Concur Technologies' CEO Discusses F1Q2014 Results - Earnings Call Transcript

Executives

Todd Friedman - VP Investor Relations

Steve Singh - Chairman and CEO

Rajeev Singh - President and COO

Frank Pelzer - CFO

Analysts

Michael Nemeroff - Credit Suisse

Steve Ashley - Robert W. Baird

John DiFucci - JPMorgan

Samad Samana - FBR Capital Markets

Michael Huang - Needham & Company

Jobin Mathew - Deutsche Bank

Concur Technologies (CNQR) F1Q14 Earnings Call January 29, 2014 5:00 PM ET

Operator

Good day, ladies and gentlemen, and welcome to the Concur Technologies’ First Quarter Fiscal 2014 Conference Call. (Operator Instructions) I would like to turn the call over to your host Mr. Todd Friedman. Please go ahead.

Todd Friedman

Thank you, operator. Good afternoon, everyone, and welcome to the call. Today we are discussing Concur results for the first quarter fiscal 2014. This call includes presentation slides that will accompany our prepared remarks. To access these slides as well as the press release and 8-K from today's earnings, please visit our Investors section of our website at concur.com.

We are now on Slide 1. Speakers for the call today are Steve Singh, our Chairman and Chief Executive Officer; Rajeev Singh, our President and Chief Operating Officer; and Frank Pelzer, our Chief Financial Officer. After their prepared statements today, we'll host a brief question-and-answer session.

Please now advance to Slide 2. Before we get started, we want to remind you that during the course of this conference call, we will discuss our business outlook and make other forward-looking statements regarding our current expectations of future events and the future financial performance of the company. These forward-looking statements are based on information available to us as of today's date and are subject to risk and uncertainty. We encourage you to review the details on this Slide 2 and our filings with the SEC, which are available at sec.gov, for additional information and risk factors that could cause actual results to differ materially from our current expectations and the forward-looking statements expressed or implied during this conference call. We assume no duty or obligation to update these forward-looking statements, even though our situation may change in the future.

On the call today, we will also be discussing certain non-GAAP financial measures. Reconciliations of those measures to their comparable GAAP measures can be found in the table within our press release.

With that, I'll now turn the call over to Steve.

Steve Singh

Thank you, Todd. Good afternoon everyone and thank you for joining us. Raj, Frank and I are excited to update you on the business and highlight our progress on key elements of Concur’s long-term business strategy.

As such, during the course of the earnings call, we are going to focus our remarks on three topics. First, we just delivered an exceptional Q1, beating our estimates for revenue, earnings, cash flow from operations, free cash flow and new customer growth. Fiscal 2014 is lining up to be the best top line growth rate we will have delivered in the first half decade.

And as you well understand from our bookings model, we are already starting to sign business that will drive revenue growth in fiscal 2015. Second, fiscal 2014 will mark our transition from a company that sells market defining products and services to one that not only delivers market defining products and services, but does so on an open platform that can be leveraged by our community or partners. All for the purpose of improving the value that we can collectively deliver to our mutual customers.

Driven by the continued success of our core services and the adoption of the Concur T&E Cloud, over the next 5 to 10 years, we have an opportunity to completely reinvent an entire industry with corporate travel and expense management market, one of the biggest market opportunities in the world.

And third, we want to give you an update on our financial and business objectives for the remainder of fiscal 2014. Please turn to the next slide.

So let’s start with the quarter. Compelling long term opportunities such as the one we are pursuing are enabled and realized by consistent and great execution. Day by day, week by week and quarter by quarter. In fiscal Q1, we saw our business momentum and track record of great execution continue.

Revenue grew 31% year over year to over $160 million, well ahead of our expectations. As usual, our revenue growth was driven by deployments coming in ahead of our expectation. We also saw a solid travel environment in what a generally improving economic environment.

Non-GAAP EPS was $0.21, ahead of our expectation. Even as we continue to invest aggressively in future growth opportunities, such as the Concur T&E Cloud platform, our open booking initiative and our Big Data initiatives. We simply couldn’t spend all the revenue upside within the quarter. Cash flow from operations and free cash flow were both ahead of our expectation.

Please turn to the next slide. While our quarterly financials are driven primarily by deployments and underlying transactional trend, both of which were ahead of our expectation, the health of our business for the forward year is driven by new customer demand. We were very pleased with the demand environment we saw in Q1. In fact, driven by the strength of Q1 booking and the current demand environment, we are on track to have bookings growth in fiscal 2014 be comparable to what we saw in fiscal 2013.

