This Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") provides information that 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 the Financial Statements and Notes 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.

Throughout this MD&A, we refer to Concur Technologies, Inc. as "Concur," "we," "us" and "our." 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, 2008, 2009 and 2010, as "2008," "2009" and "2010." Throughout this MD&A, where we provide discussion of the three and nine months ended June 30, 2009, and we provide data for the same periods in the prior year, we will refer to the prior period as "2008." All dollar, option and share amounts (other than per share dollar 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, including, without limitation, statements relating to our expectations regarding our revenues and operating expenses for the remainder of 2009 and our expectations about liquidity and capital resources for the next 12 months. Forward-looking 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, which are described under "Risk Factors" and elsewhere in this report, as well as in our other filings with the United States Securities and Exchange Commission ("SEC"). In general, adverse economic or market conditions, such as the current economic downturn, may cause customers and prospects to delay or reduce purchases of our products and services or otherwise change their spending patterns in response to tighter credit and negative financial news, cause customers to reduce business travel and correspondingly reduce the use of our solutions, reduce the ability of customers, channel partners, vendors and suppliers to fulfill their obligations to us, increase volatility of our stock price and foreign exchange rate fluctuations, and otherwise adversely affect our business. 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. Except as required by law, we assume no obligation or duty to update any such forward-looking statements.

Overview

We are a leading provider of on-demand Employee Spend Management solutions. 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 them analyze trends, influence budget decisions, improve forecasting, and monitor and enforce compliance with their corporate policies and external regulations, such as the Sarbanes-Oxley Act of 2002.

We generate our revenues predominantly from the delivery of subscription services, and to a much lesser degree from consulting services and other services, which includes the sale of software licenses. 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.

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. While we observe trends of declining travel transactions, increased unemployment and business contraction generally, which tend to reduce revenue, we believe they will be outweighed by cross-selling additional services and expansion of our customer base.

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

RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 2009 AND 2008

Selected Financial Data

The following table presents financial data derived from our unaudited income
statements as a percentage of total revenues for the periods indicated.



                                         Three Months Ended         Nine Months Ended
                                              June 30,                   June 30,
                                        2009           2008         2009          2008
 Revenues:
 Subscription                             97.9 %         96.9 %       96.5 %       95.4 %
 Consulting and other                      2.1            3.1          3.5          4.6

 Total revenues                          100.0          100.0        100.0        100.0

 Expenses:
 Cost of operations                       30.7           31.3         30.6         32.3
 Sales and marketing                      28.9           28.2         29.2         26.9
 Systems development and programming       9.4            9.7         10.0         10.9
 General and administrative               11.0           14.4         11.4         14.6
 Amortization of intangible assets         2.5            2.8          2.5          2.9

 Total expenses                           82.5           86.4         83.7         87.6


 Operating income                         17.5           13.6         16.3         12.4

 Other income (expense):
 Interest income                           0.6            0.2          1.0          0.4
 Interest expense                         (0.2 )         (0.6 )       (0.2 )       (0.8 )
 Other, net                                0.3           (0.2 )       (0.2 )       (0.1 )

 Total other income (expense), net         0.7           (0.6 )        0.6         (0.5 )


 Income before income tax                 18.2           13.0         16.9         11.9

 Income tax expense                        6.6            4.9          6.1          4.6

 Net income                               11.6 %          8.1 %       10.8 %        7.3 %

Results of Operations

Revenues



                              Three Months Ended                    Nine Months Ended
                                   June 30,                              June 30,
                          2009        2008      Change         2009         2008       Change
Subscription            $ 60,915    $ 53,240      14.4 %     $ 176,294    $ 150,615      17.0 %
Consulting and other       1,311       1,689     (22.4 )%        6,487        7,329     (11.5 )%

Total revenues          $ 62,226    $ 54,929      13.3 %     $ 182,781    $ 157,944      15.7 %

                                           Three Months Ended                           Nine Months Ended
                                                June 30,                                     June 30,
                                   2009       %          2008       %          2009        %          2008        %
United States                    $ 56,490    90.8 %    $ 49,654    90.4 %    $ 165,321    90.4 %    $ 141,454    89.6 %
Europe                              3,050     4.9 %       2,771     5.0 %        9,645     5.3 %        9,380     5.9 %
Other                               2,686     4.3 %       2,504     4.6 %        7,815     4.3 %        7,110     4.5 %

Total revenues                   $ 62,226   100.0 %    $ 54,929   100.0 %    $ 182,781   100.0 %    $ 157,944   100.0 %

Revenues. Subscription revenues consist of fees paid for subscription services, and to a much lesser degree the amortization of set-up fees paid to us in connection with those services, and the amortization of fees paid for software maintenance services under software license arrangements and in multiple element subscription arrangements where there is no vendor specific objective evidence of fair value for an undelivered subscription element. Subscription revenues are affected by pricing, the number of new customers, customer contract durations and our customer retention rate.

