Our Management's Discussion and Analysis of Financial Condition and Results of Operations provides information we believe is relevant to an assessment and understanding of our results of operations and financial condition. This discussion should be read in conjunction with our Financial Statements and Supplementary Data that are included with this report. Also, the discussion of Critical Accounting Policies and Estimates in this section is an integral part of the analysis of our results of operations and financial condition. We report our operating results on a fiscal year basis that starts October 1 and ends September 30. We refer to our fiscal years ended September 30, 2006 to 2009, as "2006," "2007," "2008" and "2009."

All dollar, option and share amounts are reported in thousands unless otherwise noted.

Special Note Regarding Forward-Looking Statements

This document contains forward-looking statements regarding our plans, objectives, expectations, intentions, future financial performance, future financial condition, and other statements that are not historical facts. These statements can be identified by our use of the future tense, or by forward-looking words such as "may," "will," "expect," "anticipate," "believe," "intend," "estimate," "continue" and other similar words and phrases. These forward-looking statements involve many risks and uncertainties, described in Item 1A, Risk Factors, as well as in our other filings with the Securities and Exchange Commission ("SEC"). The occurrence of any of these risks and uncertainties may cause our actual results to differ materially from those anticipated in our forward-looking statements, which could have a material adverse effect on our business, results of operations, and financial condition. All forward-looking statements included in this report are based on information available to us as of the date of this report. We undertake no obligation to revise or update any such forward-looking statements for any reason.

Overview

Concur Technologies, Inc. is a leading global provider of on-demand Employee Spend Management solutions. We refer to Concur Technologies, Inc. as "Concur," the "Company," "us," "we" and "our" in this Annual Report on Form 10-K. Our integrated travel and expense software solutions enable organizations to control costs by automating the processes used to manage employee spending. Our solutions unite online travel procurement with automated expense reporting, streamline corporate event management, and optimize the process of managing vendor payments, employee check requests and direct reimbursements. Our unified approach to managing these processes provides our customers with visibility into their employee spending, which helps to analyze trends, influence budget decisions, improve forecasting, and monitor and enforce compliance with corporate policies and external regulations, including the Sarbanes-Oxley Act. We believe the market for our solutions is still emerging and that 90% or more of businesses in the United States still employ manual processes for expense management.

We generate our revenues from the delivery of subscription services, and, to a lesser extent, consulting services, and the sale of software licenses. Subscription revenues grew to 96% of total revenues in 2008, from 90% in 2007, and 83% in 2006. This growth reflects our strategic shift to emphasize sales of subscription services rather than license software. Generally, our subscription services revenues are recognized over the time period we provide our services to customers, in contrast to license revenues, which typically are recognized upon software delivery to the customer.

On October 1, 2007, we completed our acquisition of H-G Holdings, Inc. ("Gelco Acquisition") pursuant to the Agreement and Plan of Merger, dated July 27, 2007, between Concur and H-G Holdings, Inc. ("Merger Agreement"). Gelco provides a flexible on-demand expense management solution that enables organizations to control costs by gaining processing efficiencies, capturing spending data for analysis and ensuring policy compliance. Gelco offers different levels of outsourcing and is capable of providing a full range of services to

streamline the expense management process, including: expense data capture, multi-currency reimbursement, card payment processing, reporting and analysis, receipt imaging and management, and auditing.

In July 2008, we entered into a strategic alliance with American Express Travel Related Services Company, Inc. ("American Express") in order to expand our market presence and broaden our distribution capacity. Through this alliance, we will exclusively promote American Express's Corporate Cards to our clients and American Express will exclusively promote Concur® Expense to its corporate clients and prospects worldwide. In connection with this transaction, American Express purchased 6.4 million shares of newly issued Concur common stock, representing 13% post issuance of our outstanding common stock, at a price per share of $39.27, for $249.6 million in net proceeds. American Express also received a warrant in connection with its stock purchase, under which American Express has the right to purchase 1.28 million shares of our common stock at any time during the next two years, at $39.27 per share.