In Q1, we saw very strong bookings in both the enterprise and SMB customer segments. And while we saw strength in all geographies, we saw stronger-than-expected growth in the U.S. and EMEA. Enterprise customer additions included Deloitte Management services, Paccar, and Rice University. And while the number of SMB accounts we signed are too numerous lists, they did include notable names such as the New York Mets and Pittsburgh's Pirates, for those of you that are sport fans. For your Chicago sports fans that might be more focused on fashion these days, you might like to know we welcomed Alexander Wang to our family of customers.

And for those like me, that are little more technology oriented, we welcomed Go Pro and MakerBot to the Concur family. Our expanding distribution footprint and growing market presence is helping drive the pipeline growth that’s sustaining the sales productivity and fueling our hiring plans. These data points affirm our bullish view to the demand environment for our product and services.

Please turn to the next slide. Let me spend a moment to give you an update on how we are doing against the ETS2 award. At this point we are well into the implementation process with most of the agencies we signed in fiscal 2013. As of today, we have 10 agencies already live, some in production, and others in pilot. And we expect that number to grow materially during the course of the fiscal year.

Now we tried to set the profit expectation around how ETS2 will impact our P&L in fiscal 2014. I realized that this campaign could assume a significant impact to our fiscal 2014 revenue coming from ETS2. That’s simply not the case.

These deployments are similar to the largest commercial deployments that we deliver. But it’s important to note that unlike our commercial deployments, our ETS2 customers tend to have pilots and those pilots tend to take a fair bit of time. In fact, our government agency customers are accountable to Congress. So you can expect a different level of rigor around the testing and reporting phase of the implementation. This is entirely consistent with our expectation and past comments.

It should help you to understand why we expect a rather modest contribution from ETS2 in this fiscal year. However, being ahead of our expectations for pilot and live customers, as well as, total implementations underway gives us even greater visibility into fiscal 2015. We could not be more pleased with the dozen TMC partners who are working with us and our civilian agency customers under our embedded TMC program to deliver an incredible travel experience while driving compelling savings for taxpayers.

As expected, we are executing very well across every element of our core business. That’s what we expect of ourselves, and frankly, what you’d come to expect from us. I am pleased to report that we are also executing very well against our long-term growth initiatives. We saw a continued momentum around TripLink, our Open Booking initiative, and the Concur T&E Cloud, our open platform initiative.

Let me turn the call over to Concur’s President and Chief Operating Officer, Rajeev Singh, to provide more color on these initiatives, Raj.

Rajeev Singh

Thank you, Steve. As Steve had shared with you in the past, our long-term corporate objectives are straightforward and they are fundamentally based on a commitment of delivering Cloud services to businesses to help them focus on what really matters. Due to this, we have a couple of very straightforward goals.

First, there are hundreds and thousands of companies around the world who can benefit from Concur Solutions in terms of time and cost saving and real-time insight. So our primary goal is that every company in the world processing their expense reporting and invoice transaction via Concur Solutions.

Second, we see a tremendous opportunity to drive efficiency and transparency in the corporate supply chain for the benefit of this corporation and importantly for their employees. Today, our core focus in our [technical difficulty] everyday and represents more than a trillion dollars in corporate spending. Each of these objectives represents a multi-billion dollar revenue opportunity on a standalone basis. Of course, they are deeply intertwined. Progress against one objective provides immediate synergy to the other. Please turn to the next slide.

On the first objective even with the commanding market share lead in most major market segments that we operate in, we believe we are less than 10% penetrated globally. As a standalone business, this business will be the driver for propelling Concur well past the one-billion dollar in revenue mark over the next several years and we continue to pursue these growth objectives with vigour. Over the next 10 years we expect to see compelling growth in new global markets to small and mid sized business segment around the world and in a very small business segment and even the individual employee and traveler segment all around the world.

Today, Concur has organized its product and leadership to execute against each of these objectives. Even as we enjoy enviable market leadership position we are never satisfied. Through our innovation engine, market leading distribution and service capacity and an open platform that embraces innovation of others, we intend to extend our leadership position.

The second objective with our core focus on the corporate travel supply chain is made possible by our success with our first objective. It is business of our success pioneering the travel and expense automation market and we have deeply embedded institutional knowledge of corporate travel, combined with enormous volumes of real world data to help understand how real people travel, how corporations manage their spend and use data to understand it.

