SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
| For the fiscal year
ended September 30, 1999 |
|
Commission File Number:
0-25137 |
CONCUR TECHNOLOGIES, INC.
(Exact name of registrant as specified in its
charter)
| Delaware |
|
91-1608052 |
|
|
(State or other
jurisdiction of
incorporation or organization) |
|
(I.R.S. Employer
Identification No.) |
6222 185th Avenue NE Redmond, Washington 98052
(Address of principal executive offices)
(425) 702-8808
(Registrant’s telephone number, including area
code)
Securities to be registered pursuant to Section 12(b) of the
Act:
None
Securities to be registered pursuant to Section 12(g) of the
Act:
Common Stock, $0.001 Par Value
(Title of Class)
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. Yes x No
¨
Indicate by check
mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained to the best of
registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. ¨
As of December 10,
1999, 22,873,018 shares of Common Stock of Registrant were outstanding. The
aggregate market value of the shares held by non-affiliates of the
Registrant (based upon the closing price of the Registrant’s Common
Stock on December 10, 1999 of $32.625 per share) was approximately $746.2
million.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of
Registrant’s definitive Proxy Statement to be filed pursuant to
Regulation 14A promulgated by the Securities and Exchange Commission under
the Securities Exchange Act of 1934, which is anticipated to be filed
within 120 days after the end of the Registrant’s fiscal year ended
September 30, 1999, are incorporated by reference in Part III
hereof.
CONCUR TECHNOLOGIES, INC.
TABLE OF CONTENTS
PART 1
Some of the
information in this document contains forward-looking statements that
involve substantial risks and uncertainties. You can identify these
statements by our use of the future tense, or by forward-looking words
such as “may,” “will,” “expect,”
“anticipate,” “believe,” “estimate” and
“continue”. You should read statements that contain these
words carefully, because they discuss our expectations about our future
performance, contain projections of our future operating results and our
future financial condition, or state other “forward-looking”
information. There may be events in the future, however, that we are not
able to predict or over which we have no control. The risk factors
listed in this document, as well as any other cautionary language in
this document, provide examples of risks, uncertainties and events that
may cause actual results to differ from what we describe in our
forward-looking statements. You should be aware that the occurrence of
any of the events described below under “Risk Factors That May
Affect Results of Operations and Financial Conditions,” or
elsewhere in this document, could have a material and adverse effect on
our business, results of operations and financial condition.
Overview
We are a leading
provider of workplace eCommerce software and services that extend
automation to employees throughout an enterprise and to partners,
suppliers and service providers in the extended enterprise. Our flagship
product, Concur eWorkplace™ (formerly EmployeeDesktop™)
integrates our suite of workplace eCommerce solutions and provides a
portal through which employees can access critical business eCommerce
information and services. The Concur eWorkplace suite is available in
three versions: licensed, application service provider (“ASP”)
and Internet outsourced. Our licensed version, which is principally
marketed to larger corporations, includes our entire suite of workplace
eCommerce solutions, consisting of corporate procurement, human
resources self service and travel and entertainment expense management.
Our ASP version, called Concur eWorkplace ASP™, is offered on a
subscription-pricing basis principally to larger corporations and
currently includes travel and entertainment expense management
functionality. Our Internet outsourced version, called Concur
eWorkplace.com™, is offered on a subscription-pricing basis,
principally for small and mid-size businesses. This version currently
includes travel and entertainment expense management and corporate
procurement funtionality. More than 275 companies worldwide,
representing over 2.1 million end-users, have licensed our
software.
We sell our
products primarily through our direct sales organization. We also have
strategic referral relationships. For example, American Express Inc., (
“American Express”) has referred to us corporate charge card
customers seeking a travel and entertainment expense management
solution. Automatic Data Processing, (“ADP”), jointly markets
our travel and entertainment expense management solution and refers
potential customers to us.
Industry Background
In response to
competitive conditions worldwide, businesses seek cost savings and
productivity gains by using enterprise applications to automate business
processes. These applications have traditionally targeted discrete
functional or department-level business processes involving relatively
few employees. However, businesses are now seeking similar applications
for employee-centric business processes including travel and
entertainment expense management, business-to-business procurement,
human resources self-service, time and attendance, and facilities
management. The emergence of the Internet and corporate intranets has
made it possible to deploy software applications that reach all
employees in the enterprise and connect the enterprise to corporate
partners, suppliers, and service providers. In addition, in contrast to
traditional client-server applications, Internet and intranet-based
applications can be deployed rapidly throughout the enterprise on a
cost-effective basis.
Customers using
our products can realize significant operating cost savings through
reduced processing costs, consolidated purchases with preferred vendors
and negotiated vendor discounts. Based on the results of the 1997
American Express Travel and Entertainment Management Process Study,
businesses using best-in-class
automation solutions that process 1,000 to 5,000 travel and entertainment
expense reports per month can achieve savings of $300,000 to $1.5
million per year in processing costs alone. American Express concluded
that corporations on average spend $36 per travel and entertainment
expense report processed, but can reduce such costs to as little as $8
through best-in-class automation.
We believe our
customers can achieve these cost savings rapidly because our products
are designed to minimize burdens on customer information technology (
“IT”) professionals and to maximize employees’ ease of
use. Our Internet and intranet-based products are designed to deploy
rapidly, scale enterprise-wide and integrate easily with an organization
’s existing IT infrastructure, enabling our customers’ IT
personnel to deliver and support solutions quickly and cost-effectively.
For example, one customer deployed Concur Expense™, our travel and
expense management application, (formerly Xpense Management Solution, or
“XMS”) to over 25,000 employees in less than 90 days, and has
since deployed Concur Expense to over 50,000 employees. Employees
readily adopt our solutions because they are easy to use, significantly
reduce unproductive time, and shorten reimbursement, fulfillment, and
processing cycles.
The Concur Solution
We are a leading
provider of workplace eCommerce software and services that extend
automation to employees throughout an enterprise and to partners,
suppliers and service providers in the extended enterprise. Our Concur
Expense, Concur Procurement™ and Concur Human Resources™
products automate the preparation, approval, processing and data
analysis of travel and entertainment expense reports,
business-to-business procurement requisitions and human resources
processes. Concur eWorkplace integrates Concur Expense, Concur
Procurement and Concur Human Resources into a suite of products and
provides a business portal through which corporate customers and third
parties can deliver other information and services to employees. We
believe that we are a leading provider of workplace eCommerce solutions
based on a combination of the number of customers we serve, the number
of applications included in our suite and the features our solutions
provide. Since 1996, we have licensed our products to more than 275
companies worldwide for use by over 2.1 million end-users.
Our products
benefit a number of constituencies within the enterprise, including
corporate management, IT professionals and employees, as well as
suppliers of corporate procurement goods and services.
Benefits for Corporate
Management
Reduced
Processing Costs. Our products can
significantly reduce the amount of labor associated with manual,
paper-based travel and entertainment expense management,
business-to-business procurement and human resources systems, by
automating the process of preparation, approval, processing and data
analysis. We believe that companies using our solutions as part of
best-in-class processes can achieve significant cost savings. According
to the American Express study, corporations on average spend $36 per
travel and entertainment expense report processed, but can reduce such
costs to as little as $8 through best-in-class automation. Similarly,
industry estimates indicate that companies typically spend in excess of
$100 to process each requisition for corporate procurement goods and
services and our own research indicates that companies typically spend
in excess of $10 for each employee-driven human resources transaction.
We believe that these estimates are typical and that enterprises using
best-in-class automation for such processes can reduce that cost to
approximately $1 to $10, depending on the type of
transaction
Improved
Supplier Management. Our products enable
customers to collect and analyze data on travel and entertainment
expenses and corporate procurement. Customers can use this data to help
consolidate purchases with preferred vendors, negotiate vendor discounts
and monitor compliance with pre-negotiated rates. We believe that the
savings from improved supplier management can be
substantial.
Improved Cash
Management. Our products enable customers to
improve their cash management positions and cash forecasting abilities
by controlling the timing of payments to suppliers and
vendors.
Improved
Employee Morale. Our products make
traditionally labor intensive and mundane tasks significantly easier to
accomplish. In this manner, our customers’ employees are able to
focus on more important and productive tasks.
Benefits for IT
Professionals
Rapid
Deployment. Our Internet and intranet-based
products are designed to be deployed rapidly within today’s
existing corporate IT infrastructures without requiring modifications to
customer systems. We offer applications configured to customer
requirements rather than solutions customized on a customer-by-customer
basis. Once installed on a customer’s Internet and/or intranet
servers, our products can reach employees enterprise-wide. For example,
one of our customers deployed Concur Expense to over 25,000 employees in
less than 90 days, and has since deployed Concur Expense to over 50,000
employees.
Enterprise-Wide Scalability. Our
products are designed to reach employees throughout the enterprise,
regardless of the organization’s size. We have licensed our
products to customers seeking to deploy to as few as 100 employees and
to as many as 200,000 employees, with the largest deployment to date
being to over 124,000 employees.
Leverage of
Existing IT Infrastructure. Because most
businesses operate in a heterogeneous computing environment, our
products are designed to interact and interoperate with a broad range of
software platforms and products, including multiple operating systems,
browsers, databases, accounting packages and major enterprise resource
planning (“ERP”) programs.
Connectivity
to Third Parties. Our products are designed
to enable enterprises to link their systems with those of their
corporate partners, suppliers and service providers, including corporate
charge card providers such as American Express, travel booking
applications providers such as GetThere.com, and suppliers such as
Office Depot and barnesandnoble.com.
Common
Technology Platform. Concur eWorkplace
provides a common user interface and a common technology platform to
integrate Concur Expense, Concur Procurement and in the future, Concur
Human Resources and other applications. The applications integrated into
Concur eWorkplace enable IT personnel to administer employee-centric
applications more easily because the data are captured in a central
database. Concur eWorkplace also enables IT personnel to deploy the
suite of software applications and updates from a central
location.
Benefits for Employees
Faster
Reimbursement and Order Fulfillment. Our
products enable businesses to reduce the time required to reimburse
employees for their travel and entertainment expenses, to fulfill
corporate procurement requisitions and to process employee-driven human
resources transactions. Features that expedite the process include
automated electronic approval routing, links to automatic deposit
systems, links with approved suppliers, on-line status updates and
automatic linking to and posting to ERP and financial applications. The
American Express study reported that the time from submission of an
expense report to reimbursement could be reduced from an average of 22
days to as few as three days using best-in-class automation
processes.
Ease of
Use. Our products contain easy-to-use
features and functions that reduce the time users spend preparing travel
and entertainment expense reports, corporate procurement purchase
requisitions and employee-driven human resources transactions. Concur
Expense uses corporate credit card information to “prepopulate
” a user’s expense report automatically based on past
experience and preferences. Concur Procurement allows reconciliation of
purchasing card transactions. Concur Human Resources’ benefits
enrollment and modeling module allows employees to perform easy
“what-if” analyses to determine their preferred combinations
of benefits and costs. Our customers’ corporate policies and
preferred suppliers can be integrated into our products, and detailed
explanations of corporate policies are available on-line. These features
reduce errors, save user time and effort and improve reconciliations. In
addition, because Concur eWorkplace integrates Concur Procurement and
Concur Expense through a common user interface, we believe it is faster
and easier for employees to learn and to use our
applications.
Benefits for
Suppliers
Lower cost of
processing orders. Our products
electronically link corporate customers with suppliers. This electronic
link allows suppliers to lower the cost of processing orders by
eliminating paper-based order and payment processing. In addition, by
distributing catalogs and product information electronically, suppliers
can decrease the cost of printing and distributing catalogs.
Ability to
reach new customers. Once a supplier has been
electronically linked to Concur Procurement, the supplier can reach new
customers as we license the applications to additional companies. In
addition, our products help companies channel their purchasing to
preferred suppliers, which can thereby increase the revenues of these
suppliers.
Strategy
Our objective is
to be a leading provider of workplace eCommerce software and services
that automate business processes among employees, partners, suppliers,
and service providers. Key elements of our strategy include the
following:
Extend
Leadership Position. We intend to extend our
leadership position in travel and entertainment expense management and
human resources self-service solutions and to leverage that position to
sell our corporate procurement product. In order to accommodate
anticipated future demand for our products, we intend to increase the
size of our direct sales and telesales organizations significantly. We
believe that expanding our sales and marketing organization will enhance
our ability to sell our products to new customers globally. We also
believe that an expanded sales force will allow us to sell new
applications to our current customers.
Expand Product
Functionality and Integration. We plan to
continue our innovation and development of advanced features and
functionality for our products. In addition, we will continue to
integrate all of our applications within the Concur eWorkplace suite so
that the features and functions are common across the
applications.
Expand Concur
Commerce Network. We plan to expand our
customers’ and their suppliers’ ability to conduct
business-to-business eCommerce transactions over the Internet through
the Concur Commerce Network which was launched in December 1999. The
Concur Commerce Network brings buyers and suppliers together through an
Internet-based electronic marketplace.
Expand our
Small and Middle-Market Presence. We intend
to expand our presence in the market for small and mid-size companies
through Concur eWorkplace.com, which was launched in October 1999.
Concur eWorkplace.com is offered on a per-employee subscription-pricing
basis to companies seeking to outsource their employee-centric business
applications. We expect that this offering will be particularly
attractive to businesses with 100-750 employees, which typically have
limited IT staff and budget resources. Concur eWorkplace.com is
currently available with Concur Expense and Concur Procurement; we
expect to add Concur Human Resources to Concur eWorkplace.com in fiscal
2001.
Extend Concur
eWorkplace ASP. We expect to extend our
outsourced offerings to large companies through Concur eWorkplace ASP,
which was launched in December 1999 and which is offered on a
subscription-pricing basis. This product enables large companies to
outsource their workplace eCommerce solutions and still configure the
application to their own specific needs in much the same way they would
have been able to configure the application if they had licensed Concur
eWorkplace and installed in on their intranet servers.
Expand
International Presence. We believe that
considerable untapped demand exists for our products outside of the
United States. For fiscal 1999, our international revenues accounted for
less than five percent of our total revenues. We intend to accelerate
our investment in international sales and marketing in an effort to
increase sales of our workplace eCommerce applications worldwide. We
also plan to localize our applications for new countries, and to add new
features and functionality to our products to accommodate accounting,
customs, currency and tax requirements of foreign
jurisdictions.
Extend
Relationships With Strategic Third Parties.
We intend to expand our relationships with existing strategic
partners and to develop additional relationships with providers of
complementary applications and products. We have developed strong
relationships with leading corporate charge card providers, payroll
processors and systems integration and consulting firms, and intend to
establish similar relationships with information technology outsourcing
companies, software developers and telecommunications providers. We
intend to integrate Concur Procurement with leading vendors to provide
our customers with greater access to those vendors. We also intend to
partner with suppliers in the human resources area, such as insurance
and 401(k) providers, to add additional features and functionality to
Concur Human Resources.
Our strategy
involves substantial risk. There can be no assurance that we will be
successful in implementing our strategy or that it will lead to
achievement of our objectives. If we are unable to implement our
strategy effectively, our business will be materially adversely
affected.
Products and Technology
Our Concur
eWorkplace suite is available in three versions:
|
·
|
Concur
eWorkplace is offered on a licensed basis and is targeted to large
companies;
|
|
·
|
Concur
eWorkplace ASP is offered on a subscription-pricing basis and is
targeted to large companies that want a configured solution offered on
an outsourced basis; and
|
|
·
|
Concur
eWorkplace.com is offered on a subscription-pricing basis and is
targeted to small and mid-size companies.
|
Our Concur
eWorkplace suite includes the following applications:
|
·
|
Concur
Expense, our market-leading travel and entertainment expense
management application;
|
|
·
|
Concur
Procurement (formerly CompanyStore), our corporate procurement
application; and
|
|
·
|
Concur Human
Resources (formerly The Seeker Workplace™), our employee and
manager self-service applications focused on human
resources.
|
Our licensed
version of Concur eWorkplace is currently available with Concur Expense,
Concur Procurement and Concur Human Resources. Concur eWorkplace ASP is
currently available with Concur Expense, and we expect to add Concur
Procurement and Concur Human Resources in fiscal 2000 and fiscal 2001,
respectively. Concur eWorkplace.com is currently available with Concur
Expense and Concur Procurement, and we expect to add Concur Human
Resources in fiscal 2001.
