10-Q 1 cnqr10qq22013.htm FORM 10-Q CNQR.10Q.Q2.2013
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549 
FORM 10-Q 
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2013
OR
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from            to             
Commission file number 000-25137
_________________________________
Concur Technologies, Inc.
(Exact name of Registrant as specified in its charter)
___________________________________ 
Delaware
 
91-1608052
(State or other jurisdiction of
incorporation or organization)
 
(IRS Employer
Identification No.)
18400 NE Union Hill Road
Redmond, Washington
 
98052
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code: (425) 702-8808
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    x  Yes    ¨  No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    x Yes    ¨  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
 
x
  
Accelerated filer
 
¨
 
 
 
 
Non-accelerated filer
 
¨  [Do not check if a smaller reporting company]
  
Smaller reporting company
 
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ¨  Yes    x  No
Number of shares of the registrant’s common stock outstanding as of May 3, 2013: 55,831,134



CONCUR TECHNOLOGIES, INC.
FORM 10-Q
March 31, 2013

INDEX
 


2


PART I.     FINANCIAL INFORMATION
ITEM 1.    FINANCIAL STATEMENTS
Concur Technologies, Inc.
Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
 
 
Three Months Ended
 
Six Months Ended
 
March 31,
 
March 31,
 
2013
 
2012
 
2013
 
2012
Revenues
$
127,370

 
$
108,394

 
$
250,168

 
$
208,778

Expenses:
 
 
 
 
 
 
 
Cost of operations
36,564

 
30,285

 
71,560

 
59,255

Sales and marketing
55,518

 
41,878

 
110,460

 
82,223

Systems development and programming
13,799

 
10,024

 
28,026

 
19,747

General and administrative
20,280

 
16,577

 
39,912

 
31,744

Revaluation of contingent consideration
(677
)
 
(1,138
)
 
2,132

 
(3,577
)
Amortization of intangible assets
4,539

 
4,634

 
9,003

 
8,599

Total expenses
130,023

 
102,260

 
261,093

 
197,991

Operating income (loss)
(2,653
)
 
6,134

 
(10,925
)
 
10,787

Other income (expense):
 
 
 
 
 
 
 
Interest income
490

 
530

 
1,044

 
1,012

Interest expense
(5,128
)
 
(4,807
)
 
(10,096
)
 
(9,562
)
Loss from equity investments
(767
)
 
(570
)
 
(1,368
)
 
(1,066
)
Other, net
(473
)
 
55

 
(561
)
 
(423
)
Total other expense
(5,878
)
 
(4,792
)
 
(10,981
)
 
(10,039
)
Income (loss) before income tax
(8,531
)
 
1,342

 
(21,906
)
 
748

Income tax expense (benefit)
(678
)
 
6,305

 
(1,735
)
 
6,658

Consolidated net loss
(7,853
)
 
(4,963
)
 
(20,171
)
 
(5,910
)
Less: Loss attributable to noncontrolling interest
208

 
125

 
494

 
204

Net loss attributable to Concur
$
(7,645
)
 
$
(4,838
)
 
$
(19,677
)
 
$
(5,706
)
Net loss per share attributable to Concur common stockholders:
 
 
 
 
 
 
 
Basic
$
(0.14
)
 
$
(0.09
)
 
$
(0.36
)
 
$
(0.11
)
Diluted
(0.14
)
 
(0.09
)
 
(0.36
)
 
(0.11
)
Weighted average shares used in computing net loss per share:
 
 
 
 
 
 
 
Basic
55,597

 
54,524

 
55,337

 
54,309

Diluted
55,597

 
54,524

 
55,337

 
54,309

See Notes to Consolidated Financial Statements.


3


Concur Technologies, Inc.
Consolidated Statements of Comprehensive Loss
(In thousands)
(Unaudited)
 
Three Months Ended
 
Six Months Ended
 
March 31,
 
March 31,
 
2013
 
2012
 
2013
 
2012
Consolidated net loss
$
(7,853
)
 
$
(4,963
)
 
$
(20,171
)
 
$
(5,910
)
Other comprehensive income (loss), before tax
 
 
 
 
 
 
 
Foreign currency translation adjustments
(2,960
)
 
1,493

 
(2,206
)
 
(227
)
Unrealized gain (loss) on available-for-sale investments
(25
)
 
81

 
(39
)
 
68

Other comprehensive income (loss), before tax
(2,985
)
 
1,574

 
(2,245
)
 
(159
)
Tax effect
(9
)
 
31

 
(7
)
 
26

Other comprehensive income (loss), net of tax
(2,976
)
 
1,543

 
(2,238
)
 
(185
)
Comprehensive loss
(10,829
)
 
(3,420
)
 
(22,409
)
 
(6,095
)
Less: Comprehensive loss attributable to noncontrolling interest
224

 
195

 
549

 
280

Comprehensive loss attributable to Concur
$
(10,605
)
 
$
(3,225
)
 
$
(21,860
)
 
$
(5,815
)
See Notes to Consolidated Financial Statements.

4


Concur Technologies, Inc.
Consolidated Balance Sheets
(In thousands, except per share amounts)
(Unaudited)
 
March 31,
2013
 
September 30,
2012
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
224,440

 
$
302,274

Short-term investments
241,824

 
201,062

       Accounts receivable, net of allowance of $1,662 and $1,507
94,074

 
86,591

Deferred tax assets
17,041

 
12,929

Deferred costs and other assets
54,088

 
47,312

Total current assets
631,467

 
650,168

Non-current assets:
 
 
 
Property and equipment, net
65,423

 
57,391

Investments
81,008

 
65,621

Deferred costs and other assets
41,245

 
42,650

Intangible assets, net
102,162

 
105,895

Deferred tax assets
18,072

 
17,657

Goodwill
289,556

 
281,892

Total assets
$
1,228,933

 
$
1,221,274

Liabilities and equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
14,824

 
$
12,674

Customer funding liabilities
37,196

 
29,239

Accrued compensation
18,458

 
31,261

Acquisition-related liabilities
261

 
4,488

Acquisition-related contingent consideration
25,899

 
22,692

Other accrued expenses and liabilities
32,558

 
32,035

Deferred revenues
76,162

 
69,838

Senior convertible notes, net
258,006

 
251,607

Total current liabilities
463,364

 
453,834

Non-current liabilities:
 
 
 
Deferred rent and other long-term liabilities
681

 
634

Deferred revenues
16,410

 
17,578

Acquisition-related contingent consideration
3,063

 

Tax liabilities
10,557

 
8,155

Total liabilities
494,075

 
480,201

Equity:
 
 
 
Concur stockholders’ equity:
 
 
 
Common stock, $0.001 par value per share
56

 
55

Authorized shares: 195,000
 
 
 
              Shares issued and outstanding: 55,810 and 55,058
 
 
 
Additional paid-in capital
877,494

 
861,301

Accumulated deficit
(136,962
)
 
(117,285
)
Accumulated other comprehensive loss
(5,762
)
 
(3,579
)
Total Concur stockholders’ equity
734,826

 
740,492

Noncontrolling interest
32

 
581

Total equity
734,858

 
741,073

Total liabilities and equity
$
1,228,933

 
$
1,221,274

See Notes to Consolidated Financial Statements.

5


Concur Technologies, Inc.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
 
 
Three Months Ended
 
Six Months Ended
 
March 31,
 
March 31,
 
2013
 
2012
 
2013
 
2012
Operating activities:
 
 
 
 
 
 
 
Consolidated net loss
$
(7,853
)
 
$
(4,963
)
 
$
(20,171
)
 
$
(5,910
)
Adjustments to reconcile consolidated net loss to net cash provided by operating activities:
 
 
 
 
 
 
 
Amortization of intangible assets
4,539

 
4,634

 
9,003

 
8,599

Depreciation and amortization of property and equipment
7,082

 
5,743

 
13,703

 
11,039

Accretion of discount and issuance costs on notes
3,227

 
3,010

 
6,399

 
5,968

Share-based compensation
13,718

 
9,832

 
31,447

 
21,546

Revaluation of contingent consideration
(677
)
 
(1,138
)
 
2,132

 
(3,577
)
Deferred income taxes
(1,586
)
 
6,637

 
(3,217
)
 
6,721

Excess tax benefits from share-based compensation
(219
)
 
(137
)
 
(365
)
 
(173
)
Loss from equity investments
767

 
570

 
1,368

 
1,066

Payments of contingent consideration
(591
)
 

 
(591
)
 

Changes in operating assets and liabilities, net of effects from acquisitions:
 
 
 
 
 
 
 
Accounts receivable, net
(9,650
)
 
(11,016
)
 
(7,389
)
 
(15,147
)
Deferred costs and other assets
(5,759
)
 
(1,889
)
 
(4,345
)
 
(2,911
)
Accounts payable
2,898

 
514

 
1,661

 
1,116

Accrued liabilities
8,075

 
8,172

 
(11,310
)
 
(4,358
)
Deferred revenues
4,728

 
5,144

 
5,423

 
7,491

Net cash provided by operating activities
18,699

 
25,113

 
23,748

 
31,470

Investing activities:
 
 
 
 
 
 
 
Purchases of investments
(125,677
)
 
(175,772
)
 
(253,185
)
 
(298,022
)
Maturities of investments
136,141

 
138,453

 
212,485

 
224,759

Increase (decrease) in customer funding liabilities, net of changes in restricted cash
5,140

 
3,466

 
8,129

 
(7,564
)
Investment in and loans to unconsolidated affiliates

 

 
(17,326
)
 
(6,864
)
Capital expenditures
(10,455
)
 
(7,879
)
 
(20,989
)
 
(15,429
)
Payments for acquisitions, net of cash acquired
(9,564
)
 

 
(9,564
)
 
(67,460
)
Payments of contingent consideration related to acquisition of Etap
(1,266
)
 
(5,275
)
 
(1,266
)
 
(5,275
)
Net cash used in investing activities
(5,681
)
 
(47,007
)
 
(81,716
)
 
(175,855
)
Financing activities:
 
 
 
 
 
 
 
Payments on repurchase of common stock

 
(777
)
 
(201
)
 
(1,375
)
Net proceeds from share-based equity award activity
857

 
1,029

 
1,420

 
1,671

Proceeds from employee stock purchase plan activity
928

 
627

 
1,584

 
1,160

Minimum tax withholding on restricted stock awards
(19,251
)
 
(9,602
)
 
(19,347
)
 
(9,718
)
Excess tax benefits from share-based compensation
219

 
137

 
365

 
173

Payments of contingent consideration
(2,497
)
 

 
(2,497
)
 

Net cash used in financing activities
(19,744
)
 
(8,586
)
 
(18,676
)
 
(8,089
)
Effect of foreign currency exchange rate changes on cash and cash equivalents
(1,086
)
 
(8
)
 
(1,190
)
 
(283
)
Net decrease in cash and cash equivalents
(7,812
)
 
(30,488
)
 
(77,834
)
 
(152,757
)
Cash and cash equivalents at beginning of period
232,252

 
247,888

 
302,274

 
370,157

Cash and cash equivalents at end of period
$
224,440

 
$
217,400

 
$
224,440

 
$
217,400

Supplemental cash flow information:
 
 
 
 
 
 
 
Cash paid for interest
$

 
$

 
$
3,594

 
$
3,594

Income tax payments, net
3,031

 
132

 
3,402

 
271

See Notes to Consolidated Financial Statements.