Our strategic focus in 2009 is to continue to grow our core subscription business and to reduce our cost of deploying and operating our services as a percentage of revenue. We expect our subscription revenues to increase in 2009 compared to 2008, on both an absolute basis and as a percentage of total revenues, due to anticipated growth in demand. We expect our sales and marketing expenses to increase on both an absolute basis and as a percentage of revenues in 2009 compared to 2008, primarily reflecting our continued emphasis on growing our sales and marketing personnel to support expected demand and create additional awareness in our target market.

We operate in and report on one segment, which is on-demand Employee Spend Management solutions.

In the following table we show financial data derived from our income statements as a percentage of total revenues for the years ended September 30, 2008, 2007 and 2006.

                                                  Year ended September 30,
                                                 2008       2007        2006
         Revenues:
         Subscription                              95.7 %    89.8 %       82.9 %
         Consulting and other                       4.3      10.2         17.1

         Total revenues                           100.0     100.0        100.0

         Expenses:
         Cost of operations                        31.7      33.9         39.0
         Sales and marketing                       27.8      26.5         23.6
         Systems development and programming       10.7      12.3         12.8
         General and administrative                14.5      14.5         14.9
         Amortization of intangible assets          2.9       2.3          2.5

         Total expenses                            87.6      89.5         92.8

         Operating income                          12.4      10.5          7.3

         Other income (expense):
         Interest income                            0.8       0.7          0.5
         Interest expense                          (0.7 )    (1.0 )       (1.0 )
         Other, net                                (0.2 )     0.2          0.1

         Total other expense, net                  (0.1 )    (0.1 )       (0.4 )

         Income before income tax                  12.3      10.4          6.9

         Income tax expense (benefit)               4.3       4.1        (28.3 )

         Net income                                 8.0 %     6.3 %       35.2 %

Results of Operations

Revenues



                                               Year Ended September 30,
                                 2008      Change        2007      Change        2006
        Subscription           $ 206,304     77.9 %    $ 115,996     44.1 %    $ 80,501
        Consulting and other       9,187    (29.9 )%      13,111    (21.2 )%     16,644

        Total revenues         $ 215,491     66.9 %    $ 129,107     32.9 %    $ 97,145

                                            Year Ended September 30,
                            2008        %         2007        %         2006       %
         United States    $ 192,922    89.5 %   $ 111,679    86.5 %   $ 85,324    87.8 %
         Europe              12,658     5.9 %      11,812     9.1 %      8,251     8.5 %
         Other                9,911     4.6 %       5,616     4.4 %      3,570     3.7 %

         Total revenues   $ 215,491   100.0 %   $ 129,107   100.0 %   $ 97,145   100.0 %

Subscription Revenues. Subscription revenues consist of fees paid for subscription services, amortization of set-up fees paid to us in connection with those services, amortization of fees paid for software maintenance services under software license arrangements. Subscription revenues are affected by pricing, the number of new customers, customer contract durations and our customer retention rate.

Subscription revenues increased 77.9%, or $90.3 million, in 2008 compared to 2007. Subscription revenues increased 44.1%, or $35.5 million, in 2007 compared to 2006. These increases reflect increases in the number of customers for our subscription services as well as the Gelco Acquisition. The growth in customers reflects increased market demand for our subscription services and strong retention of existing subscription customers. We believe this expansion is due primarily to the market's continued and growing awareness of our on-demand Employee Spend Management solutions and the increasing acceptance of outsourced services, driven in part by limited information technology capital budgets.

We expect subscription revenues to continue to grow in 2009, on an absolute basis and as a percentage of total revenues, as a result of the growing demand for our subscription service offerings and our planned increase in spending on sales and marketing.

Consulting and Other Revenues. Consulting revenues are provided almost exclusively to our existing on-premise customers and consist of fees for client services, which include system implementation and integration, planning, data conversion, training and documentation of procedures. Consulting revenues are affected predominantly by the number and complexity of on-premise license customer upgrade implementations. Recognition of consulting revenues can also be affected by circumstances in which consulting fees in multiple element arrangements require deferral or are deemed to be subscription related. Other revenues consist of fees earned from sales of our software licenses.

