Concur Technologies, Inc.

Transcription

1 September 15, 2014 Concur Technologies, Inc. Current Recommendation SUMMARY DATA NEUTRAL Prior Recommendation Outperform Date of Last Change 04/17/2014 Current Price (09/12/14) $ Target Price $ Week High $ Week Low $75.90 One-Year Return (%) 2.85 Beta 0.81 Average Daily Volume (sh) 506,518 Shares Outstanding (mil) 57 Market Capitalization ($mil) $6,277 Short Interest Ratio (days) Institutional Ownership (%) 100 Insider Ownership (%) 3 Annual Cash Dividend $0.00 Dividend Yield (%) Yr. Historical Growth Rates Sales (%) 23.2 Earnings Per Share (%) Dividend (%) N/A using TTM EPS N/A using 2014 Estimate using 2015 Estimate Zacks Rank *: Short Term 1 3 months outlook 3 - Hold * Definition / Disclosure on last page (CNQR-NASDAQ) SUMMARY Concur is a leading provider of integrated travel and expense-management solutions. We are reaffirming our Neutral recommendation on Concur Technologies with a target price of $116. In third-quarter 2014, the company witnessed strong growth in new customers across the segments, thereby strengthening its travel-management business. Further, Concur s performance in SMB and enterprise business remained strong. This apart, recently launched apps like ExpenseIt and TripIt are already witnessing momentum and driving growth for the company. The Concur App Center is also performing well. However, the company s business is dependent on the maintenance of strategic relationships with other entities. Further, the increasing expenses are proving to be a drag on the company s financials. Risk Level * Average, Type of Stock Large-Growth Industry Comp-Software Zacks Industry Rank * 191 out of 267 ZACKS CONSENSUS ESTIMATES Revenue Estimates (In millions of $) Q1 Q2 Q3 Q4 Year (Dec) (Mar) (Jun) (Sep) (Sep) A 108 A 113 A 118 A 440 A A 127 A 139 A 157 A 546 A A 170 A 178 A 187 E 698 E E Earnings Per Share Estimates (EPS is operating earnings before non-recurring items, but including employee stock options expenses) Q1 Q2 Q3 Q4 Year (Dec) (Mar) (Jun) (Sep) (Sep) 2012 $0.04 A $0.04 A $0.23 A $0.07 A $0.38 A $0.01 A $0.00 A $0.13 A $0.07 A $0.19 A $0.25 A -$0.19 A $0.06 A $0.02 E -$0.36 E 2015 $0.04 E Projected EPS Growth - Next 5 Years % Zacks Investment Research, All Rights reserved S. Riverside Plaza, Chicago IL 60606

2 OVERVIEW Concur Technologies is a leading provider of integrated travel and expense-management solutions. The company was incorporated in the state of Washington in 1993 and commenced operations during It was reincorporated in the state of Delaware and completed its initial public offering of common stock in Concur focuses on reducing costly and inefficient expense processes in businesses of all sizes, by streamlining the reimbursement processes, reducing operating costs, improving internal controls and enabling customers to apply greater insight into their spending patterns through analytics. Concur s easyto-use Web-based and mobile solutions enable employees to spend within policy, helping their companies to control costs and save time. Concur s systems adapt to individual employee preferences, while scaling to meet the needs of the companies, from small to large. Concur s Products: Travel & Expense: provides unified end-to-end corporate travel procurement and expense reporting through a combination of online travel booking with automated expense reporting. Concur Travel & Expense provides a single seamless process for managing travel procurement and expense reporting within its business. Further, it combines transaction data from three trusted sources itinerary data captured at the time of booking, corporate card charges incurred during travel and electronic receipts captured directly by the supplier to form Smart Expense that used to automatically fill in the details of travel expenses as it occurred in expense report. Concur connect platform: Concur Connect is the open platform enabling customers, travel suppliers and solution partners to break down the walls between systems and enjoy the rich benefits of a more connected world. Solutions for Individuals: Concur offers solutions for individuals that improve life on the road and make business travel feel more like fun. Invoice Management: Concur's Invoice Management service automates the time-consuming process of collecting, submitting, approving and paying supplier invoices and check requests. Concur helps speed up the invoice process. REASONS TO BUY The company has a well-defined software development methodology, which allows it to deliver products that satisfy the business needs and meet commercial quality expectations.its systems development and programming group teams up with the marketing department to assess market needs and requirements. It also uses independent development firms or contractors, when needed, to expand the capacity and technical expertise of its internal research and development team. Concur has also added system integrators to its business. Its travel and expense (T&E) trend analysis solution that was developed in a partnership with Oversight Systems is also benefiting the business. The application based on T&E Cloud Platform aids the travel management companies to obtain critical insights about corporate spending patterns. In the last quarter, the company had launched its expense app ExpenseIt which has witnessed strong growth in a short time. The app allows the travelers to effortlessly document their expense receipts. The app has already been selected by a number of companies including American Express to track their expenses. Further, Concur s travel expense management app TripIt has been selected to be incorporated in Google glass to enhance the travelers experience with timely, accurate and hassle free information. Concur s T&E platform has been chosen by IBM for its clients in the Global Expense Reporting Solutions domain. The company aims to add more partners going forward, to meet the growing customer demand while developing its solution delivery capabilities. Equity Research CNQR Page 2

