new services and global content, we're funding innovative companies such as Room77, whose goal is to allow you to book a specific room that you want at any hotel in the world. We significantly expanded our investment in RideCharge, the makers of Taxi Magic, which allows you to book, track, pay for and automatically file an expense report for your ground transportation, such as taxis and sedans. All Concur customers can now seamlessly access the widest range of hotel and air content from India's market-leading OTA, ClearTrip, in which we are the largest shareholder and where we just expanded our investment. In fact, more than 40 business partners that are integrating into the Concur T&E Cloud will join us at Fusion next week, where they'll be able to share their services and what they're creating with more than 1,500 customers.

Please turn to Slide #11. As all of you know, nearly 90% of the world's electronic data has been created in just the past few years. Just as cloud, mobile and social computing are creating vast amounts of new data, this data must be aggregated into logical, consumable groupings. When you think about the intersection of cloud computing and big data within the travel ecosystem, you can see the incredible value that can be delivered to the business traveler, the core customer and the supplier. For example, if my own spend patterns and corporate policy indicate a preference for a certain style and price point of hotels, does it make sense to clutter the precious real estate on my smartphone with choices that I would never select? Do I benefit from hoteliers understanding my preferences and competing for my business? Absolutely, I do. We will deliver big data as a service.

Please turn to Slide #12. When you think about our increasing ability to reach a market that is underpenetrated and the scope of innovation we are both driving and enabling, it should be obvious why we're so excited about the next decade. Collectively, through our investments and successful execution against our goals, we can constructively disrupt and drive inefficiency into the entire corporate travel supply chain. And by reinventing the corporate travel supply chain over many years, all while executing each and every quarter, we're focused on creating higher and higher levels of shareholder value. With 17.5 million business travelers, 2.5 million of which are now using our mobile services on a regular basis and with 15,000 corporate customers and the capacity to invest against the compelling vision on a global basis, we're the best company in the world to deliver on that future. That's our ambition and that's what drives us.

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

Francis J. Pelzer

Thank you, Steve, and good afternoon, everyone. I would like to convey 3 key messages in my prepared comments this afternoon. First, we had a very strong Q2 across all metrics. Customer growth in our core business drove strong financial and operational results, continuing the year with higher-than-expected revenue, earnings and cash flow. Second, we continued to execute against our investment objectives designed to further drive top line growth in the coming years. Our investment thesis continues to be validated by the global demand we are experiencing for our services. And third, we are increasing our expectations for revenue growth, operating margin, pretax EPS and cash flow from operations for fiscal 2012 as a whole. We are reaffirming our expectation regarding capital expenditures for fiscal 2012.

If you would, please advance to Slide #14, and let's look at Q2 results. Q2 revenue was above our expectations at $108.4 million, growing 28% year-over-year, our highest year-over-year growth rate since the beginning of the recession. As Steve mentioned, we are well on our way to achieving the $0.5 billion annual revenue run rate by the last quarter of this calendar year. Recognized revenues in the quarter benefited from excellent traction and new customer deployments, higher-than-expected transaction volume and early returns on our investment initiatives. As a reminder, this growth was largely achieved from the investments in distribution over the past several fiscal years, leading to new business signed approximately 3 quarters ago. 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 2 slides. Unless otherwise stated, please note that all of my comments reference non-GAAP operating metrics. Economies of scale inherent in our business model, offset by investments in the support of delivering our services, resulted in a gross margin of 73% for the quarter. Our sales and marketing expense increased 27% year-over-year, reflecting our ongoing investment in reaching prospects and customers. We have been investing heavily in our distribution and product capabilities over the past year and continued this trend in Q2. We continue to be on the path of doubling our sales capacity by the end of fiscal 2013 from where we started at the beginning of fiscal 2012. Our R&D expense increased 25% year-over-year, driven by the growth in headcount to drive the innovation curve in our industry. Given the dynamics of our business model, which I have discussed in depth over the past year, we expect investments we are making now in distribution innovation to benefit our growth in FY '13 and beyond. Our G&A expense increased 28% year-over-year, reflecting infrastructure investment to support our global growth. Even with all these investments, the operating margin exceeded our expectations, coming in at approximately 18.5% for the quarter. Inclusive of the investments we have been making, the inherent leverage in our model helped push our higher-than-expected revenue down to the bottom line. As a result, Q2 pretax earnings per share exceeded our expectations by over 18%, coming in at $0.33.