Consulting and other revenues decreased in 2008 compared to 2007 and in 2007 compared to 2006. This was primarily due to a decrease in demand for consulting services as a result of fewer upgrades and enhancements for existing license customers as virtually all of our new customers utilize our subscription services.

We anticipate that consulting and other revenues in 2009 will fluctuate on a quarterly basis but be lower for 2009 compared to 2008 as a percentage of revenues, as fewer existing customers upgrade their on-premise license software, fewer new customers purchase on-premise licensed software, and the market continues to shift to the subscription services model.

International Revenues. Historically, fluctuations in foreign currency exchange rates have not had a material effect on our operating results. We expect our international revenues to grow in the near term, as our products and services continue to gain acceptance in international markets, due in part to our investment in global distribution and the increased awareness of our products in the international markets.

Expenses



                                                      Year Ended September 30,
                                         2008      Change       2007      Change       2006
 Cost of operations                    $  68,378     56.4 %   $  43,711     15.5 %   $ 37,846
 Sales and marketing                      59,912     75.4 %      34,154     49.1 %     22,907
 Systems development and programming      22,974     44.8 %      15,866     27.5 %     12,445
 General and administrative               31,371     67.2 %      18,759     29.7 %     14,458
 Amortization of intangible assets         6,196    109.0 %       2,965     22.5 %      2,420

 Total operating expenses              $ 188,831     63.6 %   $ 115,455     28.2 %   $ 90,076

As required by accounting principles generally accepted in the United States ("GAAP"), we started recognizing share-based compensation expense on October 1, 2005. Share-based compensation expense is included in the above table for 2008, 2007 and 2006 as follows:

                                                   Year ended September 30,
                                                  2008         2007      2006
          Cost of operations                    $   1,688    $  1,304   $ 1,200
          Sales and marketing                       3,404       1,894     1,608
          Systems development and programming       1,149         883       467
          General and administrative                2,738       1,671     1,584

          Total share-based compensation        $   8,979    $  5,752   $ 4,859

Cost of Operations. Cost of operations expenses consist primarily of salaries and related expenses (including travel related expenses) and allocated overhead costs (including depreciation, occupancy, insurance, telecommunications and computer equipment expenses) associated with employees and contractors who provide our subscription and consulting services. Cost of operations expenses also include co-location and related telecommunications costs, fees paid to third parties for referrals, resale arrangements, royalties and amortization of deferred set-up costs that we incur in connection with our subscription services.

Cost of operations expenses as a percentage of total revenues decreased to 31.7% in 2008 compared to 33.9% in 2007. Cost of operations expense increased by 56.4%, or $24.7 million, primarily as a result of the Gelco Acquisition. Total salaries and related expenses increased 42.2%, or $11.1 million. Co-location and related telecommunications costs and amortization of deferred set-up costs that we incur in connection with our subscription services increased by 80.4%, or $3.6 million Depreciation, facilities and overhead allocation expenses increased by 138.8%, or $5.1 million. In addition, equipment maintenance and software expenses increased by 246.3%, or $4.3 million. These increases were due to the larger number of subscribers served, resulting primarily from organic growth in our subscription business as well as the Gelco Acquisition.

Cost of operations expenses as a percentage of total revenues decreased to 33.9% in 2007 compared to 39.0% in 2006. Cost of operations expense increased by 15.5%, or $5.9 million. Total salaries and related expenses increased 12.5%, or $2.9 million. This was primarily due to an increase in personnel count. Co-location and related telecommunications costs and amortization of deferred set-up costs that we incur in connection with our subscription services increased by 23.0%, or $1.4 million. These increases were due primarily to organic growth in our subscription business and the acquisition of Outtask, Inc. ("Outtask") in January 2006. Fees paid to

third parties for referrals and royalties increased by 22.2%, or $0.7 million. These increases were due to increases in the amount of business generated through reseller partners for subscription-based sales. In addition, depreciation, professional fees and other increased by 16.2%, or $0.8 million.

We expect cost of operations expenses to continue to trend down as a percentage of total revenues as the incremental cost to deploy and support each new customer is expected to decrease due to economies of scale anticipated in our subscription service model infrastructure. We anticipate that cost of operations will increase in absolute dollars as we continue to expand our capacity to deploy and support additional new customers.