Substantially all
of our revenues have been derived from the sale of licenses of Concur
Expense and related services, and to a lesser degree, the sale of
licenses and services relating to Concur Human Resources. Since 1996,
more than 275 companies worldwide, representing over 2.1 million
end-users, have licensed our products. We generally offer licenses for
Concur eWorkplace based on the number of users or employees at a given
enterprise. The typical order size for Concur eWorkplace and related
services ranges from $100,000 to $750,000, with certain transactions
that have been in excess of $1.0 million. Substantially all of our
customers to date have licensed one of the applications available within
Concur eWorkplace. We generally offer Concur eWorkplace ASP and Concur
eWorkplace.com on a per employee subscription basis. The typical monthly
fee for Concur eWorkplace ASP and Concur eWorkplace.com ranges from
approximately $10 per month to $2.50 per month per user and per
application, depending on the total number of users.
Concur eWorkplace
Concur eWorkplace
provides a common user interface to integrate Concur Expense and Concur
Procurement and provides a business portal through which corporate
customers and third parties can deliver other information and services
to employees. Concur Human Resources will be integrated into Concur
eWorkplace in fiscal 2000. Concur eWorkplace improves employee
productivity by integrating common features, such as the user interface,
applications icons, approval reminders, status updates and passwords.
Features include frequently
asked questions and helpful tips about the applications. It enables IT
personnel to easily administer employee-centric applications that are
integrated into Concur eWorkplace, because the data are captured in a
central database, eliminating the need to support, maintain and manage
multiple servers and software programs. In addition, IT personnel can
deploy the applications in our suite, and deliver updates to those
applications from a central location.
Concur eWorkplace ASP and Concur
eWorkplace.com
Concur eWorkplace
ASP and Concur eWorkplace.com provide features and benefits similar to
those of Concur eWorkplace but are offered as ASP products, and require
limited IT infrastructure and support.
Concur Commerce
Network
The Concur
Commerce Network enables customers to conduct business-to-business
eCommerce transactions over the Internet by bringing buyers and
suppliers together through an Internet-based electronic marketplace.
Connectivity to the Concur Commerce Network is currently available to
Concur eWorkplace.com customers. Connectivity to the Concur Commerce
Network will be available to customers of Concur eWorkplace and Concur
eWorkplace ASP through a software upgrade expected to be released in
fiscal 2000.
Concur Expense
Concur Expense
automates the travel and entertainment expense management process,
including report preparation, approval, processing and data
analysis.
Report
Preparation. Concur Expense includes a number
of features that facilitate report preparation for end-users. The
application uses corporate charge or credit card information to
prepopulate a user’s expense report with transaction data covering
a variety of the information required for the expense report, including
transaction date, type of expense, vendor, location, method of payment,
currency amount and foreign currency conversion. Using a graphical user
interface, employees supply additional expense-related information by
using pull-down menus. To eliminate the task of sorting receipts, Concur
Expense allows users to enter data in any order. The HotelXpert feature
of the program automates the complicated process of itemizing hotel
receipts. With each use of Concur Expense, the application retains
commonly incurred expense information and uses this information to help
complete the next expense report. Other ease-of-use features include
simple “checkbook” style input screens, the ability to create
“attendees” lists, mileage reimbursement tracking and
automatic flagging of non-compliant and incomplete entries.
Report
Approval. Concur Expense allows each
enterprise to determine how expense reports should be processed, whether
by submission to a manager for approval before processing or by
submission to the accounting department for immediate review and
payment. Once the report is submitted, the approver receives an e-mail
message containing an intranet link to Concur Expense, where all reports
awaiting approval are listed. Concur Expense can be configured to route
the report for approval based on cost center, dollar limit or other
criteria. Items that do not comply with corporate policy can be
automatically flagged for review, allowing approvers to focus on
problematic items. Approvers can reject individual line items, while
allowing the rest of the report to continue in the approval process.
Once approved, the report is automatically forwarded to the next phase
in the process or to the enterprise’s accounting department, and
the user is notified of the action.
Report
Processing. Concur Expense streamlines
back-office processing of expense reports in a number of ways. Because
all expense reports are prepared electronically, the processing
department no longer needs to check the arithmetic of each report
manually. Moreover, businesses can greatly reduce the time spent
auditing reports by choosing to audit only those reports flagged by
Concur Expense as not compliant with corporate travel and entertainment
expense policies. In addition, Concur Expense reduces the number of
status inquiries between employees and processing departments by
automatically updating the status of reports in the database, and
alerting employees via e-mail to the status of their reports. Concur
Expense allows significant time savings by automatically posting expense
report information to the enterprise’s ERP or accounting package,
eliminating the
manual re-entry of these data. Concur Expense further simplifies
processing by producing bar-coded receipt submission cover pages to
validate delivery of receipts associated with expense reports. Concur
Expense also helps companies claim reimbursement of tax credits by
tracking VAT, GST and other international taxes.
Data
Analysis. Concur Expense utilizes business
intelligence software to analyze expense data. This information can be
presented graphically in various display formats and allows travel
managers to determine total spending according to vendor, location or
other user-defined criteria. Informed by these data, managers can
analyze trends and determine methods for controlling costs or
negotiating more favorable terms with vendors. Managers can also analyze
the data to monitor compliance with corporate travel policies and
determine if policy modifications are appropriate.
|
The following
table describes significant features and potential benefits of Concur
Expense:
|
Report Preparation
| Features
Prepopulates report with corporate credit card
transactions
Retains commonly incurred expense
information
Simplifies receipt entry
Itemizes hotel receipts automatically
Prevents submission of incomplete reports
Built-in attendee lists, mileage reimbursement
tracking, foreign currency translation
Integrates with American Express online travel booking
application
|
|
Benefits
Speeds report preparation time
Reduces input mistakes
Reduces queries and dependence on accounting
department
Ensures submission of all applicable
expenses
Increases employee use of corporate credit
card
|
|
Report Approval
| Features
Automatic routing of reports
Flags non-compliant expenses
Line-item approval of reimbursement data
Approver notification
|
|
Benefits
Speeds approval time
Increases compliance with corporate
policies
Facilitates more efficient use of management
resources
|
|
Report Processing
| Features
Integrates travel expense data with back-office
systems
Flags non-compliant expenses
Provides automatic status updates
Bar-codes receipt submissions
Tracks VAT, GST and other foreign taxes
Verifies arithmetic
|
|
Benefits
Facilitates more efficient use of processing
resources
Speeds report processing and employee
reimbursement
Reduces human error
Reduces queries and dependence on accounting
department
Identifies tax credits
|
|
Data Analysis
| Features
Presents travel expense data graphically
Allows customer to sort data by employee, vendor and
type of expense
Drill-down capability
|
|
Benefits
Supplies data needed for vendor rate
negotiation
Facilitates vendor consolidation
Identifies trends and problem areas
Allows monitoring of compliance with vendor commitments
and corporate travel policies
|
|
Concur Procurement
Concur
Procurement automates the corporate procurement process, including order
preparation, approval, processing and data analysis. See “Risk
Factors That May Affect Results of Operations and Financial Condition
—Future acquisitions might harm our business” and “
—Our expansion into the corporate procurement application and human
resources self-service application markets is risky.”
Order
Preparation. Concur Procurement utilizes a
customer-specific electronic catalog of preferred suppliers and commonly
requested goods and services such as office supplies, computers and
other equipment. Using a graphical user interface, requisitioners browse
the catalog to select and order items and place them in an electronic
“shopping basket.” Catalog materials can be updated by either
the enterprise or the supplier. Concur Procurement contains links to
supplier Web sites, allowing the requisitioner to obtain detailed
product information. To make the ordering process easier, Concur
Procurement retains information about the user, including name, employee
identification, shipping address, accounting information and frequently
ordered products. To reduce delays and unnecessary processing
iterations, Concur Procurement prevents submission of incomplete
orders.
Order
Approval. Concur Procurement allows an
enterprise to determine how requisitions should be processed, whether by
submission to a manager for approval before processing, by submission to
the purchasing department for immediate processing or by direct
submission to the supplier. Once the order is submitted, an e-mail
notification of the order is automatically sent to the specified
approver. The e-mail contains a link to an “approval” Web
page, which lists all purchase requisitions that are awaiting approval
by the particular approver. Using the Web page, the approver specifies
which requisitions to approve in each order. Concur Procurement enables
the customer to configure approval rules based on cost center,
requisition value, material type or other criteria. Concur Procurement
enables authorization of orders based on digital signatures and
prohibits the release of orders without required approval.
Order
Processing. Concur Procurement streamlines
processing of front-office requisitions in a number of ways. The customer
’s purchasing department selects the items and suppliers to be
included in the Concur Procurement electronic catalog. After approval,
orders are sent to the purchasing department to be processed and
progress reports are delivered to the requisitioner automatically,
reducing the number of status inquiries between the requisitioner and
the purchasing department. Concur Procurement can be integrated into the
customer’s ERP application so that the order can be entered into
the purchasing system automatically, allowing significant time savings.
Concur Procurement allows approved requisitions to be sent directly to
suppliers via fax, e-mail, electronic data interchange or via the OBI
(Open Buying on the Internet) standard.
Data Analysis.
Concur Procurement consolidates purchasing
data, allowing managers to determine spending according to cost center,
time period, employee and supplier. These data allow managers to
determine how best to control costs, negotiate more favorable supplier
arrangements and consolidate suppliers. Managers can analyze the data to
monitor compliance with corporate purchasing policies and supplier
commitments.
The following
table describes significant features and potential benefits of Concur
Procurement:
Order Preparation
| Features
Simple point-and-click ordering
Customer-specific electronic catalog stores preferred
suppliers and commonly requested goods and services
Retains user information, including shipping
information, frequently ordered products and purchasing card
information
Prevents submission of incomplete orders
Internet links to supplier Web sites
|
|
Benefits
Speeds order time
Directs orders to preferred suppliers
Reduces errors
Detailed product descriptions available
Reduces queries and dependence on purchasing
department
|
|
Order Approval
| Features
Automatically e-mails order to designated
approver
Digital signatures for order authorization
Automated approval controls based on user signing
authority
|
|
Benefits
Speeds approval time
Reduces errors
Decreases purchasing in violation of company
procedures
Facilitates more efficient use of management
resources
Increases compliance with corporate
policies
|
|
Order Processing
| Features
Integrates purchasing data with back-office
systems
Sends approved requisitions directly to supplier or to
enterprise’s purchasing system
Updates requisitioner on order progress
Purchasing department determines items available in
catalog
Prohibits release of orders without required
approval
|
|
Benefits
Speeds fulfillment time
Reduces lost orders
Facilitates more efficient use of processing
resources
Improves consistency of items ordered
Allows supplier consolidation
|
|
Data Analysis
| Features
Allows customers to track spending by multiple factors,
including cost center, time period, employee and supplier
|
|
Benefits
Identifies trends and problem areas
Supplies data needed for supplier rate
negotiation
Allows monitoring of compliance with supplier
commitments
Facilitates supplier consolidation
|
|
Concur Human
Resources
Concur Human
Resources is a comprehensive application that automates employee and
managerial human resources processes for enterprise customers. Concur
Human Resources offers a variety of modules for employee and managerial
self-service tasks, enabling customers to choose the applications that
meet their needs and to add new components or customized applications as
their business needs grow and change.
Concur Human
Resources allows employees and managers to access and update information
easily, and to process everyday human resources transactions quickly.
Concur Human Resources employee self-service applications are HR Core,
Payroll and Paid-Time-Off, and Benefits Open Enrollment and Modeling.
Its managerial self-service applications are Events@Work and
Compensation and Salary Management. Concur Human Resources allows
employees and managers to conduct many everyday transactions without the
involvement of human resources personnel. This reduces administrative
costs and allows the human resources staff to maximize employee
productivity and efficiency.
Employee
Self-Service Applications. Concur Human
Resources allows employees to review and modify information in the human
resources, payroll and benefits management systems. HR Core, which is a
foundation component of Concur Human Resources, provides security,
navigation, search, display and maintenance capabilities, and allows
employees to access information about company personnel. The Payroll and
Paid-Time-Off application allows employees to access their payroll and
W-4 data, view their paycheck stubs and perform updates to deductions,
withholdings and direct deposit data. The Benefits Enrollment and
Modeling application allows employees to access information about the
employer’s benefit plans, and to complete enrollment forms, 24
hours a day, seven days a week. Concur Human Resources’ employee
self-service applications are “role based” in that each user
’s access rights, views and workflow are tailored to that user
’s role in the organization.
Managerial
Self-Service Applications. Concur Human
Resources also automates manager-centric processes. Concur Human
Resources’ Events@Work provides managers the convenience of a
single access point to manage planning and day-to-day transactions such
as performance reviews, salary planning, and position management
(interdepartmental transfers, salary changes, promotions and
terminations). The Compensation and Salary Management application also
provides managers with easy access to decision-critical information such
as compensation data and department compensation plans, modeling and
approvals. These applications reduce the time that managers must spend
on routine administrative functions, allowing them to spend more time on
core business matters. Like the Concur Human Resources employee
self-service applications, Concur Human Resources managerial
self-service applications are role based.
Human
Resources Management System (HRMS) Integration.
Concur Human Resources integrates with the back-office HRMS
systems offered by PeopleSoft and Tesseract. In addition, Concur’s
open system approach has been integrated with many other HRMS systems
developed by partners and customers.
HR Procedure
Control and Security. Concur Human Resources
meets business needs for scalability, security and enterprise-wide
distribution. Management staff, HR personnel and employees can access
the HR information they need, but access is strictly controlled so that
each employee only has access to the applications, functions and data
appropriate to their roles within the company. Concur’s security
model ensures that sensitive data are available only to appropriate
users. Dynamic Profiling™ determines access dynamically, based on
the relationship of the user to the organization, to the employee
records being accessed, and to the transaction being performed. Company
policies, employee contracts, compensation plans, and rules are securely
protected and accessible to authorized personnel only.
The following
table describes significant features and potential benefits of
applications of Concur Human Resources:
Employee Self-Service Applications
| Features
Security, navigation, search, display and maintenance
capabilities
Access to information about company
personnel
Facilitates name and address changes
Access to payroll and W-4 data, including performing
updates to deductions, withholdings and direct deposit
data
Benefit plan enrollment information and
forms
Benefit plan updates
User-specific access rights
|
|
Benefits
Speeds processing time
Timely access to up-to-date information, reducing
errors from using obsolete information
Reduces queries and dependence on human resources,
accounting and other departments
Information available 24 hours a day, seven days a
week
More efficient use of processing resources
Reduces administrative costs
|
|
Managerial Self-Service Applications
| Features
Allows managers to facilitate position management
(transfers, salary changes, promotions, terminations)
Access to compensation data and department compensation
plans, modeling and approvals
User-specific access rights
|
|
Benefits
Facilitates more efficient use of management
resources
Improves access to information
Increases productivity
Reduces administrative costs
Identifies trends and problem areas
|
|
Services
Our professional
services organization was formed in 1996 to offer consulting, customer
support and training in connection with licenses of our products. We
believe that services are an important part of our success and
consequently we have expanded our professional services organization.
See “Risk Factors That May Affect Results of Operations and
Financial Condition—We depend on service revenues to increase our
overall revenues; services may not achieve profitability.
”
Consulting.
We offer a variety of consulting services in
connection with licenses of our products. Our consulting staff meets
with customers prior to product implementation to review the customer
’s existing business processes and IT infrastructure, and to
provide advice on ways to improve these processes using industry best
practices and prior experiences with similar customers. Thereafter, our
consultants install, configure and test the application and integrate it
with the customer’s existing ERP and employee reimbursement
systems. Our consultants also help customers implement bar-coding
processes and develop a strategy for the customers’ enterprise-wide
deployment of the application.
Customer
Support. We provide product upgrades and
customer support through our “CustomerOne” customer support
program. Our CustomerOne program provides telephone support as well as
24-hour electronic access via the Internet, including online case entry
and review, access to technical information documents and technical
tips. Customers routinely subscribe for the first year of the
CustomerOne program at the time they license an application; thereafter,
support may be renewed on an annual basis.
Training.
We offer a variety of training programs for our
products. These classes are tailored to particular user groups, such as
end users, help desk personnel and trainers. Training classes are
offered at customer sites
and also at our headquarters in Redmond, Washington. We also provide
training classes for third-party service providers, such as systems
integrators.
Customers
We have licensed
our applications to over 275 enterprise customers in a wide range of
industries. The following table lists a selection of our significant
customers since fiscal 1996:
| Technology/Telecommunications/Media
ADP, Inc.
AT&T Corp.
American Management Systems, Inc.
Bell South Corporation
Cambridge Technology Partners
Computer Sciences Corporation
Dell Computer Corporation
The Hearst Corporation
Knight-Ridder, Inc.
Lucent Technologies, Inc.
Motorola, Inc.
The New York Times Company
Quantum Corporation
Reuters Limited
SBC, Inc. (Southwestern Bell)
Seagate Technology, Inc.
Sprint Corporation
Texas Instruments Incorporated
Visio Corporation
Industrial/Manufacturing
Allied Signal Inc.