Please advance to Slide #17. Cash flow from operations and free cash flow were quite strong in the quarter, driven by the continued strong performance of the business. In Q2, cash flow from operations totaled over $25 million. Capital expenditures in Q2 were $7.9 million. Free cash flow for the quarter was over $17 million, exceeding our expectation.

Our balance sheet continues to be very strong and provides us tremendous leverage to continue to expand our market and leadership position. Largely driven by customer growth, days sales outstanding ended at 69 on the high end of our 60- to 70-day expected range. For the same reason, deferred revenue grew to approximately $80 million by quarter end, reflecting approximately 8% sequential growth and 24% growth over the same period of the prior year. As we have mentioned in the past, please note that the change in deferred revenue is not an accurate measure for our bookings growth since we bill a vast majority of our customers monthly. Over longer cycles, deferred revenue is a solid measure for the overall expansion in the business, so we are pleased with its continued growth.

Please advance to Slide 18. Now let's turn the discussion to expectations for Q3 and the full year. As Steve mentioned, demand for our services has remained strong. Given the strong customer growth in our core business, we expect total revenue in the third quarter to grow approximately 25.5% year-over-year. We are increasing our expectations for the full year and now expect overall revenue to grow approximately 26% year-over-year compared to fiscal 2011. This combination equates to over 25% growth in the second half of fiscal 2012, up over 400 basis points of growth over the equivalent period in fiscal 2011, which had been, at the time, our highest 6-month growth rate since 2008.

Throughout fiscal 2012, we are increasing our rate of investment in global distribution, new geographies, our SMB business, new innovations, Concur Connect and our government business. We believe this action is prudent given the strong demand environment evidenced by our recent operating results. We will try to spend some of the overperformance for the first half of the year in the second half of the year. However, given the scale of the revenue outperformance in the first half of the fiscal year, we now expect our operating margin to be approximately 18.5% for the year as a whole. We expect Q3 operating margin to be below this level but above it in Q4. Accordingly, we expect Q3 pretax earnings per share to be $0.31. Factoring in our raised expectations for both annual revenue and operating margin, we are increasing our expectation for pretax earnings per share to be $1.31 for fiscal 2012. As we discussed in the beginning of the year, we are targeting both an annual operating margin and pro forma EPS goal and will be less focused on the variations that happen from quarter-to-quarter.

Now let me turn to cash flows. Cash flows in the second half of fiscal 2012 are expected to remain strong. We now expect cash flow from operations, excluding acquisition as a related cost, to be between $84 million and $88 million, up from our previous expectation of $81 million to $85 million for the fiscal year. As mentioned last quarter, we are increasing our rate of investment in capital expenditures to support the accelerating global growth we are experiencing. We are currently expanding worldwide, with a focus on our offices in Manila, Frankfurt and San Francisco. We anticipate completing work on our European data centers by the end of the fiscal year.

Finally, we have several IT initiatives that should drive greater global back-end processing efficiencies as we continue to grow the business. Given these initiatives, as well as our normal capital spending level to support the growth in the business, we still expect capital expenditures of approximately $38 million to $42 million for the year. As a result, we expect free cash flow to total between $42 million and $50 million for the fiscal year. As we mentioned over the last few quarters, the effects of the TripIt acquisition and several other factors have rendered our effective tax rate unpredictable. We continue to expect minimal recurring cash payments for income taxes for the foreseeable future as we continue to utilize NOLs to offset taxable income of the business. For IBES consensus purposes, consider using 35% federal statutory rate, but recognize that this does not reflect the taxes we pay.

