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Concur Technologies (NASDAQ:CNQR)

Q4 2012 Earnings Call

November 07, 2012 5:00 pm ET

Executives

Todd Friedman

S. Steven Singh - Chairman and Chief Executive Officer

Rajeev Singh - Co-Founder, President, Chief Operating Officer and Director

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

Analysts

Chaitanya Yaramada - Robert W. Baird & Co. Incorporated, Research Division

Nandan Amladi - Deutsche Bank AG, Research Division

Brent Thill - UBS Investment Bank, Research Division

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

Samad Samana - FBR Capital Markets & Co., Research Division

Frederick T. Grieb - Nomura Securities Co. Ltd., Research Division

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

Operator

Good afternoon. My name is Dustin, and I will be your conference operator today. At this time, I would like to welcome everyone to the Concur Technologies Q4 Fiscal Year 2012 Earnings Release Conference Call. [Operator Instructions] I'll now hand the call over to our host, Mr. Todd Friedman, Vice President of Investor Relations at Concur. Sir, you may begin.

Todd Friedman

Thank you, operator. Good afternoon, everyone, and welcome to the Concur Earnings Conference Call for our Fourth Quarter of Fiscal 2012. My name is Todd Friedman. I recently joined Concur as Vice President of Investor Relations. I look forward to talking with and meeting you in the weeks and months to come.

This call includes presentation slides that will accompany our prepared remarks. To access these slides, please visit the Investors section of our website at concur.com. Other information of interest to investors, including our SEC filings, press releases and recent investor presentations, can also be found in the Investors section of our website.

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

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

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

S. Steven Singh

Thank you, Todd, and welcome to the team. Good afternoon, everyone. We had a great quarter. Revenue, earnings, operating margin, as well as operating and free cash flow all exceeded or met our expectations. New customer growth was the strongest we have ever recorded. And similar to the adoption of our integrated travel & expense services 6 years ago, we're starting to see the market coalesce around our vision of The Perfect Trip. Consistently strong execution is the hallmark of any great and enduring company, and we're proud of what the 2,400 people at Concur achieve quarter in quarter out. But we're focused on a goal much bigger than what we are today.

With our entry into the unmanaged travel market 18 months ago and our expansion into the public sector market, validated by the ETS2 U.S. federal government contract, we've tripled our addressable market, creating the opportunity to deliver The Perfect Trip to all business travelers. But we're not content with automating the front end of an increasingly ubiquitous business process.

Through the Concur T&E Cloud, we will constructively disrupt and drive efficiency into the entire corporate travel supply chain, for the benefit of the business traveler, the companies that they work for and the suppliers that serve them. We are committed to truly and fundamentally improving the experience and value delivered across the entire corporate travel supply chain. And this commitment is the foundation of the company we are building, a company that is woven into the fabric of how travel is conducted across the globe.

Please turn to the next slide. For the quarter and for the year, we exceeded or met our expectations across every core metric. For the quarter, we delivered $118 million in revenue, up 24% year-over-year. And for the year, we delivered $440 million in revenue, up 26% year-over-year. As you know, revenue growth in any quarter is largely driven by the deployment of customers sold in prior quarters. New customer deployments were modestly ahead of schedule in Q4. Another driver of revenue growth is travel transactions, which also drives expense transactions. Driven by macro conditions, such as slowing economies across the world, and stagnant employment levels, travel transactions in Q4 were below our expectations.

At the start of fiscal 2012, we expected non-GAAP operating margin to be 18% as we've ramped investments across the business to take advantage of an increasing demand environment. Driven by the strength of revenue growth for the year and even while we spent the investment dollars we planned to spend, operating margin exceeded our expectations, coming in at nearly 20%, reflecting the inherent leverage in our business model. As a result, non-GAAP EPS for the quarter and for the fiscal year were well ahead of our expectations. And, of course, cash flow from operations and free cash flow were also well ahead of our expectations.

Please turn to the next slide. As we've stated over the last several earnings calls, new customer growth has been robust. In Q4, we saw that trend continue. It was the largest quarter we have ever recorded in terms of new customer bookings. In fact, over the past several quarters, we've seen robust growth across all geographies and sizes of customers. As you know, we've seen exceptional growth across the SMB market segment, but we've also seen very strong growth in the global accounts market segment, with the addition of new customers and franchise names such as Bayer, ABB and Caterpillar. By the way, all 3 of which happen to be SAP shops, which just goes to illustrate the incredible value we're delivering to our customers and how seamlessly we integrate into any ERP or HR system that our customers are using.

We also welcome ARAMARK, Northrop Grumman, Credit Suisse, Red Bull, Thomas Cook, FUJISOFT and Mitsubishi Heavy Industries to the Concur family. New customer growth, measured in terms of dollar-based bookings, that will drive fiscal 2013 revenue growth, is expected to be up between 35% and 40%. That compares to roughly 35% for the comparable period in the prior year. Looking ahead to the next year, we expect new customer growth to remain robust. And frankly, we see an opportunity for it to grow at an even faster rate. What's important to note here is that the growth in new customer bookings that we saw in fiscal 2012 was driven predominantly by the distribution capacity we had in place before the start of fiscal 2012, and it's a reflection of ongoing strength in market demand, as well as the efficiency from our distribution engine.