Case Corporation
E.I. du Pont de Nemours and Company
Guardian Industries Corporation
Hughes Space and Communications Company
Monsanto Company
Northrop Grumman Corporation
PPG Industries, Inc.
Solutia, Inc.
Pharmaceutical/Health Care
Baxter Heathcare Corporation
Bristol-Myers Squibb Company
Columbia/HCA Healthcare Corporation
Merck, Sharpe & Dohme Limited
Pfizer Inc.
Pharmacia & Upjohn Co.
Solvay Pharmaceuticals, Inc.
Tenet Healthcare Corporation
|
|
Consumer
Anheuser-Busch Companies Inc.
Avon Products, Inc.
The Clorox Company
DaimlerChrysler Corporation
Eastman Kodak Company
The Gap, Inc.
The Gillette Company
J.C. Penney Company, Inc.
Levi Strauss & Co.
Maytag Corporation
Ocean Spray Cranberries, Inc.
Revlon, Inc.
Financial Services
ABN Amro Holding N.V.
Bear Stearns & Co. Inc.
Comdisco, Inc.
Dresdner Kleinwort Benson
John Hancock Financial Services
J & H Marsh & McLennan, Inc.
Lehman Brothers Inc.
Royal Insurance
Transamerica Corporation
Wells Fargo Bank, N.A.
Energy and Natural Resources
Amerada Hess Corporation
Baltimore Gas & Electric Company
Broken Hill Proprietary Company Limited
Exxon Corporation
Florida Power & Light Company
Occidental Petroleum Corporation
Southern California Edison Company
Texaco Inc.
Other
American Airlines, Inc.
Battelle Memorial Institute
Federal Express Corporation
Harvard College
J. Walter Thompson
Ontario Ministry of Labour
|
|
No customer
accounted for 10% or more of our total revenues in fiscal 1999, 1998 or
1997.
Sales
We sell our
software primarily through our direct sales organization, with sales
professionals located in the metropolitan areas of Atlanta, Baltimore,
Boston, Chicago, Dallas, Denver, London, Los Angeles, New York, Oakland,
Paris, Philadelphia, Princeton, Raleigh, Redmond, San Francisco, St.
Louis, Sydney, Toronto, and Washington, D.C. Direct telesales and
telemarketing representatives based at our headquarters in Redmond,
Washington complement the field sales force in addition to directly
selling Concur eWorkplace.com. Field based sales engineers provide
technical sales support. We currently intend to add a significant number
of sales representatives and sales engineers in other domestic and
international locations. We use a remarketer in New Zealand and a
reseller in Spain and plan to expand our international distribution
channel to other markets. The remarketer in New Zealand receives a
referral fee from us for marketing our products while our Spanish
reseller remits a royalty to us on resale of our products, and each of
these distributors provides post-sale implementation and support of the
Company’s products. See “Risk Factors That May Affect Results
of Operations and Financial Condition—We depend on our direct sales
model.”
Since our
products affect employees throughout the enterprise, our sales effort
involves multiple decision makers and frequently includes the chief
financial officer, vice president of finance, controller, vice president
of purchasing and vice president of human resources. While the average
sales cycle varies substantially from customer to customer, for initial
sales it has generally ranged from six to fifteen months. See “Risk
Factors That May Affect Results of Operations and Financial Condition
—Our lengthy sales cycle could adversely affect our revenue growth.
”
Strategic Marketing and Referral
Relationships
We have developed
a number of strategic referral relationships. Under arrangements with
American Express, the largest corporate charge card issuer in the United
States, and its subsidiary American Express Travel Related Services
Company, Inc. (“TRS”), American Express may, at its sole
discretion, refer corporate charge card customers that seek a travel and
entertainment expense management software solution to us. ADP, a
subsidiary of Automatic Data Processing, Inc., a global payroll
solutions and computing services provider, has agreed to refer potential
customers for travel and entertainment expense management software
products and services exclusively to us. ADP and Concur also agreed to
jointly market our travel and entertainment expense report processing
products and services to ADP customers.
Our existing
strategic relationships generally do not, and any future strategic
relationships may not, afford us any exclusive marketing or distribution
rights. Many of our strategic partners have multiple strategic
relationships, and we may not be regarded as significant for their own
businesses. In addition, our strategic partners may terminate their
respective relationships with us, pursue other partnerships or
relationships, or attempt to develop or acquire products or services
that compete with our products or services. Further, our existing
strategic relationships may interfere with our ability to enter into
other desirable strategic relationships. Any inability to maintain our
strategic relationships or to enter into additional strategic
relationships may have a material adverse effect on our business. See
“Risk Factors That May Affect Results of Operations and Financial
Condition—It is important for us to establish and maintain
strategic relationships.”
Marketing
Our marketing
efforts are directed at promoting the Concur brand, and our suite of
applications under Concur eWorkplace extending our leadership position
in travel and entertainment expense management and human resources
applications and increasing our market share in corporate procurement.
Our marketing programs are targeted at accounting, finance, purchasing,
human resources and travel executives, and are focused on creating
awareness of, and generating interest in, our products.
We engage in a
variety of marketing activities, including creating and placing
advertisements, developing and executing co-advertising and co-marketing
strategies designed to leverage our existing strategic relationships,
targeting additional strategic relationships, managing and maintaining
our Web site, developing and executing direct mailing campaigns,
conducting public relations campaigns, and establishing and maintaining
close relationships with recognized industry analysts. We are an active
participant in technology-related conferences and demonstrate our
products at trade shows targeted at accounting, finance, purchasing,
human resources and travel executives.
We believe that
demand is increasing, and will continue to increase, for
employee-centric enterprise applications such as those we sell. We may
not be able to expand our sales and marketing staff, either domestically
or internationally, to take advantage of any increase in demand for
employee-centric applications. Our failure to expand our sales and
marketing organization or other distribution channels could materially
adversely affect our business. See “Risk Factors That May Affect
Results of Operations and Financial Condition —We depend on our key
employees” and “—We must attract and retain qualified
personnel.”
Product Development
We have been an
innovator and leader in the development of employee-centric enterprise
applications. We believe that we were one of the first to introduce an
integrated suite of employee-centric applications, and one of the first
to introduce a commercially successful travel and entertainment expense
reporting application. We also believe that we pioneered a number of
features that are now common throughout the travel and entertainment
expense reporting field, such as prepopulation with corporate credit
card transactions and automatic itemization of hotel bills. Our software
development staff is responsible for enhancing our existing products and
expanding our product line. We believe that a technically skilled,
quality oriented and highly productive software development organization
will be a key component of the continued success of new product
offerings. We expect that we will increase our product development
expenditures substantially in the future.
These development
efforts may not be completed within our anticipated schedules, and if
completed, they may not have the features necessary to make them
successful in the marketplace. Future delays or problems in the
development or marketing of product enhancements or new products could
result in a material adverse effect on our business. See “Risk
Factors That May Affect Results of Operations and Financial Condition
—We may experience difficulties in introducing new products and
upgrades” and “—Our effort to sell products as an
Internet-based application service provider may fail.”
Competition
The market for
our products is intensely competitive, subject to rapid change and
significantly affected by new product introductions and other market
activities of industry participants. Our primary source of direct
competition comes from independent software vendors of travel and
entertainment expense management, corporate procurement and human
resources self-service applications, and from providers of ERP software
applications that have or may be developing products similar to those we
sell. We also face indirect competition from potential customers’
internal development efforts and have to overcome their reluctance to
move away from existing paper-based systems.
Our major
competitors in the travel and entertainment expense management field
include Captura Software, Inc., Extensity, Inc., International Business
Machines Corporation and Necho Systems Corporation. In addition, several
major ERP vendors such as Oracle Corporation, PeopleSoft, Inc. and SAP
AG have already developed or have announced plans to develop travel and
entertainment expense management, corporate procurement and human
resources self-service products. These companies have begun to sell
these products along with their ERP application suites. Our major
competitors in the corporate procurement field include Ariba
Technologies, Inc.; Clarus Corporation; Commerce One, Inc.;
—Intelisys Electronic Commerce, LLC; Netscape Communications
Corporation; PurchasePro, TRADEX, and Trilogy Development Corporation.
Our major competitors in the human resources self-service field include
ProBusiness Services, Inc., Workscape, Inc., iClick, Inc. and Interlynx
Technology Corporation. We also expect to face competition from new
entrants including those ERP providers
that do not already market products similar to ours. Most of the major ERP
providers have a significant installed customer base and have the
opportunity to offer additional products to those customers as
additional components of their respective ERP application
suites.
We believe that
the principal competitive factors considered in selecting travel and
entertainment expense management, corporate procurement and human
resources self-service applications are functionality, interoperability
with existing IT infrastructure, price, connectivity to an electronic
marketplace and an installed referenceable base of customers. Despite
the disparity in price, we believe that we have a competitive advantage
relative to competing solutions. With respect to functionality, we
believe that we offer a product with more features than other competing
products, and that we have often been the first to offer new and
innovative features, such as prepopulation of transaction reports based
on credit card information. We believe we were one of the first
providers of a suite of employee-centric applications, and that we were
the first providers of intranet-based travel and entertainment expense
management and an early leader in providing human resources self-service
solutions. In addition, Concur Expense was designed and built to
interoperate with existing IT systems and can often be deployed on an
enterprise customer’s existing IT infrastructure. Many of our
competitors have chosen to develop their intranet-based applications
using “fat client”, Java-based front ends, which we believe
are difficult to deploy on a large scale within today’s corporate
IT infrastructure. With respect to price, we learned from our customers
that Concur Expense tends to be 20% to 200% more expensive than
competing solutions, depending on the size and the nature of the
transaction. We position Concur Expense as the premium product compared
to the competition. We believe that this positioning does cause us to
lose some potential transactions to competitors based on price. The
pricing of Concur Human Resources and Concur Procurement is generally
comparable to or lower than similar applications offered by the
competition.
Many of our
competitors in the travel and entertainment expense management,
corporate procurement and human resources self-service markets have
longer operating histories, significantly greater financial, technical,
marketing and other resources, significantly greater name recognition
and a larger installed base of customers. Moreover, a number of our
competitors, particularly major ERP vendors, have well- established
relationships with our current and potential customers as well as with
systems integrators and other vendors and service providers. In
addition, these competitors may be able to respond more quickly to new
or emerging technologies and changes in customer requirements, or to
devote greater resources to the development, promotion and sale of their
products, than we can.
It is also
possible that new competitors or alliances among competitors or other
third parties may emerge and rapidly acquire significant market share.
We expect that competition in our markets will increase as a result of
consolidation and the formation of alliances in the industry. Increased
competition may result in price reductions, reduced gross margins and
loss of market share, any of which could materially adversely affect our
business. We may not be able to compete successfully against current or
future competitors and the competitive pressures we face may materially
adversely affect our business. See “Risk Factors That May Affect
Results of Operations and Financial Condition—Our expansion into
the corporate procurement application and human resources self-service
application markets is risky,” “—We face significant
competition” and “—It is important for us to establish
and maintain strategic relationships.” Furthermore, our competitive
position could be harmed if we are unable to establish our Concur
Procurement product in the business procurement software market. Within
our current suite of applications, Concur Procurement is of critical
strategic importance because the license fees associated with it tend to
be significantly larger than for others. Perhaps as a result, where our
customers’ software buying decisions are linked together, these
decisions are more typically led by their procurement software buying
decision than by their evaluation of either travel and entertainment
expense management or human resources solutions. See “Risk Factors
That May Affect Results of Operations and Financial Condition—We
rely heavily on sales of one product.”
Intellectual Property Rights
Our success
depends upon our proprietary technology. We rely primarily on a
combination of copyright, trade secret and trademark laws,
confidentiality procedures, contractual provisions and other similar
measures to
protect our proprietary information. For example, we license rather than
sell our software to customers and require licensees to enter into
license agreements that impose certain restrictions on licensees’
ability to utilize the software. We currently hold no patents and do not
have any patent applications pending. There can be no assurance that any
of our copyrights or trademarks will not be challenged and
invalidated.
As part of our
confidentiality procedures, we enter into non-disclosure agreements with
certain of our employees, consultants, corporate partners, customers and
prospective customers. For our Concur eWorkplace offering, we also enter
into license agreements with respect to our technology, documentation
and other proprietary information. Such licenses are generally
non-transferable. Our Concur eWorkplace.com offering is an outsourced
offering made available to customers for a limited term on a
non-transferable basis. Despite our efforts to protect our proprietary
rights, unauthorized parties may attempt to copy or otherwise obtain and
use our products or technology that we consider proprietary and third
parties may attempt to develop similar technology independently. In
particular, we provide our Concur eWorkplace licensees with access to
object code versions of our software, and to other proprietary
information underlying our licensed software. In a small number of
instances, we have provided our licensees with access to source code
versions of our software in order to facilitate more extensive testing
of such products. Policing unauthorized use of our products is
difficult, particularly because the global nature of the Internet makes
it difficult to control the ultimate destination or security of software
or other data transmitted. While we are unable to determine the extent
to which piracy of our software products exists, software piracy can be
expected to be a persistent problem. In addition, effective protection
of intellectual property rights may be unavailable or limited in certain
countries. The laws of some foreign countries do not protect our
proprietary rights to the same extent as do the laws of the United
States. Overall, the protection of our proprietary rights may not be
adequate and our competitors may independently develop similar
technology. In addition, in connection with numerous recent changes in
our product names, and the relatively recent change in our company
’s name, we have recently filed trademark applications in the
United States and in certain foreign countries. We do not have assurance
that our strategy with respect to our trademark portfolio will prove
adequate to secure all necessary intellectual property rights in foreign
countries or to protect us from claims by third parties, either
domestically or in foreign countries.
We are not aware
that our products, trademarks, copyrights or other proprietary rights
infringe the proprietary rights of third parties. Third parties may
assert infringement claims against us in the future with respect to
current or future products. Further, we expect that software product
developers will increasingly be subject to infringement claims as the
number of products and competitors in our industry segment grows and the
functionality of products in different industry segments overlaps. From
time to time, we hire or retain employees or consultants, including
through acquisition, who have worked for independent software vendors or
other companies developing products similar to those offered by us. Such
prior employers may claim that our products are based on their products
and that we have misappropriated their intellectual property. Any such
claims, with or without merit, could cause a significant diversion of
management attention, result in costly and protracted litigation, cause
product shipment delays or require us to enter into royalty or licensing
agreements with such parties. Such royalty or licensing agreements, if
required, may not be available on terms acceptable to us or at all,
which would have a material adverse effect upon our business. See
“Risk Factors That May Affect Results of Operations and Financial
Condition—Our ability to protect our intellectual property is
limited and our products may be subject to infringement claims by third
parties.”
Employees
As of September
30, 1999, we had approximately 488 full-time employees, of whom 15 were
based in the United Kingdom, one in Canada and three in Australia. These
employees included 163 engaged in research and development, 125 in sales
and marketing, 153 in consulting, training and technical support and 47
in administration and finance. No employees are known by us to be
represented by a collective bargaining agreement and we have never
experienced a strike or similar work stoppage. We consider our relations
with our employees to be good. Our ability to achieve our financial and
operational objectives depends in large part upon our continuing ability
to attract, integrate, retain and motivate highly qualified sales,
technical sales, development, professional services and managerial
personnel. Competition for such qualified personnel in our
industry is intense, particularly in the Seattle area in which our
headquarters is located and in the San Francisco Bay Area in which our
Human Resources operations are located, and particularly with respect to
software development, marketing and management personnel. In addition,
competitors may attempt to recruit our key employees. There can be no
assurance that we will be able to attract or retain employees in the
future. We are a party to employment agreements with certain of our
employees. See “Risk Factors That May Affect Results of Operations
and Financial Condition—We depend on our key employees,” “
—We must attract and retain qualified personnel, particularly
service personnel” and “—Year 2000 Compliance.
”
Risk Factors That May Affect Results of Operations and
Financial Condition
Our Short Operating History and Significant Losses Make
Our Business Difficult to Evaluate.
We are still in
the early stages of our development, so evaluating our business
operations and our prospects is difficult. We incorporated in 1993 and
have incurred net losses in each quarter since then. We shipped our
first product in fiscal 1995, and since fiscal 1997 have derived
substantially all of our revenues from licenses of our Concur Expense
product and related services, and to a lesser degree, the sale of
licenses and services relating to Concur Human Resources. To compete
effectively, we expect to devote substantial financial and other
resources to expanding our sales and marketing, research and development
and professional services organizations. These investments may never
produce a profit. We incurred net losses totaling $46.5 million, $26.2
million and $7.6 million in 1999, 1998 and 1997, respectively. As of
September 30, 1999, we had an accumulated deficit of $89.7 million. We
expect to continue to incur net losses for the foreseeable future.
