Concur Scores Big Cloud Deal

Concur Technologies (Nasdaq: CNQR) won a major cloud deal this week. The company, a provider of on-demand travel and expense management solutions for businesses, announced the US General Services Administration (GSA) selected it to manage online bookings, travel authorizations, and voucher processing for federal employees.

The GSA is shifting to the cloud to optimize online travel planning and reduce operating costs. While Concur did not yet offer any financial expectations associated with the deal (it plans to do so in the next earnings report), the company was chosen as the sole provider and the 15-year contract is estimated to be worth $1.4 billion.

BMO Capital was surprised that Concur snagged the GSA contract all for itself because it was expected that incumbent Carlson Wagonlit Travel would be involved as well. Even though the contract is not expected to start meaningfully contributing to revenue until 2014 or 2015, this is a significant win for Concur because it provides added long-term visibility.

For the three months, which ended in March, Concur reported its fifth consecutive quarter of accelerated top-line growth. Fiscal second quarter revenue advanced 28.1% to $108.4 million, beating the consensus estimate of $105.9 million. Operating margin rose 60 basis points year over year to 18.5%. Cash flow from operations increased 57% to $25.1 million. Deferred revenue of $79.8 million was up 24% from the year-ago period. The customer retention rate remained in the high 90% range.

The company has 15,000+ customers and a user base of more than 17.5 million, including 2.5 million active users of Concur's mobile solution. With a total addressable market estimated at 300,000 organizations, Concur's penetration rate is only around 5%. Concur likes to market itself as a procurement system for the entire corporate travel process. Demand should remain strong as more organizations look to create efficiencies in their travel supply chain, understand spending patterns, and reduce travel-related expenses.

While there have been warnings of increased competition in the enterprise travel segment for years, Concur remains the dominant player. SAP (NYSE: SAP) plans to expand its presence in travel and expense management. But the company has its hands full with its push into cloud-based software (including the integration of recent acquisitions), so its competitive threat looks limited for now.

Halfway into the current fiscal year, Concur is tracking ahead of the 35% bookings growth rate it saw for all of fiscal 2011. According to CEO Steven Singh, the company is seeing more customers sign up for its analytics offering, which provides a complete overview of a company's travel expense patterns. It's estimated that the take rate for the analytics solution is in the 40% to 50% range, so there is room for improvement. In addition, Concur is starting to see early revenue returns on its investments in new markets, including the SMB and unmanaged travel segments.

At the JP Morgan Technology Media & Telecom Conference last month, Singh predicted that the small-business segment would be one of Concur's biggest growth drivers over the next three years. He also pointed out that the SMB division provides higher profitability per customer than at the very high end of the market.

Concur expects fiscal 2012 revenue growth of 26% and is on its way to achieving an annual revenue run rate of $500 million exiting this calendar year. For fiscal 2012, the company looks for cash flow from operations of $84 million to $88 million, above the previous forecast of $81 million to $85 million.

Given Concur's robust upside momentum and the fact that its growing user base could make the company an attractive cloud-software buyout target, the stock isn't cheap. At a recent market cap of $3.52 billion, Concur trades at eight times the fiscal 2012 (ending September) consensus revenue estimate of $441.4 million and 6.4 times the fiscal 2013 consensus of $551.4 million.

Concur is on track to double its sales force by the end of fiscal 2013 compared to the number of reps in place as of October 2011. Some analysts think this increased sales capacity coupled with accelerated bookings growth will lead to even stronger revenue growth in fiscal 2013. The high revenue estimate for next year of $569.6 million indicates expected growth of 29%.