At the start of the fiscal year, we stated that we wanted to double our distribution capacity by the end of fiscal 2013. As we cross the halfway mark, I'm pleased to report that we are on track to achieve our goal. As of the end of the fiscal year, we had increased our distribution capacity by more than 30%. And because the demand environment for our solutions is so strong, we will increase our investment objectives around distribution, with the desire to increase our distribution capacity by a factor of 2.5x as compared to the start of fiscal 2012. We will make that goal a reality as soon as we practically can. Those additional resources will primarily be concentrated in 3 areas: first, the U.S. public sector; second, the SMB market segment across all geographies; and third, additional capacity to focus on global accounts in key markets such as EMEA and Japan.

Please turn to the next slide. While our long-term shareholders already know this, for the benefit of newer listeners, let me walk you through how bookings translates into revenue in our business model. Please keep in mind that this is a general guideline and that there's a number of variables that impact this guideline, such as the number of customers and the relative size of customers that are being deployed in any given period. Deployments can also be impacted by holiday schedules and even storms.

On a dollar-weighted basis, we expect our average deployment cycle to be roughly 6 months. In other words, bookings that occur in Q1 do not actually contribute to revenue growth until Q4. This is a very different model from most other cloud computing providers that tend to start recognizing revenue within the same period in which they book new customers. So as the chart illustrates, the 26% revenue growth we recorded in fiscal 2012, that section in orange, was primarily driven by bookings that occurred from Q2 of fiscal 2011 through Q1 of fiscal 2012. The 25% revenue growth we expect to see in fiscal 2013, that section in green, is being driven by the 35% to 40% bookings growth that we saw from Q2 of fiscal 2012 to Q4 of fiscal 2012, and new bookings we expect to deliver in Q1 of fiscal 2013, the quarter that we're in right now.

Now this is a good place to remind our investors that our revenue growth is driven by 2 primary factors: The largest driver of revenue growth is new customer bookings and the related deployment of those bookings, as I just described. The second and smaller driver of revenue growth is travel transaction volume. In the first half of the fiscal year, travel transaction volumes were a gentle tailwind to our growth rate. However, as we stated in the last earnings call, driven by macro conditions such as slowing economic growth around the globe and stagnant employment levels, in the last several months of fiscal 2012, travel transactions became a headwind to our growth rate, and we expect that headwind to persist throughout fiscal 2013.

Please turn to the next slide. As you know, in the June quarter, Concur was awarded a sole source $1.4 billion contract to power the U.S. GSA program for managing online bookings, travel authorizations and voucher processing. Shortly after the award, Carlson Wagonlit, who also bid on the GSA contract and was a provider to the U.S. government over the course of the ETS1 contract, filed a protest against the GSA for the sole source award to Concur. That protest was resolved late in Q4, and the sole source award was upheld. During the protest period, we are not in the position to engage with any of the agencies that are part of this program. Since the resolution of the protest, we've been very pleased with the early engagement we've seen from government agencies that are anxious to move to world-class commercial bridge [ph] services to manage their online bookings, travel authorizations and voucher processing. We're excited about working with the GSA and the civilian federal agencies to meet their travel & expense management needs while driving billions of dollars of cost saving to the American taxpayer.

As we mentioned previously, it's our expectation that we will not see the first dollar of revenue from this award until fiscal 2014 and no appreciable revenue until fiscal 2015. We expect to see a meaningful stream of revenue hit our P&L by fiscal 2016 and then continue to build from that point. On the cost side, we are significantly ramping investments in sales, deployment, customer service and partner programs in support of the sole source award.

Please turn to the next slide. With that, I'd like to turn our attention to Q1 and fiscal 2013. We expect revenue to grow 21% year-over-year in Q1 and 25% year-over-year for the full fiscal year. The slope of that revenue growth within the year should reflect a sequential quarter-over-quarter growth rate that's roughly the same throughout the entire fiscal year. Our Q1 outlook is a bit softer than we had originally expected, and that softness is driven by 3 factors: First, as we stated in our last earnings call, driven by slower economic growth across the globe, we're seeing travel transaction volumes become a modest headwind to our growth rate. Second, we did see a fairly significant impact to business travel in and out of the eastern seaboard as a result of hurricane Sandy, with roughly 20,000 flights canceled over the span of just a couple of days. And third, we think it's prudent to expect some lengthening of deployment cycles in Q1 for customers with operations in affected cities.

Driven by the exceptionally strong new customer growth we saw throughout fiscal 2012 and our expectation that we can drive even faster customer growth in fiscal 2013, we're going to increase our investments in distribution over the course of the fiscal year. Those investments will add additional distribution capacity to serve SMB markets across all geographies, to serve the global accounts market across EMEA and Japan and to serve the U.S. public sector market. And as a result, we expect non-GAAP operating margin for the full fiscal year to be between 16% and 19%. Now while it's equally possible to be anywhere within the range for non-GAAP operating margin, to the extent that the demand environment permits and to the extent that we can invest against the timetable that we're targeting, you should expect us to be closer to the low end of this guidance range.

