Concur Technologies, Inc. Q1 2008 Earnings Call Transcript

Concur Technologies, Inc. (CNQR)

Q1 2008 Earnings Call

January 30, 2008 5:00 p.m. ET

Executives

John Torrey - EVP of Corporate Development

Steve Singh - Chairman and CEO

John Adair - CFO

Analysts

Laura Lederman - William Blair

Thomas Ernst - Deutsche Bank

Jason Maynard - Credit Suisse

Robert Schwartz - Jefferies & Co.

Mark Verbeck - Cantor Fitzgerald

Daniel Cummins - Banc of America Securities

Ajay Kasargod - Piper Jaffray

John Kraft - D. A. Davidson

Robert Breza - RBC Capital Markets

Richard Baldry - Canaccord Adams

Presentation

Operator

Good afternoon. My name is Don and I will be your conference operator today. At this time, I would like to welcome everyone to the Concur Technologies Q1 2008 earnings call.

(Operator Instructions).

All lines have been placed on mute to prevent any background noise. Thank you. Mr. John Torrey, you may begin your conference.

John Torrey - EVP of Corporate Development

Thank you, operator. Good afternoon and welcome everyone to the Concur Earnings Conference Call for our first quarter of fiscal 2008. My name is John Torrey, Executive Vice President for Concur. This call includes presentation slides that will accompany our prepared remarks. To access these slides, please log on to our webcast at www.concur.com/investors. Other information of interest to investors, 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 John Adair, our Chief Financial Officer. After their prepared statements today, Steve and John 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 slide 2 and our filings with the Securities and Exchange Commission which are available at www.sec.gov, for additional information on risk factors that could cause actual results that 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 would like to turn the call over to Steve Singh. Steve?

Steve Singh – Chairman and Chief Executive Officer

Thanks John. Good afternoon everyone. Thanks for joining us for our Q1 earnings call. There are four key messages that you should take away from this call.

First, we exceeded Q1 expectations across every core metric. Second, we are raising our guidance for fiscal 2008 across every core metric. Third, the integration of Gelco is proceeding well. And fourth, we see a solid demand environment for our services.

Please turn to the slides. We started out fiscal 2008 with a very strong quarter. As we exceeded our expectations across the board, Q1 revenue listed an all-time high at $49.4 million, $3.4 million higher than expected. There were two drivers behind the million-dollar performance. First, we saw faster than expected deployments of new customers. These are the effects of fully forward expected revenue stream from those customers.

Second, we saw a greater number of transactions than anticipated. As you know, customers sign up with minimum number of transactions per month. In two months transaction volume exceeded our expectations, as clients continue to see great value from the point and guarding adoption of our solutions (inaudible) by higher-than-expected revenue from the inherent leverage in our business model. Non-GAAP EPS for Q1 were $0.17 per share, $0.02 per share ahead of our expectation. Free cash flow was $0.03 per share, also significantly exceeding our expectation.

Please turn to slide number 5, base department strength of Q1 and the demand environment for our services. We are raising our fiscal 2008 guidance across all key metrics. We are raising our revenue expectations to $204 million. We are raising our non-GAAP EPS expectations to $0.74. And we are raising our free cash flow expectation to $30 million.

Please turn to slide number 6. Now let’s turn our attention to the demand environment and how the current economic climate impacts our business. Let’s start with this. We saw a very solid demand in Q1 as we handled more than 400 new customers. The non-customer additions were driven by a demand for our integrated travel expense service as well as the Concur brand of payment product. Looking ahead, we continue to see strong demand for our services across companies of all sizes and all market segments.

In general, our solutions are very well received in a tough economic climate. As customers focus on cost controls and frankly are more efficiently reaching and serving their customers. As you know, Concur is focused on automating employee spend management processes, transforming manual, expensive and labor intensive business processes into one, quick, simple and efficient process. This significantly lowers the cost of doing business for our corporate customers.

When combined with the economic advantages, but being delivered in our on-demand model, a fund cost and the customers doing for the service as they used it as opposed to upfront annual billing if value equation is very compelling. As if the time arises for return of investment. To abide the backdrop, it is also important to remember that we are operating in a market that is under penetrated. And frankly, one of which we are the innovator and the clear market leader. We expect the continued growth of business a compelling rate for the foreseeable future.

