Concur Slashes Expenses, Reworks Operating Model

<B>Concur Slashes Expenses, Reworks Operating Model</B>

By Jay Campbell

Its stock price is around $3 after reaching the high $30s earlier this year, it laid off 13 percent of its employees, it's shedding whole divisions and it put off its target profitability date by one quarter to September 2002, but customers of expense provider Concur don't appear to be shaken by news of the company's restructured operating plan.

Concur in June warned Wall Street it would not meet quarterly earnings estimates--and indeed, it did not, reporting a loss of 85 cents per share compared with First Albany Corp.'s expectation of a 70-cent-per-share loss (BTN, June 26).

For analysts, the company's $8.1 million in revenues versus an expected $13.6 million was an even more serious indication that something was awry.

Concur said the layoffs were part of a war on expenses associated with a "new operating plan" that includes a renewed focus on the core expense management software business rather than HR software, which it is moving into a separate unit.

Concur is dropping procurement altogether and is leaving its purchasing services for small and midsize companies up to partners Nortel Networks and Safeco. Concur will focus its resources on corporate expense management, particularly the outsourced application service provider model.

The restructuring resulted in some special charges to Concur's cost line, not to mention "drastically reduced top and bottom line forecasts," said First Albany analyst Troy Peery.

"Right now, we don't see a catalyst" to the stock price, said Peery. "Investors are not putting a premium on untested business models, but we do see more flexibility in their spending, which is a primary strength in a software company and particularly important with the shift to ASP."

Concur, which claims the lead in expense software with more than 500 customers, signed 210 ASP clients since launching the product in June of last year. The company is predicting that its ASP client base will eclipse the license model base over the next year.

"People are finding the ASP model is taking off, and that's because it has compelling customer advantages," Concur's chairman and CEO Steve Singh told BTN last week. "There are lower up-front costs and minimal-to-no IT requirements."

But the ASP model spreads revenues over a typical two-year contract, rather than generating large up-front chunks of hundreds of thousands of dollars, resulting in lower near-term revenues for Concur.

The company said the shift to ASP will continue to "moderate" revenue growth for the next two quarters. First Albany is predicting a loss of 61 cents per share in the quarter ending in September.

"Shifting their delivery model to ASP is not a superficial change," said Peery. "What does it take for a software company to survive? It takes cash, so they have to scale back expenditures over the next one to two years, given the amount of cash they have, which is about $66 million after current debt. Our scenario indicates they can make it."

Singh said, "We're not going to go away any time soon; we're not going away at all. In fact, we expect to dominate for the foreseeable future."

It appears that customers believe that. "I'm not really concerned," said Mike Stevens, T&E reengineering project manager at Cleveland-based Eaton Corp. "Anytime the stock drops as low as it has, there's always concern of a takeover, but we did a very thorough analysis and looked at their financials. They are the market leader, and we feel confident they have the best product. Also, I have not seen any decrease in support--they have come through and supported us on a number of occasions."

Even Concur's competitors are not noticing a major shift by customers away from the company. "A half-dozen names my mother would know are looking around," said John Toman, a senior product manager at Captura.

Extensity's vice president of marketing Elizabeth Ireland said, "I don't think Concur customers are really leaving yet. It's happening here and there."

Singh said the company's plan to refocus on the core expense management area ought to be good news for clients. "They have applauded that move," he said. "Any time you have an announcement that talks about changes in the revenue model, customers ask questions. We have prepared informational packets so they have a full understanding of the business plan. Once we discuss it one-on-one, they feel very comfortable with it."

Concur also continues to find support through partnerships, announcing late last month a reseller deal with payroll outsourcer Automatic Data Processing Inc., one of the largest companies of its kind. "We'll now have 2,000 new sales representatives in the smaller/midmarket," said Singh.