Please advance to Slide 19. In closing, we achieved another important revenue milestone in Q2, achieving our highest year-over-year growth rate of 28% since the start of the recession. We are increasing year-over-year revenue growth expectations to approximately 26% for the full year. We continue to experience strength in new business generation that will continue to benefit our top line growth in future quarters. We expect the second half of fiscal 2012 to grow at 400 basis points rate higher than the second half of fiscal 2011.

Using the strong operating leverage of the core business, we continued and will continue to invest in our growth initiatives, which are bearing rewards in the form of our expected fiscal 2012 revenue growth rate and which should bear additional rewards over the medium and long term. Driven by our revenue outperformance in the first half of the year, we now expect our pro forma operating margin to be 18.5% in fiscal 2012. Even with accelerated investment, we exceeded our pretax EPS by $0.05 or 18%. We expect Q3 pretax EPS to be $0.31 and are increasing our full-year target to $1.31. And finally, we have a 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 over to the operator for questions. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from Laura Lederman.

Laura Lederman - William Blair & Company L.L.C., Research Division

A few questions. One, can you talk about why ADP was 2x what you thought it would be? Was that -- what's the significant factor that it's been better than what you expected that cross-sell, upsell, new customers? And also similarly, why the SMB accelerated as well and what you've seen was the reason for that?

S. Steven Singh

Sure, Laura. And thanks, we're really happy with the quarter. So obviously, one of the things that we're very excited about in the migrations was that we had a customer base that really hadn't had a chance to move to the more current innovations that we've been delivering, things like our travel product, our itinerary product and our -- obviously, our newer expense products and extended services. So when we were afforded the opportunity to grow cross-selling to that base, what we saw is, frankly, just a fantastic reception around that and real value that the customer saw. And so that's really the driver. But it's just -- it's a great base of customers in which to cross-sell our additional services. And that's what we're doing. And we obviously expect that trend to continue. On the SMB side, this is an area that we've been investing in for a few years that really has been moving up in terms of performance in the last handful of quarters. It's just -- each quarter, the performance just gets stronger and stronger to the point where today, and this is -- it's just not only great bookings that we're seeing, but frankly now, the deployments that are coming from the bookings that we did in the SMB segment a few quarters back are really starting to show up and hit the P&L as well. Look, I think the biggest thing on the SMB segment that everyone used to really kind of wrap their arms around, this is the huge opportunity around the unmanaged travel segment where we can cross-sell not only a broad range of products and services, but deliver a very different travel experience than what you see in the managed travel segment. Yes, the last thing around it is also keep in mind that deployments within the SMB segment tend to be a little bit faster than what you see in deployment in the larger end of the market.

Operator

Your next question comes from Brent Thill.

Brent Thill - UBS Investment Bank, Research Division

Steve, you mentioned new customer demand was well ahead of your expectation. Can you give us a sense on what you're seeing in larger enterprise accounts versus SMB? I think you mentioned that was a strong SMB, but what are you seeing in large enterprise? And I had a quick follow-up.

S. Steven Singh

Yes, absolutely, Brent. We're in a fortunate position. We're seeing great demand across all the segment. We really saw a very, very substantive year-over-year growth in our large enterprise. Now keep in mind, the large enterprise business is still the largest piece of our new customer generation. And so for us to deliver bookings growth rate that's higher than what we saw last year, they are a huge component of that just because of the dollar amounts and the scale of where we are as a business today. So therefore, I think the assumption that you can take is that the bookings growth that you're seeing in the larger deals are very, very substantive. There are a couple of deals that I think that are just worth highlighting. Well I can't give you the names of them, one is one of the largest conglomerates in the world. The other is one of the largest pharmaceutical companies in Europe.