Please turn to slide number 7. We acquired Gelco on October 1st and the December quarter was the first quarter of operation in which Gelco was a part of our business. That was a large acquisition and as we all know, the hard part of the acquisition is the integration of operation and corporate cultures. Well, there is still a significant amount of work to do. We are very pleased with the early results. We then upgrade our sales and marketing organizations, our support organization, our development organization, our finance and economy organization, and costing operations.

Our product teams have made solid progress in integrating the Gelco payment service into the Concur platform.

In fact, we expect to start delivery Concur a pay which is the Gelco Payment Service to our customers later in the March quarter, a full two quarters ahead of schedule. This is a testament to the culture of our company and frankly, with people from both teams; they have come together to create an even better company. Our primarily routines have worked with Gelco customers to provide a new seamless transition to the Concur organization.

In fact, I am pleased to report that we continue to see Gelco clients extend their deployment of Gelco statement in the quarter. We are committed to supporting our Gelco customers. If they can find a way to jointly create a win-win scenario, the gradual transition with Concur Travel and Expense platform.

As I have mentioned in the last earnings call, we had the opportunity to live with more than 300 Gelco customers after Gelco International User Conference this past October. We have reaffirmed our long-term commitment to supporting our customers and we assured our vision from where the corporate travel industry is headed over the next decade. There was a strong alignment in our viewpoints and customers embraced our vision for an integrated travel and expense.

I am pleased to report that in the very first quarter after the acquisition, doubled Gelco customers are in the early stages of deployment on the Concur Travel and Expense platform. Those customers include 41,000 corporations such as: Cargo and Health, Novartis, and Google.

Please turn to slide number 8. Clearly, we are still in the great start in fiscal 2008. Our operating margin in Q1 was higher than expected and of leverage of our business model is becoming very evident. We are operating at a big market and we have an opportunity to build a global brand. And even as we invest against such a large scale opportunity we hold ourselves accountable to a compelling return on investments. This is how we govern our investment decisions:

First and foremost, we are committed to our operating targets for the fiscal year.

Second, we are committed to investing incremental margin back into the business to drive compelling and sustainable growth in both revenue and earnings, which of course drives long-term shortly with value creation. We expect our investment to guide on minimum of 25% growth in annual revenue for the first years and to yield a hundred base points of improvement in operating margin every year.

Our investment objectives are targeted in the focus on driving scale. Those objectives are as follows: First, we are committed to a highly scaleable growth of every model which allows us to exceed the service and quality expectations of our customers while driving compelling operating leverage in the business. We already have names of end users. It cost more than 6,000 customers and our on demand deployments are several of largest in the industry.

Each year, we are adding more customers than a year before. The support of growth to new customers, it will continue to see us invest in hosting operations as for support in customer deployment ahead of our needs. How will you know? Very simple. Operating margin to be expanding every year and customer retention rates should be consistent with our industry leading 97% potential rate. In fact, that is exactly what you are seeing in our business today.

Second, we need to increase market penetration. We need to get to the 6,000 customers we have today to 50,000 customers. Our current investment qualities call us on track to achieve that objective over the next decade. We will continue to invest aggressively in distribution and marketing programs to develop the market and increase our market penetration. This is a very consistent deed of our company and one that we believe is critical to put in long-term shortly with value.

In two months, we added nearly 30 Gelco sales executives to our direct sales force. Earlier today we are now extended our relationship to ADP to deliver Concur Travel and Expense to ADP Canada. You should expect us to continue to grow our direct sales force on a global basis, and you should expect us to continue to add mutual relationships across the world.

And third, we will also continue to invest in new services at a new pace of innovation in our market and expanding the relationships that we have with our customers.

Please turn to slide number 9. We deliver another vision of a unified travel and expense management platform. It is improving the end-user experience while driving down the cost of doing business for our customers and their suppliers. One Touch Business Travel became a reality with the launch of Concur Travel and Expense which Smart Expenses. This is an industry first innovation and it completely changes the notion of the traditional expense report.