If we wind up closer to the low end of the range, you should interpret that to mean that we're executing exceptionally well, that the demand environment is very strong, that we are gaining market share and that we are expanding our goal in a market that's measured in terms of percentage of GDP. It also means that we're in a strong position to deliver against our steady-state growth rate or higher for the next several years. To the extent that we end up near the higher end of this range, at this stage in our business, you should interpret that to mean we're executing exceptionally well but for different reasons. If we end up near the higher end of this margin range, it's likely to be driven by some combination of 3 things: that revenue outperformed, as it did in fiscal 2012; that we simply could not invest against our investment timetable as quickly as we would have preferred; or that we were able to invest more efficiently than we are currently planning.

Please turn to the next slide. We are very pleased with the continued strong execution across the business, and we're very comfortable with our long-term growth prospects in the years ahead. But we're just getting started. Over the past decade, we built Concur into one of the world's largest enterprise cloud application companies. And looking ahead to the next decade, we will build upon that success and scale by leveraging our investments in content aggregation and delivery, in Big Data and in mobile computing to evolve Concur into not just a leading applications company, but also a platform for content and commerce in the $1 trillion travel market. And in so doing, we will 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 starts with an incredible end-user experience. With 18 million business travelers, 2.5 million of which are now using our mobile services on a regular basis and with 18,000 corporate customers and the capacity to invest against the compelling vision on a global basis, we are the best company in the world to deliver on that future. That's our ambition, and that's what drives us.

Central to our success and the evolution of Concur into an applications, content and commerce company are the investments we are making in innovation. As Concur forges its leadership role in innovating the corporate travel supply chain, I want to invite Raj Singh, Concur's President and Chief Operating Officer, to highlight our key corporate initiatives. Raj?

Rajeev Singh

Thank you, Steve. Please advance to the next slide. Over the last year, Concur has led the industry to embrace our vision for The Perfect Trip. The concept is a simple but incredibly powerful one. For a business traveler, The Perfect Trip would start with a travel booking process that anticipated their preferences and deliver their travel options accordingly, and it would make their mobile device the command central for managing that entire travel experience while they were on the road. It would tightly link suppliers and service providers via the cloud, so each step of the travel process would optimize every single hand off synchronized and seamless. If you can imagine a world where flight delays, late check-ins and meeting updates happen automatically with the ease of a voice command to your mobile phone. And to make the trip really perfect, wouldn't it be great if the expense report had automatically been filed, the reimbursement already on the way. That is our vision of The Perfect Trip. And today, we're making it a reality, via 2 initiatives that I will update you on now. The first, the T&E Cloud; and the second, Open Booking. Incidentally, check out the video link at the bottom of this slide to see our vision of The Perfect Trip in action.

Please turn to the next slide. For The Perfect Trip to become a reality, the entire travel industry must embrace the objective. Today, we're thrilled with the excitement we're seeing along these lines. Across the industry with few exceptions, we are seeing a desire to collaborate and work together to dramatically improve the travel process. To enable that collaboration, 18 months ago, Concur announced the Concur T&E Cloud. It is an incredibly rich ecosystem for developers and solution providers, travel suppliers and corporations to share information and collaborate and to leverage cloud services from Concur, like Big Data as a service, to deliver The Perfect Trip. Hundreds of providers of mobile applications, industry solutions and enterprise applications have already integrated with the Concur T&E Cloud to deliver value to our joint clients. Mobile apps like FlightTrack Pro, Taxi Magic, GateGuru, Flightcaster and JetSet are all already leveraging Concur T&E Cloud data for their services.

For travelers, the benefit is obvious. Regardless of which apps you choose to use as you travel, the Concur T&E Cloud will make them smarter and more tailored to your needs. And where applicable, will pull information back from those applications to seamlessly complete your expense reports. Our platform team today is working to enable applications like these in nearly every geography for every conceivable travel need.

Please turn to the next slide. Industry solution providers are embracing the T&E Cloud vision as well. Just 2 quarters ago, we announced partnerships with a number of leading solution providers who integrated to the Concur T&E Cloud to support compliance with the Patient Protection and Affordable Care Act for Concur clients in the healthcare vertical. Already, clients have voted with their pocketbooks and embraced these solutions. This past quarter, we announced a partnership with Huron Consulting Group focused on providing a more tailored experience in the higher education and university vertical. In both cases, the Concur T&E Cloud is enabling a highly tailored and incredibly powerful user experience for clients. And there is no better example of enterprise application partnerships than the continued collaboration between Concur and salesforce.com. Just this past quarter, we jointly announced the release of Trip Maximizer for Concurforce. With Trip Maximizer, a salesperson using Concurforce can start a business trip by simply opening a record within Salesforce, enter travel plans and automatically be shown recommendations for additional sales opportunities to visit during the trip. With just a few clicks, the selected opportunities are added to the traveler's calendar and itinerary, eliminating countless e-mails and toggling between applications. And because the typical salesperson is busy enough preparing for those meetings, Trip Maximizer actually leverages Concur Big Data as a service to provide dining recommendations while automatically sharing itinerary details with the relevant colleagues through Salesforce Chatter. The benefits for travelers and their corporations is incredible.