Brent Thill - UBS Investment Bank, Research Division

Okay. And just a quick follow-on on Laura's question on ADP. I know there was some confusion on the street in terms of the transaction. I was just curious if you could just highlight to us what's new? Did this provide an immediate revenue? Or is this more additive to bookings? I think everyone is just still trying to fill this out a little bit. And if you can add some color, I know it would be helpful.

S. Steven Singh

Sure, sure. So I think that -- in fairness, I think we tried to comment on this several times over the last many months. But I'm happy to provide a little bit more color around this. Let's start with this. We're contractually limited from sharing any details as it relates to the financials around that transaction, and obviously, we honor our contractual relationships. Let's hit a couple of other points, though. The -- while I can't comment on the details of the -- of that -- of the financial relationships, I can comment on 3 things that I think are helpful to try to understand this. First is, I hope, fairly obvious. We saw an amazing opportunity to increase the retention rates of those customers in a meaningful way. There's a meaningful higher retention rate that our middle market customers have when we serve them directly versus what we had with the transition to ADP customers. And obviously, we expect to see an uptick in that. The second is that the real scale opportunity around this was there's an opportunity to cross-sell these additional services. And in fact, you just saw some of that color coming into this quarter where we saw double the expectations as far as new bookings around these cross-sells. But the cross-sell is really -- because we're adding enough value to our customers, what we're seeing is the revenue opportunity that we're picking up on that doubles, or sometimes more, than what we saw pre-cross-selling these additional services in. And so I think that -- those 2 are very important data points. The other is -- this is, again, to try to get some color so people can try to put some level of analysis around this is that -- one of the things we said that's really important to understand here is ADP, first of all, is obviously, a fantastic partner and they've been an active and great partner for 12 years. But 3 years ago, we had a conference call where we said, "Look, AMEX [ph], in its first year, had become the largest channel partner we have." And we're always trying to keep the relationship we have with our channel partners to less than 20%, like the vast majority of our business comes from brand-new bookings through our own lead generation vehicles. And if you look at that, the only thing that's happened in the last 3 years is AMEX has continued to grow relative to any other partner, just because of the scale of that relationship and interconnectivity to our business. The last thing that I just want to make sure that we kind of look at the right metrics around this, is that this business grows because of what we see in bookings every single quarter, new bookings, right? Selling it to new customers, either cross-selling additional services or some brand-new customers. And I think there’s point I want to make sure that doesn't get lost in all this, is what we're seeing is bookings growth year-to-date, the first half of the year, is tracking ahead of what we saw last year in which it was 35% year-over-year growth in bookings. And that's really the lead indicator that I think everyone used to focus on is: what does this business look like in the back half of this year and more importantly into 2013, which is fundamentally what we're focused on today?

Operator

And your next question comes from Richard Baldry.

Richard K. Baldry - Wunderlich Securities Inc., Research Division

Wondering if you could comment on or any update on a large federal contract that I think is due to be awarded relatively soon and then maybe talk a little bit about the 2.5 million mobile users, sort of how they spread across SMB versus enterprise.

S. Steven Singh

Yes, absolutely, Richard. So first of all, on the government contract, I think all of you have also equal access to this information. But I'll just recap it for those who many have not seen it. There's obviously been a bit of a scandal across the GSA around expense reporting and frankly, just spending outside of policy. That led to a change in the leadership at GSA that has led to a slight delay in when the contract will be awarded at this point. Our best estimate is early June is when the contract will be awarded. Having said that, I think it's very important for everyone to remember that we don't expect revenue from this potential relationship until 2014. So this is -- there's nothing here that we're overly worried about. We do, obviously, expect to be one of the award recipients within ETS too. And so then the other question, it was around the 2.5 million users. One of the things that we're obviously very pleased is, first of all, just the short time period that it has taken to get from 0 users to 2.5 million mobile users. And that's really just a little bit more than a year. That is largely spread. It's not just the SMB, although there's certainly a big concentration of our mobile users. We're seeing very, very solid transition from -- not transition, but in addition to our web product in the high end, we're also seeing customers embrace the mobile product. In fact, we're finding that the -- those customers who embrace the mobile product tend to move to that on a predominant basis. They can use the mobile product. But right now, it's still a little bit more weighted towards the SMB segment. But I wouldn't -- I would not at all say that's the long-term trend. I think you're going to see mobile being widely adopted across all market segments.