With Smart Expenses, Concur enables business travelers to book their trip and then enjoy virtually automatic processing of their expense report. Concur Travel and Expense uses itinerary data that is captured at the time of booking, corporate card charges, incurred daily business travel. In electronic receipts captured directly to the supplier, great fully-reconciled transactions that automatically complete the expense report. The Smart Expenses expense report can be automatically completed, audited, and paid, all within corporate policy with very little need for human intervention.

As I mentioned earlier in the call, we have the delivery Concur pay made in this quarter, allowing us to pay employees and credit card providers on behalf of our customers further reducing the cost of doing business for our customers.

Later of fiscal 2008, we will drive on demand to the next level. Today, travel data exists in multiple occasions; itinerary data, credit card data, supplier contracts, and expense-support data. It is not easy to compare book versus actual. It is not easy to compare a corporate travel expense or corporate travel policies to that old feel-good. Wise use of parts, contracts against actual expense is a very labor-intensive task. If they will look at all these data in a comprehensive manner, it is virtually nonexistent. We are committed to changing that. Concur can bring all these data together in a simple, easy-to-use dashboard, and deliver it as an on-demand service. With each step towards the Travel 2.0 vision, we dramatically improving the experience of business travel and we will continue to drive down across the doing business for our customers.

Please turn to slide number to 10. We continue to expand a network of partners with interconnect with the addition of IHG properties. Interconnect is the global program connecting Concur's customers, the content, and an electronic receipt from hundreds of suppliers. IHG joins the goal list of direct-connect and electronic providers including airlines such as AirCanada, AirTran Airways, JetBlue Airways, Virgin Blue; also hotels such as Hilton and Merriot’s; as well as cardinal providers such as Hertz, Avis and Budget. As we deliver on a Travel 2.0 vision, we are driving transparency into the corporate travel supply chain, and putting control back into the hands of corporate customers. But driving the innovation program market and forcing the market to become more efficient while driving down across the doing business for customers and their suppliers seems very pleased with how the company is executing and excited about the market opportunity in front of us. Based upon the strength of Q1 result, the demanding environment we see for our services, and the progress we have made in integrating Gelco into Concur, revenue, earnings and cash flow expectations for fiscal 2008.

In fact, if you would please turn to slide number 11, I would like to turn the call over to John Adair, our Chief Financial Officer. John will provide more detail on Q1 results as well as that business outlook for Q2 and fiscal 2008. John?

John Adair - Chief Financial Officer

Thank you Steve. Good afternoon everyone. Q1 was clearly another very successful quarter with revenues, earnings and cash flows all better than expected. We continue to be very pleased with the operating performance of the business and our resolve to appropriately invest against our long-term objective is as strong as ever. In our prepared remarks today, I will provide you with more detail on Q1 results and our fiscal '08 expectations, which as Steve mentioned, we are again raising, in light of our Q1 performance and our visibility into the coming year.

If you would please advance to slide number 12. Total revenue for the quarter of $49.4 million was up 69% over the same quarter of last year driven by over 80% growth in subscription revenue. During the quarter, we saw stronger than expected transaction volume and customer deployments across all offerings were ahead of expectations. We are also very pleased with the initial stages of consolidating the Gelco customer base in our revenue performance during the quarter from those customers was in line with their expectations.

Please advance to the next slide. A non-GAAP operating margin for the quarter of 17% was higher than expectations, even principally, a stronger revenue growth. We also realized higher than expected cost synergies related to the integration of Gelco. The integration has done very well over the first four months. But while there is more to do, we are very pleased with the results today. We do, however, fully intend to invest these synergies in the coming quarter to ensure a successful integration of our customers and our employees. As a result, Q1 non-GAAP earnings were above our expectations bringing to $0.17 per share compared to our target of $0.13 per share, we are doing $0.06 per share over the same during over last year.