Sales and Marketing. Sales and marketing expenses consist of salaries and related expenses (including sales commissions and travel related expenses) and allocated overhead costs associated with our sales and marketing personnel and, to a lesser extent, miscellaneous sales and marketing costs, such as advertising, trade shows and other promotional activities.

Sales and marketing expenses as a percentage of total revenues increased to 27.8% in 2008, from 26.5% in 2007. Sales and marketing expenses increased by 75.4%, or $25.8 million. Total salaries and related expenses increased by 71.3%, or $17.6 million, primarily due to an increase in sales personnel. Advertising and marketing costs increased by 93.4%, or $3.5 million. In addition, costs for professional fees and other increased by 85.5%, or $3.6 million. These increases were primarily due to an increase in marketing programs.

Sales and marketing expenses as a percentage of total revenues increased to 26.5% in 2007, from 23.6% in 2006. Sales and marketing expenses increased by 49.1%, or $11.2 million. Total salaries and related expenses increased by 40.6%, or $7.1 million, primarily due to an increase in personnel count. Costs for amortization of deferred commissions that we incur in connection with the sales of our subscription services increased by 62.5%, or $0.6 million. In addition, depreciation, professional fees and other increased by 84.7%, or $2.9 million, primarily due to increase in costs for advertising and other promotional activities.

We expect total sales and marketing expenses in 2009 to increase as a percentage of revenue and in absolute dollars compared to 2008, driven primarily by an increase in sales personnel and marketing programs globally. These increases reflect a key part of our strategic focus in 2009, which is to ensure that our sales and marketing efforts are expanded to create awareness in our target markets to support expected demand.

Systems Development and Programming Costs. Systems development and programming costs consist of salaries and related expenses and allocated overhead costs associated with employees and contractors engaged in software engineering, program management and quality assurance.

Systems development and programming costs decreased as a percentage of total revenues to 10.7% in 2008 compared to 12.3% in 2007. Systems development and programming costs increased by 44.8%, or $7.1 million. Total salaries and related expenses increased 49.0%, or $4.9 million. Depreciation, facilities and overhead allocation expense increased by 45.6%, or $2.5 million. These increases were primarily due to the Gelco Acquisition.

Systems development and programming costs decreased as a percentage of total revenues to 12.3% in 2007 compared to 12.8% in 2006. Systems development and programming costs increased by 27.5%, or $3.4 million. Salaries and related expenses increased by 8.6%, or $0.8 million, primarily due to an increase in personnel count due to the growth of the business. Depreciation, facilities and overhead allocation expense increased by 83.3%, or $2.7 million, primarily due to the increase in computer software depreciation expense related to internal-use software.

In response to the demand for our subscription services, the majority of our systems and development resources are focused on developing internal-use software used to provide these services to our customers. We capitalize costs in accordance with GAAP in the United States for corporate software developed or obtained for

internal use and amortize it over its useful life. As of September 30, 2008 and 2007, capitalized internal-use software costs, net of amortization, increased $2.3 million, from $12.5 million at September 30, 2007, to $14.8 million at September 30, 2008.

We anticipate that recognized systems development and programming costs in 2009 will increase in absolute dollars and remain relatively consistent as a percentage of revenue compared to 2008 as we continue to focus on product innovation and enhancement.

General and Administrative. General and administrative expenses consist of salaries and related expenses and allocated overhead costs, all associated with employees and contractors in finance, human resources, legal and facilities, as well as miscellaneous costs, such as professional fees and public company regulatory compliance costs.

General and administrative expenses as a percentage of total revenues was 14.5% in each of 2008 and 2007. General and administrative expense increased by 67.2%, or $12.6 million. Total salaries and related expenses increased by 69.6%, or $7.9 million, driven primarily by increases in personnel count related to the growth of our business and the Gelco Acquisition. Depreciation, professional fees and other expenses increased by 62.9%, or $4.7 million. This increase includes an adjustment of $0.9 million during the second quarter of 2008 to record additional state and local taxes, the growth of our business and the Gelco Acquisition.