6


Concur Technologies, Inc.
Notes to Consolidated Financial Statements
(In thousands, unless otherwise noted)
(Unaudited)
Note 1. Description of the Company and Basis of Presentation
Throughout these consolidated financial statements Concur Technologies, Inc. is referred to as “Concur,” the “Company,” “we,” “us” and “our.” We report our operating results on the basis of a fiscal year that starts October 1 and ends September 30. We refer to our fiscal years ended September 30, 2011, 2012 and 2013, as, “2011,” “2012” and “2013.” All dollar, option, and share amounts are reported in thousands, unless otherwise noted.
Description of the Company
We are a leading global provider of integrated travel and expense management solutions for companies of all industries and sizes worldwide. Our core mission is to continuously innovate to reduce the costs for our customers and enhance the user experience for travelers. Our easy-to-use cloud computing solutions help companies and their employees control costs, save time, and boost productivity by streamlining the expense management, travel procurement, itinerary management, and invoice management processes. By capturing and reporting on activity throughout the travel and expense management process, our solutions provide detailed information to help clients effectively negotiate with vendors, create budgets, and manage compliance. Our solutions adapt to individual employee preferences, while scaling to meet the needs of companies from small to large.
Concur, the Concur logo, TripIt, GlobalExpense, and conTgo, as well as a number of other names and brands that are not referenced in these consolidated financial statements, are trademarks or registered trademarks of Concur or its affiliates. Other parties’ marks are the property of their respective owners and should be treated as such.
Basis of Presentation
These consolidated financial statements include the accounts of Concur, its wholly-owned subsidiaries, and its controlled subsidiary. All intercompany accounts and transactions were eliminated in consolidation. In 2011, we established a Japanese joint venture and hold a controlling interest (75% voting interest) in Concur (Japan) Ltd. (“Concur Japan”). We recorded a noncontrolling interest in the consolidated statements of operations for the noncontrolling investors’ interests in the operations of Concur Japan. Noncontrolling interest of $32 and $581 as of March 31, 2013 and September 30, 2012, respectively, was reflected in stockholders’ equity.
We have prepared the accompanying unaudited consolidated financial statements in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial reporting. In our opinion, we have included all adjustments necessary for a fair presentation. These adjustments consist of normal recurring items. Our unaudited consolidated financial statements are not necessarily indicative of results that may be expected for any other interim period or for the full year. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2012, filed with the Securities and Exchange Commission on November 15, 2012.
Reclassifications
Certain amounts previously presented for prior periods have been reclassified to conform to current presentation.
Note 2. Accounting Estimates, Summary of Significant Accounting Policies and Recent Accounting Pronouncements
Use of Estimates
We prepared our consolidated financial statements in conformity with GAAP which requires us to make estimates and assumptions affecting the amounts reported in the consolidated financial statements and accompanying notes. Changes in these estimates and assumptions may have a material impact on our consolidated financial statements and accompanying notes. Examples of estimates and assumptions include valuing assets and liabilities acquired through business combinations, determining the fair value of acquisition-related contingent considerations, valuing and estimating useful lives of intangible assets, recognizing uncertain tax positions, estimating tax valuation allowances on tax attribute carryforwards, determining the other-than-temporary impairments for strategic investments, deferring certain revenues and costs, valuing allowances for accounts receivable, estimating useful lives of property and equipment, and estimating product warranties. Actual results could differ from these estimates.

7


Recent Accounting Pronouncements
In June 2011, the Financial Accounting Standards Board (“FASB”) issued guidance on presentation of comprehensive income. The new guidance eliminates the current option to report other comprehensive income and its components in the statement of changes in equity. Instead, an entity is required to present either a continuous statement of net income and other comprehensive income or two separate but consecutive statements. In December 2011, the FASB issued Accounting Standards Update (“ASU”) 2011-12, Comprehensive Income (Topic 220), Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in ASU 2011-05, to defer the effective date of the specific requirement to present items that are reclassified out of accumulated other comprehensive income to net income alongside their respective components of net income and other comprehensive income. We adopted both ASU 2011-05 and ASU 2011-12 retrospectively effective October 2012 and elected to report other comprehensive income and its components in the consolidated statements of comprehensive loss. The adoption of these standards did not affect our financial position or results of operations.
In September 2011, the FASB issued ASU 2011-08, Intangibles - Goodwill and Other (Topic 350), Testing Goodwill for Impairment, to amend and simplify the rules related to testing goodwill for impairment. The revised guidance allows an entity to make an initial qualitative evaluation, based on the entity's events and circumstances, to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The results of this qualitative assessment determine whether it is necessary to perform the currently required two-step impairment test. The new guidance is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. We adopted this new guidance in the second quarter of 2013. The adoption of this guidance did not affect our financial position or results of operations.
In February 2013, the FASB issued ASU 2013-02, Other Comprehensive Income (Topic 220), Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. This new guidance requires entities to present (either on the face of the income statement or in the notes) the significant effects on the line items of the income statement for amounts reclassified out of accumulated other comprehensive income. The new guidance will be effective for us beginning October 1, 2013. We do not anticipate material impacts on our consolidated financial statements upon adoption.
In March 2013, the FASB issued ASU 2013-05, Foreign Currency Matters (Topic 830), Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity (a consensus of the FASB Emerging Issues Task Force). This new guidance requires that the parent release any related cumulative translation adjustment into net income only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided. The new guidance will be effective for us beginning October 1, 2014. We do not anticipate material impacts on our consolidated financial statements upon adoption.
Note 3. Net Income (Loss) Per Share
We calculate basic net income (loss) per share by dividing net income (loss) attributable to Concur for the period by the weighted average number of shares of common stock outstanding during the period. Diluted net income (loss) per share attributable to Concur is computed giving effect to all potential weighted average diluted common stock, including options, restricted stock units, warrants, and the senior convertible notes, using the treasury stock method.
The computation of basic and diluted net income (loss) per share is as follows:
 
Three Months Ended
 
Six Months Ended
 
March 31,
 
March 31,
 
2013
 
2012
 
2013
 
2012
Net loss attributable to Concur
$
(7,645
)
 
$
(4,838
)
 
$
(19,677
)
 
$
(5,706
)
Weighted average number of shares outstanding:
 
 
 
 
 
 
 
Basic
55,597

 
54,524

 
55,337

 
54,309

Diluted
55,597

 
54,524

 
55,337

 
54,309

Net loss per share attributable to Concur common stockholders:
 
 
 
 
 
 
 
Basic
$
(0.14
)
 
$
(0.09
)
 
$
(0.36
)
 
$
(0.11
)
Diluted
(0.14
)
 
(0.09
)
 
(0.36
)
 
(0.11
)
We excluded certain shares from the computation of diluted net income (loss) per share because the effect of these shares would have been anti-dilutive. The following table details the shares of potential common stock outstanding as of March 31, 2013 and 2012, which were excluded from the computation of diluted net income (loss) per share for the three and six month periods then ended.

8


 
Three Months Ended
 
Six Months Ended
 
March 31,
 
March 31,
 
2013
 
2012
 
2013
 
2012
Share-based equity awards
2,878

 
3,128

 
2,878

 
3,128

Senior convertible notes
5,491

 
5,491

 
5,491

 
5,491

Warrants associated with the senior convertible notes
5,491

 
5,491

 
5,491

 
5,491

Under the treasury stock method, the senior convertible notes have a dilutive impact on net income per share when the average stock price for the period exceeds the conversion price for the senior convertible notes (see Note 9 of the Notes to Consolidated Financial Statements).
We also have entered into the note hedge transactions (“Note Hedges”) with respect to our common stock (discussed in Note 9 of the Notes to Consolidated Financial Statements), to minimize the impact of potential economic dilution upon conversion of the senior convertible notes. The Note Hedges were outstanding during the three and six months ended March 31, 2013 and 2012. Since the beneficial impact of the Note Hedges was anti-dilutive, it was excluded from the calculation of diluted net income per share.
Note 4. Property and Equipment
As of the dates specified below, our property and equipment consisted of the following:
 
March 31, 2013

September 30, 2012
Land and building
$
6,208

 
$
6,108

Leasehold improvements
8,639

 
6,447

Computer hardware
28,491

 
28,534

Computer software
83,498

 
76,215

Furniture and equipment
2,657

 
1,826

Property and equipment, gross
129,493

 
119,130

Less: accumulated depreciation
(64,070
)
 
(61,739
)
Property and equipment, net
$
65,423

 
$
57,391

Depreciation expense of property and equipment totaled $7.1 million and $13.7 million for the three and six months ended March 31, 2013, respectively; and $5.7 million and $11.0 million for the same periods in 2012.
Note 5. Investments
Our investment portfolio primarily includes strategic investments in privately-held companies. We account for our strategic investments under either the cost or equity method of accounting. Our equity method investment balance is adjusted each period to recognize our proportionate share of investee net income or loss, including adjustments to recognize certain differences between our carrying value and our equity in the investee's net assets at the date of investment.
Total equity and cost method investment balances recorded as of March 31, 2013 and September 30, 2012 were as follows:
 
March 31, 2013
 
September 30, 2012
Equity method investments
$
13,543

 
$
14,911

Cost method investments
67,465

 
50,710

     Total investments
$
81,008

 
$
65,621

No other-than-temporary impairment charge was recorded for the three and six months ended March 31, 2013 and 2012.
Note 6. Goodwill
During the second quarter of 2013, we completed the acquisition of conTgo Ltd., a United Kingdom corporation, and conTgo Pty. Ltd., an Australia corporation (collectively, “conTgo”), which provide corporate customers and travel management companies with a cloud-based mobile communications and messaging platform. We recorded the goodwill balance based on the preliminary purchase price allocation as of March 31, 2013, pending finalization of valuation reports and deferred tax calculations. Changes to amounts recorded as assets or liabilities may result in a corresponding adjustment to goodwill. The

9


results of operations of conTgo were included in our consolidated financial statements beginning in March 2013 upon acquisition.
The changes in the carrying balance of goodwill for the six months ended March 31, 2013, were as follows:
Balance as of September 30, 2012
$
281,892

Addition - Acquisition of conTgo
8,492

Other adjustments (1)
(828
)
Balance as of March 31, 2013
$
289,556

(1) Represent primarily the impact of foreign currency translation for instances when goodwill is recorded in foreign entities whose functional currency is also their local currency. Goodwill balances are translated into U.S. dollars using exchange rates in effect at period end. Adjustments related to foreign currency translation are included in other comprehensive income (loss).