Please advance to slide number 14. Cash flow from operations and free cash flow were also both above our expectations largely due to the financial performance of the business. Cash flow from operations for Q1 totaled $3.9 million which included the pay out of our corporate-wide annual incentive compensation. And after capital investments of $2.5 million, free cash flow was $1.5 million per quarter compared to our previously discussed expectation of slightly-negative free cash flow for the quarter. In addition to cash flow generated by the business during the quarter, we also utilized cash proceeds generated from the secondary equity offering last September to fund the acquisition of Gelco on October 1st. As we previously discussed, one of the values of the Gelco acquisition is the opportunity to offer to all existing and new customers the Gelco Expense Reimbursement offering, which as Steve stated, is now being delivered as Concur Pay. The customer funds we manage overnight related to this payment service are reflected on our balance sheet as customer funding liability and the cash flow is included in investing activities on our cash flow statement. Today, this offering is only available to the Gelco customer base. However, we will begin to offer this service to new and existing customers over the next several quarters, and accordingly, we anticipate the customer funds we manage to increase substantially in the future.

Please advance to slide 15. Turning now to our expectations for Q2 in fiscal 2008 as a whole, we continue to be very confident in our growth and earnings outlook. One of the benefits of our business model is the power of our recurring revenue strength which provides the visibility into a revenue trajectory and allows us to invest early and efficiently with a high degree of confidence. We are growing profitably and rapidly today because of the investments that were made in prior years. That intentional focus on driving long-term profitable growth has not changed and we will continue to responsibly invest in distribution, these services, true service quality. Taking into consideration the strength of our performance this last quarter and the visibility into our future revenues, we are once again raising our expectations for total revenue, earnings per share and cash flow for fiscal 2008, looking more closely at Q2 in the fiscal year as a whole.

Please advance to the next slide. Total revenue for Q2 is expected to grow year-over-year by over 60% to $50 million driven by subscription revenue. If one-time revenue is expected to be $1.5 million for the quarter, including the strong revenue performance in Q1. Raising our expectation for total revenue in fiscal 2008 to $204 million or an increase of $4 million over our prior expectations.

Please advance to slide 17. As we mentioned previously, we will continue to responsibly invest in the business as well as the integration of Gelco. Including these areas of focus are non-GAAP earnings for Q2 are expected to be $0.17 per share and we are again raising our expectations for total earnings for fiscal 2008 from $0.70 to $0.74 per share.

We want that one-time revenue.

We also reiterated our expectation at 1.5…

Non-GAAP operating margin as well.

Without getting services?

(Inaudible) 100 basis points to 18%.

Please advance to the next slide.

(Inaudible)

We have comments in the past that operating cash flows in our business are directly tied to monthly fees paid by our customers. As opposed to companies that collect the contract value of upfront, much like licensed software providers, we bill and collect from our customers on a monthly basis as our customers consume the service. As such, our cash flow growth is closely aligned with the deployment of new customers. Additional services sold into existing customers and expansion for our operating margin. Based on our expectation of higher revenues and earnings for the year, we are also raising our expectation of cash flows. We now expect cash flow from operations for fiscal ‘08 to increase to $44 million or $0.92 per share compared the 32 million for fiscal 2007. We are raising our expectations for free cash flow as there were $30 million or $0.63 per share for fiscal 2008 compared to 20 million this last year.

Now to slide 19 then we are closing. Q1 was clearly a strong start of the year as we have exceeded expectations across all metric (inaudible) and frankly, they range from severance costs to additional work that has to be done in integration of the company. We did not make an attempt to try break out specifically how much that was.

Question-and-Answer Session

Richard Baldry - Canaccord Adams

And the last question will be the old performance in the revenue was clearly very impressive so to the extent that some of that is sort of transaction driven, can you talk about any trans heading into this year in terms of the transaction side or any seasonal patterns that might help us forecast the year better given the better high base entry point that we have come upon?

John Adair

Sure, Rich. So, you asked several questions in that last one and I am going to try to tackle on a broad basis to the extent that I have not addressed it we can go back at it later. First, obviously, we are very pleased with the quarter and the revenue upside was driven by:

1) New customers going live on our service faster than expected which really has a benefit in the current quarter as those revenues were already expected in the up quarter.

2) There is obviously more transactions than expected. And I think that what I would read is that this is a bailiwick. First and foremost, the guidance we have issued is designed to be as accurate as possible. And as anyone who knows our business model is aware of, as we start this Q2 and as we obviously go through Q2, Q3, and Q4, the new customers that are coming on will have very little impact to no impact on the remainder of the fiscal so we are not trying to be ultra conservative in our guidance on fiscal 2008. We are just trying to be as accurate as possible.