Despite substantial net operating loss carryforwards as of September 30,
1999, tax laws may limit their use in the future upon the occurrence of
certain events, including a significant change in ownership
interests.
Our Operating Results Fluctuate Widely and are Difficult to
Predict.
In the past our
quarterly operating results have fluctuated significantly, and we expect
them to continue to fluctuate in the future. Our licensed software
products, from which we derive most of our revenues, are typically
shipped when orders are received, so license backlog at the beginning of
any quarter in the past represented only a small portion of that quarter
’s expected license revenues. This makes license revenues in any
quarter difficult to forecast because they depend on orders booked and
shipped in that quarter. Moreover, we have historically recognized a
substantial percentage of revenues in the last month of the quarter,
frequently in the last week or even the last days of the quarter, and we
expect this trend to continue for as long as our licensed software
products represent a substantial part of our overall business. Since our
expenses are relatively fixed in the near term, any shortfall from
anticipated revenues or any delay in the recognition of revenues could
result in significant variations in operating results from quarter to
quarter. We find it difficult to forecast quarterly license revenues
because our sales cycle, from initial evaluation to delivery of
software, is lengthy and varies substantially from customer to customer.
If revenues fall below our expectations in a particular quarter, our
business could be harmed. In the fourth quarter of fiscal 1999, our
revenues did, in fact, fall below our own and consensus securities
analysts’ estimates for the quarter and, as a result, the price of
our stock experienced a sharp decline. If our revenues fall below our
own estimates or below the consensus analysts’ estimate in an
upcoming quarter, our stock price could experience a more substantial
and lasting decline, harming our business significantly in terms of,
among other things, diminished employee morale and public image. See
“—We are at risk of securities class action litigation due to
our stock price volatility.”
We Have Been Public for Only a Short Time and Our Stock Price
has been Volatile.
We completed our
initial public offering in December 1998. Since then, the market price
of our common stock has been highly volatile and is subject to wide
fluctuations. We expect our stock price to continue to
fluctuate:
|
·
|
in response
to quarterly variations in operating results;
|
|
·
|
in reaction
to announcements of technological innovations, new products or
significant agreements by us or our competitors;
|
|
·
|
because of
market conditions in the enterprise software and eCommerce
industries;
|
|
·
|
in reaction
to changes in financial estimates by securities analysts, and our
failure to meet or exceed the expectations of analysts or investors;
and
|
|
·
|
as a result
of the active trading of our stock by online day traders.
|
We Are At Risk of Securities Class Action Litigation Due to
Our Stock Price Volatility.
In the past,
securities class action litigation has often been brought against a
company following periods of volatility in the market price of its
securities. We may in the future be the target of similar litigation,
either due to prior volatility associated with our failure to meet
consensus analysts’ estimates for revenues for the fourth quarter
of fiscal 1999 or due to future volatility in our stock price.
Securities litigation could result in substantial costs and divert
management’s attention and resources.
We Rely Heavily On Sales of One Product.
Since 1997, we
have generated substantially all of our revenues from licenses and
services related to our Concur Expense product. We believe that Concur
Expense revenues will continue to account for a large portion of our
revenues for the foreseeable future. Our future financial performance
and revenue growth will depend upon the successful development,
introduction and customer acceptance of new and enhanced versions of
Concur Expense, Concur Procurement, Concur Human Resources, and other
applications, and our business could be harmed if we fail to deliver the
enhancements to our current and future products that customers want. In
particular, our business could be harmed if we are unable to establish
our Concur Procurement product in the corporate procurement software
market. Within our current suite of offerings, Concur Procurement is of
critical strategic importance because the license fees associated with
it tend to be significantly larger than for the others. Perhaps as a
result, where our customers’ software buying decisions are linked
together, these decisions are more typically led by their procurement
software buying decision than by their evaluation of either travel and
entertainment expense management or human resources solutions. As a
result, we believe that an inability to compete effectively in the
procurement software market could significantly hamper our future
financial performance and revenue growth.
We Face Significant Competition.
The market for
our products is intensely competitive and rapidly changing. Direct
competition comes from independent software vendors of
business-to-business electronic commerce software, travel and
entertainment expense management, corporate procurement applications and
human resources self-service applications, and from providers of ERP
software applications that have or may be developing travel and
entertainment expense management, corporate procurement products, and
human resources self service applications. Many of our competitors have
longer operating histories, significantly greater financial, technical,
marketing and other resources, significantly greater name recognition
and a larger installed base of customers than we do. Moreover, a number
of our competitors, particularly major ERP vendors, have
well-established relationships with our current and potential customers
as well as with systems integrators and other vendors and service
providers. Some of our competitors in the business-to-business
electronic commerce field are establishing commerce or purchasing
networks involving suppliers, customers and partners and effectively
excluding other companies that do not participate in these commerce
networks. These competitors may also be able to respond more quickly to
new or emerging technologies and changes in customer requirements, or to
devote greater resources to the development, promotion and sale of their
products, than we can. We also face indirect competition from potential
customers’ internal development efforts and have to overcome their
reluctance to move away from existing paper-based systems.
Our Expansion Into the Corporate Procurement Application and
Human Resources Self-Service Application Markets is
Risky.
We added Concur
Procurement to our product line in 1998 and in 1999 we added Concur
Human Resources. To date, a significant majority of our revenues have
come from Concur Expense. Our future revenue growth depends on our
ability to license Concur Procurement and Concur Human Resources to new
customers and to our existing base of Concur Expense customers.
Potential and existing customers may not purchase Concur Procurement, or
Concur Human Resources for a number of reasons, including:
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an absence of
desired functionality;
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·
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the costs of
and time required for implementation;
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·
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incompatibility of these applications with customers’
preferred technology platforms;
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·
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possible
software defects; and
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·
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a customer
’s lack of the necessary hardware, software or intranet
infrastructure.
|
Further, we must
overcome certain significant obstacles to expand into the market for
corporate procurement applications and human resources self-service
applications, including:
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competitors
that have more experience and better name recognition;
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·
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the limited
experience of our sales and consulting personnel in these markets;
and
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·
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our limited
reference accounts in these markets.
|
Our business
could be harmed if we fail to deliver enhancements to Concur Procurement
and Concur Human Resources that customers want. In addition, our
business could also be harmed if our expansion into these newer markets
and resulting broadening of our focus causes Concur Expense, upon which
we continue to rely for most of our revenues, to lose market share to
our competitors that are solely or primarily focused on travel and
entertainment expense management software applications. This broadening
of focus could also harm us by causing us to spread our limited
resources across to many initiatives and diverting management time and
attention required to execute any given initiative properly.
Our Effort to Sell Products as an Internet-Based Application
Service Provider May Fail.
In addition to
licensing our software applications, we have recently begun offering
them as an Internet-based ASP. We price our products on a subscription
basis to companies seeking to outsource their workplace eCommerce
business applications. This business model is unproven and represents a
significant departure from the strategies traditionally employed by us
and other enterprise software vendors. We have no experience selling
products or services as an ASP, and our efforts too develop this ASP
business have diverted, and are expected to continue to divert, our
financial resources and management time and attention. In connection
with our ASP business, we have engaged third-party service providers to
perform many of the necessary services as independent contractors, and
we are and will be responsible for monitoring their performance. We have
limited experience outsourcing services or other important business
functions in the past, and independent contractors may not perform those
services adequately. If any service provider delivers inadequate support
or service to our customers, our reputation could be harmed. In
addition, we plan to use resellers to market ASP products. We have
limited experience utilizing resellers and we may not be successful in
this effort.
If customers
determine that our products are not scalable, do not provide adequate
security for the dissemination of information over the Internet, or are
otherwise inadequate for Internet-based use, or if for any other reason
customers fail to accept our products for use on the Internet or on a
subscription basis, our business will be harmed. As an outsourced ASP
provider, we expect to receive confidential information, including
credit card, travel booking, employee, purchasing, supplier and other
financial and accounting data through the Internet or extranets, and
there can be no assurance that this information will not be subject to
computer break-ins, theft
and other improper activity that could jeopardize the security of
information for which we are responsible. Any such lapse in security
could expose us to litigation, loss of customers or other harm to our
business. In addition, any person who is able to circumvent our security
measures could misappropriate proprietary or confidential customer
information or cause interruptions in our operations. We may be required
to incur significant costs to protect against security breaches or to
alleviate problems caused by breaches. Further, a well-publicized
compromise of security could deter people from using the Internet to
conduct transactions that involve transmitting confidential information.
Our failure to prevent security breaches, or well-publicized security
breaches affecting the Web in general, could significantly harm our
business, operating results and financial condition. Even if our
strategy of offering products to customers over the Internet proves
successful, some of those Internet customers may be ones that otherwise
might have bought our software and services through our traditional
licensing arrangements. Any such shift in potential license revenues to
the ASP model, which is unproven and potentially less profitable, could
harm our business.
In addition, as
an increasing proportion of our business moves to this business model,
our revenues may be inconsistent and hard to predict, given that
revenues under this new business model are recognized ratably over the
contract term whereas most of our revenues under the traditional
licensing arrangements are recognized in the same quarter that the
contract is signed.
We Have Limited Experience Selling Our Products as a Suite and
Our Concur eWorkplace Model May Fail.
We recently
introduced Concur eWorkplace, which integrates Concur Expense and Concur
Procurement, and, ultimately, Concur Human Resources, as a suite of
applications. Until recently we have not sold our products as a suite,
and we do not know whether customers will prefer to buy our products
this way. In an effort to increase overall revenues, we expect to offer
our integrated suite of applications at prices that will be lower than
would be the case for the applications sold separately. This may have
the effect of reducing per-user revenues. We have also found that
selling our products as a suite has lengthened our sales cycle because
the sale is more complex and is more likely to involve information
technology specialists and, in some cases, higher-level decision-makers
at the prospective customer. We do not anticipate that the trend toward
longer sales cycles will abate in the foreseeable future. Because we are
inexperienced selling our products this way, we cannot predict whether
it will harm our business.
Our Lengthy Sales Cycle Could Adversely Affect Our Revenue
Growth.
Because of the
high costs involved, customers for enterprise software products
typically commit significant resources to an evaluation of available
software applications and require us to expend substantial time, effort
and money educating them about the value of our products and services.
The time between initial contact with a potential customer and the
ultimate sale, our sales cycle, typically ranges between six and fifteen
months. As a result of our lengthy sales cycle, we have only a limited
ability to forecast the timing and size of specific sales. In addition,
customers may delay their purchases from a given quarter to another as
they elect to wait for new product enhancements. Any delay in
completing, or failure to complete, sales in a particular quarter or
fiscal year could harm our business and could cause our operating
results to vary significantly. See “—Our operating results
fluctuate widely and are difficult to predict.”
We Rely on Third-Party Software that is Difficult to
Replace.
Some of the
software we license from third parties would be difficult to replace. In
particular, in order to offer our customers our suite of workplace
eCommerce software applications, we license technology from third
parties. This software may not continue to be available on commercially
reasonable terms, if at all. The loss or inability to maintain any of
these technology licenses could result in delays in the sale of our
products and services until equivalent technology, if available, is
identified, licensed and integrated, which could harm our
business.
It is Important for Us To Establish and Maintain Strategic
Relationships.
To offer products
and services to a larger customer base than we can reach through direct
sales, telesales and internal marketing efforts, we depend on strategic
referral and, in the future, reseller relationships. If we were unable
to maintain our existing strategic referral relationships or enter into
additional strategic referral or reseller relationships, we would have
to devote substantially more resources to the distribution, sale and
marketing of our products and services. Our success depends in part on
the ultimate success of our strategic referral and reseller partners and
their ability to market our products and services successfully. A number
of our Concur Expense sales have come through referrals from American
Express, but American Express is not obligated to refer any potential
customers to us, and it has, and may continue to, enter into strategic
relationships with other providers of expense reporting and corporate
procurement applications.
In the developing
field of business-to-business electronic commerce, strategic business
relationships with key suppliers and others are critical to the
successful establishment of commerce or buying networks that may become
the source of multiple revenue opportunities for their participants. If
we are unable to establish such relationships and our competitors have
these relationships, our workplace eCommerce business strategy would be
harmed.
Many of our
strategic partners have multiple strategic relationships, and they may
not regard us as significant for their businesses. In addition, our
strategic partners may terminate their respective relationships with us,
pursue other partnerships or relationships, or attempt to develop or
acquire products or services that compete with our products or services.
Further, our existing strategic relationships may interfere with our
ability to enter into other desirable strategic
relationships.
We Have Limited Experience With Large-Scale Deployment, Which
Is Important To Our Future Success.
To date only a
limited number of customers have deployed Concur Expense, Concur
Procurement and Concur Human Resources. We think that the ability of
large customers to roll out our products across large numbers of users
is critical to our success. If our customers cannot successfully
implement large-scale deployments, or they determine that our products
cannot accommodate large-scale deployments, our business would be
harmed. Similarly, because only a limited number of customers are using
the ASP version of our product offering, we do not have assurance that
our ASP product would be able to support a large volume of users or
transactions and our business would be harmed by any failure in this
regard.
Year 2000 Considerations Among Our Customers and Potential
Customers May Reduce Our Sales.
Through the first
half of 2000, we expect to experience reduced sales of products as
customers and potential customers put a priority on correcting Year 2000
problems and therefore defer purchases of our products until later in
2000. Accordingly, demand for our products may be particularly volatile
and unpredictable for the remainder of 1999 and early 2000.
We May Not Meet Our Expectations for the Seeker Software
Acquisition.
Our acquisition
of Seeker Software Inc., (“Seeker Software”) in June 1999, was
a significant investment. In connection with the acquisition, we
recorded in the third quarter of fiscal 1999 a charge to operating
expenses of approximately $8.9 million for direct and other
acquisition-related costs pertaining to the transaction. Acquisition
costs consisted primarily of financial advisor fees for both companies,
attorneys, accountants, financial printing and other related charges. In
the future, we may incur additional costs of integrating the business of
Seeker Software with our business. We plan to integrate the Seeker
Software business with our own, including product development efforts
focused on fully integrating Concur Human Resources into Concur
eWorkplace. We also expect to be able to sell our newly-acquired Concur
Human Resources applications to some of the existing customers of our
Concur eWorkplace, Concur Expense and Concur Procurement products, and to
sell Concur eWorkplace, Concur Expense and Concur Procurement to existing
customers of Concur Human Resources. However, we may fail to achieve our
expectations. In particular, we may encounter substantial difficulties
and financial risks such as:
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difficulty
assimilating the technology of the combined companies;
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problems
retaining key technical and managerial personnel;
|
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·
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additional
operating losses and expenses of the acquired business;
and
|
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·
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impairment of
relationships with existing customers, business partners and
employees.
|
In addition,
recent actions and comments from the Securities and Exchange Commission
have indicated that it is scrutinizing the application of the pooling of
interest method of accounting for business combinations. While we
believe we are in compliance with the rules and related guidance as they
currently exist, we can provide no assurance that the Commission will
not challenge our conclusions and ultimately seek to treat this
transaction under the purchase method of accounting for business
combinations. This could result in the restatement of financial
statements requiring the recording of goodwill and related amortization
expense and as such could have a material negative impact on our
financial results for the periods subsequent to the
acquisition.
There can be no
assurance that we will be successful in overcoming these or any other
problems or risks in connection with the acquisition of Seeker Software.
Mergers and acquisitions of high-technology companies are inherently
risky, and no assurance can be given that our previous or future
acquisitions will be successful and will not adversely affect our
financial condition or results of operations.
Future Acquisitions Might Harm Our Business.
As part of our
business strategy, we might seek to acquire or invest in businesses,
products or technologies that we feel could complement or expand our
business. If we identify an appropriate acquisition opportunity, we
might not be able to negotiate the terms of that acquisition
successfully, finance it, or integrate it into our existing business and
operations. We have completed only two acquisitions to date, 7Software,
Inc. (“7Software”) and Seeker Software, Inc. We may not be
able to select, manage or absorb any future acquisitions successfully.
Further, the negotiation of potential acquisitions, as well as the
integration of an acquired business, will divert management time and
other resources. We may have to use a substantial portion of our
available cash to consummate an acquisition. On the other hand, if we
consummate acquisitions through an exchange of our securities, our
stockholders could suffer significant dilution. In addition, we cannot
assure you that any particular acquisition, even if successfully
completed, will ultimately benefit our business.
We May Experience Difficulties in Introducing New Products and
Upgrades.
Through our
acquisition of Seeker Software in June 1999, we added Concur Human
Resources to our product suite. We expect to add additional workplace
eCommerce applications to our product suite by acquisition or internal
development, and to develop enhancements to our existing applications.