3 The company s Perfect Trip initiative, that was started a couple of years back to transform the travel industry, has proven to be beneficial leading to a significant increase in its distribution capacity. The vision behind the initiative is to provide the travelers with all the necessary tools and information so as to maximize their trip value. Concur s distribution capacity has already increased by more than 100% till date. Also, as this initiative is being increasingly accepted by the company s customers, partners, developers, and suppliers across the globe, the growth trend is expected to continue going ahead. This initiative is driven by the presence of open platform that makes the travel ecosystem more efficient and competitive. The company is also likely to benefit from increasing investments in these open platforms and its open booking service TripLink which was launched in the first half of fiscal The company remains focused on delivering the perfect trip and is utilizing its healthy cash position and innovative solutions to meet travelers requirements. Valuable long-term drivers for the company include investment in the emerging markets, geographic expansion, focused investments and customer retention. There are three areas that the company is targeting for the increased investment. Firstly, the SMB market segment, which has been growing strong since the last year. Secondly, significant opportunity continues to boost the global accounts business not only across the U.S., but also some major economies including Japan. Thirdly, the public sector is targeted for the investment. The novel solutions, combined with the opportunity to penetrate in the untapped global markets, can significantly leverage the company s business going forward. This leading global travel expense automation company believes that at present they have penetrated only about 25% of the total market capacity. The company is also focused on benefiting from the corporate travel market which is estimated to be worth $1 trillion. The company has been witnessing strong customer growth for the past few quarters. New customers of the company included those from financial institutions, technological firms and oil field companies causing the total customer base to expand briskly. The company has also been providing travel and expense-management solutions for the U.S. government employees as per its E-Gov Travel Services 2 (ETS2) contract. In this year, the company has been adding about 1500 customers each quarter and the figure is expected to escalate to 5000 in the forthcoming years. Some key new additions in the quarter include Starwood Hotels, United Airlines, Airbnb, and Uber, among others. REASONS TO SELL Concur depends upon strategic relationships with third parties, including American Express Travel Related Services Company Inc. Its revenues will decline if it is unable to sustain and develop these relationships. Further, an important component of its business success is its ability to maintain and develop relationships with travel suppliers. Adverse changes in the existing relationships, or an inability to enter into new arrangements with these parties on favorable terms, could reduce the amount, quality and breadth of attractively priced travel products and services. The company s financials have been affected by the increasing expenses in the quarter. Concur s sales and marketing expenses increased 27% year over year to $71.2 million while general and administration expenses rose 23.8% year over year to $25.9 million. This led to a 28.5% decline in non- GAAP operating income to $17.5 million and a decrease of 770 basis points in the operating margin to 9.9%. Concur continuously evaluates the marketplace for strategic acquisition opportunities. Though new acquisitions are expected to add to the company s growth, the risk involved is substantial. Also, the integration process of the new acquisitions is disruptive to the company. In 2013, Concur had acquired leading TMC technology solutions from TRX, which are yet in the process of integration. The related restructuring and transaction expenses are likely to offset some of the gains in this quarter as well. Equity Research CNQR Page 3

4 Though the macroeconomic environment is improving, the rate of improvement in markets is still in a nascent stage. Moreover, the company is likely to be prone to negative impacts from any reduction in the global economic activity as it leads to reduced spending on travel, as well as lesser travel and expense transactions. This can substantially impact the company s revenues. RECENT NEWS Concur Slips to Loss in Q3, Revenues Up on Perfect Trip- Jun 30, 2014 Concur Technologies reported third-quarter fiscal 2014 non-gaap pre-tax loss of $0.4 a share (including share based compensation expense) that fared better than the Zacks Consensus Estimate of a loss of $0.7. However, the reported figure dropped from $0.13 earned in the prior-year quarter. Excluding share based compensation expense, the company reported earnings of $0.25 compared with $0.39 in the year-ago period. On a GAAP basis, the company delivered a breakeven compared with earnings of $0.5 in the prior-year period. The company reported non-gaap revenues of $177 million, up 28% year over year and 6% sequentially. Revenues surpassed the Zacks Consensus Estimate of $175 million. Including one-time revenues of $1.4 million from divested businesses, GAAP revenues came in at $178.4 million. The company has been benefiting from robust growth in its core business, driven by an increased demand for integrated travel and expense management solutions. The Perfect Trip initiative, that was started a couple of years back, has been going strong as indicated by an increase in its distribution capacity and the ongoing integration of the travel space. This initiative is driven by the presence of an open platform Travel & Expense (T&E) that makes the travel ecosystem more efficient and competitive. The increasing acceptance of this initiative by Concur s customers, partners, developers and suppliers across the globe reflects the immense potential of this novel concept. However, the company s financials have been negatively impacted by the mounting expenses in the quarter. Concur s sales and marketing expenses grew 27% year over year to $71.2 million while general and administration expenses rose 23.8% year over year to $25.9 million. This led to a 28.5% decline in non-gaap operating income to $17.5 million and a decrease of 770 basis points in operating margin to 9.9%. Other Financial Details Concur ended the quarter with cash and cash equivalents of $475.0 million and shareholders equity of $768.7 million. Net cash from operating activities decreased to $25.5 million from $28.0 million in the prior-year quarter. Outlook Along with the earnings release, management provided guidance for the fourth quarter and full-year fiscal Concur expects non-gaap revenues for the fourth-quarter fiscal 2014 to grow about 21% year over year and expects non-gaap pre-tax income per share to be about $0.32 a share. Management revised its fiscal 2014 guidance for non-gaap revenue, which is now expected to increase by approximately 27% year over year compared with 26% projected earlier. The company reiterated its Equity Research CNQR Page 4

