Bullish Concur Expanding Open Booking Investment

Concur chairman and CEO Steve Singh sounded particularly optimistic on Wednesday when discussing with analysts the company's financial performance for the fiscal year ending Sept. 30. He pointed to thousands of new customer signings, ETS2 progress and accelerating revenue growth. The company now has "a clear line of sight to crossing the $1 billion revenue mark in 2016," he said.

While Wall Street on Thursday seemed unmoved__Concur's stock price at press time was trading down around 9 percent at $94.32 per share__the company's optimism is translating to ambition as it seeks to "reimagine" what Singh called an "engagement model for corporate travel" that is "antiquated and relies on the traveler doing all the work every single time they travel."

That means investing even more in "open booking and open platform initiatives." Citing a "strong" industry response, Singh said "we need to rapidly expand the range offerings provided by the Concur T&E Cloud" to include such services as data analytics, recommendations, loyalty and electronic payments, "among many others." Since launching the TripLink open booking service two quarters ago, Concur claims "roughly 400 enterprise-class customers," he said. "With time, we expect to see the same level of adoption around TripLink as we have seen around Concur Travel."

Singh also identified "next-generation travel management companies," including Travel Incorporated, World Travel Inc., Adelman and Travel Leaders, that are using the Concur T&E Cloud "as the core platform around which they'll deliver services." Concur previously named collaborators including Gant Travel Management and TravelSolutions by Campbell.

How about airlines? When asked if any would join hotel companies and car rental firms as TripLink supporters, Singh replied: "All I can tell you is that we expect to add a significant number of partners over the course of this fiscal year."

Singh also noted that system integrators including Acquis Consulting Group joined the program as "implementation partners," and more are expected in "the coming quarters ... to help deliver against the implementation requirements that accelerated customer demand is creating."

Analysts from FBR Capital Markets in a Thursday research note wrote that "having a solid systems integration network is important for long-term growth, and this could be a positive for business momentum as the company grows this base."

Meanwhile, Concur claimed to have enlisted about 200 third-party developers in the year following the launch of its T&E Cloud.

In other areas of investment, Concur is working to expand distribution capacity around the globe and growing its headcount. "We have not outgrown the market opportunity," Singh said. "We'll continue to grow the sales organization at least 2x from where it is today," though he did not attach a timeframe.

CFO Frank Pelzer told analysts that fiscal 2013 sales and marketing expense increased 35 percent year over year and noted that "bookings growth of more than 40 percent" grew even faster, "reflecting the health of our end market."

Overall, Concur in the past year added 1,200 employees and now has more than 3,500 globally.

Meanwhile, the company also is "wrapping our investments fairly substantively" around mid-office and reporting solutions obtained through the acquisition of TRX. Those are the TRX assets "we're most interested in," Singh said, explaining that "across the entire TRX business, there was, over time, a general lack of investment, and what you saw was a business that generally was in a declining revenue equation."

Speaking generally about increasing the company's rate of investment, Pelzer said, "We have a large and strategic window of opportunity to further strengthen our leadership position, especially in new markets around the globe."

Janney Capital Markets analysts in a research note described the decision to accelerate investments during fiscal 2014 as "the biggest bombshell" from the conference call. "While the company can justify its decision to step up investment even further with its business showing accelerated growth, it is becoming increasingly difficult to look for signs that the company is able to show return on its investments. In essence, we believe Concur stock is becoming more about whether the company can achieve its vision about the Perfect Trip and less about its core T&E business."

Customer Growth

But Concur executives said investment and headcount growth is needed as the company's client roster swells. Overall, it claimed to add "more than 4,000 new customers" during fiscal 2013__about 70 percent of which signed up for both travel and expense services. That includes many small and midsize businesses, a segment in which Concur added 50 percent more clients during its fiscal year for a total of 8,000 such companies.

It also includes "enterprise" customers, which according to Singh "continue to be our strongest driver of growth."

The biggest customer of all is the U.S. federal government. Discussing the U.S. General Services Administration's E-Gov Travel Services 2 program, Singh noted that Concur has signed "a long list" of federal agencies, is working on "dozens" of deployments with "a dozen" TMC partners and has achieved "live implementations." The most recent of which, the U.S. Department of the Interior, went live "this month," he said. As "one of the five largest agencies" covered by the ETS2 contract, DOI is an organization "that would rival the size of many of our largest customers." To service DOI, Singh said Concur is working with Travel Incorporated and Travelport.

He added that Concur continued signing agencies following approval of second ETS2 vendor__GSA in September named Carlson Wagonlit Travel as that second contractor, following a court-ordered reevaluation__and has grabbed 70 percent of the total ETS2 opportunity. He expects all deployments to be completed "a little beyond fiscal 2015."

Summing up Concur's performance Singh said, "We just delivered an exceptional Q4 capping a fiscal year that was transformative for the business." Fiscal fourth-quarter revenue was $154 million, up 31 percent, representing "the fastest revenue growth we have seen in more than five years." Consolidated net loss narrowed to $7.7 million. For full fiscal 2013, revenue increased 24 percent to $543 million.

Looking ahead, Concur expects revenue during its fiscal 2014 to grow 26 percent year over year.

Mixed Reaction

Wall Street analysts generally had a mixed reaction to Concur's financial performance. "Concur reported Q4 revenue slightly ahead of consensus while pre-tax earnings per share was below our estimate," according to a research note from Piper Jaffray. "Despite the upbeat tone, FY14 revenue guidance was essentially in line with consensus."

Janney Capital Markets analysts said they "remain positive" on Concur's long-term strategy and growth prospects, but also "remain wary of margin and execution risks over the next several quarters as the company ramps large-scale deployments, especially in the federal government sector.

"While we are positive regarding the opportunity to reinvent the corporate travel industry, we believe there is a high level of risks associated with its plan to build out the T&E cloud platform and to get all the players in the industry to participate on the platform," the added.

At FBR Capital Markets, a research note from analysts pointed out that expenses are expected to grow faster than revenues and added that "there could be some investor disappointment that [fiscal year 2014] margins could be down by more than half from their peak." But they also wrote that "business travel has become a slight tailwind" and the current environment "can allow Concur to drive better incremental revenue from existing customers and continue to sign new customers."