There are some other points that you brought out that I will try to address in a more generic basis which is the transaction volume that we are seeing. There are several data points that are worth probably looking at, not the least of which is what is happening in the broader travel industry. I had a chance to listen to the earnings calls for Alaska Airlines, Continental Airlines, some comments from American Express and I think what you see across most of these travel providers is that they are seeing good travel demand. In fact, the comments from Alaska, Continental and Southwest were that the demand environment is very solid. The comments from American Express’ earnings release was that the business transaction volume in their corporate services group was up 17% year-over-year. And so, we like those companies see very good solid demand for corporate travel and more importantly, because we are not focused as much on that side of it but what we see is that there is great demand also in automating very expensive manual processes, therefore, we are seeing good solid customer growth as backed by a good demand environmental business.

Operator

And your next question, comes from Laura Lederman with William Blair.

Laura Lederman

Congratulations on the quarter as well as guidance. I have a followup on the economic environment which obviously if you watch the news, the world is coming to an end and if you look at your results clearly, it is not. (inaudible). Did you see any weakness in any vertical markets, even financial services or was the strength broad based across all your vertical markets?

John Adair

Well, Laura. A great question. The background noise you are hearing apparently are from the people queued up on the call (Oh). That’s being overheard, so sorry about that.

We are not seeing any concentration of demand in any particular market segment. Obviously, last quarter, September quarter, we saw demand of financial services suffering although everyone thought that that particular sector would stop buying apparently anything and obviously, that was not the case. So, in general we see demand across all market segments, across all size of company.

Laura Lederman

Right. Can you also talk a little bit about the analytics you mentioned that are coming out in the second half and I seem to remember that you had expected that to add maybe 10% to 15% to deal sizes. Is that still the ball park of what you are looking for and in terms of helping us understand what that could mean to the business?

John Adair

I think that is a very reasonable number. In fact, we think it could be a little better than that. However, the only tempering that I would want to put on that is that we still have to deliver it, number 1. Number 2, we have to then sell it into our customer base and so realistically by the time it has any impact on our P&L we are well into 2009. But we are obviously about the service; we think the customers will receive it very well.

Laura Lederman

You mentioned vendor payments in your presentation. You should not have done more, could you give us a sense of the number of customers or any new large customers that were added to that business?

John Adair

I could tell you generically, we saw good demand for Concur vendor payment. We physically require approval from the customers before we could release their names so I cannot tell you any specific name. What we are seeing is just solid demand for our services whether it is Concur traveling expense or Concur vendor payment and it is the very same reason which is basically, these are business processes which are very manual and very expensive. The ability to automate drive down costs quickly. In our “On-demand” model where you do not have pay a lot upfront is very attractive to customers. Last quarter, we had upwards of 50 Concur vendor payment customers, we are still in the very early stages of that particular market segment.

Laura Lederman

Final question is that we are currently a Gelco in this last quarter. We got constantly emails that the system was down. Did that have any impact on the business at all? You mentioned that the revenue from Gelco are in line with expectations? Do you think that if it had not been so bad it might have been better than expectations? I am trying to understand if all those outages had any impact at all on the business.

John Adair

Laura, they had no impact on the business at all. As you know because you are a Gelco customer, we had some very intermittent server uptime issues. The interesting about it is that we had actually not changed anything in the Gelco environment, so these are just issues that are having to come up in the first quarter (inaudible). I think that what you should take away from it is that they were isolated issues and they were resolved very quickly. You know our philosophy on investing on service excellence and so we were able to increase our investment around the hosting infrastructure at Gelco. We have a great team of people that run our hosting operations so we feel very good about our ability to serve our customers going forward.

Laura Lederman

Thanks so much. And once again, great quarter.

Operator

And our next question comes from Brad Witt with Broadboard Capital.

Brad Witt

Thanks for taking my questions. I got a couple of quick ones here. I was curious as to want to know if you have seen any demand to integrate your travel booking service with the Gelco expense reporting product, whether or not you have done some type of integration there, whether or not customers are asking for it?

John Torrey

Not really. What we see is that when we show we were able to extend our relationship with the EPS as we focus on the integrated travel expense service as far as working to our guidance and you know the way we look at the business is that we provide guidance for the year and it is safe by everything we know about the business. ADP Canada why we are very excited about it will still take some time to come to speed and before it starts contributing to the occupation.