We have experienced delays in the planned release dates of our software
products and upgrades, and we have discovered software defects in new
products after their introduction. New products or upgrades may not be
released according to schedule, or may contain defects when released.
Either situation could result in adverse publicity, loss of sales, delay
in market acceptance of our products or customer claims against us, any
of which could harm our business. If we do not develop, license or
acquire new software products, or deliver enhancements to existing
products on a timely and cost-effective basis, our business will be
harmed.
We Plan to Contract With a Third-Party to Expand, Host and
Manage and Maintain Our Concur Commerce Network
Infrastructure.
We plan to
contract with a third-party to expand, host, manage and maintain our
Concur Commerce Network infrastructure. Services provided by the
third-party will likely include web server hosting, maintaining
communications lines and managing network data centers. We are engaged in
discussions with a third-party to obtain these services but have not
entered into a contract with this party. If we do not contract with this
third- party, we would have to obtain similar services from another
provider or perform these functions ourselves. We may not successfully
obtain or perform these services on a timely and cost-effective basis.
If our Concur Commerce Network infrastructure is successfully completed
by a third-party, we will be entirely dependent on that party to manage
and maintain our network infrastructure and to provide security for
it.
Our Products Might Not be Compatible with All Major Platforms,
Which Could Inhibit Sales.
We must
continually modify and enhance our products to keep pace with changes in
hardware and software platforms, database technology and electronic
commerce technical standards. As a result, uncertainties related to the
timing and nature of new product announcements, introductions or
modifications by vendors of operating systems, back-office applications,
and browsers and other Internet-related applications could hurt our
business. In addition, our products are not currently based upon the
Java programming language, an increasingly widely-used language for
developing Internet applications. We have made a strategic decision not
to develop a fully Java-based product at this time. Accordingly, certain
features available to products written in Java may not be available in
our products, and this could result in reduced customer
demand.
We Depend On Our Direct Sales Model.
We sell our
products primarily through our direct sales force. We believe that there
is significant competition for direct sales personnel with the advanced
sales skills and technical knowledge we need. Our inability to hire
competent sales personnel, or our failure to retain them, would harm our
business.
In addition, by
relying primarily on a direct sales model, we may miss sales
opportunities that might be available through other sales channels, such
as domestic and international resellers. In the future, we intend to
develop indirect distribution channels through third-party distribution
arrangements, but we may not be successful in establishing those
arrangements, or they may not increase revenues. Furthermore, we plan to
use resellers to market our ASP products in particular. We have limited
experience utilizing resellers to date. The failure to develop indirect
channels may place us at a significant competitive
disadvantage.
Our Ability to Protect Our Intellectual Property is Limited
and Our Products May be Subject to Infringement Claims by
Third-Parties.
We depend upon
our proprietary technology. We rely primarily on a combination of
copyright and trademark laws, trade secrets, confidentiality procedures
and contractual provisions to protect our proprietary information. In
some cases, we are using marks to which we do not have federal trademark
registration and certain of these marks for which we have filed for
federal registration may not ultimately be registrable and we may have
incomplete rights to use these marks. We have also taken steps to avoid
disclosure of our proprietary technology by generally restricting
customer access to our products’ source code and requiring all
employees and contractors to enter into confidentiality and invention
assignment agreements. However, certain of our customers and partners
have received access to source code versions of our products in order to
facilitate more extensive testing of our products and certain of our
former technical personnel and contractors did not execute such
confidentiality and invention assignment agreements. Further, we only
recently began requiring contractors and temporary employees to execute
our confidentiality agreement rather than executing the confidentiality
agreements maintained by temporary agencies or not executing any such
agreements. We presently have no patents or patent applications pending.
Despite our efforts to protect our proprietary rights, unauthorized
parties may attempt to copy aspects of our products or to obtain and use
information that we regard as proprietary. In addition, the laws of some
foreign countries do not protect our proprietary rights to as great an
extent as do the laws of the United States, and we expect that it will
become more difficult to monitor use of our products as we increase our
international presence. There can be no assurance that our means of
protecting these proprietary rights will be adequate, nor that our
competitors will not independently develop similar technology. In
addition, there can be no assurance that third parties will not claim
infringement by us with respect to current or future products or other
intellectual property rights. Any such claims could have a material
adverse effect on our business, results of operations and financial
condition.
Year 2000 Compliance Costs are Difficult to
Assess.
We believe the
current versions of our software products are capable of adequately
distinguishing 21st century dates from 20th century dates. However, our
products are generally integrated into enterprise systems involving
sophisticated hardware and complex software products, which may not be
Year 2000 compliant. We may in the future be subject to claims based on
Year 2000 problems in others’ products, Year 2000 problems alleged
to be found in our products, Year 2000-related issues arising from the
integration of multiple products within an overall system, or other Year
2000-related claims. In addition, earlier versions of our products were
not Year 2000 compliant, and we do not intend to make them Year 2000
compliant. Despite our testing of our products, our audit of our
suppliers and our internal compliance efforts, we cannot be certain that
we have identified all significant Year 2000 problems and the total cost
of Year 2000 compliance, remediation and contingency plan promulgation
may be material and may harm our business. See “Management’s
Discussion and Analysis of Financial Condition and Results of Operations
—Year 2000 compliance.”
We Depend on Service Revenues to Increase Our Overall
Revenues; Services May Not Achieve Profitability.
Our service
revenues have increased each year as a percentage of total revenues.
Service revenues represented 35.2%, 34.5%, and 27.8% of total revenues
for 1999, 1998 and 1997, respectively. We anticipate that service
revenues will continue to represent a significant percentage of total
revenues. To a large extent, the level of service revenues depends upon
the ongoing renewals of customer support contracts by our growing
installed customer base. Customer support contracts might not be
renewed. And, if third-party organizations such as systems integrators
become proficient in installing or servicing our products, consulting
revenues could decline. Our ability to increase service revenues will
depend in large part on our ability to increase the scale of our
services organization, including our ability to successfully recruit and
train a sufficient number of qualified services personnel. We formed our
professional services organization in 1996. Since that time, we have not
achieved profitability with respect to these services. Due to the
increasing costs of operating a professional services organization, we
may not be able to achieve profitability in this part of our business in
the near future, or ever.
We Depend on Our Key Employees.
Our success
depends on the performance of our senior management, particularly S.
Steven Singh, our President, Chief Executive Officer and Chairman of the
Board, who is not bound by an employment agreement. Although we maintain
key person life insurance on Mr. Singh in the amount of $1.0 million,
the loss of his services would harm our business. If one or more members
of our senior management or any of our key employees were to resign,
particularly to join or form a competitor, the loss of that personnel
and any resulting loss of existing or potential customers to that
competitor would harm our business.
We Must Attract and Retain Qualified
Personnel.
Our success
depends on our ability to attract and retain qualified, experienced
employees. There is substantial competition for experienced engineering,
sales and consulting personnel in the market segments in which we
compete. Many of our competitors for experienced personnel have greater
financial and other resources than we have. In particular, we compete
for personnel with Microsoft Corporation, which is located in the same
geographic area as our headquarters. We also compete for personnel with
other software vendors, including ERP vendors and business-to-business
electronic commerce solution providers, and with consulting and
professional services companies.
We Rely on Third Party Implementation Service
Providers.
Beginning with
fiscal 1999, the majority of the consulting services associated with the
implementation of our software at our customers’ facilities has
been performed by third party implementation service providers. If
we are unable to establish and maintain effective, long-term relationships
with our implementation providers, or if these providers do not meet the
needs or expectations of our customers, our business would be seriously
harmed. This strategy will also require that we develop new
relationships with additional third-party implementation providers to
provide these services if the number of our customer implementations
continues to increase. Our current implementation partners are not
contractually required to continue to help implement our solutions. As a
result of the limited resources and capacities of many third-party
implementation providers, we may be unable to establish or maintain
relationships with third parties having sufficient resources to provide
the necessary implementation services to support our needs. If these
resources are unavailable, we will be required to provide these services
internally, which would significantly limit our ability to meet our
customers’ implementation needs. In addition, we cannot control the
level and quality of service provided by our current and future
implementation partners.
There are Risks Associated with International
Operations.
Our international
operations are subject to a number of risks, including:
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costs of
customizing products for foreign countries;
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laws and
business practices favoring local competition;
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dependence on
local vendors;
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uncertain
regulation of electronic commerce;
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compliance
with multiple, conflicting and changing governmental laws and
regulations;
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greater
difficulty in collecting accounts receivable;
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import and
export restrictions and tariffs;
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difficulties
staffing and managing foreign operations;
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multiple
conflicting tax laws and regulations; and
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political and
economic instability.
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Our international
operations also face foreign currency-related risks. To date, most of
our revenues have been denominated in U.S. Dollars, but we believe that
an increasing portion of our revenues will be denominated in foreign
currencies. In particular, we expect that an increasing portion of our
international sales may be Euro-denominated. The Euro is still a
relatively new currency and may be subject to economic risks that are
not currently contemplated. We currently do not engage in foreign
exchange hedging activities, and therefore our international revenues
and expenses are currently subject to the risks of foreign currency
fluctuations.
Revenues from
customers outside the United States, primarily in the United Kingdom,
Canada and Australia represented approximately $932,000, $810,000, and
$1.3 million in 1999, 1998, and 1997. A key component of our business
strategy is to expand our sales and support operations internationally.
We employ sales professionals in London, Paris, Sydney and Toronto and
intend to establish additional international sales offices, expand our
international management, sales and support organizations, and enter
into relationships with additional international remarketers. We are in
the early stages of developing our indirect distribution channels in
markets outside the United States. We may not be able to attract
remarketers that will be able to market our products
effectively.
We must also
customize our products for local markets. For example, our ability to
expand into the European market will depend on our ability to develop a
travel and entertainment expense management solution (as well as
business-to-business procurement and human resources self-service
solutions) that incorporates the tax laws and accounting practices
followed in Germany and other European countries, and to develop
workplace eCommerce applications that support the Euro. Further, if we
establish significant operations overseas, we may incur costs that would
be difficult to reduce quickly because of employee practices in those
countries.
Our Revenue Recognition Policy May Change When Definitive
Guidance is Available.
We recognize
revenues from sales of software licenses when we sign a non-cancelable
license agreement with a customer, the software is delivered, no
significant post-delivery vendor obligations remain and collection is
deemed probable. We recognize customer support revenues ratably over the
contract term (which is typically one year) and recognize revenues for
consulting and training services as such services are performed. We
believe our current revenue recognition policies and practices are
consistent with applicable accounting standards. However, guidelines for
recently introduced software revenue recognition standards have not yet
been developed. Once available, such guidance could lead to
unanticipated changes in our current revenue accounting practices, and
such changes could significantly reduce our future revenues and
earnings. See “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” and “Our plan
to sell products as an Internet-based applications service provider may
fail.”
The Company
’s principal administrative, sales, marketing and research and
development facility is located in Redmond, Washington and consists of
approximately 101,400 square feet of office space held under leases
which expire in December 2001 and May 2005. Our wholly owned subsidiary,
Seeker Software, will continue to operate out of our facility located in
Oakland, California consisting of approximately 19,500 square feet of
office space held under a lease that expires in October 2001. As of
September 30, 1999, we also leased sales offices in Atlanta, Baltimore,
Boston, Chicago, Dallas, Denver, London, Los Angeles, Minneapolis, New
York, Paris, Philadelphia, Princeton, Raleigh, San Francisco, St. Louis
and Sydney.
ITEM 3. LEGAL PROCEEDINGS
The Company is
subject to various legal proceedings and claims arising in the ordinary
course of business. The Company’s management does not expect that
the results in any of these legal proceedings will have a material
adverse effect on the Company’s financial condition, results of
operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
No matter was
submitted to a vote of the Company’s stockholders, through the
solicitation of proxies or otherwise, during the fourth quarter of
fiscal year 1999.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
Market Information
The Company
’s common stock is traded on The Nasdaq National Market under
the symbol “CNQR.” The following table sets forth the
range of the high and low closing sale prices by quarter as reported on
the Nasdaq National Market since December 16, 1998, the date our common
stock commenced public trading.
| |
|
High
|
|
Low
|
| Fiscal year ended
September 30, 1999: |
|
|
|
|
| First Quarter (since
December 16, 1998) |
|
$30 1
/2
|
|
$19 1
/2
|
| Second
Quarter |
|
$45 1
/8
|
|
$25 |
| Third
Quarter |
|
$55 |
|
$24 7
/16
|
| Fourth
Quarter |
|
$41 1
/16
|
|
$21 15
/16
|
On September 30,
1999, there were approximately 297 stockholders of record of the Company
’s common stock.
Dividends
The Company has
never paid cash dividends on its common stock. The Company intends to
retain its earnings for use in its business and, therefore, does not
anticipate paying any cash dividends on the common stock.
Recent Sales of Unregistered Securities*
The following
table sets forth information regarding all securities of the Company
sold by the Company from October 1, 1998 to September 30, 1999.
References to warrants below assume the full exercise of all warrants.
Preferred stock numbers are presented on an as converted to common stock
basis.
Class of
Purchasers
|
|
Date of Sale
|
|
Title of Securities
|
|
Number of
Securities
|
|
Aggregate
Purchase Price
|
|
Form of
Consideration
|
| 1 investor |
|
December 16, 1998 |
|
Exercise of warrant to
purchase common stock |
|
33,537 |
|
— |
|
Net
exercise |
| 1 investor |
|
December 21, 1998 |
|
Exercise of warrant to
purchase common stock |
|
225,000 |
|
2,616,000 |
|
Cash |
| 1 investor |
|
February 8, 1999 |
|
Exercise of warrant to
purchase common stock |
|
10,515 |
|
— |
|
Net
exercise |
| 53 investors |
|
June 1, 1999 |
|
Common stock |
|
3,419,929 |
|
— |
|
Exchange for
common stock of
Seeker Software, Inc.(1) |
Officers, directors,
employees and other
eligible participants |
|
October 1, 1998 to
January 12, 1999 |
|
Exercise of options to
purchase common stock |
|
116,453 |
|
18,033 |
|
Cash(2) |
*
|
As part of
the reincorporation of the Company into Delaware, the Company
exchanged 3,099,959 shares of its common stock, 10,213,553 shares of
its redeemable convertible preferred stock and warrants to purchase
2,329,578 shares of its redeemable convertible preferred stock for
3,099,959 shares of common stock, 10,213,553 shares of redeemable
convertible preferred stock and warrants to purchase 2,329,578 shares
of redeemable convertible preferred stock, respectively.
|
(1)
|
In connection
with the Company’s acquisition of Seeker Software, the Company
exchanged 3,419,929 shares of common stock for Seeker Software’s
common stock.
|
(2)
|
With respect
to the grant of stock options, exemption from registration under the
Securities Act was unnecessary in that none of such transactions
involved a “sale” of securities as such term is used in
Section 2(3) of the Securities Act.
|
All sales of
common stock made pursuant to the exercise of stock options granted
under the stock option plans of the Company or its predecessors were
made pursuant to the exemption from the registration requirements of the
Securities Act afforded by Rule 701 promulgated under the Securities
Act.
All other sales
were made in reliance on Section 4(2) of the Securities Act and/or
Regulation D promulgated under the Securities Act. The securities were
sold to a limited number of people with no general solicitation or
advertising. The purchasers were sophisticated investors with access to
all relevant information necessary to evaluate the investment and who
represented to the issuer that the shares were being acquired for
investment.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL
DATA
The following
selected consolidated financial data should be read in conjunction with
our Consolidated Financial Statements and Notes thereto and
“Management’s Discussion and Analysis of Financial Condition
and Results of Operations”.