Operator

Your next question comes from Steve Ashley.

Steven M. Ashley - Robert W. Baird & Co. Incorporated, Research Division

How much of the acceleration in the bookings business this year versus last year is due to the recent step-up in hiring? And what we're just trying to figure out here is, is that what's changed or is that not even fully kicked in and benefiting the bookings yet?

S. Steven Singh

Yes. Steve, that's a great question. The answer is that very little benefit is being driven by our hirings that we've just done recently, in the last 6 months or so. As you can understand -- as you well understand, the reality is that as you hire new individuals into your salesforce, it takes time to train them. And before they get up to speed, and actually start closing business. What you're really seeing show up in terms of bookings growth is, frankly, again, a day part activity improvement. It's in part demand, right? They're just in a very, very strong demand environment. But in part, it's productivity improvements, right? So this is what you saw in terms of revenue growth this quarter. This is all driven by bookings in the -- in like roughly June time period of last year.

Steven M. Ashley - Robert W. Baird & Co. Incorporated, Research Division

Great. And I wonder if you might be able to just update us and give us some color on TripIt in the monetization game plan there.

S. Steven Singh

Yes. So obviously, TripIt has continued to do well at the end-user level. We have about 5 million users of TripIt today. I think one of the more exciting pieces around TripIt is, frankly, the adoption of TripIt for Business, which we started shipping about 6 to 9 months ago. Today, we have over 1,000 corporations that have signed up for TripIt for Business. And there, what you're seeing is that you're getting a transactional fee that very much in line with the expense reporting as a fee structure that we provide to our customers. So they are able to take on another product, in this case, called TripIt for Business. In the TripIt standalone basis, we continue to see the same revenue opportunities around, not just advertising, but frankly one of the things that we just announced this morning, right? So this morning, we announced a new version of TripIt that affords you the capacity, but what we do is we actually make hotel recommendations to you based upon, not just your historical patterns, but your spend patterns. And when we make those recommendations to you, you have the capacity to book hotel right there and then. And obviously, we're going to monetize that supply chain relationship with time.

Operator

Your next question comes from Ross MacMillan.

Ross MacMillan - Jefferies & Company, Inc., Research Division

I actually wanted to go back to ADP and the comment you made, Steve, that the new bookings there are enough to either double revenue or more relative to the sort of prior service. Can you just elaborate on what drives such a significant uplift in the revenue per customer?

S. Steven Singh

Yes. Ross, this is very consistent with what we've seen, literally, every other segment of the markets that we serve is that as you sell additional products and services into the customer, they obviously greater value -- they seek greater value because they want to reduce their cost structure around things like travel and audit and pay. So when we sell a travel, when we sell in TripIt, when we sell in our Concur Pay or Extended Services, we're seeing is that the additional revenue we're getting on a per transaction basis, again, we still charge them per expense report basis. By the way, things like analytics also play into that. The additional revenue we're getting when the customer takes all of our products and services is about 2x and sometimes a little bit more than that as compared to if we're just using our expense product. This, of course, is on a once deployed basis.

Ross MacMillan - Jefferies & Company, Inc., Research Division

So there's no underlying price increase for a customer that's going from that legacy ADP product to Concur T&E?

Francis J. Pelzer

No, no, no. Ross, let me give you one quick example, too. By the way, it's Frank. There are examples of customers that have been expense expert customers going back 10 or 12 years. Because of some of the limitations of that particular product, they were not able to support some of their global expansions so they may have had a region that was up, but not necessarily their whole entire business. We've got opportunities on the new platform for a global deployment that, obviously, brings more usage into the system which is, on a transactional model, helps drive the revenue.