General and administrative expenses as a percentage of total revenues decreased to 14.5% in 2007 compared to 14.9% in 2006. General and administrative expense increased by 29.7%, or $4.3 million. Total salaries and related expenses increased by 29.5%, or $2.6 million. Depreciation, professional fees and other expenses increased by 30.0%, or $1.7 million. These increases were driven primarily by increases in personnel count related to the growth of our business.

We expect the absolute dollar amount of general and administrative expenses to increase modestly in 2009 compared to 2008 due to increases in personnel costs related to the growth of our business. However, we expect general and administrative costs as a percentage of revenue to decrease due to economies of scale.

Amortization of Intangible Assets. Amortization of intangible assets represents the amortization of the intangible assets from acquisitions, which includes Outtask, Inc. ("Outtask") in January 2006 and Gelco in October 2007. We are amortizing our intangible assets as non-cash charges to operations over an expected useful life of 8.2 years for Outtask and over an expected useful life of 9.6 years for Gelco, which is consistent with the timing and level of expected cash flows attributed to customer relationships, use of acquired technology, trade name and trademarks, and non-compete agreements.

Other Income (Expense)



                                                 Year Ended September 30,
                                   2008       Change        2007       Change       2006
      Interest income            $  1,720       91.8 %    $    897       75.2 %    $  512
      Interest expense             (1,417 )     14.3 %      (1,240 )     28.9 %      (962 )
      Other, net                     (486 )   (310.4 )%        231      220.8 %        72

      Total other expense, net   $   (183 )     63.4 %    $   (112 )    (70.4 )%   $ (378 )

Interest Income, Interest Expense and Other. Interest income increased in 2008 compared to 2007 and 2006 reflecting higher levels of interest-earning cash and cash equivalent investments. This was primarily due to the $249.6 million in net proceeds received from the purchase of 6.4 million shares of our common stock by American Express. Interest expense is expected to decrease in 2009 due to the net proceeds received from American Express and the corresponding repayment of all outstanding amounts under our revolving credit facility in 2008.

We record net gains and losses on fluctuations in exchange rates in the Other, net line of the income statement.

Income Tax Expense (Benefit)

We make estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments occur in the calculation of certain tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes. The effective income tax rate for 2008 was 35.1% compared to 39.2% for 2007. This rate reduction is primarily due to research and development credits and state income tax expense decreases.

We assess the likelihood that we will be able to recover our deferred tax assets. We consider all available evidence, both positive and negative, including historical levels of income, expectations and risk associated with estimates of future taxable income, ongoing, prudent and feasible tax planning strategies in assessing the amount of the valuation allowance. If recovery is not likely, we record a valuation allowance against the deferred tax assets that we estimate will not ultimately be recoverable.

Financial Condition

Our total assets were $641.0 million and $345.5 million as of September 30, 2008 and 2007, representing an increase of 85.5%, or $295.5 million. Our cash and cash equivalents were $267.7 million and $168.8 million, as of September 30, 2008 and 2007, representing an increase of 58.6%, or $98.9 million. Our cash increase was primarily due to $249.6 million in net proceeds from the purchase of 6.4 million shares of our common stock by American Express. This increase was offset by the use of funds for the Gelco Acquisition and repurchases of our common stock. Our cash flow activity is described in more detail in the Liquidity and Capital Resources section below. Our accounts receivable balances, net of allowances of $5.5 million and $2.8 million, were $38.5 million and $31.5 million, as of September 30, 2008 and 2007, representing an increase of 22.3%, or $7.0 million. The increase was primarily due to the $9.9 million of accounts receivable acquired in the Gelco Acquisition. Net property and equipment was $32.3 million and $24.1 million, as of September 30, 2008 and 2007, an increase of $8.2 million, this was primarily due to $10.0 million of property, plant and equipment acquired in the Gelco Acquisition.

Our total current liabilities were $86.5 million and $43.0 million as of September 30, 2008 and 2007, representing an increase of 101.2%, or $43.5 million. This increase was primarily due to $22.5 million of customer funding liability, and increases of $9.5 million in the current portion of our deferred revenues, $6.8 million in accrued compensation and $1.3 million of acquisition related liabilities.

Our common stock and additional paid in capital totaled $679.5 million and . . .