Our consolidated
financial data reflects our acquisition of 7Software in June 1998, in a
transaction accounted for as a purchase, which resulted in a one-time
charge of $5.2 million for acquired in-process technology and our merger
with Seeker Software in June 1999, in a transaction accounted for as a
pooling of interests, which resulted in a one time, non-recurring merger
cost of $8.9 million.
| |
|
Year Ended
September 30,
|
| |
|
1999
|
|
1998
|
|
1997
|
|
1996
|
|
1995
|
| |
|
(in thousands,
except per share data) |
| Consolidated
Statement of Operations Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Revenues,
net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses |
|
$ 24,002 |
|
|
$ 13,176 |
|
|
$ 6,504 |
|
|
$ 1,717 |
|
|
$ 2,104 |
|
|
Services |
|
13,011 |
|
|
6,952 |
|
|
2,499 |
|
|
253 |
|
|
24 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
37,013 |
|
|
20,128 |
|
|
9,003 |
|
|
1,970 |
|
|
2,128 |
|
| Cost of
revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses |
|
1,184 |
|
|
558 |
|
|
394 |
|
|
386 |
|
|
728 |
|
|
Services |
|
16,653 |
|
|
8,063 |
|
|
2,721 |
|
|
876 |
|
|
673 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues |
|
17,837 |
|
|
8,621 |
|
|
3,115 |
|
|
1,262 |
|
|
1,401 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Gross
profit |
|
19,176 |
|
|
11,507 |
|
|
5,888 |
|
|
708 |
|
|
727 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Operating
expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and
marketing |
|
28,993 |
|
|
16,070 |
|
|
6,692 |
|
|
2,990 |
|
|
2,363 |
|
|
Research and
development |
|
19,371 |
|
|
10,276 |
|
|
4,479 |
|
|
1,808 |
|
|
744 |
|
|
General and
administrative |
|
10,385 |
|
|
5,919 |
|
|
2,307 |
|
|
1,019 |
|
|
515 |
|
|
Merger costs and acquired
in-process technology |
|
8,859 |
|
|
5,203 |
|
|
— |
|
|
— |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating
expenses |
|
67,608 |
|
|
37,468 |
|
|
13,478 |
|
|
5,817 |
|
|
3,622 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from
operations |
|
(48,432 |
) |
|
(25,961 |
) |
|
(7,590 |
) |
|
(5,109 |
) |
|
(2,895 |
) |
|
Other income (expense),
net |
|
1,956 |
|
|
(263 |
) |
|
31 |
|
|
5 |
|
|
5 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net loss |
|
$(46,476 |
) |
|
$(26,224 |
) |
|
$(7,559 |
) |
|
$(5,104 |
) |
|
$(2,890 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Basic and diluted net
loss per share |
|
$
(2.75 |
) |
|
$
(8.18 |
) |
|
$ (2.50 |
) |
|
$ (1.69 |
) |
|
$ (1.29 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in
calculation of basic and diluted net loss per
share |
|
16,883 |
|
|
3,207 |
|
|
3,025 |
|
|
3,019 |
|
|
2,234 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
September
30,
|
| |
|
1999
|
|
1998
|
|
1997
|
|
1996
|
|
1995
|
| |
|
(in
thousands) |
| Consolidated
Balance Sheet Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cash, cash equivalents
and marketable securities |
|
$108,722 |
|
$17,058 |
|
|
$ 7,721 |
|
|
$5,702 |
|
|
$2,541 |
|
| Working
capital |
|
90,626 |
|
8,450 |
|
|
7,074 |
|
|
4,292 |
|
|
1,839 |
|
| Total
assets |
|
128,828 |
|
28,622 |
|
|
14,180 |
|
|
7,022 |
|
|
3,058 |
|
| Long-term obligations,
net of current portion |
|
6,326 |
|
8,605 |
|
|
3,687 |
|
|
415 |
|
|
125 |
|
| Redeemable convertible
preferred stock and warrants |
|
— |
|
37,956 |
|
|
17,345 |
|
|
12,386 |
|
|
4,903 |
|
| Total stockholders
’ equity (deficit) |
|
93,774 |
|
(33,551 |
) |
|
(12,503 |
) |
|
(8,330 |
) |
|
(3,234 |
) |
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following
discussion should be read in conjunction with the Consolidated Financial
Statements and Notes thereto. This discussion contains forward-looking
statements that involve risks and uncertainties. Our actual results
could differ materially from those anticipated in these forward-looking
statements as a result of various factors, including those set forth
under “Risk Factors That May Affect Results of Operations and
Financial Condition” and elsewhere in this Report.
Overview
We are a leading
provider of workplace eCommerce software and services that extend
automation to employees throughout an enterprise and to partners,
suppliers and service providers in the extended enterprise. Our flagship
product, Concur eWorkplace integrates our suite of workplace eCommerce
solutions and provides a portal through which employees can access
critical business eCommerce information and services. The Concur
eWorkplace suite is available in three versions: licensed, ASP and
Internet outsourced. Our licensed version, which is principally marketed
to larger corporations, includes our entire suite of workplace eCommerce
solutions, consisting of corporate procurement, human resources self
service and travel and entertainment expense management. Our ASP
version, called Concur eWorkplace ASP, is offered on a
subscription-pricing basis principally to larger corporations and
currently includes travel and entertainment expense management
functionality. Our Internet outsourced version, called Concur
eWorkplace.com, is offered on a subscription-pricing basis, principally
for small and mid-size businesses. This version currently includes
travel and entertainment expense management and corporate procurement
functionality. More than 275 companies worldwide, representing over 2.1
million end-users, have licensed our solutions.
We were
incorporated in 1993 and commenced operations in fiscal 1994, initially
developing QuickXpense, a retail, shrink-wrapped application that
automated travel and entertainment expense reporting for individuals. We
first shipped QuickXpense in fiscal 1995 and sold QuickXpense through a
combination of retail channels and direct marketing, utilizing a small
sales force and no consulting or implementation staff. In response to
inquiries from businesses seeking to automate the entire travel and
entertainment expense reporting process, including back-office
processing and integration to financial systems, we significantly
expanded our product development efforts and released Concur Expense, a
client-server based enterprise travel and entertainment expense
management solution in July 1996. In March 1998, we shipped an
intranet-based version of Concur Expense. Since its release, the
intranet-based version has accounted for a majority of Concur Expense
license revenues. We expect to focus all future product development
efforts on the Internet-based versions of our products.
On June 30, 1998,
we acquired 7Software, Inc., a privately held software company and the
developer of Concur Procurement. 7Software was incorporated in May 1997.
7Software was selling the initial version of its product through a
single sales representative at the time of the acquisition. In
connection with the acquisition, we issued 708,918 shares of our common
stock in exchange for all the outstanding shares of 7Software. We also
converted all of 7Software’s outstanding options into options to
purchase up to 123,921 shares of our common stock, paid $130,000 to
7Software, and agreed to pay $500,000 to certain stockholders of
7Software. Our total purchase price was valued at $6.2 million,
including direct costs of the acquisition. The total purchase price was
determined by our management and board of directors based on an
assessment of the value of 7Software and as a result of negotiations
with 7Software. In determining the purchase price, we estimated the fair
value of our common stock and our stock options issued in the
transaction. We also entered into employment and bonus agreements with
certain officers of 7Software. The acquisition was recorded under the
purchase method of accounting and the results of operations of 7Software
and the fair value of the assets acquired and liabilities assumed were
included in our consolidated financial statements beginning on the
acquisition date. In connection with this acquisition, we recorded $5.2
million for in-process technology as an expense during the quarter ended
June 30, 1998. In addition, we recorded capitalized technology and other
intangible assets of $960,000 that are being amortized on a
straight-line basis over three years. See Note 3 of Notes to
Consolidated Financial Statements.
On June 1, 1999,
we acquired Seeker Software, a privately held software company and
developer of Concur Human Resources. The transaction was accounted for
as a pooling of interests. We issued 3,419,929 shares of common stock in
exchange for all outstanding preferred stock, preferred stock warrants,
and common stock of Seeker Software, and we converted all outstanding
options to purchase Seeker Software common stock into options to
purchase up to 680,234 shares of Concur common stock. These consolidated
financial statements have been prepared to reflect the restatement of
all periods presented to include the accounts of Seeker Software. The
historical results of the pooled entities reflect each of their actual
operating cost structures and, as a result, do not necessarily reflect
the cost structure of the newly combined entity. These consolidated
financial statements are now considered the historical financial
statements of the Company.
In January 1999,
we introduced Concur eWorkplace which provides a common user interface
to integrate Concur Expense and Concur Procurement and provides a portal
through which employees can access critical business eCommerce
information and services. Concur Human Resources will be integrated into
Concur eWorkplace in fiscal 2000. Concur eWorkplace improves employee
productivity by integrating common features, such as the user interface,
applications icons, approval reminders, status updates and passwords. It
enables IT personnel to easily administer employee-centric applications
that are integrated into Concur eWorkplace, because the data is captured
in a central database, eliminating the need to support, maintain and
manage multiple servers and software programs. In October 1999, we
introduced Concur eWorkplace.com, which provides features and benefits
similar to Concur eWorkplace but is offered as an ASP product
principally for small and mid-size companies, and requires limited IT
infrastructure and limited IT support. Concur eWorkplace.com is
currently available with Concur Expense and Concur Procurement. We
expect to add Concur Human Resources in fiscal 2001. In December 1999,
we introduced Concur eWorkplace ASP, which provides features and
benefits similar to Concur eWorkplace, but is offered as an ASP product
principally to large companies that want a configured solution offered
on an outsourced basis with limited IT infrastructure and support
requirements. Concur eWorkplace ASP is currently available with Concur
Expense, and we expect to add Concur Procurement and Concur Human
Resources in fiscal 2000 and fiscal 2001, respectively.
Through June
1996, we derived our revenues from licenses of QuickXpense and related
services. In July 1996, we released Concur Expense. Substantially all of
our revenues since the fourth quarter of fiscal 1996 have been derived
from licenses of Concur Expense and related services, and to a lesser
degree, the sale of licenses and services relating to Concur Human
Resources. We expect that the majority of our revenues will continue to
be derived from our Concur Expense product line and related services.
Our revenues, which consist of software license revenues and service
revenues, totaled $37.0 million, $20.1 million, and $9.0 million in the
years ended September 30, 1999, 1998 and 1997, respectively. Our product
pricing is primarily based on the number of users or employees of the
customer. Service revenues consist of consulting, customer support and
training.
We market our
software and services primarily through our direct sales organization in
the United States, Canada, United Kingdom and Australia. Revenues from
licenses and services to customers outside the United States were
$932,000, $810,000 and $1.3 million in the years ended September 30,
1999, 1998 and 1997, respectively. Historically, as a result of the
relatively small amount of international sales, fluctuations in foreign
currency exchange rates have not had a material effect on our operating
results.
For fiscal 1998
and prior years, we recognized revenues in accordance with the American
Institute of Certified Public Accountants Statement of Position 91-1.
Software license revenues were recognized when a non-cancelable license
agreement was signed with a customer, the software was shipped, no
significant post delivery vendor obligations remained and collection was
deemed probable. Maintenance revenues were recognized ratably over the
contract term, typically one year. Revenues for consulting services were
recognized as such services were performed. Commencing with fiscal 1999,
we recognize revenues in accordance with the American Institute of
Certified Public Accountants Statement of Position 97-2, “Software
Revenue Recognition,” or SOP 97-2. These standards generally
require revenues earned on software arrangements involving multiple
elements, such as software products, upgrades, enhancements,
post-contract customer support, installation and training, to be
allocated to each element based on the relative fair values of the
elements. The fair value of an element must be
based on evidence that is specific to the vendor. Evidence of the fair
value of each element is based on the price charged when the element is
sold separately. The revenues allocated to software products, including
specified upgrades or enhancements, generally are recognized upon
delivery of the products. The revenues allocated to unspecified
upgrades, updates and other post-contract customer support generally are
recognized ratably over the term of the related maintenance contract.
Revenues relating to consulting and training services provided to
customers are generally recognized as such services are performed. If
evidence of the fair value for all elements of the arrangement does not
exist, all revenues from the arrangement are deferred until such
evidence exists or until all elements are delivered. SOP 97-2 has been
subject to certain modifications and interpretations since its release
in October 1997. Most recently in December 1998, the American Institute
of Certified Public Accountants issued Statement of Position 98-9,
“Modification of SOP 97-2, Software Revenue Recognition, With
Respect to Certain Transactions” which has been adopted by us
without any significant effect on revenue recognition. Further
implementation guidelines relating to SOP 97-2 and related modifications
may result in unanticipated changes in our revenue recognition practices
and such changes could affect our future revenues and
earnings.
Since inception,
we have incurred substantial research and development costs and have
invested heavily in the expansion of our sales, marketing and
professional services organizations to build an infrastructure to
support our long-term growth strategy. The number of our full-time
employees increased from 293 at September 30, 1998, to 488 at September
30, 1999 representing an increase of 195 or 67%. As a result of
investments in our infrastructure, we have incurred net losses in each
fiscal quarter since inception and as of September 30, 1999, had an
accumulated deficit of $89.7 million. We anticipate that our operating
expenses will increase substantially for the foreseeable future as we
expand our product development, sales and marketing and professional
services staff. In addition, we plan to expand our customers’ and
suppliers’ ability to conduct business-to-business eCommerce
transactions over the Internet through the use of our Concur Commerce
Network. The Concur Commerce Network will require additional
expenditures as we market and continue its development. Accordingly, we
expect to incur net losses for the foreseeable future.
We have recorded
aggregate deferred stock compensation of $3.4 million. Deferred stock
compensation is amortized over the life of the options, generally four
years. During 1999 and 1998, we recorded amortization of deferred stock
compensation of $1.6 million and $421,000, respectively, of which $1.3
million and $44,000 was a result of the Seeker Software
merger.
We believe that
period-to-period comparisons of our operating results are not meaningful
and should not be relied upon as indicative of future performance. Our
prospects must be considered in light of the risks, expenses and
difficulties frequently encountered by companies in early stages of
development, particularly companies in new and rapidly evolving markets.
There can be no assurance that we will be successful in addressing such
risks and difficulties. Although historically we have experienced
significant revenue growth, this trend may not continue. In addition, we
may not achieve or maintain profitability in the future.
Results of Operations
The following
table sets forth certain statement of operations data as a percentage of
total revenues for the periods indicated:
| |
|
Year Ended
September 30,
|
| |
|
1999
|
|
1998
|
|
1997
|
| Revenues,
net: |
|
|
|
|
|
|
|
|
|
|
Licenses |
|
64.8 |
% |
|
65.5 |
% |
|
72.2 |
% |
|
Services |
|
35.2 |
|
|
34.5 |
|
|
27.8 |
|
| |
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
100.0 |
|
|
100.0 |
|
|
100.0 |
|
| |
|
|
|
|
|
|
|
|
|
| Cost of
revenues: |
|
|
|
|
|
|
|
|
|
|
Licenses |
|
3.2 |
|
|
2.8 |
|
|
4.4 |
|
|
Services |
|
45.0 |
|
|
40.0 |
|
|
30.2 |
|
| |
|
|
|
|
|
|
|
|
|
|
Total cost of revenues |
|
48.2 |
|
|
42.8 |
|
|
34.6 |
|
| |
|
|
|
|
|
|
|
|
|
| Gross
margin |
|
51.8 |
|
|
57.2 |
|
|
65.4 |
|
| Operating
expenses: |
|
|
|
|
|
|
|
|
|
|
Sales and marketing |
|
78.3 |
|
|
79.9 |
|
|
74.3 |
|
|
Research and development |
|
52.3 |
|
|
51.1 |
|
|
49.8 |
|
|
General and administrative |
|
28.1 |
|
|
29.4 |
|
|
25.6 |
|
|
Merger and acquired in-process technology |
|
24.0 |
|
|
25.8 |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
182.7 |
|
|
186.2 |
|
|
149.7 |
|
| |
|
|
|
|
|
|
|
|
|
| Loss from
operations |
|
(130.9 |
) |
|
(129.0 |
) |
|
(84.3 |
) |
| Interest
income |
|
10.3 |
|
|
2.3 |
|
|
2.1 |
|
| Interest
expense |
|
(4.1 |
) |
|
(2.7 |
) |
|
(1.0 |
) |
| Other expense,
net |
|
(0.9 |
) |
|
(0.9 |
) |
|
(0.7 |
) |
| |
|
|
|
|
|
|
|
|
|
| Net loss |
|
(125.6 |
)% |
|
(130.3 |
)% |
|
(83.9 |
)% |
| |
|
|
|
|
|
|
|
|
|
Years Ended September 30, 1999, 1998 and 1997
Revenues
Total revenues
were $37.0 million, $20.1 million and $9.0 million for the years ended
September 30, 1999, 1998 and 1997, respectively, representing increases
of $16.9 million, or 84%, from 1998 to 1999 and $11.1 million, or 124%,
from 1997 to 1998. International revenues were $932,000, $810,000 and
$1.3 million for the years ended September 30, 1999, 1998 and 1997,
respectively. We had no customer that accounted for more than 10% of our
revenues in 1999, 1998 or 1997.
License
Revenues. Our license revenues were $24.0
million, $13.2 million and $6.5 million for the years ended September
30, 1999, 1998 and 1997, respectively, representing increases of $10.8
million, or 82%, from 1998 to 1999 and $6.7 million, or 103%, from 1997
to 1998. License revenues represented 64.8%, 65.5% and 72.2% of total
revenues for the years ended September 30, 1999, 1998 and 1997,
respectively. The increases in revenues were due primarily to the market
acceptance of Concur Expense, and to a lesser degree, Concur Human
Resources. Also driving this increase in revenues was an increase in the
size and productivity of our sales force, and sales related to referrals
attributable to our December 1997 strategic marketing alliance agreement
with American Express.