Also this part quarter, Concur announced T&E Cloud integration with NetSuite's SuiteCloud computing platform so our joint clients can integrate our solutions with the click of a button. We also continue to use our balance sheet to accelerate the delivery of compelling new services and global content. Last quarter, we shared with you several examples of investments we have made to foster innovation across the industry and accelerate the delivery of content for the benefit of business travelers. They range from Room77 to Taxi Magic to ClearTrip along with several others. Just last month, we invested in buuteeq, an innovative company focused on cloud-based marketing and distribution for hoteliers. We're excited about this investment and the opportunity to work closely with buuteeq. As buuteeq integrates into the Concur T&E Cloud, we'll be able to deeply integrate with hotel inventory and faring information, allowing us to more accurately match the preferences of a business traveler to what hoteliers have available on a real-time basis.

Our philosophy across our investments is straightforward. We're committed to driving innovation in the T&E supply chain to the benefit of our customers, business travelers and suppliers. When we see innovation and exciting new companies committed to that same goal, our strategy is simple. We will invest and we will collaborate via the Concur T&E Cloud to drive benefit for business travelers, the companies they work for and the suppliers that serve them. We continue to evaluate new opportunities every day, and you should expect more exciting announcements in the days ahead.

Please turn to the next slide. Last quarter, we announced Concur Open Booking as a critical element in our strategy to enable The Perfect Trip. For new investors, let me revisit the concept. Open Booking is an offering that acknowledges that travelers of today and the future won't always do as they're told, but they will often do the right thing. It is a solution that can link an itinerary from any source, regardless of where it came from, to your expense report. A solution that motivates the traveler to submit their itineraries or sources them automatically from suppliers and allows administrators to have visibility they never had before. Concur Open Booking allows business travelers to book hotels and car rentals in whatever manner is easiest for them, either at the supplier's website or within Concur Travel, while still providing a single easy-to-manage itinerary and the personalization and context that they expect.

For our corporate clients, Open Booking is incredibly powerful. In fact, for small and mid-sized businesses who don't have a managed travel experience, we are revolutionizing their travel process, delivering a managed travel experience to an unmanaged world. For larger businesses, we're providing the tools needed for travel manager, procurement department and travel management companies to improve compliance, duty of care and control while acknowledging and accommodating the changing behavior of travelers.

Suppliers achieve the best of all worlds, reduce distribution costs with increased personalization for the traveler and enhanced service for their corporate clients. To be clear, Concur Open Booking is a win-win-win. We expect to deliver Open Booking next quarter and for our first customers to deploy it in the quarter following. Excitement around this concept is already very high. This past quarter, the Open Booking Alliance, a group of suppliers and Concur customers, met in Chicago for detailed discussions of long-term technologies, strategies and business partnerships enabled by the Concur T&E Cloud. Already, suppliers like Avis Budget, Best Western International, Choice Hotels, Hertz, Intercontinental Hotels, La Quinta Inns, Marriott International and Starwood Hotels have committed to deliver an incredible user experience to Concur travelers via Open Booking. With each passing day, we make more progress in inspiring our industry towards the vision of The Perfect Trip.

With that, if you would please turn to the next slide, I would like to turn the call over to Frank, who will provide you details on Q4 and fiscal 2012 results, as well as our business outlook. Frank?

Francis J. Pelzer

Thank you, Raj, and good afternoon, everyone. I would like to convey 3 key messages in my prepared comments this afternoon: First, our core business drove strong financial and operational results in Q4 and for the year as a whole. For fiscal 2012, we grew revenue by $90 million or 26% year-over-year. Non-GAAP operating margin was approximately 20% and non-GAAP EPS was $1.39, each result significantly better than our expectations at the beginning of the year.

Fiscal 2012 free cash flow, excluding cash paid for acquisition-related costs, was $65 million, which is $23 million or more than 50% better than expected at the beginning of fiscal 2012. Second, we continue 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, the investments we made in fiscal 2012, and will continue to make in our expanding market opportunity, are creating a foundation for sustainable growth at best-in-class levels. I will discuss the timing of the revenue contribution from these initiatives when I discuss guidance later.

If you would, please advance to Slide #15, and let's look at Q4 results. Q4 revenue was in line with our expectations at $118 million, growing 24% year-over-year and 4% quarter-over-quarter. Q4's revenue capped a year in which total revenue grew 26% to $440 million, a significant acceleration from FY '11's 19% year-over-year growth. Revenues in the quarter benefited from excellent traction and deployment of new customers and existing customers adding new services.

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. Throughout the year, we demonstrated the leverage and profitability inherent in our business model. Gross margin was 75% for the quarter. Gross margin is a reflection of the economies of scale inherent in our business model with high-margin products, offset by our investment made to support our global growth initiatives. The same is true of our operating expenses. Our stated goal entering the year was to invest across the business to expand our distribution and product capabilities. Sales and marketing expense increased 35% year-over-year, reflecting our ongoing and sizable investment in reaching prospects and customers. Research and development expense increased 40% year-over-year, driven by growth in headcount to drive the innovation curve in our industry.

G&A expense increased 32% year-over-year, reflecting investments in corporate infrastructure to support our global growth. Even with all of these investments, the operating margin increased nearly 200 basis points from the prior quarter to approximately 21%. The operating margin for the year was approximately 20% ahead of our expectations. The solid revenue, combined with slightly lower-than-expected expenditures, resulted in Q4 and fiscal 2012 pretax earnings per share of $0.40 and $1.39, respectively, both exceeding our expectations.