We performed our annual goodwill impairment test as of March 31, 2013 and concluded that the Company's estimated fair value substantially exceeds its carrying value. No impairments were recorded for the three and six months ended March 31, 2013 and 2012.
Note 7. Intangible Assets
The following table presents our intangible assets as of the dates specified below:
 
March 31, 2013
 
September 30, 2012
Description
Gross Carrying Amount
 
Accumulated
Amortization
 
Net Carrying Amount
 
Gross Carrying Amount
 
Accumulated
Amortization
 
Net Carrying Amount
Trade name and trademarks
$
3,112

 
$
(1,102
)
 
$
2,010

 
$
3,125

 
$
(878
)
 
$
2,247

Technology
30,374

 
(19,789
)
 
10,585

 
25,396

 
(18,093
)
 
7,303

Customer relationships
126,166

 
(36,599
)
 
89,567

 
126,123

 
(29,778
)
 
96,345

Total
$
159,652

 
$
(57,490
)
 
$
102,162

 
$
154,644

 
$
(48,749
)
 
$
105,895


The increase in gross carrying amount of intangible assets was mainly due to the assets acquired from the acquisition of conTgo, which consist primarily of $5.2 million in software technology with an estimated useful life of five years.
Amortization expense totaled $4.5 million and $9.0 million for the three and six months ended March 31, 2013, respectively, and $4.6 million and $8.6 million for the same periods in 2012.
The following table presents the estimated future amortization expense related to intangible assets held at March 31, 2013:
Years Ending September 30,
Amortization of Intangible Assets
2013 (April 1, 2013, through September 30, 2013)
$
8,963

2014
17,016

2015
16,909

2016
14,555

2017
13,068

Thereafter
31,651

Total
$
102,162

Note 8. Customer Funding Liabilities
We draw funds from and make payments on behalf of our customers for employee expense reimbursements, related corporate credit card payments, and vendor payments. We hold these funds in cash and record our obligation to make these expense reimbursements and payments on behalf of our customers as customer funding liabilities.
Note 9. Debt
In March 2010, we issued $287.5 million principal amount of our 2.50% senior convertible notes due April 15, 2015 (“Notes”). All amounts from the issuance of the Notes were settled in April 2010.

10


The Notes are governed by an Indenture, dated April 6, 2010 (“Indenture”), between Concur and Wells Fargo Bank, National Association, as trustee. The Notes will mature on April 15, 2015, unless earlier repurchased or converted, and bear interest at a rate of 2.50% per year payable semi-annually in arrears on April 15 and October 15 of each year, commencing October 15, 2010.
The Notes are convertible into cash and up to 5.5 million shares of our common stock at an initial conversion rate of 19.10 shares of common stock per $1,000 principal amount of Notes, which represents an initial conversion price of approximately $52.35 per share, subject to adjustment. Prior to January 15, 2015, conversion is subject to the satisfaction of certain conditions set forth below. Holders of the Notes who convert their Notes in connection with a fundamental change (as defined in the Indenture) will, under certain circumstances, be entitled to a make-whole premium in the form of an increase in the conversion rate. Additionally, in the event of a fundamental change, holders of the Notes may require the Company to repurchase all or a portion of their Notes at a repurchase price equal to 100% of the principal amount of Notes, plus accrued and unpaid interest, if any, to, but not including, the fundamental change repurchase date (as defined in the Indenture).
Holders of the Notes may convert their Notes on or after January 15, 2015, until the close of business on the second scheduled trading day immediately preceding the maturity date. The conversion rate will be subject to adjustment in some events but will not be adjusted for accrued interest. Upon conversion, we will satisfy our conversion obligation by delivering cash and shares of common stock, if any, based on a daily settlement amount (as defined in the Indenture). Prior to January 15, 2015, holders of the Notes may convert their Notes under any of the following conditions:
during any calendar quarter commencing after June 30, 2010, (and only during such calendar quarter), if the last reported sale price of common stock for 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the preceding calendar quarter is greater than or equal to 130% of the applicable conversion price on each applicable trading day;
during the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of the Notes for each day of that five consecutive trading day period was less than 98% of the product of the last reported sale price of common stock and the applicable conversion rate on such day; or
upon the occurrence of specified corporate events.
The Company’s common stock price did not exceed 130% of the applicable conversion price for at least 20 trading days during the 30 consecutive trading day period ending on the last trading day of the quarter ended December 31, 2012. Accordingly, the Notes were not convertible at the holders’ option for the quarter ended March 31, 2013 and were classified as a non-current liability on the consolidated balance sheets as of December 31, 2012.
For at least 20 trading days during the 30 consecutive trading day period ending on the last trading day of the quarter ended March 31, 2013, the Company’s common stock price exceeded 130% of the applicable conversion price on each applicable trading day. Accordingly, the Notes will be convertible at the holders’ option for the quarter ending June 30, 2013 and were classified as a current liability on the consolidated balance sheets as of March 31, 2013. As of March 31, 2013, none of the Notes have been repurchased or converted.
In accounting for the issuance of the Notes, we separated the Notes into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of a similar liability that does not have an associated convertible feature. The excess of the principal amount of the liability component over its carrying amount (“Note Discount”) is amortized to interest expense over the term of the Note. The remaining term of the Notes is approximately 2.0 years. The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the par value of the Notes as a whole. The equity component will not be remeasured as long as it continues to meet the conditions for equity classification.
In accounting for the transaction costs related to the issuance of the Notes, we allocated the total amount incurred to the liability and equity components. Transaction costs allocated to the liability component are being amortized to expense over the term of the Notes, and transaction costs allocated to the equity component were netted with the equity component in additional paid-in capital (“Note Issuance Costs”). The carrying amount of the equity component, net of transaction costs, was $56.3 million at March 31, 2013 and September 30, 2012.
The following table shows the balances associated with liability components of the Notes:
 
March 31, 2013
 
September 30, 2012
Principal amount
$
287,500

 
$
287,500

Less: Note Discount
(26,590
)
 
(32,333
)
Less: Note Issuance Costs
(2,904
)
 
(3,560
)
Senior convertible notes, net
$
258,006

 
$
251,607


11


The following table presents the interest expense recognized related to the Notes for the three and six months ended March 31, 2013 and 2012:
 
Three Months Ended March 31,
 
Six Months Ended March 31,
 
2013
 
2012
 
2013
 
2012
Contractual interest expense
$
1,797

 
$
1,797

 
$
3,594

 
$
3,594

Amortization of Note Issuance Costs
330

 
315

 
656

 
626

Accretion of Note Discount
2,897

 
2,695

 
5,743

 
5,342

 
$
5,024

 
$
4,807

 
$
9,993

 
$
9,562

Effective interest rate of the liability component
7.73
%
 
7.73
%
 
7.73
%
 
7.73
%
The net proceeds from the Notes were approximately $279.0 million after payment of the initial purchasers’ discounts and offering expenses. From these net proceeds, we used a net total of approximately $34.1 million which included $60.1 million to pay for the cost of the Note Hedges offset by proceeds of $26.1 million from our sale of Warrants (as defined and described below). These transactions are described in more detail below. We expect to continue to use the net proceeds of the Notes for general corporate purposes, including potential acquisitions and strategic transactions.
Note Hedges
To minimize the impact of potential economic dilution upon conversion of the Notes, we entered into Note Hedges with respect to our common stock. We paid $60.1 million for the Note Hedges. The Note Hedges cover approximately 5.5 million shares of our common stock at a strike price of $52.35 subject to anti-dilution adjustments, and are exercisable upon conversion of the Notes. The Note Hedges will expire upon the maturity of the Notes. The Note Hedges are intended to reduce the potential economic dilution upon conversion of the Notes in the event that the market value per share of our common stock, as measured under the Notes, at the time of exercise is greater than the conversion price of the Notes.
Warrants
Separately, we entered into warrant transactions, whereby we sold warrants to acquire up to 5.5 million shares of our common stock at a strike price of $73.29 per share (“Warrants”), subject to anti-dilution adjustments. The Warrants will expire upon the maturity of the Notes. We received proceeds of $26.1 million from the sale of the Warrants. If the market value per share of our common stock, as measured under the Warrants, exceeds the strike price of the Warrants, the Warrants will have a dilutive effect on our net income per share.
Note 10. Income Taxes
We base the provision for income taxes in our interim consolidated financial statements on estimated annual effective tax rates in the tax jurisdictions where we operate. We monitor the assumptions used in estimating the annual effective tax rate and make adjustments, if required, throughout the year. If actual results differ from the assumptions used in estimating our annual effective income tax rate, future income tax expense could be materially affected. For the three and six months ended March 31, 2013, our effective tax rate of 7.9% differs from the U.S. federal statutory rate primarily due to losses in tax jurisdictions where we are not able to record a tax benefit, losses in tax jurisdictions where we have recorded a valuation allowance on deferred tax assets, revaluation of the contingent consideration, which does not impact taxable income, and expenses not deductible for tax purposes, partially offset by the recognition of a tax benefit resulting from legislation enacted January 2, 2013 retroactively reinstating the research and development tax credit and earnings in lower-tax jurisdictions for which no U.S. taxes have been provided because such earnings are planned to be reinvested indefinitely outside the United States, measured against a pretax loss for the year.
For the three and six months ended March 31, 2012, our effective tax rate of 469.8% and 890.1%, respectively, varied from the U.S. federal statutory rate primarily due to the relative mix of earnings or losses within the tax jurisdictions in which we operate, losses in tax jurisdictions where we were not able to record a tax benefit, as well as various book expenses that were not deductible for tax purposes.
We are subject to income taxes in the United States and numerous foreign jurisdictions. The overall effective tax rate will continue to be dependent upon the geographic distribution of our earnings or losses and changes in tax laws or interpretations of these laws in these operating jurisdictions. We monitor the assumptions used in estimating the annual effective tax rate and make adjustments, if required, throughout the year. If actual results differ from the assumptions used in estimating our annual income tax rates, future income tax expense could be materially affected.
We measure and recognize uncertain tax positions. To recognize such positions, we first determine if it is more likely than not that the position will be sustained on audit. We then measure the benefit as the largest amount that is more than 50% likely