Service
Revenues. Our service revenues were $13.0
million, $7.0 million and $2.5 million for the years ended September 30,
1999, 1998 and 1997, respectively, representing increases of $6.0
million, or 87%, from 1998 to 1999 and $4.5 million, or 178%, from 1997
to 1998. Service revenues represented 35.2%, 34.5% and 27.8% of total
revenues for the years ended September 30, 1999, 1998 and 1997,
respectively. These increases reflected increased consulting revenue
primarily a result of Concur Expense, and to a lesser degree, Concur
Human Resources license sales in fiscal 1999 and 1998, as well as revenues
recognized with respect to maintenance agreements entered into in the
current and prior periods. As license sales increase, we expect
increases in service revenues based on the resulting implementation
efforts from these sales. The percentage of total revenues represented
by service revenues in prior fiscal periods may not be indicative of
levels to be expected in future periods as the proportion of our service
revenues to total revenues will fluctuate in the future depending in
part on our use of third-party consulting and implementation service
providers as well as market acceptance of our Concur eWorkplace.com and
Concur eWorkplace ASP solutions.
Cost of Revenues
Cost of
License Revenues. Our cost of license
revenues was $1.2 million, $558,000 and $394,000 for the years ended
September 30, 1999, 1998 and 1997, respectively, representing increases
of $626,000, or 112%, from 1998 to 1999 and $164,000, or 42%, from 1997
to 1998. The increase from 1998 to 1999 was primarily a result of the
amortization of capitalized technology recorded in connection with our
June 1998, acquisition of 7Software, and to a lesser extent reflects
increased expenses associated with sub-licensing of third-party software
due to increased sales of Concur Expense, and the costs of production,
manuals and other media associated with licensing our products. The
increase from 1997 to 1998 was principally a result of increased
expenses associated with sub-licensing of third-party software due to
increased sales of Concur Expense. Cost of license revenues represented
4.9%, 4.2%, and 6.1% of license revenues for the years ended September
30, 1999, 1998 and 1997 respectively. We expect that the cost of license
revenues may fluctuate in the future depending in part on the demand for
our current products and our ASP solutions.
Cost of
Service Revenues. Our cost of service
revenues was $16.7 million, $8.1 million and $2.7 million for the years
ended September 30, 1999, 1998 and 1997, respectively, representing
increases of $8.6 million, or 107%, from 1998 to 1999 and $5.4 million,
or 196% from 1997 to 1998. These increases were primarily due to
increases in professional service personnel to manage and support our
growing customer base. Cost of service revenues represented 128%, 116%
and 109% of service revenues for the years ended September 30, 1999,
1998 and 1997, respectively. Cost of service revenues as a percentage of
service revenues may vary between periods due to changes in the mix of
services provided by us or by our partners.
Costs and Expenses
Sales and
Marketing. Our sales and marketing expenses
were $29.0 million, $16.1 million and $6.7 million for the years ended
September 30, 1999, 1998 and 1997, respectively, representing increases
of $12.9 million, or 80%, from 1998 to 1999 and $9.4 million, or 140%,
from 1997 to 1998. The increases from 1997 to 1999 primarily reflect our
investment in our sales and marketing infrastructure, including
significant personnel-related expenses such as salaries, benefits and
commissions, recruiting fees, travel and entertainment expenses, and
related costs of hiring sales management, sales representatives, sales
engineers and marketing personnel. The increases also reflect increased
public relations and trade show expenses, and sales referral fees paid
under our agreement with our referral partners, principally American
Express. The increase from 1998 to 1999 also reflects the cost of our
ongoing international expansion of our sales organization into the
United Kingdom, and to a lesser degree, Australia. Sales and marketing
expenses represented 78.3%, 79.9% and 74.3% of total revenues for the
years ended September 30, 1999, 1998 and 1997, respectively. We believe
that a significant increase in our sales and marketing efforts is
essential for us to maintain our market position and further increase
the acceptance of our products. Accordingly, we anticipate that we will
continue to invest significantly in sales and marketing for the
foreseeable future, and sales and marketing expenses will continue to
increase in future periods.
Research and
Development. Our research and development
expenses were $19.4 million, $10.3 million and $4.5 million for the
years ended September 30, 1999, 1998 and 1997, respectively,
representing increases of $9.1 million, or 89% from 1998 to 1999, and
$5.8 million, or 129% from 1997 to 1998. The increases were primarily
related to increased hiring of software engineers, program management
and quality assurance personnel and outside contractors to support our
expanded product lines and ongoing product development. Research and
development costs represented 52.3%, 51.1% and 49.8% of total revenues
for the years ended September 30,
1999, 1998 and 1997, respectively. We believe that a significant increase
in our research and development investment is essential for us to
maintain our market position, to continue to expand our product lines,
and to enhance the common technology platform for our suite of products.
In addition, we plan to expand our customers’ and suppliers’
ability to conduct business-to-business eCommerce transactions over the
Internet through the use of our Concur Commerce Network. The Concur
Commerce Network will require additional expenditures as we market and
continue its development. Accordingly, we anticipate that we will
continue to invest significantly in product research and development for
the foreseeable future, and research and development expenses are likely
to increase in future periods. In the development of our new products
and enhancements of existing products, the technological feasibility of
the software is not established until substantially all product
development is complete. Historically, software development costs
eligible for capitalization have been insignificant, and all costs
related to internal research and development have been expensed as
incurred.
General and
Administrative. Our general and
administrative expenses were $10.4 million, $5.9 million and $2.3
million for the years ended September 30, 1999, 1998 and 1997,
respectively, representing increases of $4.5 million, or 76% from 1998
to 1999 and $3.6 million, or 157% from 1997 to 1998. These increases
were primarily the result of hiring additional general and
administrative personnel to support the growth of our business,
increased use of outside contractors associated with increased
recruiting efforts, higher amortization of deferred stock compensation,
and an increase in the allowance for doubtful accounts related to our
increase in revenues. General and administrative costs represented
28.1%, 29.4% and 25.6% of our total revenues for the years ended
September 30, 1999, 1998 and 1997, respectively. We believe that our
general and administrative expenses will continue to increase as a
result of the continued expansion of our administrative staff and
expenses associated with being a public company, including public
reporting expenses, directors’ and officers’ liability
insurance and professional services fees.
Merger Costs
and Acquired In-Process Technology. In
connection with our merger with Seeker Software in June 1999, we
recorded a charge to operating expenses of approximately $8.9 million
for direct and other merger-related costs pertaining to the transaction.
Merger costs consisted primarily of financial advisor fees for both
companies, attorneys, accountants, financial printing and other related
charges. In connection with the acquisition of 7Software, we recorded a
one-time charge of $5.2 million for in-process technology as an expense
in the quarter ended June 30, 1998.
Interest
Income and Interest Expense. Our interest
income was $3.8 million, $454,000 and $186,000 for the years ended
September 30, 1999, 1998 and 1997, respectively, representing increases
of approximately $3.4 million from 1998 to 1999 and $268,000 from 1997
to 1998. These increases reflect interest income earned on the higher
cash, cash equivalents and marketable securities balances as a result of
proceeds received in December 1998 and April 1999 from our public
offerings. Interest expense was $1.5 million, $539,000, and $94,000 for
the years ended September 30, 1999, 1998 and 1997, respectively,
representing increases of $972,000 from 1998 to 1999 and $445,000 from
1997 to 1998. These increases were due to additional bank borrowings and
higher capital lease obligations in each of the years.
Provision for
Income Taxes. No provision for federal and
state income taxes has been recorded because we have experienced net
losses since inception that have resulted in deferred tax assets. A
valuation allowance has been recorded for the entire deferred tax asset
as a result of uncertainties regarding the realization of the asset
balance.
Financial Condition
Our total assets
were $128.8 million and $28.6 million at September 30, 1999 and 1998,
respectively, representing an increase of $100.2 million, or 350%. This
increase was primarily due to cash proceeds received from the sales of
our common stock in our December 1998 initial public offering (“IPO
”), and our April 1999 follow-on offering. As of September 30,
1999, we had $108.7 million of cash and cash equivalents and marketable
securities, compared to $17.1 million at September 30, 1998,
representing an increase of $91.7 million, or 537%. During December
1998, we issued 3,365,000 shares of our common stock in connection
with our IPO, resulting in proceeds to Concur of approximately $37.4
million, net of offering costs. In connection with our IPO, we also
received proceeds totaling $2.6 million from the exercise of a warrant
to purchase 225,000 shares of our common stock. In April 1999, we
completed a follow-on offering of our common stock and issued an
additional 2,018,620 shares at an offering price of $43.50. The proceeds
to Concur, net of offering costs, were approximately $82.2
million.
Our accounts
receivable balance, net of allowance for doubtful accounts, was $9.0
million and $6.0 million as of September 30, 1999 and 1998,
respectively, representing an increase of $3.0 million, or 49%. This
increase was principally a result of increased license revenues and
service revenues associated with sales of Concur eWorkplace, including
sales of Concur Expense and to a lesser degree, Concur Human Resources.
Days’ sales outstanding (“DSO”) in accounts receivable
was 90 days and 81 days for the quarters ended September 30, 1999 and
1998, respectively. We expect that DSO will fluctuate significantly in
future quarters, and may even increase. Deposits and other assets were
$1.8 million and $504,000 at September 30, 1999 and 1998, respectively.
Deposits and other assets increased primarily due to a prepayment for a
sales referral, marketing, and business partnership.
Our total current
liabilities were $28.6 million and $15.4 million as of September 30,
1999 and 1998, respectively, representing an increase of $13.1 million,
or 85%. This increase consists primarily of an increase in accounts
payable, accrued liabilities, and accrued commissions. The increase in
accounts payable and accrued liabilities was primarily due to expenses
incurred but unpaid as of September 30, 1999 relating to our merger with
Seeker Software in June 1999, as well as our increased growth and
ongoing business activities. The growth in accrued commissions at
September 30, 1999 was due to our increased sales in the current quarter
over the same period in the prior year. Sales in the fourth quarter of
1999 were up 43% from the same quarter in 1998.
Liquidity and Capital Resources
Since inception,
we have funded our operations primarily through sales of equity
securities and to a lesser degree the use of long-term debt, notes
payable to stockholders, and equipment leases. Prior to our IPO, we had
raised approximately $39.3 million, net of offering costs, from the
issuance of preferred stock, and approximately $15.0 million from the
issuance of long-term debt and notes payable to stockholders, and had
financed equipment purchases totaling approximately $3.9
million.
In December 1998,
we completed our IPO and received approximately $37.4 million in cash,
net of underwriting discounts, commissions and other offering costs. In
connection with the IPO, warrants were exercised to purchase 225,000
shares of common stock at a price of $11.625 per share, resulting in
additional proceeds totaling $2.6 million. In April 1999, we completed a
follow-on offering and received proceeds of approximately $82.2 million
in cash, net of underwriting discounts, commissions and other offering
costs. Also in April 1999, Seeker Software issued 972,944 shares of
preferred stock in a private placement offering in exchange for $9.4
million in cash and the conversion of $2.6 million in notes payable to
stockholders and accrued interest. Our sources of liquidity as of
September 30, 1999 consisted principally of cash and cash equivalents
and marketable securities, all totaling $108.7 million, and
approximately $3.6 million of available borrowings under a line of
credit.
Net cash used in
operating activities was $36.4 million, $16.0 million and $8.5 million
in the years ended September 30, 1999, 1998 and 1997, respectively,
representing increases of $20.4 million, or 128% from 1998 to 1999, and
$7.5 million or 88% from 1997 to 1998. For such periods, net cash used
by operating activities was primarily a result of funding ongoing
operations.
Our investing
activities have consisted primarily of purchases of property and
equipment. Property and equipment acquisitions, including those acquired
under capital leases, totaled $6.0 million, $2.4 million, and $1.4
million in the years ended September 30, 1999, 1998 and 1997,
representing increases of $3.6 million, or 153% from 1998 to 1999 and
$1.0 million or 77% from 1997 to 1998. We financed a significant portion
of our acquisitions of property and equipment through capital leases,
which consist primarily of computer hardware and software for our
increasing employee base as well as for our management information
systems. We anticipate that we will experience an increase in our
capital expenditures and lease commitments consistent with our
anticipated growth in operations, infrastructure and personnel. We do not
expect to incur significant costs to make our internal information
systems Year 2000 compliant because we believe such information systems
are designed to function properly through and beyond the year
2000.
Our financing
activities provided $131.8 million, $26.3 million and $11.8 million in
the years ended September 30, 1999, 1998, and 1997, respectively. In the
year ended September 30, 1999, cash provided by financing activities
consisted primarily of $37.4 million from our IPO, $2.6 million from the
exercise of warrants as a result of the IPO, and $82.2 million from our
follow-on offering. Additionally, we raised $9.4 million in connection
with the offering of Seeker Software’s preferred stock in April
1999.
We have a line of
credit with a bank for $4.0 million that expires in March 2000. The line
of credit bears interest at the lending bank’s prime rate plus
1.5%. Borrowings are limited to the lesser of 80% of eligible accounts
receivable or $4.0 million and are secured by substantially all of our
non-leased assets. As of September 30, 1999, we had not borrowed under
the line of credit; however, there was a standby letter of credit
outstanding for $450,000. Approximately $3.6 million remained available
under this line as of September 30, 1999.
In September
1997, we entered into a $1.0 million senior term loan facility with the
same bank with which we have the line of credit, pursuant to the terms
of a security and loan agreement. In April 1998, the senior term loan
facility was amended to allow for additional borrowings up to a total of
$3.0 million. The facility, which bears interest at the lending bank
’s prime rate less 1.0%, matures on February 15, 2001. Payments
were interest only through February 15, 1999, at which time we started
to pay off the facility in 24 equal monthly principal payments plus
interest. The loan agreement contains certain financial restrictions and
covenants, with which we are currently in compliance. As of September
30, 1999, the outstanding indebtedness under the loan agreement was $2.1
million.
In July 1997, we
entered into a subordinated loan and security agreement with an
equipment lessor in the principal amount of $1.5 million that bears
interest at an annual rate of 8.5%. In May 1998, this agreement was
amended to allow for additional borrowings of $5.0 million bearing
interest at an annual rate of 11% on the first $3.5 million and 12.5% on
the remaining $1.5 million, which expired on December 31, 1998. The
notes are due in varying monthly installments through April 2002, and
contain certain restrictions and covenants, with which we are currently
in compliance. At September 30, 1999, the outstanding indebtedness under
the subordinated loan agreement was $3.6 million.
We also have an
existing equipment line of credit with a bank, which is no longer
available for additional borrowings. Principal payments of approximately
$32,000, plus interest which accrues at the prime rate plus 1.5% are due
monthly through October 2001. At September 30, 1999, the outstanding
indebtedness under the equipment line of credit was
$409,000.
In September
1998, we entered into an additional subordinated promissory note
agreement with an equipment lessor in the principal amount of $2.0
million. The note bears interest at 11%, payments are due in monthly
installments of approximately $65,000 including interest, and the note
matures in November 2001. At September 30, 1999, the outstanding
indebtedness under the subordinated loan agreement was $1.5
million.
On August 11,
1998, we issued a warrant to TRS to purchase shares of our Series E
Preferred Stock. In connection with our IPO in December 1998, this
warrant was converted into a warrant to purchase 2,325,000 shares of our
common stock. In December 1998, TRS exercised a portion of the warrant
to purchase 225,000 shares at $11.625 per share. Additionally, under the
warrant, TRS may acquire 700,000 shares at any time on or before October
15, 1999 at a cash purchase price of $33.75 per share, 700,000
additional shares at any time on or before January 15, 2001 at a cash
purchase price of $50.625 per share, and 700,000 shares at any time on
or before January 15, 2002 at a cash purchase price of $85.00 per share.
TRS did not exercise the warrants that expired on October 15,
1999.
We currently
anticipate that for the foreseeable future we will continue to
experience significant growth in our operating expenses related to
augmenting our sales and marketing operations, increasing research and
development and extending our professional service capabilities. We also
anticipate developing new distribution channels, improving our
operational and financial systems, entering new markets for our products
and services, and possibly acquiring or investing in complementary
businesses, products or technologies or investing in joint ventures.
Such expenditures will be a material use of our cash resources. We
believe that our existing cash and cash equivalents and marketable
securities and available bank borrowings will be sufficient to meet our
anticipated cash needs for working capital and capital expenditures for
at least the next 12 months. Thereafter, we may require additional funds
to support our working capital requirements or for other purposes and
may seek to raise such additional funds through private or public sales
of securities, strategic relationships, bank debt, financing under
leasing arrangements, or otherwise. If additional funds are raised
through the issuance of equity securities, stockholders may experience
additional dilution, or such equity securities may have rights,
preferences, or privileges senior to those of the holders of our common
stock. There can be no assurance that additional financing will be
available on acceptable terms, or at all. If adequate funds are not
available or are not available on acceptable terms, we may be unable to
develop or enhance our products, take advantage of future opportunities,
or respond to competitive pressures or unanticipated requirements, which
could have a material adverse effect on our business, financial
condition and operating results.