S. Steven Singh

Yes. I think, ultimately, look, the real thing we ought to be thinking about here as it relates to either cross-selling or what we're seeing in terms of adoption of our products in the SMB is that, look, the SMB's a very, very large marketplace, one that, as you know, we've been investing in for the last 3 to 4 years and we're seeing great adoption of all of our products and services into that segment. Because it's just, a, underserved; and b, today, there's just no equivalent entity of a managed travel program there.

Ross MacMillan - Jefferies & Company, Inc., Research Division

And then just a follow-up maybe. As I look at the guidance to the residual of the year, clearly, there's some implied deceleration despite the fact that your bookings continue to accelerate. And I understand that those bookings only really start to hit revenue 9 months post -- 9 months after the booking. But is it just a comp issue or is there is some other conservatism that you sort of have baked into your back half assumptions?

S. Steven Singh

Let me start that. Frank, if you want to add anything, please do. Look, I think that in the implied growth rate for the second half of the year is -- comes in a little over 25%. And just to put in perspective, that's 400 basis points higher than the same growth rate in the same period last year which, of course, was the highest growth rate we've seen since recession. Ultimately -- look, we're trying to be exact as we can, I will just encourage you to look back over the last 10 years and see how we performed against our expectations.

Operator

Your next question comes from John Kraft.

John Kraft - D.A. Davidson & Co., Research Division

Hey, I just wanted to ask a bigger picture question, specifically, about just your kind of targeted geographic diversity and trying to get a feel for what you think it might look like out a couple of years, as far as percent contribution from Japan or Europe and India and just kind of how it might look or at least at a minimum, just how much might be foreign versus domestic.

S. Steven Singh

Frank, you want to...

Francis J. Pelzer

Sure. John, it's Frank. This quarter we came in approximately 16% of the recognized revenue base being outside of North America. As we've talked about in the past, that represents where the actual recognized revenue comes in. But on a transaction basis, when we actually take a look at that data, we're seeing closer to 25% to 30%, possibly even a little bit more. We would expect, and I don't know if I can say over the next 2 years but probably I would say over the next 5 years, a lot more geographical diversity to kind of match where those transactions are coming in on a recognized revenue basis that may be closer to that 25% or 30%. I think APA certainly has got a lot of room to go where it's only about 4% of revenues today. And certainly, we're seeing early signs of solid bookings in India and Japan. So overall, I think you can see significant growth internationally.

S. Steven Singh

So let me just add a couple of color or comments to that. I think if you take a giant step back and say, "Hey, look, what is corporate travel? What does a corporate travel market look like on a global basis?" Well, there may be some differences in these numbers depending on where you get the data. The reality is there's roughly about a 1/3, 1/3, 1/3 split across the U.S, Europe and Asia. And obviously, our revenue base today doesn't reflect that kind of parity across all 3 major geographies. And frankly, this is why you see us investing aggressively in Japan, aggressively in India, and frankly, across all of Southeast Asia. And I would be remised if I didn't also point out that we've actually increased our investments across Europe as well. So you're -- I do think with time, you're going to see a distribution revenue in our company that approximates the distribution of that travel ecosystem, which is about 1/3, 1/3, 1/3.

Operator

Your next question comes from the line of Thomas Ernst.

Thomas Ernst - Deutsche Bank AG, Research Division

Just one quick question. I'm kind of intrigued by -- I know I've heard you talk about the big vision before, Steve, but as you target some of these end-user client apps, how do you envision that you're going to create these apps? Are they going to be primarily you doing it off of your TripIt platform or do you think you're going to get partners involved? What's the mechanism?