The scale of our customer base is unique in the market and it enables us to offer the most comprehensive and desirable platform through which to serve that one trillion dollar corporate travel market. Please turn to the next slide.

Our experience across all elements of this supply chain have given us incredible insight into the inefficiencies of the market and the technology infrastructure required to address these challenges. Let me highlight just a few of the areas where we are focused.

First, today, no common data model exists to link travellers their itinerary, suppliers, payment instruments and corporations together. Second, efforts to drive efficiency and transparency have been stymied by the inability to create consensus across the industry. Third, no open industry web services platform exists to facilitate collaboration between innovation drivers in the corporate travel supply chain. And most importantly, the consumer for corporate travel, the employee, is an unspoken for a constituency, yet, an increasingly powerful one. Their travel experience has often been anonymous in personal and unsatisfying.

At the end of the day these gaps, disconnections, and complexities fall to the companies and the travellers. And this has always been the case. We are steadfast in pursuing the right experience for our customers, connected and effortless. Please turn to the next slide.

The Concur technology stack today is the single most comprehensive set of technology and services in the corporate travel supply chain. Today, we have global market leading services that enable travelers to easily book and manage itineraries from the web and from their mobile device, allow employees to submit expense reports from their web and their mobile device along the way so that expense reports are practically write themselves, provide the tools for corporations to reconcile and analyze not only the data concurrence collected about their business expenses, but also data from any third party source.

Give travel management companies the ability to better serve travelers by processing corporate and travel transactions across nearly any global distribution system, enable companies to fulfil their needs to provide safety and security for employees by providing visibility for corporate travel and security department, and TMC to the whereabouts of their travelers anywhere in the world and tools to communicate with them on the fly via multiple communication channels including text, email, social networking and voice.

And finally, give suppliers the ability to link employee accounts to their loyalty programs enabling corporate program benefits from their own website and mobile apps and helping travelers fill out their expense reports by sending that data right to the expense voucher. And we have taken a platform approach to each of these capabilities, delivering the first fully integrated open corporate travel technology stack. That stack is the enabler for incredible customer value and the basis of the Concur T&E Cloud. Please turn to the next slide.

Of course, all of our technology investments are still symbiotic, delivering significant value for customers who take advantage of all of our capabilities by using Concur offerings internally and choosing TMCs and suppliers that have embraced our technology as well. To inspire them to do so, we are creating deep integration in this technology stack.

Companies utilizing the entire stack top to bottom will have a seamlessly integrated data set right out-of-the-box with incredible insight into their entire travel spend and a business travel experience that is optimized from the booking experience through to the TMC service experience. We are currently working closely with some of our strategic partners and customers to refine this highly differentiated integrated experience in more depth.

Over the next several quarters, we will be announcing and delivering these integrated capabilities for our clients. With each new capability unveiled, we believe we will begin leading the entire industry towards that perfect trip. Our pursuit of the vision of the perfect trip is among the core drivers of our product engine and in the months ahead, Concur will be announcing new solutions that clearly address the new paradigm that is taking hold in corporate travel, including the ability to capture itinerary from virtually any source either via direct supplier linked to traveller profiles, or the itinerary parsing so that travelers and businesses will have a complete view of all of their travel spend.

A travel spending game of vacation [ph] offering which will inspire travelers to focus on saving their company money by rewarding them for booking at rates lower than industry averages and within the corporate policy. And finally, an incredible set of mobile tools including TripIt Pro for simplifying and facilitating the in-travel experience. These capabilities represent the complete solutions that can be delivered when leveraging the power of the entire technology stack of Concur and by building on top of the Concur T&E Cloud. Please turn to the next slide.

We also understand that the creation of a perfect trip create opportunities for the entire industry to benefit from cooperation and that a truly transparent and efficient market requires an open system to enable broad based innovation and greater customer value. Thus, we have introduced the Concur T&E Cloud, the industry’s first open accessible affordable platform for innovators from all facets of the supply chain; developers, TMCs, suppliers, corporations and travellers to interact, collaborate and deliver on the promise of a perfect trip.

To further move the industry forward, we have allocated $150 million to the perfect trip fund to collaborate with early stage companies that wish to pursue the same objective, often serving markets that are multi-billion dollar market opportunities in their own right. Already, our T&E Cloud has hundreds of companies, ISPs and developers delivering solutions to our customers. This ecosystem approach results in real and immediate value for customers. For example, in the past quarter, one of our customers leveraged the Concur platform to connect with Universal VAT, one of our partners. Through this connection they discovered more than a half million dollars in VAT savings that would have otherwise gone unclaimed.