Brad Witt

Thanks, John. Thanks for taking my questions.

Operator

And your next question comes from Jason Manor with Credit Swiss.

Jason Manor

Hey, Good afternoon guys. I just want a little bit on the guidance and then just get a sense for some of your assumptions that drives us in the increase, what are you guys thinking about the truth of transaction volume going forward. How are you thinking about the impact from Concur pay?

John Torrey

In fact it can go down to the pipeline. I even like the way it looked at ADP Canada, it is the great extension of our EP relationships, and then issued add customer-win after two or three quarters coming up this week.

Jason Manor

Okay. And then another question on the channels, I want to get some feedback in regards to this city group partnership, it’s been a few quarters now, and I’m just curious if you’re saying it is a similar contribution or growth trajectory that you did in the past with some of your larger out-channel partners?

John Torrey

Yeah, first of all City Group is a very valuable partner of ours. They certainly contribute in driving needs to our business. The way we looked at our partnership system obviously ADP has been the largest partnership we have but other partnership like US bank, City, Bank of America, now ADP Canada are all partnership that drive needs or work with it on a co-selling relationship, and so we think that they are important relationships, but they are component of the overall 120% of indirect volume that hitting targets.

Jason Manor

Okay, and we took the quick question for John there. Do you happen to have the international revenue contribution during the quarter?

John Torrey

Our international is about 9% of total growth and we’ve grown around 13% or 14% with the Gelco acquisition almost entirely US for about 90% of the quarter.

Jason Manor

That's very helpful. Thank you for taking my question.

Operator

And your next question comes from Atesh D’rue of Merrill Lynch.

Merrill Lynch

Congratulation on a good quarter, Steven and John. Quick question. On the revenue breakdown, historically, what has been the breakdown between your minimum committed contracted value versus the average. And what do you estimate before going forward on this item?

Steve Singh

I do have a sense that people are focused on the wrong topic of this transaction, and I apologize if I have caused any confusion there. Our guidance is given by the contractual relationships we have with our customers. We have by the way, if you listen to our earning calls in fact, for the past several quarters, these two things have always been the reasons why there have no surprises. There is nothing new. I want to make sure I emphasize that point, there is nothing new. We try to be accurate in our expectations of transaction volumes based upon what our customers have committed to. In a strong business travel environment you can practically see most single digit uptake on that transaction volume and that shows up with some revenue. This again is not, this may in fact take a while to perform the main factor again by long shot 70%, 80% plus of the upsize in the quarter we have given by Concur Travel and Expense customers going live on our service faster that expected.

Merrill Lynch

Okay, so your guidance was also based on your committed revenues, right?

Steve Singh

That is right. And that is exactly where we have been guiding for the last 7 years.

Merrill Lynch

And in your December quarter the out performance in volume, was it mainly in the travel site or expense in travel?

Steve Singh

Across the board. They are the same transaction, whether it is a, especially for Concur Travel and Expense, the same transaction.

Merrill Lynch

There are no customers who are just on the travel module?

Steve Singh

Very small piece of our customer base.

Merrill Lynch

Okay 3.55. And John, one question for you on the second quarter, you said there will be some one-time revenue $1.5 million. Can you just give us some kind of idea of what that is?

John Torrey

Yes. Similar to what you see in the consulting another revenues, this quarter runs at 2.8. This coming quarter will be found around $1.5 million. Doing what we have seen in the past that a component revenue stream which is basically consulting to our own customer base, this is tricky.

Merrill Lynch

Perfect. Thank you.

Operator

And your next question comes from Brad Rebek of Oppen.

Brad Rebek

Hey guys, how are you? John, a quick question on the Concur payment the customer-funded cash you are going to get, will that just go into subscription going forward?

John Adair

There is a component of the fee that the customer is charged that will go into subscription or transaction fee related to payment. However, the other components that we’ll talk more about will be the ability to manage those funds overnight.

John Torrey

Thank you, Brad. I want to just add something to that. I want to make sure that you and everyone else understands the customer funding liability is not revenue.

Brad Rebek

Right. Just the fee you are going to get paid for the service and then to John's point, whatever float you get on the money will go below the operating line?