Please advance to Slide #18. Cash flow from operations and free cash flow were very strong for the quarter, primarily driven by continued strong performance for the business. Cash flow from operations for the year was $93.6 million or 22% growth over FY '11, well ahead of our expectations. Cash from operations would've been even stronger if you add back the $2.3 million of actual cash paid in fiscal 2012 for acquisition and other related activities. Capital expenditures for the year were $30.7 million or approximately 7% of fiscal 2012 revenue. Free cash flow, excluding acquisitions and other related activities, was $65.2 million for the year, significantly exceeding the high end of our expectations.

Our balance sheet continues to be very strong and provides us tremendous leverage to continue to expand our market and our leadership position. Cash and short-term investments, net of customer funding liabilities, grew approximately $22.1 million quarter-over-quarter, ending the year at $474 million. Driven entirely by new customer growth from record bookings, days sales outstanding ended at 68 within our 60 to 70 day expected range. Deferred revenue grew to over $87.4 million by quarter end, reflecting approximately 5% sequential growth and 21% growth over the same period the prior year.

As we have mentioned in the past, please note that the change in deferred revenue is not an accurate measure of our bookings growth since we bill the vast majority of our customers monthly. Over longer cycles, deferred revenue is a solid measure of the overall expansion in the business, so we are pleased with its continued growth.

Please advance to Slide 19. Now let's turn the discussion to the coming fiscal year. As Steve mentioned, demand for our services has remained strong. Capping a very strong year, Q4 was the highest bookings quarter in the history of the company. Given the strong bookings growth we have experienced in the last 3 quarters and what we anticipate achieving this quarter, we expect total revenue for fiscal 2013 to grow approximately 25% year-over-year. In the quarter, we expect corporate travel & expense transactions to be softer, driven by normal seasonality, as well as modest headwinds from a slower economic environment. Additionally, we expect Hurricane Sandy to have a one-time negative impact on travel & expense transactions, as well as new customer deployments within the quarter. Taking into account these 3 factors, we expect total revenue for the first quarter to grow approximately 21% year-over-year. For the balance of the year, we expect quarterly revenue to increase sequentially at roughly the same rate each quarter to achieve total year-over-year revenue growth of 25%. Given the dynamics of our business model, our expected fiscal 2013 revenue growth will largely be driven by the deployment of prior bookings from earlier periods.

In fiscal 2013, we plan to continue to increase our rate of investment because we see a strong global demand environment for our services, and we continue to efficiently penetrate new markets.

The investments in distribution that we make this year will begin to drive revenue growth in late fiscal 2014. We believe we have a large and strategic window of opportunity to further strengthen our leadership position, especially in new markets around the globe, our government business and new service offerings associated with our Concur T&E Cloud platform. As a result, we -- our expected revenue growth combined with our planned investments yields an operating margin for fiscal 2013 in the range of 16% to 19%. We expect the Q1 operating margin to be slightly below this level, Q2 to be below Q1, Q3 to be in the range and Q4 to be above the range.

As Steve mentioned, we believe the business is executing well if we achieved 25% revenue growth and the 16% operating margin. Our revenue and operating margin expectations result in pro forma pretax earnings per share of at least $1.40 in fiscal 2013. We expect Q1 to contribute $0.30 out of the total for the year. I will remind everyone that as a business, we target annual operating margin and pro forma EPS goals and are less focused on variations that happen from quarter-to-quarter.

Let me turn to cash flows. The cash flow-generating dynamics of our business continued to be strong, and cash flow from operations should continue to largely be linked to non-GAAP earnings. In fiscal 2013, we have some dynamics that impact this relationship. In the latter half of fiscal 2013, we will reconcile the TripIt contingent consideration, which we have discussed in the past. Due to the employment obligations associated with key employees as part of the deal structure, GAAP requires that we run almost half of the payout, if any, through cash flow from operations. Given that the ultimate payout is driven by our stock price, we cannot determine the impact to cash flow from operations at this time.

I would also like to note another factor impacting cash flow from operations in fiscal 2013. We expect to burn through the U.S. federal financial statement NOL near the end of Q2 this year. We still have a large U.S. federal tax NOL associated with the tax benefits from share-based compensation that we cannot record as an asset under GAAP. Once the NOL recorded on the financial statements has been fully utilized, GAAP requires that we record the usage of the tax benefits as a cash outflow from operations and a cash inflow from financing activities. In other words, the use of the NOL becomes a geography issue on the cash flow statement. It is important to note that the actual U.S. federal income tax cash payments will be much less than what we report in GAAP cash flow statement as a cash outflow from operations.

Finally, 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. For IBES consensus purposes, consider using the 35% federal statutory rate but recognize that this does not reflect the taxes we pay. For fiscal 2013, we expect cash income tax payments to be a single-digit percentage of pro forma pretax income. With strong revenue growth offset by our higher rate of investment and the factors that I just described, we expect cash flow from operations, excluding the TripIt reconciliation, acquisition and other related costs, to be at least $80 million. In fiscal 2013, we do expect to spend a slightly higher percentage of revenue on capital expenditures than our typical 6% to 8%, due to the buildout of our new corporate headquarters in Bellevue, Washington, to accommodate anticipated employee growth.