Background of Year 2000 Issues
Many currently
installed computer systems and software products are unable to
distinguish between twentieth century dates and twenty-first century
dates because such systems were developed using two digits rather than
four to represent the applicable year. For example, computer programs
that have date-sensitive software may recognize a date using “00
” as the year 1900 rather than the year 2000. This error could
result in system failures or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to
process translations, send invoices or engage in similar normal business
activities. As a result, many companies’ software and computer
systems may need to be upgraded or replaced to comply with such
“Year 2000” requirements.
State of Readiness
Our business
depends on the operation of numerous systems that could potentially be
affected by Year 2000-related problems. Those systems include, among
others:
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·
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hardware and
software systems we use to deliver products and services to customers,
including our proprietary software systems as well as software
supplied by third parties;
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·
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communications networks such as the Internet and private
intranets;
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|
·
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internal
systems that our customers and suppliers use in the management of
their businesses;
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·
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software
products we sell to customers;
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·
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the hardware
and software systems we use internally in the management of our
business; and
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·
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non-information technology systems and services, such as power,
telephone systems and building systems.
|
Our Year 2000
Compliance Task Force, composed of high-level representatives of the
product management, information systems, technical services and legal
departments, has worked to ensure the Year 2000 readiness of our
operations, products and relationships. The phases of our Year 2000
program include:
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·
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assignment of
responsibility for external issues, such as products we developed and
licensed to customers, and internal issues, such as systems,
facilities, equipment, software, and legal audit;
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·
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inventory of
all aspects of our operations and relationships subject to the Year
2000 problem;
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·
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comprehensive
analysis, including impact analysis and cost analysis, of our Year
2000 readiness, as well as business contingency planning;
and
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·
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remediation
and subsequent testing.
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We have tested
our software products and have determined that the currently shipping
versions of all our software products are Year 2000 compliant consistent
with the Year 2000 compliance specifications established by the British
Standards Institute’s DISC PD-2001. Some product versions no longer
shipping had Year 2000 issues that have already been resolved with
patches or updates provided at no charge to authorized licensees. Some
earlier product versions no longer shipping that have Year 2000 issues
will be patched or updated in a timely manner with no charge to
authorized licensees. Some remaining older versions not currently
shipping may not be supported beyond December 1999; and our customer
base has been notified of this fact through our Web site and written
notices.
We have now
completed all four phases of our Year 2000 compliance program. We plan
to continue to test our current and future products by applying our Year
2000 compliance criteria through the new year and to take corrective
actions, as appropriate. In addition, certain of our technical support,
product development and consulting personnel will be assigned on-call
duty scheduled for the first few days of January 2000 to handle any Year
2000 problems experienced by our customers in connection with one of our
software products.
Risks Related to Year 2000
Issues:
Our products are
generally integrated into enterprise systems involving sophisticated
third-party hardware and software products, which may not themselves, be
Year 2000 compliant. In addition, in some cases even certain earlier
Year 2000 compliant versions of our software, while compatible with
earlier, non-Year 2000 compliant versions of other software products
with which Concur’s software was integrated, are not compatible
with certain more recent Year 2000 compliant versions of such other
third-party software providers. While we do not believe we have any
obligation under this circumstance (because customers using our older
versions of our software would have to upgrade in order to be compatible
with newer versions of third parties’ products) there can be no
assurance that we will not be subject to claims or complaints by our
customers. We sell our products to companies in a variety of industries,
each of which is experiencing different Year 2000 compliance issues.
Customer difficulties with their Year 2000 issues might require us to
devote additional resources to resolve their underlying problems;
however, our Year 2000 compliance efforts cannot assure the success of
our customers in dealing with their Year 2000 issues.
Although we have
not been a party to any litigation or arbitration proceeding to date
involving our products or services and related to Year 2000 compliance
issues, there can be no assurance that we will not in the future be
required to defend our products or services in such proceedings, or to
negotiate resolutions of claims based on Year 2000 issues. The costs of
defending and resolving Year 2000-related disputes, regardless of the
merits of such disputes, and any liability for Year 2000-related
damages, including consequential damages, would have a material adverse
effect on our business, results of operations and financial condition.
In addition, we believe that purchasing patterns of customers and
potential customers have, and will continue to be affected by Year 2000
issues as companies expend significant resources to finalize correction
or upgrading of their current software systems for Year 2000 compliance
or defer additional software purchases until after 2000. As a result,
some customers and potential customers may have more limited budgets
available to purchase software products such as those offered by us, and
others may choose to refrain from changes in their information
technology environment until after 2000. To the extent Year 2000 issues
and initiatives cause significant delay in, or cancellation of,
decisions to purchase our products or services, our business would be
materially adversely affected.
We have also
reviewed our internal management information and other systems in order
to identify any products, services or systems that are not Year 2000
compliant. To assist us in this initiative, we retained the services of
a Year 2000 consulting firm which assisted with all four phases of our
Year 2000 program. To date,
we have not encountered any material Year 2000 problems with our computer
systems or any other equipment that might be subject to such problems.
We have received responses to compliance verification requests from
substantially all of the material external vendors supplying software
and information systems to us to whom we circulated such requests. The
purpose of these requests was to determine the readiness of third parties
’ remediation of their own Year 2000 issues. While we do not expect
to experience any major Year 2000 problems as a result of such vendors
’ Year 2000 compliance status based on the responses received by
us, in the event that any such third parties’ products, services or
systems turn out not to meet the Year 2000 requirements on a timely
basis, our business could be materially adversely affected. We could
also experience material adverse effects on our business if we have
failed to identify all Year 2000 dependencies in our systems and in the
systems of our suppliers, customers and financial institutions.
Therefore, we have established contingency plans for continuing
operations in the event such problems arise and for handling Year 2000
problems that are not detected and corrected prior to their occurrence.
Despite our efforts, however, there can be no assurance that the total
cost of Year 2000 compliance, remediation and promulgation of our
contingency plans, if necessary, will not be material to our business.
We may find that we did not foresee all significant Year 2000 problems
on a timely basis and such unforeseen problems may have a material
adverse effect on our business.
ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES
ABOUT MARKET RISK
Our operating
results are sensitive to changes in the general level of U.S. interest
rates, particularly since the majority of our cash equivalents are
invested in short-term debt instruments while certain portions of our
outstanding long-term debt bear interest at variable rates. Based on our
marketable securities portfolio and interest rates at September 30,
1999, a one percent increase or decrease in interest rates would result
in a decrease or increase of approximately $1.0 million, respectively,
in the fair value of the marketable securities portfolio. Changes in
interest rates may affect the fair value of the marketable securities
portfolio; however, such gains or losses would not be realized unless
the investments are sold.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA
INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS
Consolidated Financial Statements of Concur
Technologies, Inc.
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Page
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| Report of Ernst &
Young LLP, Independent Auditors |
|
44 |
|
|
| Consolidated Balance
Sheets as of September 30, 1999 and 1998 |
|
45 |
|
|
| Consolidated
Statements of Operations for the years ended September 30, 1999,
1998 and 1997 |
|
46 |
|
|
Consolidated
Statements of Stockholders’ Equity (Deficit) for the years
ended September 30, 1999,
1998 and 1997 |
|
47 |
|
|
| Consolidated
Statements of Cash Flows for the years ended September 30, 1999,
1998 and 1997 |
|
48 |
|
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| Notes to
Consolidated Financial Statements |
|
49 |
REPORT OF ERNST & YOUNG LLP, INDEPENDENT
AUDITORS
The Board of Directors of
Concur Technologies, Inc.
We
have audited the accompanying consolidated balance sheets of Concur
Technologies, Inc. (“Concur”) as of September 30, 1999
and 1998 and the related consolidated statements of operations,
stockholders’ equity (deficit), and cash flows for each of the
three years in the period ended September 30, 1999. These
consolidated financial statements are the responsibility of the
management of Concur. Our responsibility is to express an opinion
on these consolidated financial statements based on our
audits.
We
conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In
our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of Concur at September 30, 1999 and 1998, and
the consolidated results of its operations and its cash flows for
each of the three years in the period ended September 30, 1999 in
conformity with generally accepted accounting
principles.
Seattle, Washington
October 27, 1999
CONCUR TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
| |
|
September
30,
|
| |
|
1999
|
|
1998
|
ASSETS
|
|
|
|
|
| Current
assets: |
|
|
|
|
|
|
|
Cash and cash
equivalents |
|
$
59,815 |
|
|
$
17,058 |
|
|
Marketable
securities |
|
48,907 |
|
|
—
|
|
Accounts receivable,
net of allowance for doubtful accounts of $870 and $619 in 1999
and 1998, respectively |
|
9,020 |
|
|
6,049 |
|
|
Prepaid expenses and
other current assets |
|
1,110 |
|
|
605 |
|
|
Notes receivable from
stockholders |
|
333 |
|
|
167 |
|
| |
|
|
|
|
|
|
|
Total current
assets |
|
119,185 |
|
|
23,879 |
|
| Equipment and
furniture, net |
|
7,087 |
|
|
3,026 |
|
| Deposits and
other assets |
|
1,829 |
|
|
504 |
|
| Notes receivable
from stockholders, net of current portion |
|
167 |
|
|
333 |
|
Capitalized
technology and other intangible assets, net of accumulated
amortization of $400
and $80 in 1999 and 1998,
respectively |
|
560 |
|
|
880 |
|
| |
|
|
|
|
|
|
| Total
assets |
|
$128,828 |
|
|
$
28,622 |
|
| |
|
|
|
|
|
|
| LIABILITIES & STOCKHOLDERS’ EQUITY
(DEFICIT) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Current
liabilities: |
|
|
|
|
|
|
|
Accounts
payable |
|
$
5,323 |
|
|
$
2,330 |
|
|
Accrued
liabilities |
|
11,809 |
|
|
4,533 |
|
|
Accrued
commissions |
|
1,452 |
|
|
976 |
|
|
Current portion of
accrued payment to stockholders |
|
333 |
|
|
167 |
|
|
Current portion of
long-term debt |
|
3,762 |
|
|
2,800 |
|
|
Current portion of
capital lease obligations |
|
1,869 |
|
|
1,004 |
|
|
Deferred
revenues |
|
4,011 |
|
|
3,619 |
|
| |
|
|
|
|
|
|
| Total current
liabilities |
|
28,559 |
|
|
15,429 |
|
| |
|
|
|
|
|
|
| Accrued payment
to stockholders, net of current portion |
|
167 |
|
|
333 |
|
| Long-term debt,
net of current portion |
|
3,890 |
|
|
6,145 |
|
| Capital lease
obligations, net of current portion |
|
2,269 |
|
|
2,127 |
|
| Deferred rental
expense |
|
169 |
|
|
183 |
|
| Redeemable
convertible preferred stock: |
|
|
|
|
|
|
| Issued and
outstanding shares—None and 11,052,718 in 1999 and 1998,
respectively |
|
—
|
|
|
37,512 |
|
| Redeemable
convertible preferred stock warrants |
|
—
|
|
|
444 |
|
|
|
| Commitments |
|
|
|
|
|
|
|
|
| Stockholders’ equity (deficit): |
|
|
|
|
|
|
|
Convertible preferred stock, par value $0.001 per
share: |
|
|
|
|
|
|
|
Authorized shares
—5,000,000 |
|
|
|
|
|
|
|
Issued and outstanding shares—None
and 716,114 in 1999 and 1998, respectively |
|
—
|
|
|
3,139 |
|
|
Common
stock, par value $0.001 per share: |
|
Authorized shares
—60,000,000 |
|
|
|
|
|
|
Issued and outstanding shares
—22,693,022 and 3,911,985 in 1999 and 1998,
respectively |
|
184,943 |
|
|
6,593 |
|
|
Deferred
stock compensation |
|
(1,439 |
) |
|
(529 |
) |
|
Accumulated deficit |
|
(89,730 |
) |
|
(42,754 |
) |
| |
|
|
|
|
|
|
|
Total
stockholders’ equity (deficit) |
|
93,774 |
|
|
(33,551 |
) |
| |
|
|
|
|
|
|
|
Total
liabilities and stockholders’ equity (deficit) |
|
$128,828 |
|
|
$
28,622 |
|
| |
|
|
|
|
|
|
See accompanying notes.
CONCUR TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF
OPERATIONS
(in thousands, except per share
data)
| |
|
Year Ended September 30,
|
| |
|
1999
|
|
1998
|
|
1997
|
| Revenues, net: |
|
|
|
|
|
|
|
|
|
|
Licenses |
|
$
24,002 |
|
|
$
13,176 |
|
|
$
6,504 |
|
|
Services |
|
13,011 |
|
|
6,952 |
|
|
2,499 |
|
| |
|
|
|
|
|
|
|
|
|
|
Total
revenues |
|
37,013 |
|
|
20,128 |
|
|
9,003 |
|
| Cost
of revenues: |
|
|
|
|
|
|
|
|
|
|
Licenses |
|
1,184 |
|
|
558 |
|
|
394 |
|
|
Services |
|
16,653 |
|
|
8,063 |
|
|
2,721 |
|
| |
|
|
|
|
|
|
|
|
|
|
Total
cost of revenues |
|
17,837 |
|
|
8,621 |
|
|
3,115 |
|
| |
|
|
|
|
|
|
|
|
|
| Gross
profit |
|
19,176 |
|
|
11,507 |
|
|
5,888 |
|
| Operating expenses: |
|
|
|
|
|
|
|
|
|
|
Sales and
marketing |
|
28,993 |
|
|
16,070 |
|
|
6,692 |
|
|
Research
and development |
|
19,371 |
|
|
10,276 |
|
|
4,479 |
|
|
General
and administrative |
|
10,385 |
|
|
5,919 |
|
|
2,307 |
|
|
Merger
costs and acquired in-process technology |
|
8,859 |
|
|
5,203 |
|
|
—
|
|
| |
|
|
|
|
|
|
|
|
|
|
Total
operating expenses |
|
67,608 |
|
|
37,468 |
|
|
13,478 |
|
| |
|
|
|
|
|
|
|
|
|
| Loss
from operations |
|
(48,432 |
) |
|
(25,961 |
) |
|
(7,590 |
) |
| Interest income |
|
3,825 |
|
|
454 |
|
|
186 |
|
| Interest expense |
|
(1,511 |
) |
|
(539 |
) |
|
(94 |
) |
| Other
expense, net |
|
(358 |
) |
|
(178 |
) |
|
(61 |
) |
| |
|
|
|
|
|
|
|
|
|
| Net
loss |
|
$(46,476 |
) |
|
$(26,224 |
) |
|
$(7,559 |
) |
| |
|
|
|
|
|
|
|
|
|
| Basic
and diluted net loss per share |
|
$
(2.75 |
) |
|
$
(8.18 |
) |
|
$
(2.50 |
) |
| |
|
|
|
|
|
|
|
|
|
| Shares
used in calculation of basic and diluted net loss per
share |
|
16,883 |
|
|
3,207 |
|
|
3,025 |
|
| |
|
|
|
|
|
|
|
|
|
See accompanying notes.
CONCUR TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’
EQUITY (DEFICIT)
(in thousands, except share
data)
| |
|
Convertible
Preferred Stock
|
|
Common Stock
|
|
Deferred
Stock
Compensation
|
|
Accumulated
Deficit
|
|
Total
Stockholders’
Equity (Deficit)
|
| |
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
| Balance at October 1, 1996 |
|
—
|
|
|
$
— |
|
|
2,312,711 |
|
|
$
266 |
|
|
$
— |
|
|
$
(8,596 |
) |
|
$
(8,330 |
) |
Issuance of convertible preferred stock
(net of issuance costs of $43) |
|
721,682 |
|
|
3,182 |
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,182 |
|
| Issuance of common stock |
|
—
|
|
|
—
|
|
|
712,993 |
|
|
204 |
|
|
—
|
|
|
—
|
|
|
204 |
|
Issuance of common stock from
exercise of stock options |
|
—
|
|
|
—
|
|
|
1,248 |
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
| Net
loss |
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(7,559 |
) |
|
(7,559 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance at September 30, 1997 |
|
721,682 |
|
|
3,182 |
|
|
3,026,952 |
|
|
470 |
|
|
—
|
|
|
(16,155 |
) |
|
(12,503 |
) |
Accretion of redeemable preferred
stock |
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(375 |
) |
|
(375 |
) |
| Repurchase of preferred stock |
|
(5,568 |
) |
|
(43 |
) |
|