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The Leader in Corporate Expense Management
By all measures, fiscal 2006 was a great year for Concur. Total revenue grew 35% year-over-year driven by subscription revenue, which grew 52%. It was the most profitable year in our history as pro forma operating margin jumped to 15% and pro forma earnings increased to $0.35 per share.
We are adding new customers at an astounding rate. In fiscal 2006, almost as many new customers signed up for Concur services as did in the previous 3 years combined. We processed $20 billion dollars in annual travel spend. In fact, nearly 6% of all global corporate travel spend and 12% of all US corporate travel spend runs through our systems.
As of today, nearly 4,000 companies have chosen to automate the travel and expense management process through our services. It is our hope that over the next decade, tens of thousands more companies will join them in that choice.
The accomplishments of the past year are the direct result of the commitment and hard work of over 500 incredible individuals — all of whom are dedicated to the interests of our customers, our shareholders and our partners. Clearly, the largest contributors to our success are our customers. They are dedicated and avid supporters of our company, and our relationship with them is unique in that it is mutually enriching for both parties. We are grateful for the opportunity to serve them.
Our Opportunity
We believe, that over the next decade, the Corporate Expense Management market can be a multi-billion dollar market. Perhaps more importantly, we believe Concur can become a billion dollar company over that period of time. Today, we are the clear leader in that market and we have an opportunity to improve our leadership position as the market grows. We have an opportunity to become a global brand — to become a company that can deliver great long-term value to its shareholders, its employees and its customers.
Becoming a global brand and capitalizing on our market opportunity will require great day-to-day execution in combination with a long term perspective in building the business.
The Power of On-Demand
Before we look ahead, allow me to set the context for our continued success by looking back for just a moment. In fiscal 2000, we pioneered the idea of on-demand business applications. Today, that idea is revolutionizing the enterprise software market.
Before the advent of on-demand business applications, the use of enterprise class applications required a significant investment of dollars and resources, and often required years to implement. Not surprisingly, the market for enterprise-class applications was limited to large corporations that could make the large scale investments of dollars and resources required to succeed. All of that changed through a simple but powerful concept called on-demand services — in which enterprise applications could be delivered over the web in a "sign up and consume what you need" model.
Gone are the days of huge up front costs and deployments measured in years, requiring frequent upgrades. Companies no longer need be locked in by huge upfront capital investments. On-demand business services bring enterprise-level business applications to companies of all sizes. Gartner, Inc. estimates that by 2011, 25% of new business applications consumed will be on-demand applications. TripleTree, LLC estimates that number to be 40% by 2009. There is no longer any debate about whether or not businesses will adopt on-demand services. The only question is how fast.
This past January, a friend of mine launched a new company. As he was telling me about the new business, I was struck by the sophisticated systems his fledgling company already had in place. Not only had the company already signed up for Concur's on-demand Travel and Expense service, they had also signed up for an on-demand ERP system, an on-demand HR system, on-demand payroll services, an on-demand corporate email system and the list went on. This 20 person company had IT systems that were as good as the systems we were using. The IT department consisted of a part time person. That is the power of on-demand.
Concur's leadership role in popularizing on-demand computing was a key inflection point for the company. In Fiscal 2006, Concur made another game-changing move. Driven by client demand and our vision of a unified corporate travel booking and expense reimbursement process, Concur acquired Outtask and integrated the world's best online booking tool with the world's number one expense management service. We believe it 's the beginning of an entirely new era in travel and expense management.
The Travel 2.0 Vision
Why is it so important to unite the travel booking process with the expense reporting and reimbursement process? As individuals, every business trip begins by booking travel and ends with expense reimbursement. Yet, these business processes are completely disconnected at most companies. Why isn't the click that books the trip the same click that files the expense report? A simple question, to be sure. The answer leads to far reaching changes that improve the user experience, drive down the cost of doing business and streamline the supply chain.
The recent trend of Web 2.0 — as the combination of on-demand applications, social networks and web services is now being called — are all behind the innovations that Concur is now driving. It's an exciting development we call Travel 2.0.