Please advance to Slide #20. In closing, fiscal 2012 was a strong year marked by revenue, pretax income, operating margin, EPS and free cash flow all ahead of our initial 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.

For fiscal 2013, our investment plan assumes 25% revenue growth and a 16% operating margin resulting in pretax EPS of $1.40. We acknowledge that any higher revenue outperformance and/or lower-than-expected spend may lead to higher pretax EPS. 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 2013 growth rate and which should bear additional rewards over the medium to long term.

With 21% pro forma operating margins this quarter and approximately 20% for the full year, we continue to demonstrate the inherent operating leverage in the business. We clearly have the ability to ramp the operating margin to our steady-state target and will do so when the strong growth dynamic of our market matures. 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] Our first question comes from the line of Steve Ashley with Robert Baird.

Chaitanya Yaramada - Robert W. Baird & Co. Incorporated, Research Division

This is Chaitanya Yaramada for Steve Ashley. Just wanted to get the headcount number, sorry if I missed that, at the end of the year. And then maybe if you can share the sales headcount number as well.

S. Steven Singh

The total headcount number was about 2,400. We do not share the sales headcount number specifically.

Rajeev Singh

Yes, Chaitanya, what I will tell you about the sales headcount number is just we're on a broad basis, we started the fiscal year -- fiscal 2012 with a goal to try to double our distribution capacity by the end of fiscal 2013. Halfway through that 24-month period, which was, of course, at the end of our fiscal year, we are roughly a little more than 30% of the way to that target. So 30% growth in distribution capacity. So we're tracking to the capacity of the objective of doubling the distribution capacity by the end of fiscal 2013.

Chaitanya Yaramada - Robert W. Baird & Co. Incorporated, Research Division

Okay, great. And then can you just give us a sense for how much of the incremental spending in FY '13 is going to be to help ramp for the government contract now that you're the -- you're going to be a sole source provider? And also on the SMB side, if you can provide us some color on what the go-to-market is and what type of investments you're looking to make in that area.

S. Steven Singh

Yes, absolutely. I want to make sure that -- just to expand a little bit on the distribution question. It's very important that you and certainly our new investors understand that the increase in distribution capacity that we saw throughout fiscal 2012 was really -- had absolutely 0 impact on the bookings growth that we saw in 2012 and what we expect to actually deliver this fiscal quarter. And that, of course, is what's driving fiscal 2013 revenues. The productivity gains that we're getting from the increased distribution capacity are really just starting to impact bookings in fiscal 2013. And so when -- and I think I have mentioned this in my prepared remarks, fiscal 2013, we expect the bookings growth rate to actually accelerate, which will drive, of course, fiscal 2014 revenues. And then relative to your question on the percentage that's being allocated to the government space, we didn't break out the specifics. I will tell you there's 3 areas that we are targeting for that increased investment. Those 3 areas are: the SMB market segment, in virtually every geography, we're seeing great traction for our SMB -- our solutions across literally every single geography that we're operating within, that's number one. Number two, the -- we see a very significant opportunity to continue to grow our global accounts business across not only the U.S. but also frankly, major economies within Europe and also Japan. So we're talking about some of the biggest companies in the world, so a lot of traction in that segment over the last couple of quarters. And then the third, of course, was the public sector, going after the U.S. government opportunity.

Operator

[Operator Instructions] Our next question comes from the line of Thomas Ernst with Deutsche Bank.

Nandan Amladi - Deutsche Bank AG, Research Division

Nandan Amladi on behalf of Tom. Going back to the beginning of fiscal year '12, you started out with a revenue target of 25-plus percent and operating margin of 18 plus -- about 18%. This year, you're -- we're starting guidance at 16% to 19%. Why is there that reduction of 2% at the low end of the range?

S. Steven Singh

Yes. I walked through that in the call. Let me reiterate that for -- just to clarify a little further. You're absolutely right, we started fiscal 2012 with an expectation of 25% growth and 18% operating margin, where we ended up was 26% growth and 20% operating margin. And that's predominantly driven by the fact that revenues outperformed, so therefore, operating margin outperformed, which, by the way, is very typical for us and consistent with what we've done over the last several years. What we are expecting in fiscal 2013 is the following: We expect to grow the top line, 25% year-over-year. And I want to just take a second for the benefit of newer listeners just to walk through how that will actually play out. As our existing investors already understand, the revenue growth rate that we will deliver in any given period is driven by sales of -- to customers that were done in prior periods. So if we look at fiscal 2013, 3 quarters of the 4 quarters we've already sold to customers that it'll take to actually go hit those revenue targets. So now it's just a question of deploying those customers across the next 3 quarters. Again, very consistent with what we've done over the last 11 or 12 years. Now, the operating margin target, we're actually guiding to a range. And that's very important to understand. We're not saying it's 16%, we're not saying it's 19%. We're guiding to a range between 16% and 19%. And the -- if we end up at 16% in the operating margin, it's really being driven by a couple of things: Number one is that we're seeing greater demand across literally every market segment we're serving today, so we're willing to invest in additional resources to go capture that demand. And that'll frankly drive 2014 revenues and 2015 revenues. So if we end up at 16% operating margin, it's because we're actually seeing great demand in the marketplace and because we're executing exceptionally well against that demand, right? If we end up closer to 19%, which is an equal opportunity for it to happen, it's because of 1 of 2 things realistically: Either we outperformed on revenue, which just like we did in fiscal 2012, that's certainly a possibility. Or we're seeing more efficient capacity to go invest, to go drive those additional -- go execute against those additional opportunities.