12


of being realized upon ultimate settlement. We do not believe that it is reasonably possible that the estimates of unrecognized tax benefits will change significantly in the next twelve months. Tax positions for Concur and its subsidiaries are subject to income tax audits by multiple tax jurisdictions throughout the world. An adverse resolution of one or more uncertain tax positions in any period could have a material impact on the results of operations for that period.
Note 11. Share-based Compensation
Our 2007 Equity Incentive Plan (“Equity Plan”) provides for grants of restricted stock, stock options, stock bonuses, stock appreciation rights, and restricted stock units (“RSUs”). During the second quarter of 2013, our Equity Plan was amended and restated to increase the shares of common stock reserved under our Equity Plan by 4.6 million. As of March 31, 2013, we had 5.4 million shares of common stock reserved for future grants under our Equity Plan. Based on our Equity Plan design, the 5.4 million shares of common stock equates to approximately 3.6 million RSUs reserved for future grants, which we generally use as long-term employee incentive and retention tools.
Our share-based awards generally vest over four years and are subject to the employee's continued employment with Concur. The vesting of certain RSUs is subject to the achievement of specified Company-wide performance goals. On a quarterly basis, we estimate the probability of achieving (including estimating the level of achievement) specified performance goals to determine the probable number of RSUs that may ultimately vest. We adjust our estimate on a quarterly basis, if necessary, until the achievement of the performance goals is known at the end of the measurement period. The amount of share-based compensation recognized in each reporting period can vary based on the level of achievement, if any, or expected level of achievement based on the specified performance goals. We also estimate forfeiture rates at the time of grants and revise the estimates in subsequent periods if actual forfeitures differ from our estimates. We record share-based compensation net of estimated forfeitures.
During the three months ended December 31, 2012, certain senior executives received RSU grants that will vest based on Company-wide performance goals and service conditions ("2013 Performance-based RSUs). The number of 2013 Performance-based RSUs shall be determined based on the achievement of Company-wide goals for fiscal 2013. In order to vest, the low end of the predetermined Company-wide goals must be met. Further, the number of 2013 Performance-based RSUs is determined based on the level of achievement. Therefore, participants in the 2013 Performance-based RSUs may receive a range of 0 shares to approximately 0.5 million shares depending on the actual level of achievement. No additional performance-based RSUs were granted during the three months ended March 31, 2013.
The following table presents our share-based compensation resulting from equity awards that we recorded in our consolidated statements of operations:
 
Three Months Ended March 31,
 
Six Months Ended March 31,
 
2013
 
2012
 
2013
 
2012
Cost of operations
$
1,492

 
$
1,083

 
$
4,061

 
$
2,678

Sales and marketing
6,545

 
4,786

 
14,985

 
10,927

Systems development and programming
1,643

 
763

 
3,607

 
1,994

General and administrative
4,038

 
3,200

 
8,794

 
5,947

Total share-based compensation
$
13,718

 
$
9,832

 
$
31,447

 
$
21,546

The following table presents our stock option activity for the six months ended March 31, 2013:
 
Shares
 
Weighted
Average
Exercise Price
 
Weighted
Average
Remaining
Contractual
Term
 
Aggregate
Intrinsic
Value
Outstanding as of September 30, 2012
627

 
$
11.98

 
 
 
 
Exercised
(133
)
 
10.65

 
 
 
 
Forfeited or expired

 

 
 
 
 
Outstanding as of March 31, 2013
494

 
12.34

 
2.27

 
$
27,821

Exercisable as of March 31, 2013
494

 
$
12.34

 
2.27

 
$
27,821

The following table presents a summary of RSU award activity for the six months ended March 31, 2013:

13


 
Shares
 
Weighted
Average Share
Value
Outstanding as of September 30, 2012
2,954

 
$
49.32

Granted (1)
342

 
67.21

Vested and released
(872
)
 
44.67

Cancelled
(48
)
 
47.21

Outstanding as of March 31, 2013
2,376

 
$
53.64

(1) Includes 2013 Performance-based RSUs granted during the period.
As of March 31, 2013, we had $67.5 million of unrecognized share-based compensation, net of estimated forfeitures, which is expected to be recognized over a weighted average period of 1.6 years.
Note 12. Fair Value Measurements
The accounting guidance for fair value measurements establishes a three-tier fair value hierarchy, categorizing the inputs used to measure fair value.
The hierarchy can be described as follows:
Level 1 - observable inputs such as quoted prices in active markets;
Level 2 - inputs other than the quoted prices in active markets that are observable either directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and
Level 3 - unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions. The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
Assets and liabilities recognized or disclosed at fair value in our consolidated financial statements on a nonrecurring basis include items such as property and equipment, cost and equity method investments, and other assets. These assets are measured at fair value if determined to be impaired. The fair values of these investments are determined based on valuation techniques using the best information available, and may include quoted market prices, market comparables, and discounted cash flow projections. An impairment charge is recorded when the cost of the investment exceeds its fair value and this condition is determined to be other-than-temporary.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
We have highly liquid investments classified as cash equivalents and short-term investments included in our consolidated balance sheets. Cash equivalents consist of financial instruments that have original maturities of 90 days or less. Short-term investments consist of financial instruments with maturities greater than 90 days, but generally mature in less than one year.
Our financial assets and liabilities measured at fair value as of March 31, 2013, are summarized below:
 
Fair Value Measurement Using
 
Assets/Liabilities at Fair Value
 
Level 1
 
Level 2
 
Level 3
 
Assets:
 
 
 
 
 
 
 
Cash equivalents (1):
 
 
 
 
 
 
 
Time deposits
$
26,599

 
$

 
$

 
$
26,599

Commercial paper

 
113,073

 

 
113,073

Total cash and cash equivalents
26,599

 
113,073

 

 
139,672

Short-term investments:
 
 
 
 
 
 
 
Commercial paper

 
119,033

 

 
119,033

Certificates of deposit

 
90,409

 

 
90,409

Other fixed income securities

 
32,382

 

 
32,382

Total short-term investments

 
241,824

 

 
241,824

Liabilities:
 
 
 
 
 
 
 
Acquisition-related contingent consideration
$

 
$

 
$
28,962

 
$
28,962


14


(1) Included in cash and cash equivalents in the consolidated balance sheets as of March 31, 2013, in addition to $84.8 million of cash.
Our financial assets and liabilities measured at fair value as of September 30, 2012, are summarized below:
 
Fair Value Measurement Using
 
Assets/Liabilities at Fair Value
 
Level 1
 
Level 2
 
Level 3
 
Assets:
 
 
 
 
 
 
 
Cash equivalents (1):
 
 
 
 
 
 
 
Time deposits
$
45,323

 
$

 
$

 
$
45,323

Commercial paper

 
136,072

 

 
136,072

Other fixed income securities

 
7,074

 

 
7,074

Total cash and cash equivalents
45,323

 
143,146

 

 
188,469

Short-term investments:
 
 
 
 
 
 
 
Commercial paper

 
86,963

 

 
86,963

Certificates of deposit

 
79,503

 

 
79,503

Other fixed income securities

 
34,596

 

 
34,596

Total short-term investments

 
201,062

 

 
201,062

Liabilities:
 
 
 
 
 
 
 
Acquisition-related contingent consideration
$

 
$

 
$
22,692

 
$
22,692

(1) Included in cash and cash equivalents in the consolidated balance sheets as of September 30, 2012, in addition to $113.8 million of cash.
Our valuation techniques used to measure the fair values of our financial instruments that were classified as Level 1 in the table above were derived from quoted market prices as active markets for these instruments exist. Our valuation techniques used to measure the fair values of our financial instruments that were classified as Level 2 in the table above were derived from the following: non-binding market consensus prices that are corroborated by observable market data and quoted market prices for similar instruments.
Acquisition-related Contingent Consideration
We estimate the fair value of acquisition-related contingent consideration using various valuation approaches including the Monte Carlo Simulation approach and the probability-weighted discounted cash flow approach. Acquisition-related contingent consideration liabilities are classified as Level 3 liabilities, because we use unobservable inputs to value them, reflecting our assessment of the assumptions market participants would use to value these liabilities. Changes in the fair value of contingent consideration are recorded as income or expense in the consolidated statements of operations.
TripIt Contingent Consideration
On January 24, 2011, we completed the acquisition of TripIt, Inc. (“TripIt”). As part of the TripIt acquisition, we agreed to pay contingent cash consideration of up to $38.3 million to the former shareholders of TripIt on the 30 month anniversary of the closing or at such earlier time as specified in the acquisition agreement (the “Top-Up Payment Date”). If, on the Top-Up Payment Date, the value of the consideration issued at the closing (the “Market Value”) is less than approximately $82.1 million or $100.90 per share (the “Guaranteed Value”), subject to adjustments, we will make a payment to such holders in an aggregate amount equal to the difference between the Guaranteed Value and the Market Value (the “Top-Up Payment”), subject to certain limited exceptions. Such right to receive the Top-Up Payment will terminate in the event the value of the shares paid at closing increases by approximately $38.3 million to $100.90 per share at any time prior to the Top-Up Payment Date. If shares were sold or transferred before the Top-Up Payment Date, such holders will not be eligible to receive a Top-Up Payment. In addition, certain former shareholders that became employees of Concur will not be eligible to receive a Top-Up Payment if these employees terminate employment with Concur prior to the required service period. As of March 31, 2013, the potential undiscounted amount of the payment that we could be required to make on the Top-Up Payment Date is between $0 and approximately $38.3 million. As of September 30, 2012, the potential undiscounted amount of the payment that we could be required to make on the Top-Up Payment Date was between $0 and approximately $38.3 million.
Changes in the TripIt contingent consideration since the acquisition date were recorded in the consolidated statements of operations. On a quarterly basis, we re-measure the fair value of the contingent consideration and any changes are recorded in the consolidated statements of operations as revaluation of contingent consideration or compensation expense.