Subscription revenues increased 14.4%, or $7.7 million, for the three months ended June 30, 2009, and 17.0%, or $25.7 million, for the nine months ended June 30, 2009, compared to the same periods in 2008. The increases were primarily due to the increased number of customers for our subscription services. The growth in customers reflects increased market demand for our subscription services and high rates of retention of existing subscription customers. We believe this demand reflects the market's 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 as a result of the growing demand for our subscription service offerings and our planned increase in spending on sales and marketing.

Consulting revenues consist of fees for client services, which include system implementation and integration, planning, data conversion, training and documentation of procedures. 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. Revenues from customers outside the United States represented 9% and 10% of total revenues for the three and nine months ended June 30, 2009. 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 the investment in our global distribution and the increased awareness of our products in the international markets.

Expenses



                                              Three Months Ended                  Nine Months Ended
                                                   June 30,                            June 30,
                                           2009       2008     Change         2009        2008      Change
Cost of operations                       $ 19,130   $ 17,176     11.4 %     $  55,942   $  50,986      9.7 %
Sales and marketing                        17,998     15,451     16.5 %        53,330      42,543     25.4 %
Systems development and programming         5,822      5,349      8.8 %        18,201      17,162      6.1 %
General and administrative                  6,839      7,937    (13.8 )%       20,820      23,041     (9.6 )%
Amortization of intangible assets           1,542      1,542      0.0 %         4,624       4,655     (0.7 )%

Total operating expenses                 $ 51,331   $ 47,455      8.2 %     $ 152,917   $ 138,387     10.5 %

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 30.7% and 30.6% for the three and nine months ended June 30, 2009, compared to 31.3% and 32.3% for the same periods in 2008. Cost of operations expenses increased by 11.4%, or $2.0 million, for the three months ended June 30, 2009, and 9.7%, or $5.0 million, for the nine months ended June 30, 2009, compared to the same periods in 2008. Total salaries and related expenses increased by 9.9%, or $0.9 million, for the three months ended June 30, 2009, and 4.9%, or $1.4 million, for the nine months ended June 30, 2009, compared to the same periods in 2008. Allocated overhead costs increased by 4.0%, or $0.1 million, for the three months ended June 30, 2009, and 12.0%, or $1.2 million, for the nine months ended June 30, 2009, compared to the same periods in 2008. Initial set-up costs that we incur in connection with our subscription services increased by 20.1%, or $0.8 million, for the three months ended June 30, 2009, and 16.2%, or $1.9 million, for the nine months ended June 30, 2009, compared to the same periods in 2008. These increases were primarily due to organic growth.

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 28.9% and 29.2% for the three and nine months ended June 30, 2009, compared to 28.2% and 26.9% for the same periods in 2008. Sales and marketing expenses increased by 16.5%, or $2.5 million, for the three months ended June 30, 2009, and 25.4%, or $10.8 million, for the nine months ended June 30, 2009, compared to the same periods 2008. Total salaries and related expenses increased by 21.6%, or $2.4 million, for the three months ended June 30, 2009, and 27.6%, or $8.3 million, for the nine months ended June 30, 2009, compared to the same periods 2008. Initial costs that we incur in connection with our subscription services increased by 36.5%, or $0.7 million, for the three months ended June 30, 2009, and 57.4%, or $2.7 million, for the nine months ended June 30, 2009, compared to the same periods in 2008. These increases were primarily attributable to an increase in sales personnel and marketing programs.

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 as a percentage of total revenues decreased to 9.4% and 10.0% for the three and nine months ended June 30, 2009, compared to 9.7% and 10.9% for the same periods in 2008. This decrease reflects our higher revenues compared to relatively stable expenses in this area. Systems development and programming costs increased 8.8%, or $0.5 million, for the three months ended June 30, 2009, and 6.1%, or $1.0 million, for the nine months ended June 30, 2009, compared to the same periods in 2008.

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 for corporate software developed or obtained for internal use and amortize it over its useful life. Capitalized internal-use software costs, net of amortization, increased $1.6 million, from $14.8 million at September 30, 2008, to $16.4 million at June 30, 2009.

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, information technology and facilities, and, to a lesser extent, miscellaneous costs, such as professional fees and public company regulatory compliance costs.

General and administrative expenses as a percentage of total revenues decreased to 11.0% and 11.4% for the three and nine months ended June 30, 2009, compared to 14.4% and 14.6% for the same periods in 2008. General and administrative expense decreased by 13.8%, or $1.1 million, for the three months ended June 30, 2009, and 9.6%, or $2.2 million, for the nine months ended June 30, 2009, compared to the same periods 2008. Total salaries and related expenses decreased by 14.7%, or $0.7 million, for the three months ended June 30, 2009. Total salaries and related expenses were flat for the nine months ended June 30, 2009, compared to the same period in 2008. Allocated overhead costs, professional fees, and other decreased by 15.4%, or $0.5 million, for the three months ended June 30, 2009, and 20.1%, or $1.9 million, for the nine months ended June 30, 2009, compared to the same periods 2008. These decreases were primarily the result of a $0.9 million non-recurring expense in the second quarter of 2008 to reflect state and local taxes payable.