Operator

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

Brent Thill - UBS Investment Bank, Research Division

Frank, just on the transaction trends for next year, to get to 25% growth just on the core transactions, you're assuming the slowdown starts to happen. Just if you could clarify on second half, you expect a re-acceleration on the transaction side?

S. Steven Singh

Let me -- Frank, you can jump in on this. Let me just hit that. So our assumption is that the economic environment we're seeing today just persists, right? So we're not assuming a slowdown into the back half of the year, and we're not assuming an increase into the back half of the year. We're saying that what exists today is likely to continue, okay? Having said that, it's very important to reference or to speak to Q1 because that's a little bit of an anomaly, right? The reality is while Q1 is certainly being impacted by the general economic slowdown, the vast majority of the impact that we're seeing in Q1 relative to what we would've expected or we would've preferred is really being driven by, frankly, Hurricane Sandy. And so I mean I think some of this -- I think people are already familiar with, the reality is with those more than 20,000 flight cancellations in the first couple of days of the hurricane, right? And GBTA, which is the industry association for travel, estimated more than half a million business trips were impacted by Hurricane Sandy over the course of the impacted period. But on top that there's another element that's important, right? The vast majority of our revenue growth in any given quarter is driven by customer deployments, right? And so we think it's prudent to assume a slight lengthening of the deployment cycles for those customers that are -- have significant operations within the affected areas, right? So New York city, obviously, is [indiscernible] for our customers. And so that's the biggest single driver to near-term kind of transactions.

Francis J. Pelzer

Right. It's Frank. Let me jump in, too. I think the acceleration that you're seeing based off of my prepared remarks in the back half of the year is really driven by the record bookings that we just had in Q4, as well as what we expect to do in Q1, and that will drive revenue in Q3 and Q4. And so as Steve said, we're not anticipating that we're going to have any better economic environment or any worse economic environment as we go throughout the course of the year. We're just expecting the status quo of what we see today.

S. Steven Singh

Yes. And if I can just add one thing, Brent. Our guidance factors in these macro conditions, right? We're looking at them saying, "Okay, these macro conditions have whatever impact they're going to have." And that combined with the bookings growth that we saw over the past year and that which we expect to see this quarter is driving the vast majority of our growth, which is, as you know, 3 quarters of which is now done.

Brent Thill - UBS Investment Bank, Research Division

Okay. So x these events, you -- the growth rate will obviously would have been considerably higher?

S. Steven Singh

That's exactly right.

Operator

Our next question comes from the line of Laura Lederman with William Blair.

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

Can you talk about whether customers are asking for negotiating down in their minimums? Or is the headwind from travel really relate to no overages? Just trying to get a better understanding of what you're seeing there?

S. Steven Singh

Yes. We don't think this is a very big headwind. So it's a headwind, but it's not large. So certainly nothing like what we saw in the complete collapse of the economy back in 2000 -- late 2008, 2009. This is nothing more than frankly just a general economic slowdown. And these are very modest impacts. The biggest single thing that's impacting us really is just in Q1, and that's the Hurricane Sandy impact, which I referenced just a few minutes ago.

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

Yes. But I guess I thought the customers were all under minimums, and so are you letting them out of their minimums? Their volumes for Q1 because of Sandy?

S. Steven Singh

No, no. Keep in mind, Laura, that they also have travel transactions as well, right? So we certainly still have -- right, that are just travel customers. And you're going to see that slow. In fact, you did see that slow in the first few days of Hurricane Sandy. And then look, it also drives some level of lower expense transactions, which are -- which can be certainly incremental, okay?

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

Great. Shifting a little bit to the competitive environment, did you see Workday's solution at all or SAP's? And if you did, can you talk a little bit about your run rate -- or win rate, sorry?

S. Steven Singh

Sure, sure. Obviously, we're very familiar with the SAP solution. And I tried to comment a little bit about it in the prepared remarks. We signed some very, very large deals within the last couple of quarters and notably, deals like ABB, deals like Bayer or Caterpillar, which by the way, they're all 3 SAP shops. And so the fact that these companies are taking global solutions from Concur should tell you a lot about our services and our offerings and the competitiveness and the completeness of it compared to anybody else in the marketplace. On Workday, it's -- frankly, it's no different than any other ERP solution. We're not -- we don't see them as competition in this space. If you think about the scope of offerings that we provide, it's well above and beyond anything that Workday is providing.

Operator

Our next question comes from the line of David Hillel with FBR.

Samad Samana - FBR Capital Markets & Co., Research Division

This is Samad Samana here for Dave. You brought up the GBTA's forecast for business trips. I was wondering, what are your expectations for business trip growth next year, and how sensitive is your model to that? So, let's say, it's 5% below what your internal expectations are. What kind of impact does that have to your revenue expectations for the year, so we can kind of have a way to think about that going forward?