15


The fair value of the contingent consideration was estimated using the Monte Carlo Simulation approach, which utilizes certain inputs that are unobservable in the market. Key inputs include the expected term, risk free rate, stock price, volatility of our stock, and the strike price of $100.90. A volatility of 29% and 42% was used to calculate the fair value of the contingent consideration as of March 31, 2013 and September 30, 2012, respectively. Volatility is considered a significant assumption and is based on our historical stock price. Also, the fair value of the contingent consideration is significantly impacted by the changes in our stock price. If our stock price increases (decreases) significantly, the fair value of the contingent consideration will decrease (increase) accordingly. The contingent consideration was included in the current acquisition-related contingent consideration on our consolidated balance sheets.
The following table presents a reconciliation of TripIt contingent consideration liability measured at fair value using significant unobservable inputs (Level 3) as of March 31, 2013:
Balance as of September 30, 2012
$
22,692

Total losses:
 
     Recorded as revaluation of contingent consideration
2,132

     Recorded as compensation expense
1,075

Balance as of March 31, 2013
$
25,899

The following table presents a reconciliation of TripIt contingent consideration liability measured at fair value using significant unobservable inputs (Level 3) as of March 31, 2012:
Balance as of September 30, 2011
$
30,972

Total (gains) and losses:
 
    Recorded as revaluation of contingent consideration
(4,070
)
    Recorded as compensation expense
1,914

Balance as of March 31, 2012
$
28,816

GlobalExpense Contingent Consideration
In the fourth quarter of 2011, we completed the acquisition of GlobalExpense Limited (“GlobalExpense Acquisition”). As part of the GlobalExpense Acquisition, we agreed to pay additional cash consideration totaling up to £2.0 million (USD $3.2 million), based on the achievement of certain revenue targets through September 30, 2012. We re-measured the fair value of the contingent consideration each reporting period through September 30, 2012, based on GlobalExpense’s achievement of revenue targets. The change in fair value of contingent consideration was recorded in the consolidated statements of operations. The fair value of the contingent consideration was estimated by applying a probability-weighted discounted cash flow approach, which utilized significant inputs that are unobservable in the market. Key assumptions included a weighted probability of achieving certain revenue targets through September 30, 2012 at each reporting period. As of September 30, 2012, the revenue targets were fully met. Total contingent consideration of £2.0 million (USD $3.2 million) was recorded as acquisition-related liabilities in the consolidated balance sheets as of September 30, 2012, which was paid during the three months ended March 31, 2013.
The following table presents a reconciliation of the contingent consideration measured at fair value using significant unobservable inputs (Level 3) as of March 31, 2012:
Balance as of September 30, 2011
$
2,517

Total losses:
 
     Recorded as revaluation of contingent consideration
493

     Foreign currency translation
73

Balance as of March 31, 2012
$
3,083

ConTgo Contingent Consideration
As part of the acquisition of conTgo, we agreed to pay additional cash consideration of up to £3.5 million (USD $5.3 million) to the former conTgo shareholders based on the achievement of certain revenue targets for the period beginning July 1, 2013 and ending June 30, 2014. The fair value of the contingent consideration was estimated by applying a probability-weighted discounted cash flow approach, which utilizes significant inputs that are unobservable in the market. Key assumptions include our assessment of the weighted probability of achieving certain revenue targets at each reporting period.
The following table presents a reconciliation of the conTgo contingent consideration based on the preliminary purchase price allocation and measured at fair value using significant unobservable inputs (Level 3) as of March 31, 2013:

16


Balance as of September 30, 2012
$

Contingent consideration issued at business combination
3,049

Total losses:
 
     Foreign currency translation
14

Balance as of March 31, 2013
$
3,063

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
During the three and six months ended March 31, 2013 and 2012, we did not record any other-than-temporary impairments on those assets required to be measured at fair value on a nonrecurring basis.
Other Fair Value Disclosures
The fair value of the Notes is estimated using Level 2 inputs based on quoted market prices in markets that are not active. The fair value of the Notes is primarily affected by our stock price and also subject to interest. As of March 31, 2013, the carrying amount and fair value of the Notes were $258.0 million and $405.2 million, respectively. As of September 30, 2012, the carrying amount and fair value of the Notes were $251.6 million and $438.0 million, respectively.
Note 13. Equity
The following table shows the changes in equity attributable to both Concur and the noncontrolling interest in our consolidated subsidiary in which we have control, but not total ownership interest.
 
Attributable to
Concur
 
Noncontrolling
Interest
 
Total Equity
Equity at September 30, 2012
$
740,492

 
$
581

 
$
741,073

Comprehensive income (loss):
 
 
 
 
 
Net loss
(19,677
)
 
(494
)
 
(20,171
)
Foreign currency translation adjustments
(2,151
)
 
(55
)
 
(2,206
)
Unrealized loss on available-for-sale investments, net of tax
(32
)
 

 
(32
)
Comprehensive loss
(21,860
)
 
(549
)
 
(22,409
)
Share-based transactions and compensation expense
16,395

 

 
16,395

Repurchase of common stock
(201
)
 

 
(201
)
Equity at March 31, 2013
$
734,826

 
$
32

 
$
734,858

 
 
 
 
 
 
 
Attributable to
Concur
 
Noncontrolling
Interest
 
Total Equity
Equity at September 30, 2011
$
698,655

 
$
1,176

 
$
699,831

Comprehensive income (loss):
 
 
 
 
 
Net loss
(5,706
)
 
(204
)
 
(5,910
)
Foreign currency translation adjustments
(151
)
 
(76
)
 
(227
)
Unrealized gain on available-for-sale investments, net of tax
42

 

 
42

Comprehensive loss
(5,815
)
 
(280
)
 
(6,095
)
Share-based transactions and compensation expense
15,615

 

 
15,615

Repurchase of common stock
(1,224
)
 

 
(1,224
)
Equity at March 31, 2012
$
707,231

 
$
896

 
$
708,127

Note 14. Geographic Data
We operate in and report on one segment, which is integrated travel and expense management solutions.
For the three and six months ended March 31, 2013 and 2012, no single customer accounted for more than 10% of our total revenues. The following table presents our revenues by geographic region:

17


 
Three Months Ended March 31,
 
Six Months Ended March 31,
 
2013
 
2012
 
2013
 
2012
United States
$
107,725

 
$
91,568

 
$
211,116

 
$
176,405

Europe
14,163

 
12,857

 
28,390

 
24,585

Other
5,482

 
3,969

 
10,662

 
7,788

Total revenues
$
127,370

 
$
108,394

 
$
250,168

 
$
208,778

Note 15. Contingencies
Product Warranty and Indemnification Obligations
We provide services and software solutions to our customers under sales contracts, which usually include a limited warranty regarding product and service performance and a limited indemnification of customers against losses, expenses and liabilities from damages that may be awarded against them if our services or software are found to infringe upon a patent, copyright, trademark, or other proprietary right of a third party. The contracts generally limit the scope of and remedies for such indemnification obligations in a variety of industry-standard respects. We also enter into similar limited indemnification terms in agreements with certain strategic business partners and vendors. To date, we have experienced minimal warranty claims and have not had significant reimbursements to any customers for any losses related to the limited indemnification described above.
Legal Matters
From time to time we are involved in legal proceedings that arise in the ordinary course of our business. Any such proceedings, whether meritorious or not, could be time consuming, costly, and result in the diversion of significant operational resources or management time.
Although the outcomes of legal proceedings are inherently difficult to predict, we are not currently involved in any legal proceeding in which the outcome, in our judgment based on information currently available, is likely to have a material adverse effect on our business or financial position.
ITEM 2.     MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Our Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) provides information that we believe is relevant to an assessment and understanding of our results of operations and financial condition. This discussion should be read in conjunction with the Financial Statements and Notes to Consolidated Financial Statements that are included in Item 1 of this report. Also, the discussion of “Critical Accounting Policies and Estimates” in this section is an integral part of the analysis of our results of operations and financial condition.
Throughout this MD&A, we refer to Concur Technologies, Inc. as “Concur,” the “Company,” “we,” “us” and “our.” We report our operating results on a fiscal year basis that starts October 1 and ends September 30. We refer to our fiscal years ended September 30, 2011, 2012 and 2013, as “2011,” “2012” and “2013.” Throughout this MD&A, where we provide discussion of the three and six months ended March 31, 2013, and we provide data for the same period in the prior year, we refer to the prior period as “2012.” All dollar, option and share amounts are reported in thousands, unless otherwise noted.
Special Note Regarding Forward-Looking Statements
This document contains forward-looking statements regarding our plans, objectives, expectations, intentions, future financial performance, future financial condition, and other statements that are not historical facts. These statements can be identified by our use of the future tense, or by forward-looking words such as “may,” “will,” “expect,” “anticipate,” “believe,” “intend,” “estimate,” “continue” and other similar words and phrases. These forward-looking statements involve many risks and uncertainties, described in Item 1A, Risk Factors, of Part II, as well as in our other filings with the Securities and Exchange Commission (“SEC”). The occurrence of any of these risks and uncertainties may cause our actual results to differ materially from those anticipated in our forward-looking statements, which could have a material adverse effect on our business, results of operations, and financial condition. All forward-looking statements included in this report are based on information available to us as of the date of this report. We undertake no obligation to revise or update any such forward-looking statements for any reason.
Overview
We are a leading provider of integrated travel and expense management solutions for companies of all industries, sizes and geographies. Our core mission is to reduce costs for our customers and enhance the user experience for their business