We expect the absolute dollar amount of general and administrative expenses to remain relatively consistent in 2009 compared to 2008. 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 for Outtask over an expected useful life of 8.2 years and for Gelco over an expected useful life of 9.6 years, 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.

Interest Income, Interest Expense and Other



                                                 Three Months Ended                     Nine Months Ended
                                                      June 30,                              June 30,
                                            2009        2008       Change        2009          2008        Change
Interest income                            $  372      $  154       141.6 %     $ 1,840      $    584       215.1 %
Interest expense                             (123 )      (349 )     (64.8 )%       (373 )      (1,202 )     (69.0 )%
Other, net                                    175        (111 )    (257.7 )%       (392 )        (170 )     130.6 %

Total other income (expense), net          $  424      $ (306 )    (238.6 )%    $ 1,075      $   (788 )    (236.4 )%

Interest income increased for the three and nine months ended June 30, 2009, compared to 2008, which reflects higher levels of interest-earning cash, cash equivalents, and investments. We record realized gains and losses on fluctuations in exchange rates in the Other income (expense) section of the income statement.

Income Tax Expense

Nine Months Ended Three Months Ended June 30, June 30, 2009 2008 Change 2009 2008 Change Income tax expense $ 4,076 $ 2,712 50.3 % $ 11,138 $ 7,227 54.1 %

We make estimates and judgments in determining income tax expense for financial statement purposes. We also make estimates and judgments 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.

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. A release of valuation allowance as a result of an acquisition is recorded as reduction of goodwill recognized rather than a tax benefit in the income statement.

Financial Condition

Our total assets decreased by 2.8%, or $17.7 million, to $623.3 million at June 30, 2009, from $641.0 million at September 30, 2008. Our cash and cash equivalents decreased by 51.8%, or $138.8 million, to $129.0 million at June 30, 2009, from $267.7 million at September 30, 2008. This decrease in cash and cash equivalents is due to our purchase of $127.6 million in investment grade short- to intermediate-term fixed income securities and money market funds. Our cash flow activity is described in more detail in the "Liquidity and Capital Resources" section below. Our accounts receivable balances were $38.1 million at June 30, 2009, and $38.5 million at September 30, 2008, representing a decrease of 1.0%, or $0.4 million.

Our total current liabilities increased by 13.3%, or $11.5 million, to $98.1 million at June 30, 2009, from $86.5 million at September 30, 2008. This was primarily due to the increase in our customer funding liabilities which was partially offset by the payment and subsequent decrease in accrued bonus and commissions.

Our additional paid in capital decreased by 7.0%, or $47.6 million, to $631.9 million at June 30, 2009, from $679.5 million at September 30, 2008. The decrease reflects $54.8 million used to repurchase shares of our outstanding common stock, partially offset by the exercise of stock options under our stock-based compensation plans, and the purchase of stock under our employee stock purchase plan.

Liquidity and Capital Resources

Our available sources of liquidity as of June 30, 2009, consisted principally of cash and cash equivalents totaling $129.0 million. Our cash and cash equivalents held at financial institutions generally are in excess of the current Federal Deposit Insurance Corporation limits of $250. In addition, we have a revolving credit facility, which is discussed in more detail below.

Our operating cash inflows consist of payments received from our customers related to our subscription and other product offerings. Our operating cash outflows consist of employee salaries, payments to vendors directly related to subscription and license services, payments under arrangements with third parties who provide hosting infrastructure services in connection with our subscription services offerings, related sales and marketing and administrative costs, cost of operations and systems development and programming costs. Net cash provided by operating activities was $18.1 million and $45.6 million for the three and nine months ended June 30, 2009, compared to $19.4 million and $41.1 million for the same periods in 2008.

Our investing activities used $113.5 million and $127.0 million for the three and nine months ended June 30, 2009, compared to $3.2 million and $171.4 million for the same periods in 2008. Purchases of investments were $127.6 million for the three and nine months ended June 30, 2009. Investing activities for the three and nine months ended June 30, 2008, included payments of $1.3 million and $163.1 million related to our acquisition of Gelco Information Network, Inc. Investing activities included a $4.0 million payment for a purchase of an investment in RideCharge during the nine months ended June 30, 2009. Purchases of property and equipment were $3.8 million and $14.3 million for the three and nine months ended June 30, 2009, compared to $4.1 million and $9.7 million for the same periods in 2008. The increase in customer funding liabilities, net of changes in restricted cash resulted in $19.7 million and $20.9 million in cash provided for the three and nine months ended June 30, 2009 compared to $2.2 million and $1.5 million for the same periods in 2008.

Our financing activities provided $1.6 million for the three months ended June 30, 2009, compared to $14.5 million used for the same period in 2008. Financing activities used $55.6 million for nine months ended June 30, 2009, compared to $19.4 million for the same period in 2008. The exercise of stock options provided $1.3 million and $3.4 million of the three and nine months ended June 30, 2009, compared to $2.6 million and $5.6 million for the same periods in 2008. Financing activities included $54.8 million in cash used for repurchases of our common stock during the nine months ended June 30, 2009. . . .