5 outlook for non-gaap pre-tax income at $0.93 a share. The non-gaap operating margin is expected to be about 10% compared with the previously guided range of 10% 12%. Cash flow from operations is predicted to be not less than $85 million, up from $72 million projected earlier, while capital expenditures are expected to be about 8% of fiscal 2014 revenues. VALUATION The P/B ratio of 7.3X at the end of the last quarter is slightly higher than that of the peer group. Moreover, CNQR has an expected growth rate of 19.0% over the next five years, which is above the peer group and indicates the possibility of upside. However, the company s dependence on smaller businesses and the prevailing macroeconomic uncertainty remain as concerns. We have reiterated our rating on Concur at Neutral with a target price of $116. Key Indicators F1 F2 Est. 5-Yr EPS Gr% P/CF 5-Yr High 5-Yr Low Concur Technologies, Inc. (CNQR) Industry Average S&P Compuware Corporation (CPWR) Ansys, Inc. (ANSS) Dealertrack Technologies, Inc. (TRAK) CommVault Systems, Inc. (CVLT) TTM is trailing 12 months; F1 is 2014 and F2 is 2015, CF is operating cash flow P/B Last Qtr. P/B 5-Yr High P/B 5-Yr Low ROE D/E Last Qtr. Div Yield Last Qtr. EV/EBITDA Concur Technologies, Inc. (CNQR) Industry Average S&P Equity Research CNQR Page 5

6 Earnings Surprise and Estimate Revision History Equity Research CNQR Page 6

7 DISCLOSURES & DEFINITIONS The analysts contributing to this report do not hold any shares of CNQR. The EPS and revenue forecasts are the Zacks Consensus estimates. Additionally, the analysts contributing to this report certify that the views expressed herein accurately reflect the analysts personal views as to the subject securities and issuers. Zacks certifies that no part of the analysts compensation was, is, or will be, directly or indirectly, related to the specific recommendation or views expressed by the analyst in the report. Additional information on the securities mentioned in this report is available upon request. This report is based on data obtained from sources we believe to be reliable, but is not guaranteed as to accuracy and does not purport to be complete. Because of individual objectives, the report should not be construed as advice designed to meet the particular investment needs of any investor. Any opinions expressed herein are subject to change. This report is not to be construed as an offer or the solicitation of an offer to buy or sell the securities herein mentioned. Zacks or its officers, employees or customers may have a position long or short in the securities mentioned and buy or sell the securities from time to time. Zacks uses the following rating system for the securities it covers. Outperform- Zacks expects that the subject company will outperform the broader U.S. equity market over the next six to twelve months. Neutral- Zacks expects that the company will perform in line with the broader U.S. equity market over the next six to twelve months. Underperform- Zacks expects the company will under perform the broader U.S. Equity market over the next six to twelve months. The current distribution of Zacks Ratings is as follows on the 1116 companies covered: Outperform %, Neutral %, Underperform 5.8%. Data is as of midnight on the business day immediately prior to this publication. Our recommendation for each stock is closely linked to the Zacks Rank, which results from a proprietary quantitative model using trends in earnings estimate revisions. This model is proven most effective for judging the timeliness of a stock over the next 1 to 3 months. The model assigns each stock a rank from 1 through 5. Zacks Rank 1 = Strong Buy. Zacks Rank 2 = Buy. Zacks Rank 3 = Hold. Zacks Rank 4 = Sell. Zacks Rank 5 = Strong Sell. We also provide a Zacks Industry Rank for each company which provides an idea of the near-term attractiveness of a company s industry group. We have 264 industry groups in total. Thus, the Zacks Industry Rank is a number between 1 and 264. In terms of investment attractiveness, the higher the rank the better. Historically, the top half of the industries has outperformed the general market. In determining Risk Level, we rely on a proprietary quantitative model that divides the entire universe of stocks into five groups, based on each stock s historical price volatility. The first group has stocks with the lowest values and are deemed Low Risk, while the 5 th group has the highest values and are designated High Risk. Designations of Below-Average Risk, Average Risk, and Above-Average Risk correspond to the second, third, and fourth groups of stocks, respectively. Analyst: Prachi Jhunjhunwala Content Editor: Vandana Shajan QCA: Supriyo Bose Reasons for Update: 3Q14 Earnings Equity Research CNQR Page 7