18


travelers by leveraging our continuous innovation. Our easy-to-use cloud computing solutions help companies and their employees control costs, save time, and boost productivity by streamlining the expense management, travel procurement, itinerary management, and invoice management processes. By capturing and reporting on activity throughout the travel and expense management process, our solutions provide detailed information to help customers effectively negotiate with vendors, create budgets, and manage compliance. By providing easy-to-use mobile solutions, we help make business travel easier and more productive for our customers' employees. Our solutions adapt to individual employee preferences, while scaling to meet the needs of companies from small to large.
Our strategic focus in 2013 is to continue to grow our core subscription business and to reduce our cost of deploying and operating our services as a percentage of revenue. We expect our subscription revenues to increase in 2013 compared to 2012 due to anticipated growth in demand and global expansion. We expect total sales and marketing expenses in 2013 to increase in absolute dollars compared to 2012, driven primarily by an increase in sales personnel and marketing programs globally.
We operate in and report on one segment, which is integrated travel and expense management solutions.
Revenues
Revenues. Revenues consist primarily of fees paid for subscription services. To a much lesser degree, revenues also include the amortization of set-up fees paid to us in connection with subscription services and consulting services. Revenues are affected by pricing, the number of new customers, customer contract durations, and our customer retention rate.
International Revenues. Revenues from customers outside the United States represented 15% and 16% of total revenues for the three and six months ended March 31, 2013, respectively, compared to 16% for the same periods in the prior year. We expect continued growth in our international revenues, as our products and services continue to gain acceptance in international markets due to our investment in global distribution and increased global awareness of our products.
Operating Expenses
Cost of Operations. Cost of operations consists primarily of personnel costs and related expenses (including share-based compensation), and allocated overhead and infrastructure costs (including depreciation, occupancy, telecommunications, and computer equipment expenses) associated with employees and contractors who provide our subscription and consulting services. Cost of operations also includes hosting costs and amortization of deferred set-up costs that we incur in connection with our subscription services.
Sales and Marketing. Sales and marketing expenses consist of personnel costs (including sales commissions) and related expenses (including share-based compensation), referral fees, allocated overhead and infrastructure costs associated with our sales and marketing employees and contractors, and other sales and marketing costs, such as advertising, trade shows and other promotional activities.
Systems Development and Programming. Systems development and programming expenses consist of personnel costs and related expenses (including share-based compensation), and allocated overhead and infrastructure costs associated with employees and contractors engaged in software engineering, program management, and quality assurance.
General and Administrative. General and administrative expenses consist of personnel costs and related expenses (including share-based compensation), and allocated overhead and infrastructure costs associated with employees and contractors in accounting, finance, human resources, information technologies, legal, and facilities, as well as miscellaneous costs, such as professional fees and public company regulatory compliance costs.
Revaluation of Contingent Consideration. Revaluation of contingent consideration consists of changes in the fair value of our acquisition-related contingent consideration liability that is not subject to a continued employment requirement. The changes in the fair value of the contingent consideration subject to the continued employment requirement are recognized as compensation expense. We re-measure this contingent consideration each quarter, with any changes in the fair value recorded as income or expense.
Amortization of Intangible Assets. Amortization of intangible assets represents the amortization of the intangible assets from acquisitions. We amortize our intangible assets as non-cash charges to operations over an expected useful life which is consistent with the timing and level of expected cash flows attributed to customer relationships, use of acquired technology, and trade names and trademarks.
Results of Operations
Three Months Ended March 31, 2013 and 2012
Revenues

19


 
Three Months Ended March 31,
 
Variance
Dollars
 
2013
 
2012
 
Revenues
$
127,370

 
$
108,394

 
$
18,976

 
Three Months Ended March 31,
 
2013
 
%
 
2012
 
%
United States
$
107,725

 
84.6
%
 
$
91,568

 
84.4
%
Europe
14,163

 
11.1
%
 
12,857

 
11.9
%
Other
5,482

 
4.3
%
 
3,969

 
3.7
%
Total revenues
$
127,370

 
100
%
 
$
108,394

 
100
%
Revenues increased by 17.5%, or $19.0 million, for the three months ended March 31, 2013, compared to the same period in the prior year. This increase was primarily due to growth in the number of customers for our subscription services as well as higher transaction volumes. The growth in the number of customers for our subscription services reflects higher market demand for our subscription services and high rates of retention of existing subscription customers. We believe this demand reflects the market’s growing awareness of our integrated travel and expense management solutions and the increasing acceptance of outsourced services.
We expect revenues to continue to grow in 2013 as a result of the growing demand for our subscription service offerings, our planned increase in spending on sales and marketing, and international expansion.
Cost of Operations
 
Three Months Ended March 31,
 
Variance
Dollars
 
2013
 
2012
 
Cost of operations
$
36,564

 
$
30,285

 
$
6,279

Percent of total revenues
28.7
%
 
27.9
%
 
 
Cost of operations increased by 20.7%, or $6.3 million, for the three months ended March 31, 2013, compared to the same period in the prior year. The growth in absolute dollars was primarily due to an increase in personnel costs and related expenses of $3.4 million, driven by increased headcount of approximately 40% to support our growing customer base. Additionally, initial set up costs, which we incur and then amortize in connection with our subscription services, increased by $1.2 million. Further, allocated overhead and infrastructure costs increased by $1.3 million.
We expect cost of operations to trend downward as a percentage of total revenues over the long term as the incremental cost to deploy and support each new customer is expected to decrease due to economies of scale anticipated in our subscription service model infrastructure. We anticipate that cost of operations will continue to increase in absolute dollars in 2013 as we continue to expand our capacity to deploy and support additional new customers.
Sales and Marketing
 
Three Months Ended March 31,
 
Variance
Dollars
 
2013
 
2012
 
Sales and marketing
$
55,518

 
$
41,878

 
$
13,640

Percent of total revenues
43.6
%
 
38.6
%
 
 
Sales and marketing expenses increased by 32.6%, or $13.6 million, for the three months ended March 31, 2013, compared to the same period in the prior year. The growth in absolute dollars was primarily due to an increase in personnel costs and related expenses of $8.1 million, resulting from a headcount increase of approximately 40% to continue adding new customers and increasing penetration within our existing customer base. Additionally, share-based compensation increased by $1.8 million, resulting from the issuance of share-based awards to employees. Further, customer acquisition costs and amortization of those costs increased by $2.4 million, advertising costs increased by $1.1 million, and allocated overhead and infrastructure costs increased by $0.8 million, each as compared to the same period in the prior year.
We expect total sales and marketing expenses in 2013 to increase in absolute dollars compared to 2012, driven primarily by an increase in sales personnel and marketing programs globally. These increases reflect key elements of our 2013 strategic focus of expanding our sales and marketing efforts to create greater awareness of our subscription services in our target markets and to support expected demand.

20


Systems Development and Programming
 
Three Months Ended March 31,
 
Variance
Dollars
 
2013
 
2012
 
Systems development and programming
$
13,799

 
$
10,024

 
$
3,775

Percent of total revenues
10.8
%
 
9.2
%
 
 
Systems development and programming costs increased by 37.7%, or $3.8 million, for the three months ended March 31, 2013, compared to the same period in the prior year. The growth in absolute dollars was primarily due to an increase in personnel costs and related expense of $1.8 million, driven by increased headcount of approximately 30% to upgrade and extend our service offerings and develop new technologies. Additionally, share-based compensation increased by $0.9 million, resulting from the issuance of share-based awards to employees. Further, allocated overhead and infrastructure costs increased by $1.2 million.
In response to the demand for our subscription services, the majority of our systems development resources are focused on developing internal-use software used to provide these services to our customers. We capitalize costs in accordance with accounting principles generally accepted in the United States (“GAAP”) for software developed or obtained for internal use and amortize it over its estimated useful life. Capitalized internal-use software costs, net of amortization, increased $2.0 million, from $39.5 million at December 31, 2012, to $41.5 million at March 31, 2013.
We anticipate that systems development and programming costs in 2013 will increase in absolute dollars compared to 2012 as we continue to focus on product innovation and enhancement.
General and Administrative
 
Three Months Ended March 31,
 
Variance
Dollars
 
2013
 
2012
 
General and administrative
$
20,280

 
$
16,577

 
$
3,703

Percent of total revenues
15.9
%
 
15.3
%
 
 
General and administrative expenses increased by 22.3%, or $3.7 million, for the three months ended March 31, 2013, compared to the same period in the prior year. The growth in absolute dollars was primarily due to an increase of $1.3 million in personnel costs and related expenses, driven by a headcount increase of approximately 30% to support our growth, and a $0.8 million increase in share-based compensation, resulting from the issuance of share-based awards issued to employees. Additionally, infrastructure costs increased by $0.6 million as we continue to facilitate our growth, and professional fees increased by $1.2 million mainly as a result of acquisitions, litigation and other related costs.
We expect the absolute dollar amount of general and administrative expenses to continue to increase in 2013 compared to 2012 due to increases in personnel costs and infrastructure related to the growth of our business.
Revaluation of Contingent Consideration
 
Three Months Ended March 31,
 
Variance
Dollars
 
2013
 
2012
 
Revaluation of contingent consideration
$
(677
)
 
$
(1,138
)
 
$
461

Percent of total revenues
(0.5
)%
 
(1.0
)%
 
 
Revaluation of contingent consideration consisted of a gain of $0.7 million primarily relating to the acquisition of TripIt for the three months ended March 31, 2013 compared to a gain of $1.1 million for same period in the prior year. The change in inputs applied to the valuation of contingent consideration, including the change in our stock price and stock volatility, resulted in the revaluation gains or losses of the contingent consideration.
Amortization of Intangible Assets
 
Three Months Ended March 31,
 
Variance
Dollars
 
2013
 
2012
 
Amortization of intangible assets
$
4,539

 
$
4,634

 
$
(95
)
Percent of total revenues
3.6
%
 
4.3
%
 
 
Amortization of intangible assets remained consistent for the three months ended March 31, 2013 compared to the same period in the prior year.

21


Interest Income, Interest Expense, Loss from Equity Investments and Other
 
Three Months Ended March 31,
 
Variance
Dollars
 
2013
 
2012
 
Interest income
$
490

 
$
530

 
$
(40
)
Interest expense
(5,128
)
 
(4,807
)
 
(321
)
Loss from equity investments
(767
)
 
(570
)
 
(197
)
Other, net
(473
)
 
55

 
(528
)
Total other expense, net
$
(5,878
)
 
$
(4,792
)
 
$
(1,086
)
We record equity method adjustments in gains (losses) from equity investments in our consolidated statements of operations. Equity method adjustments primarily include our proportionate share of investee income or loss, adjustments to recognize certain differences between our carrying value and our equity in the investee's net assets at the date of investment, impairments, and other adjustments required by the equity method.
Interest expense primarily consists of interest on the Notes that we issued in April 2010. Foreign currency transaction gains (losses) are included in the consolidated statements of operations under other income (expense).
Income Tax Expense
 
Three Months Ended March 31,
 
Variance
Dollars
 
2013
 
2012
 
Income tax expense (benefit)
$
(678
)
 
$
6,305

 
$
(6,983
)
Effective tax rate
7.9
%
 
469.8
%
 
 
For the three months ended March 31, 2013, our effective tax rate of 7.9% differs from the U.S. federal statutory rate primarily due to losses in tax jurisdictions where we are not able to record a tax benefit, losses in tax jurisdictions where we have recorded a valuation allowance on deferred tax assets, income from the revaluation of the contingent consideration, which is not subject to taxes and expenses not deductible for tax purposes, partially offset by the recognition of a tax benefit resulting from legislation enacted January 2, 2013 retroactively reinstating the research and development tax credit and earnings in lower-tax jurisdictions for which no U.S. taxes have been provided because such earnings are planned to be reinvested indefinitely outside the United States, measured against a pretax loss for the year.
For the three months ended March 31, 2012, our effective tax rate of 469.8% varies from the U.S. federal statutory rate primarily due to the relative mix of earnings or losses within the tax jurisdictions in which we operate, losses in tax jurisdictions where we were not able to record a tax benefit, as well as various book expenses which were not deductible for tax purposes.
We are subject to income taxes in the United States and numerous foreign jurisdictions. The overall effective tax rate will continue to be dependent upon the geographic distribution of our earnings or losses and changes in tax laws or interpretations of these laws in these operating jurisdictions. We monitor the assumptions used in estimating the annual effective tax rate and make adjustments, if required, throughout the year. If actual results differ from the assumptions used in estimating our annual income tax rates, future income tax expense could be materially affected.
We measure and recognize uncertain tax positions. To recognize such positions, we first determine if it is more likely than not that the position will be sustained on audit. We then measure the benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement. We do not believe that it is reasonably possible that the estimates of unrecognized tax benefits will change significantly in the next twelve months. Tax positions for Concur and its subsidiaries are subject to income tax audits by multiple tax jurisdictions throughout the world. However, an adverse resolution of one or more uncertain tax positions in any period could have a material impact on the results of operations for that period.
Six Months Ended March 31, 2013 and 2012
Revenues
 