Today, when our customers use Cliqbook® Travel to book their business trips, their itinerary information automatically starts the expense report. Then, Concur® Expense automatically reconciles corporate credit card transactions that correspond with that particular trip — matches them to the booked itinerary — and populates the expense report for the employee. In fact, the only thing left to do is enter out of pocket expenses. We call it the One-Click Expense Report and it is the first step towards Travel 2.0.
So what's next? Imagine getting an email with your electronic itinerary, along with weather updates for each city you will be in. Add automatically generated maps that align with your travel itinerary and meeting schedule which are also integrated into your calendar. Now add links to reviews about what your colleagues thought about various hotels, restaurants or business venues. Up-to-date information about the dinner preferences of your clients along with their favorite sports teams and issues that they are passionate about — imagine all of that included in your trip itinerary automatically.
But why stop there? Why can't the expense report fill itself out? Why are paper receipts even required?
We think we can make the entire process easier and more productive for the business traveler. But the value of Concur's vision for Travel 2.0 goes well beyond that. Today, most corporate booking tools are bound to a single Global Distribution System. What that means is that your travel content is limited to the content and pricing available in that particular GDS. Why should it be that way?
Concur's independent approach to travel content lets us provide our clients with access to multiple GDS' at the same time, to give them the broadest selection of content available. Better yet, why not allow the client to connect directly with the supplier of their choice? Concur already provides the broadest range of direct connects in the industry, and we will continue to add direct connections to suppliers every quarter, with the objective of allowing every Concur client and partner to choose the content they wish to procure, in the manner they wish to procure it.
At our 2006 User Conference, we announced Concur® eReceipts — folio level data that can automatically populate expense reports. It's the beginning of the end of paper receipts and the tedious process of detailing out daily room rate, taxes and incidentals. With Concur eReceipts, Concur can deliver an even richer user experience while driving down the cost of doing business for the supplier and the customer.
Perhaps the most exciting part of the Travel 2.0 vision is providing clients with the ability to analyze all of the data around their travel spend. Today, travel data exists in multiple locations — itinerary data, credit card data, supplier contracts, and expense report data. It is not easy to compare booked versus actual. It is not easy to compare corporate travel spend or corporate travel policies to a peer group. Managing supplier contracts against actual spend is a labor intensive task. The ability to look at all of this data in a comprehensive manner is virtually non-existent. We are committed to changing that. We were the pioneers in linking credit card data to our expense systems. And now, our end-to-end travel and expense service directly manages the itinerary data, the supplier data and the expense data. Concur can bring all of this data together in a simple, easy to use dashboard available on-demand.
With each step against the Travel 2.0 vision, we are dramatically improving the experience for the business traveler and continuing to drive down the cost of doing business for our customers.
How will we deliver Travel 2.0 and capitalize on this multi-billion dollar market opportunity? We will relentlessly innovate on behalf of our customers to drive increasingly greater value. We will aggressively invest in distribution and market development to increase market penetration. And we will continue to exceed the service expectations of our customers and drive even more operating leverage in the business.
End-to-End is Just the Beginning
I've outlined a broad vision for Concur, one that is well under way and promises to revolutionize the travel and expense process for thousands of companies around the globe. Concur is well positioned to capture an increasingly larger share of this market, with competitive advantages and a leadership position that is unrivaled.
So how should you measure our progress?
Like always, subscription revenue and EPS will be the barometer we use to judge our success. In fiscal 2006, subscription revenue grew 52% year-over-year. In fiscal 2007, we expect it to grow another 35% year-over-year. In fiscal 2006, we generated a pro forma profit of $0.35 per share. In fiscal 2007, we expect pro forma earnings to improve 31% year over year to $0.46 per share.
We believe we are uniquely positioned to be the dominant player in this multi-billion dollar market. We have an opportunity to build an enduring and prosperous company for our shareholders, our customers, our partners and ourselves. We are committed to that goal.
On behalf of the Board of Directors, our executive staff and every Concur employee, thank you for your continued support of our company.
Steve Singh
Chairman of the Board and
Chief Executive Officer
December 30, 2006
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