S. Steven Singh

Yes. Look, it's a great question, Tom. I think we have to start with the following premise. There's no way that any one company can deliver all the applications that millions of users want to consume, right? It's just too broad of a set of requirements to meet everyone's needs from one company, which is why the Concur T&E Cloud is so critical to our strategy, right? This is the umbrella through which the Concur Connect commerce -- Concur Connect platform integrates into and our global content strategy integrates into. So this is where we see an opportunity for third-party developers to really be a part of delivering, frankly, the perfect business trip. And what we're trying to do is not only make our application and data center available in intelligent ways that respect, obviously, our customers' privacy, but make it available in intelligent ways where innovative companies from around the world can add value to our customers. Now we're doing that in multiple ways. Now lead to which is we're seeing, for example, health care apps that are actually being built on top of the Concur Connect platform today, and these are a few companies that I highlighted on the call early today. The other part is we're also looking -- we're willing to use our balance sheet to invest in innovative companies that can drive very, very strong end-user functionality. I mean, I talked a little bit about this last quarter, things like Room77, which is an amazing product that basically allows you to pick which hotel room, not just which hotel, but which hotel room would you like to reserve. And you're going to see more of these kinds of services introduced. They'll be in part driven by the fact that, look, we have this huge customer base and platform that these third-party developers can access and in part because we're willing to fund great innovation in this space. So the one thing -- one prime example -- one other example that's used for -- I think Yapta is another example. We put -- we obviously are an investor in Yapta. This provides really cloud insurance capabilities to travelers. And we're seeing great end-user feedback around it. It provides the ability to, basically, when you book a flight to monitor that flight as you can get a cheaper fare. It'll help you to go out and get a refund on this. And look, we're going to announce more with time. We got time for one more question.

Operator

Your final question comes from Brendan Barnicle.

Brendan Barnicle - Pacific Crest Securities, Inc., Research Division

Steve, I was intrigued by your commentary about big data, and I was wondering if you could give us a little more on how you guys are going to market with that. Are you using Sedo? Are you working with someone like some of the existing vendors that are out there? What's the structure that you're -- the infrastructure that you're looking to set up to run that?

S. Steven Singh

Yes. So it's Sedo. But outside that, I'd like to kind of wait until we actually get the services more broadly used and broadly available. But it's fundamentally not about that infrastructure. Really for us, it has nothing to do with that infrastructure. In fact, we view big data as a service. We'll make it available to our partners, whether you're talking about suppliers or whether you're talking about third-party application providers or corporate customers or employees. This is an opportunity to say, let's use the data to deliver meaningful value to the end consumer of that information. And so a real simple example, right? This is -- it's -- step one in what we're seeing with TripIt is we're looking at your historical spend patterns. We're looking at your historical preferences and providing you recommendation on hotels based upon where you're going, right? As opposed to use a laundry list of every hotel you can book, why don't we actually give you something that is actually relevant to your personal preferences, your spend patterns, your taste and so on? And that frankly, we just announced this morning. But that's the way we view big data, is this is a service that will be delivered. It's not at all about the infrastructure.

Brendan Barnicle - Pacific Crest Securities, Inc., Research Division

And so you'll be building the applications yourself or will you be working with some other third-party analytics vendors to aggregate that data for you and then layer on top of that?

S. Steven Singh

Really, both ways. But perhaps I didn't make my -- I wasn't very clear about this. We view the real value of big data being integrated into the actual business process. So that it's actually driving your behavior that is benefiting the end customer, right? That's where big data -- big data should be invisible to the end customer. It ought to be a part of the actual process. So we absolutely see it as a component that will deliver, but we also see opportunities where third-party developers can work with us to deliver value around that data set.

Thank you so much. Look, I want to thank of our investors for joining us for our Q2 earnings call. Frank and John and I look forward to updating you on the progress of the business at the end of the June quarter. And we'll talk again soon. Thanks so much.

Operator

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

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Concur Technologies' CEO Discusses Q2 2012 Results - Earnings Call Transcript
This Transcript
All Transcripts