Six Months Ended March 31,
 
Variance
Dollars
 
2013
 
2012
 
Revenues
$
250,168

 
$
208,778

 
$
41,390


22


 
Six Months Ended March 31,
 
2013
 
%
 
2012
 
%
United States
$
211,116

 
84.4
%
 
$
176,405

 
84.5
%
Europe
28,390

 
11.3
%
 
24,585

 
11.8
%
Other
10,662

 
4.3
%
 
7,788

 
3.7
%
Total revenues
$
250,168

 
100
%
 
$
208,778

 
100
%
Revenues increased by 19.8%, or $41.4 million, for the six months ended March 31, 2013, compared to the same period in the prior year. This increase was primarily due to growth in the number of customers for our subscription services as well as higher transaction volumes. The growth in the number of customers for our subscription services reflects higher market demand for our subscription services and high rates of retention of existing subscription customers. We believe this demand reflects the market’s growing awareness of our integrated travel and expense management solutions and the increasing acceptance of outsourced services.
We expect revenues to continue to grow in 2013 as a result of the growing demand for our subscription service offerings, our planned increase in spending on sales and marketing, and international expansion.
Cost of Operations
 
Six Months Ended March 31,
 
Variance
Dollars
 
2013
 
2012
 
Cost of operations
$
71,560

 
$
59,255

 
$
12,305

Percent of total revenues
28.6
%
 
28.4
%
 
 
Cost of operations increased by 20.8%, or $12.3 million, for the six months ended March 31, 2013, compared to the same period in the prior year. The growth in absolute dollars was primarily due to an increase in personnel costs and related expenses of $7.6 million, driven by increased headcount of approximately 50% to support our growing customer base. Additionally, share-based compensation increased by $1.4 million, resulting from the issuance of share-based awards to employees. Additionally, initial set-up costs that we incur and then amortize in connection with our subscription services increased by $1.2 million. Further, allocated overhead and infrastructure costs increased by $2.0 million.
We expect cost of operations to trend downward as a percentage of total revenues over the long term as the incremental cost to deploy and support each new customer is expected to decrease due to economies of scale anticipated in our subscription service model infrastructure. We anticipate that cost of operations will continue to increase in absolute dollars in 2013 as we continue to expand our capacity to deploy and support additional new customers.
Sales and Marketing
 
Six Months Ended March 31,
 
Variance
Dollars
 
2013
 
2012
 
Sales and marketing
$
110,460

 
$
82,223

 
$
28,237

Percent of total revenues
44.2
%
 
39.4
%
 
 
Sales and marketing expenses increased by 34.3%, or $28.2 million, for the six months ended March 31, 2013, compared to the same period in the prior year. The growth in absolute dollars was primarily due to an increase in personnel costs and related expenses of $16.3 million, resulting from a headcount increase of approximately 40% to continue adding new customers and increasing penetration within our existing customer base. Additionally, share-based compensation increased by $4.1 million, resulting from the issuance of share-based awards to employees. Further, customer acquisition costs and amortization of those costs increased by $4.8 million, advertising costs increased by $2.3 million, and allocated overhead and infrastructure costs increased by $1.6 million, each as compared to the same period in the prior year. This was offset by a decrease of $0.8 million in contingent consideration associated with the TripIt Acquisition that is included in compensation expense (see Note 12 to the Notes to Consolidated Financial Statements).
We expect total sales and marketing expenses in 2013 to increase in absolute dollars compared to 2012, driven primarily by an increase in sales personnel and marketing programs globally. These increases reflect key elements of our 2013 strategic focus of expanding our sales and marketing efforts to create greater awareness of our subscription services in our target markets and to support expected demand.
Systems Development and Programming

23


 
Six Months Ended March 31,
 
Variance
Dollars
 
2013
 
2012
 
Systems development and programming
$
28,026

 
$
19,747

 
$
8,279

Percent of total revenues
11.2
%
 
9.5
%
 
 
Systems development and programming costs increased by 41.9%, or $8.3 million, for the six months ended March 31, 2013, compared to the same period in the prior year. The growth in absolute dollars was primarily due to an increase in personnel costs and related expense of $4.5 million, driven by increased headcount of approximately 35% to upgrade and extend our service offerings and develop new technologies. Additionally, share-based compensation increased by $1.6 million, resulting from the issuance of share-based awards to employees. Further, allocated overhead and infrastructure costs increased by $2.3 million.
In response to the demand for our subscription services, the majority of our systems development resources are focused on developing internal-use software used to provide these services to our customers. We capitalize costs in accordance with GAAP for software developed or obtained for internal use and amortize it over its estimated useful life. Capitalized internal-use software costs, net of amortization, increased $4.9 million, from $36.6 million at September 30, 2012, to $41.5 million at March 31, 2013.
We anticipate that recognized systems development and programming costs in 2013 will increase in absolute dollars compared to 2012 as we continue to focus on product innovation and enhancement.
General and Administrative
 
Six Months Ended March 31,
 
Variance
Dollars
 
2013
 
2012
 
General and administrative
$
39,912

 
$
31,744

 
$
8,168

Percent of total revenues
16.0
%
 
15.2
%
 
 
General and administrative expenses increased by 25.7%, or $8.2 million, for the six months ended March 31, 2013, compared to the same period in the prior year. The growth in absolute dollars was primarily due to an increase of $3.1 million in personnel costs and related expenses, driven by a headcount increase of approximately 35% to support our growth, and a $2.8 million increase in share-based compensation, resulting from the issuance of share-based awards issued to employees. Additionally, professional fees increased by $1.2 million mainly as a result of acquisitions, litigation and other related costs, and infrastructure costs increased by $1.2 million as we continue to facilitate our growth.
We expect the absolute dollar amount of general and administrative expenses to continue to increase in 2013 compared to 2012 due to increases in personnel costs and infrastructure related to the growth of our business.
Revaluation of Contingent Consideration
 
Six Months Ended March 31,
 
Variance
Dollars
 
2013
 
2012
 
Revaluation of contingent consideration
$
2,132

 
$
(3,577
)
 
$
5,709

Percent of total revenues
0.9
%
 
(1.7
)%
 
 
Revaluation of contingent consideration consisted of a loss of $2.1 million primarily relating to the acquisition of TripIt for the six months ended March 31, 2013 compared to a gain of $3.6 million for same period in the prior year. The change in inputs applied to the valuation of contingent consideration, including the change in our stock price and stock volatility, resulted in the revaluation gains or losses of the contingent consideration.
Amortization of Intangible Assets
 
Six Months Ended March 31,
 
Variance
Dollars
 
2013
 
2012
 
Amortization of intangible assets
$
9,003

 
$
8,599

 
$
404

Percent of total revenues
3.6
%
 
4.1
%
 
 
Amortization of intangible assets remained consistent for the six months ended March 31, 2013 compared to the same period in the prior year.

24


Interest Income, Interest Expense, Loss from Equity Investments and Other
 
Six Months Ended March 31,
 
Variance
Dollars
 
2013
 
2012
 
Interest income
$
1,044

 
$
1,012

 
$
32

Interest expense
(10,096
)
 
(9,562
)
 
(534
)
Loss from equity investments
(1,368
)
 
(1,066
)
 
(302
)
Other, net
(561
)
 
(423
)
 
(138
)
Total other expense, net
$
(10,981
)
 
$
(10,039
)
 
$
(942
)
We record equity method adjustments in gains (losses) from equity investments in our consolidated statements of operations. Equity method adjustments primarily include our proportionate share of investee income or loss, adjustments to recognize certain differences between our carrying value and our equity in the investee's net assets at the date of investment, impairments, and other adjustments required by the equity method.
Interest expense primarily consists of interest on the Notes that we issued in April 2010. Foreign currency transaction gains (losses) are included in the consolidated statements of operations under other income (expense).
Income Tax Expense
 
Six Months Ended March 31,
 
Variance
Dollars
 
2013
 
2012
 
Income tax expense (benefit)
$
(1,735
)
 
$
6,658

 
$
(8,393
)
Effective tax rate
7.9
%
 
890.1
%
 
 
For the six months ended March 31, 2013, our effective tax rate of 7.9% differs from the U.S. federal statutory rate primarily due to losses in tax jurisdictions where we are not able to record a tax benefit, losses in tax jurisdictions where we have recorded a valuation allowance on deferred tax assets and expenses including revaluation of contingent consideration, which are not deductible for tax purposes, partially offset by the recognition of a tax benefit resulting from legislation enacted January 2, 2013 retroactively reinstating the research and development tax credit and earnings in lower-tax jurisdictions for which no U.S. taxes have been provided because such earnings are planned to be reinvested indefinitely outside the United States, measured against a pretax loss for the year.
For the six months ended March 31, 2012, our effective tax rate of 890.1% varies from the U.S. federal statutory rate primarily due to the relative mix of earnings or losses within the tax jurisdictions in which we operate, losses in tax jurisdictions where we were not able to record a tax benefit, as well as various book expenses which were not deductible for tax purposes.
We are subject to income taxes in the U.S. and numerous foreign jurisdictions. The overall effective tax rate will continue to be dependent upon the geographic distribution of our earnings or losses and changes in tax laws or interpretations of these laws in these operating jurisdictions. We monitor the assumptions used in estimating the annual effective tax rate and make adjustments, if required, throughout the year. If actual results differ from the assumptions used in estimating our annual income tax rates, future income tax expense could be materially affected.
We measure and recognize uncertain tax positions. To recognize such positions, we first determine if it is more likely than not that the position will be sustained on audit. We then measure the benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement. We do not believe that it is reasonably possible that the estimates of unrecognized tax benefits will change significantly in the next twelve months. Tax positions for Concur and its subsidiaries are subject to income tax audits by multiple tax jurisdictions throughout the world. However, an adverse resolution of one or more uncertain tax positions in any period could have a material impact on the results of operations for that period.
Liquidity and Capital Resources
Our available sources of liquidity as of March 31, 2013 consisted principally of cash, cash equivalents, and short-term investments totaling $466.3 million. Our cash, cash equivalents, and short-term investments are comprised primarily of commercial paper, certificates of deposit, fixed income securities, and time deposits.
Our cash flows were as follows:

25


 
Three Months Ended March 31,
 
Six Months Ended March 31,
 
2013
 
2012
 
$ Change
 
2013
 
2012
 
$ Change
Cash provided by (used in):
 
 
 
 
 
 
 
 
 
 
 
Operating activities
$
18,699

 
$
25,113

 
$
(6,414
)
 
$
23,748

 
$
31,470

 
$
(7,722
)
Investing activities
(5,681
)
 
(47,007
)
 
41,326

 
(81,716
)
 
(175,855
)
 
94,139

Financing activities
(19,744
)
 
(8,586
)
 
(11,158
)
 
(18,676
)
 
(8,089
)
 
(10,587
)
Operating Activities
Our operating cash inflows consist of payments received from our customers related to our subscription and other product offerings. Our operating cash outflows mainly consist of payments of compensation to employees, payments to vendors directly related to our services, related sales and marketing and administrative costs, costs of operations, systems development and programming costs, and payments for acquisition-related contingent consideration amounts in excess of those recorded as a liability on our consolidated balance sheets on the acquisition date. Net cash provided by operating activities was $18.7 million for the three months ended March 31, 2013, compared to $25.1 million for the same period in the prior year. The decrease in operating cash flows was primarily driven by the planned spending to support our global growth initiatives such as additional hirings in sales and marketing to reach prospects and customers.
Net cash provided by operating activities was $23.7 million for the six months ended March 31, 2013, compared to $31.5 million for the same period in the prior year. The decrease in operating cash flows was primarily driven by the planned spending to support our global growth initiatives and the changes in working capital accounts such as additional use of cash for the compensation related annual payout.
Investing Activities
Investing activities generally correspond with purchases, sales, and maturities of investments, cash outlays for acquisitions, strategic investments, capital expenditures including leasehold improvements and internal-use software, changes in customer funding liabilities, net of the change in restricted cash, and payments for acquisition-related contingent consideration for acquisitions accounted for under the Statement of Financial Accounting Standards (SFAS) No. 141, "Business Combinations".
Our investing activities used $5.7 million of cash for the three months ended March 31, 2013, compared to $47.0 million of cash for the same period in the prior year. The decrease in net cash outflows was primarily due to a decrease in the amount of short-term investments purchased, from $175.8 million for the three months ended March 31, 2012 to $125.7 million for the three months ended March 31, 2013. This was partially offset by the cash payments of $9.6 million made for the acquisition of conTgo during the three months ended March 31, 2013. We did not make cash payments for acquisitions or strategic investments during the three months ended March 31, 2012.
Our investing activities used $81.7 million for the six months ended March 31, 2013, compared to $175.9 million for the same period in the prior year. Net purchases of short-term investments used $32.6 million more cash during the six months ended March 31, 2012 compared to the same period in the current year. In addition, we used $67.5 million for the ADP, Inc. asset acquisition during the six months ended March 31, 2012, while during the six months ended March 31, 2013 we used $9.6 million for the acquisition of conTgo.
Financing Activities
Cash used for financing activities increased by $11.2 million for the three months ended March 31, 2013, compared to the same period in the prior year, mainly due to a $9.7 million increase in minimum tax withholding on vested restricted stock awards. In addition, we paid $2.5 million for contingent consideration relating to the GlobalExpense Acquisition during the three months ended March 31, 2013.
Cash used for financing activities increased by $10.6 million for the six months ended March 31, 2013, compared to the same period in the prior year. The increase was mainly due to a $9.6 million increase in minimum tax withholding on vested restricted stock awards and a $2.5 million contingent consideration payment relating to the GlobalExpense Acquisition, which was made during the six months ended March 31, 2013, partially offset by a year over year decrease in repurchases of common stock of $1.2 million.
Senior Convertible Notes
In March 2010, we issued the Notes, the Notes Hedges, and the Warrants for general corporate purposes, including potential acquisitions and strategic transactions. The Notes will mature on April 15, 2015, unless converted earlier. As of March 31, 2013, no Notes have been repurchased or converted. We also have not received any shares under the Notes Hedge or

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delivered cash or shares under the Warrants. For at least 20 trading days during the 30 consecutive trading day period ending on the last trading day of the quarter ended March 31, 2013, the Company’s common stock price exceeded 130% of the applicable conversion price on each applicable trading day. Accordingly, the Notes will be convertible at the holders’ option for the quarter ending June 30, 2013 and were classified as a current liability on the consolidated balance sheets as of March 31, 2013. For further information, see Note 9 of the Notes to Consolidated Financial Statements.
Stock Repurchase
Our Board of Directors previously authorized a stock repurchase program (“Repurchase Program”) that allowed us to repurchase up to 12.0 million shares of our common stock through January 2015. We may repurchase our common stock from time to time in the open market based on market conditions. During the six months ended March 31, 2013, we repurchased 3.3 shares of our outstanding common stock for a total cost of $0.2 million. There were no share repurchases for the three months ended March 31, 2013. During the three and six months ended March 31, 2012, we repurchased 13.8 shares and 26.6 shares of our outstanding common stock, respectively, for a total cost of $0.7 million and $1.2 million, respectively. As of March 31, 2013, we remain authorized to repurchase up to 7.1 million shares out of the authorized 12.0 million shares under the Repurchase Program.
We believe our cash, cash equivalents, and short-term investment amounts, as well as expected positive operating cash flows, will be sufficient to meet our anticipated cash needs for normal business operations, working capital needs, and capital expenditures for at least the next twelve months. In the longer term, or if we decide to acquire assets or businesses, we may require additional funds and may seek to raise such additional funds through private or public sales of debt or equity securities, or securities convertible or exchangeable into such securities, strategic relationships, bank debt, lease financing arrangements or other available means. There can be no assurances that any such funds will be available or, if available, will be on acceptable terms to meet our business needs. If additional funds are raised through the issuance of equity securities, stockholders may experience dilution, or such equity securities may have rights, preferences, or privileges senior to those of the holders of our common stock.
Contractual Obligations and Commercial Commitments
The following table summarizes our outstanding contractual obligations and commercial commitments as of March 31, 2013.
Years Ending September 30,
Senior Convertible
Notes, including
Interest
 
Operating
Leases
 
Purchase
Obligations
2013 (April 1, 2013, through September 30, 2013)
$
3,594

 
$
4,622

 
$
3,359

2014
7,188

 
9,691

 
7,006

2015
294,687

 
8,631

 
5,104

2016

 
8,319

 
4,218

2017

 
7,086

 
2,011

Thereafter

 
34,348

 
23

Total
$
305,469

 
$
72,697

 
$
21,721

Senior Convertible Notes
As of March 31, 2013, investors may require us to repurchase all or a portion of their Notes at a purchase price in cash equal to the full principal amount of the Notes plus any accrued and unpaid interest on or after January 15, 2015, or upon the occurrence of certain events including specified corporate events or trading. Certain conditions were satisfied in the quarter ended March 31, 2013, which makes these senior convertible notes currently convertible at the holders' option for the quarter ending June 30, 2013. For further information, see Note 9 of the Notes to Consolidated Financial Statements.
Operating Leases
We lease office space and equipment under non-cancelable operating leases. We lease our current headquarters in Redmond, Washington under an operating lease that expires on May 31, 2013.
On June 13, 2012, we entered into a lease agreement for our future corporate headquarters with Kilroy Realty, L.P. for office space located at 601 108th Avenue Northeast, Bellevue, Washington. Under this lease, which provides for an initial ten-year term with an option to renew the lease for an additional five years, we will pay approximately $3.6 million in base rent per year over the initial term of the lease, subject to an annual increase equal to three percent of the then-current base rent. The lease will expire ten years after the lease commencement date, unless renewed or extended pursuant to its terms. We plan to

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take possession of the premises in the third quarter of 2013. Amounts for both rent and common area maintenance are included in our contractual obligation in the table above.
We also lease office space in the United States in the states of Arizona, Colorado, California, Georgia, Illinois, Massachusetts, New Jersey, Texas, and Virginia, and internationally in Australia, Canada, China (Hong Kong), Czech Republic, France, Germany, India, Italy, Japan, Mexico, Netherlands, Philippines, Singapore, and the United Kingdom. We do not include amounts for certain operating expenses under these leases such as common area maintenance.
Purchase Obligations
We have future minimum purchase obligations under arrangements with third parties that are enforceable and legally binding. Future purchase obligations are related to services to support operations and sales and marketing and are based on contracted commitments.
Acquisition-related Contingent Consideration
As part of the TripIt acquisition, we agreed to pay additional cash consideration, if any, to the former stockholders of TripIt on the 30 month anniversary of the closing or at such earlier time as specified in the TripIt acquisition agreement.
As part of the acquisition of conTgo, we agreed to pay additional cash consideration to the former conTgo shareholders based on the achievement of certain revenue targets through June 30, 2014.
Please see Note 12 of the Notes to Consolidated Financial Statements for a full description of the above mentioned acquisition-related contingent consideration.
Off Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
Critical Accounting Policies and Estimates
Our discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures. We base our estimates and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances; such estimates and judgments are periodically re-evaluated. Actual results may differ materially from these estimates under different assumptions, judgments or conditions.
The estimates and judgments noted above are affected by our application of accounting policies. Our critical accounting policies are those we deem most important to the portrayal of our financial condition and results of operations, including those that require the most difficult, subjective or complex judgments. Our critical accounting policies include revenue recognition, income taxes, business combinations, contingent consideration, investments, intangible assets, and allowances for accounts receivable.
Revenue Recognition
We generate our revenues from the delivery of subscription services and, to a much lesser degree, set-up fees in connection with subscription services, and consulting services.
We recognize revenue when the following criteria have been met:
evidence of an arrangement exists;
delivery has occurred;
the fees are fixed or determinable; and
collection is considered probable.
If collection is not considered probable, we recognize revenues when the fees are collected. If the fees are not fixed or determinable, we recognize revenues when a fixed, or minimum, amount due from the customer can be determined. Accordingly, our judgment as to the probability of collection and determinability of fees may materially affect the timing of our revenue recognition and results of operations. If non-standard acceptance periods or non-standard performance criteria are required, we recognize revenue upon the expiration of the acceptance period or satisfaction of the acceptance/performance criteria, as applicable.