S. Steven Singh

Yes, we don't share our internal transactional details. And I think the way we think about the forward year is very simple. The biggest single driver of growth for the forward year is new customer growth, which, as I mentioned earlier, 3 quarters of that new customer growth is already done. I mean Q1, Q2, Q3 revenue growth is driven by deployments of customers we've already sold. We obviously expect to sell obviously customers this quarter and collectively over the Q1 plus the prior 3 quarters, we expect to grow bookings 35% to 40%. And that's, by the way, higher than in the same period last year, which was 35%. And so the reality is this transactional volume relative to travel, while it's a modest headwind, it's not something that is a material enough component that we get overly worried about it. I think Sandy, it's just -- it's an anomaly, it's a one-time event that certainly impacted us. And we think it's prudent to assume that'll have some impact on our deployment schedules, which obviously the biggest portion of our revenue is driven by it.

Samad Samana - FBR Capital Markets & Co., Research Division

Is it possible to break out kind of x percentage comes from new deals versus x percentage just transaction growth, at least qualitatively?

S. Steven Singh

Super vast majority of our growth is driven by deployment of existing or new customers.

Operator

Our next question comes from the line of Fred Grieb with Nomura.

Frederick T. Grieb - Nomura Securities Co. Ltd., Research Division

I just want to dig into the sales hiring guidance. You said you're about 30% of the way along to doubling the sales force between the beginning of 2012 and the end of 2013. Did you also kind of increase that guidance to now it's going to be up 150% from the beginning of 2012? And if so, it seems like that's a pretty steep ramp in sales hiring this year. What process do you guys have in place to kind of find those sales reps and onboard them?

S. Steven Singh

Yes, absolutely. So my comment was, we've grown sales head capacity by more than 30% in the first 12 months of that 24-month period. And yes, we did state that we're going to increase that capacity further, basically 150% of the original target. However, let's keep in mind that 150%, we will move aggressively to fill that capacity. But the reality is that's going to take some period of time. And whether it happens by the end of fiscal '13 or slightly before or slightly after, that's not the primary focus for us. What you should take away from this is that look, we see a great demand environment in literally every single market segment, but with notable focus on the SMB market segments across literally every geography. The global accounts markets for EMEA and also for Japan, these are new opportunities for us and the public sector, so we're ramping our investments across those 3 areas.

Operator

And we have time for one more question. That question comes from the line of Ross MacMillan with Jefferies.

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

Just 2 questions. If I look at the guidance for Q1 and then I sort of think about your comments about the same sequential growth rate through the rest of the year, it looks like you're going to be exiting the year at a much, much higher growth rate than you did in fiscal '12. Is my math correct? And I'm just curious as to why there's no sort of more traditional seasonality in fiscal '13.

S. Steven Singh

Yes. First of all, your math is correct. We will exit fiscal '13 at a fairly attractive year-over-year growth rate, much higher than the annual targeted 25%. Obviously, collectively for the year as a whole, we expect it to be at 25%. The things that impact it really are 2 things: Number one is, that the mix of customers that we've been signing over the last several quarters is starting to see a very nice add of global accounts. If whoever's on the phone that's making that noise, if you could just mute your line, I'd appreciate it.

So we're seeing a nice mix of some very large accounts, global accounts, some of which I actually mentioned in my prepared remarks. And the timing of those bookings obviously impacts the growth in any given quarter. So, for example, if you saw a large -- very strong bookings in June and September of fiscal 2012 and if it's also a nice mix of very large accounts in there, you're going to see a fairly substantive hike in revenues in Q3 and Q4. And so that's why you're seeing some of that growth rate accelerate in the back half of the year. But having said that, it's important to look at Q1 revenues to Q2 revenues to Q3 to Q4, that sequential growth rate is roughly the same across every quarter. And, obviously, [indiscernible] to that.

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

That makes sense. And then maybe just one quick follow-up. Frank, you mentioned a comment around the NOL. I wonder if you could just -- is there any way to quantify that? And then secondarily, is something actually changing in your cash taxes paid as a result of this change? I wasn't clear on that.

Francis J. Pelzer

Sure, Ross. So our total NOL balance is about $180 million, so it's still quite large. What I was trying to reference is that the -- there is a difference on where those 2 NOLs are coming from and that there is a geographic location between where it's going to show up on the cash flow statement. So in the past, there really isn't a major change in the cash taxes that we're paying. But when you take a look at where you see that in the cash flow statement, if you're used to calculating our free cash flow as cash flow from operations minus capital expenditures, you'll find a difference this year than you have in the past, because that NOL benefit is going to come in financing activities as opposed to operational activities. And the cash taxes are still in the low single digits of pro forma income.

Operator

I'll now hand the call back over to Steve Singh for closing remarks.

S. Steven Singh

Thank you. I want to thank all of our investors for joining the call today. I want to take just 2 seconds to provide a couple of closing remarks. It's not often that I get a chance to just start the fiscal year with kind of a state of where the business is at. And we just frankly couldn't be happier with how the business is performing literally across all geographies, across all departments in the business. It's -- we're just in a very, very strong position, and we're excited about the growth that we expect to actually deliver this year, as well as, frankly, just as important, we're very, very excited about the additional bookings that we will drive in new customer growth during the course of fiscal 2013.

Thank you very much for your time. We look forward to updating you on the progress of your company at the next earnings call. Thanks so much.

Operator

Ladies and gentlemen, this concludes today's conference call. We thank you for your participation. You may all disconnect.

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