John Torrey

That is correct.

Brad Rebek

Okay. That is great. Steve, not to be the dead horse here but just so we are clear on, I mean on the transaction site of your business the sense I get was that at risk of their potentially low single digits revenue on subscription. Would that be a correct characterization?

Steve Singh

No single digit. It is really not at risk. It was low single digit of upsize. In fact, it means exceptionally low single digit of upsize. It is not really at risk. This is the way we look at our business going forward is: What do we have committed? And that is how we run the business.

Brad Rebek

Okay. Perfect. Perfect. And final question on the guidance or guides obviously, this quarter benefited from faster deployments but when you've modeled out the rest of the year, is that based on more of a return to normal deployments or staying at current schedule?

Steve Singh

It is really what we expect from this point going forward. And so the deployment off site can sometimes be significant, sometimes it can be insignificant. It is depending on the mix of customers that are going to the department cycle. We have a large complex of deployment. That the off see takes longer, takes to get through. So, we have done our best to look at the business and say what we expect to be able to deploy.

Brad Berek

Great. I’ll take a shot at this. Any chance you’ll break out with the Gelco contribution was in the quarter?

Steve Singh

It’s along with the guidance that we gave at the end of the quarter. We saw a couple of Gelco customers that could stand the innovation of the expense link. We also saw several Gelco customers start move over to the Concur Travel Expense. You’re not going to see a lot bearings on that number, it’s just a locally fixed number.

Brad Rebek

Thank you.

Operator

Your next question will be from Ajay Kasargod of Piper and Jaffray.

Ajay Kasargod - Piper Jaffray

Thanks Steve and John, congratulations on your quarter. I understand. I just want to get a perspective. When you look at and I know a lot of questions have been asked, looking at the Q and A here about economy, but can you describe one more time the concept of the sensitivity of the report volumes to the economy. I know you comment to that. A lot of the airlines and travel companies just speaking towards seeing good demands but what sensitivity to report volumes to a too weak economy?

John Adair

So, here is what we see and this is based upon several years of being in this business. But what we find is that business travel has some sensitivity obviously to the economic environment but not a very significant amount to sensitivity to it. If you see, going out and see customers or prospects is the last thing that you want to cut at the business.

Ajay Kasargod

What are you going to cut?

Steve Singh

Is on administrative cost, on operational cost that are not central to serving your customers. That is what you are going to cut. Now, if you happen to have business postings that are manual or paper based it becomes a fantastic opportunity to take those process and automated it and drive more efficiency of your business, and then you could take those efficiencies and you will let them run on the bottom line or go reinvest to back in the business. And so, we benefit very significantly from the desire for customers to go from inefficient proxies to highly efficient. And we do not see much of a variant on the travel transactions per se. What is important to understand is that normally when you see average dollars for expense for that might come down. You are not going to stay, either stay at less expensive hotel or you will negotiate harder on hotel rates. You will see the price of airfare be more competitive. You don’t see a ton of change in business travel transactions. Well I point you right back to the comments from various other suppliers in the airline industry as well as AMEX data points where they saw business transaction volume go up 17% year-over-year.

Ajay Kasargod

Then I will now suggest just on that theme, are you seeing some benefit there in a weaker economy as customers are looking to reduce costs or proceeds. are you seeing more customers wanting to uptake QuickBooks just because of the relative cost advantage versus a traditional travel agent and I will end on that one. Thank you.

Steve Singh

It does not just apply just to QuickBooks, it applies to our expense product as well and fortunately even more so to our integrated travel expense products. We see more customers were interested in taking those manual proxies or expensive alternatives to those proxies. And say I want to go to automate that with Concur and drive down the cost for either just the travel side or just the expense side or both. That will soon be reflected on the new customer ad. We added more than 400 new customers in the quarter.

Ajay Kasargod

Ok. Thank you Steve.

Operator

And there are no further questions at this time?

Steve Singh

Well, John and I, and John would like to thank our investors for joining us on our Q1 Earnings call. We look forward to talking with you again in April to report on Q2 Earnings . Thank you very much.

Operator

This concludes today’s Concur Technologies Q1 2008 Earnings call. You may now disconnect.

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