Global wireless leverages that platform to connect to the Concur Booking System so that when a traveler books a flight and Gogo enabled aircraft, they can prepay for a Gogo pack at a discounted rate providing clear savings for the enterprise and a great customer access to Gogo. In addition, by facilitating the service upfront, the traveler has an easier connection experience on a plane and can focus on what is important to them.

Business mobile connects to our customers to help them leverage more data source. In this case, very complex mobile phone plan data to better understand total employee spend. Sometimes the best expense is when you avoid it. With business mobile, you have an ability to stop expenses before they happen. For example, you are travelling to Europe, it is not about making it easy to expense the high long distance connection. It is about informing you to change your data plan before you leave and reminding you about it when you return. It is about money you save, not just the money you spend and that’s what the platform approach enables and why our customers and partners are excited about it.

Not surprisingly, Concur’s driving innovation curve in the corporate travel market and our customers are partnering with us to drive greater efficiently into our industry. We could not be more excited about the opportunity that is in front of us. With that let me turn the call over to our CFO, Frank Pelzer, to walk you through Q1 details and our business outlook. Frank?

Frank Pelzer

Thank you, Raj and good afternoon everyone. Today, I would like to review our results for fiscal Q1, 2014, as well as discuss our outlook for the remainder of the year. Our core business drove strong financial and operational results in Q1. In the quarter our non-GAAP revenue grew approximately 31% year-over-year, nicely ahead of our expectations.

Non-GAAP operating margin was approximately 10% and non-GAAP pretax income per share was $0.21 Cash flow from operations excluding cash paid for acquisition related expenses and excess tax benefits, as well as, non-controlling interest was approximately $16 million. We continue to execute against our investment objectives designed to further drive top line growth and expand our role in the trillion dollar travel market.

Our focus on investing and growth continues to be validated by the global demand we are experiencing for our services and the ecosystem coming together around Concur T&E Cloud. Finally, our successful execution of our strategy is creating a foundation for a sustainable growth at best in class levels. If you would, please advance to the slide titled “Revenue Summary” and let’s look at Q1 results.

Unless otherwise stated, please note that all of my comments reference non-GAAP operating metrics. Q1 revenue was ahead of our expectation at $160.3 million growing approximately 31% year-over-year and 4% quarter-over- quarter. Please note that this excludes $2.8 million of revenue from operations acquired from TRX that we intend to divest.

For GAAP purposes we were not able to classify these operations as discontinued at quarter end that we may be able to achieve discontinued operation presentation at a future point in time. Recognized revenues in the quarter benefitted from excellent traction and new customer deployments, existing customers adding new services and strong transactional volume. Customer retention rates were again strong for the quarter consistent with our historical averages in the high 90s.

Following comments refer to the next two slides. Gross margin was consistent with our expectation at approximately 69% for the quarter, down year-over-year as a result of the margin mix of acquired business for which the cost structure of the service delivery was significant against the revenue based at it. Gross margin is a reflection of the economies of scale inherent in our business model with high margin products offset by our investments made for our growth initiatives.

As we have stated repeatedly, our goal is to invest across the business to extend our distribution and product capabilities. For Q1 sales and marketing expense increased 30% year-over-year reflecting our ongoing and sizable investments to expand our capacity to reach prospecting customers.

Research and developing expense increased 45% year-over-year driven by growth in headcount to accelerate the innovation curve in our industry. G&A expense increased 28% year-over-year reflecting investments in corporate infrastructures for our global growth.

Operating margin in Q1 was approximately 10% in line with our expectation. The higher than expected revenue, combined with the planned reinvestment of the upside resulted in Q1 pretax earnings per share of $0.21 ahead of our $0.19 per share guidance.

Please advance to the slide titled “cash flow summary”. Cash flow from operations and free cash flow were ahead of our expectation for the quarter, primarily driven by continued strong performance for the business. Cash flow from operations for the quarter, excluding cash paid for acquisition and other related activities, excess tax benefits and non-controlling interest, was approximately $15 million, ahead of our expectation.

Capital expenditures were $12 million or approximately 8% of quarterly revenue. Free cash flow was approximately $4 million for the quarter, ahead of our expectation. Our cash position is very strong and provides us tremendous leverage to continue to expand our market and our leadership position.

Cash and short term investments, net of customer funding liabilities, ended the quarter at $794 million, largely flat to our balanced last quarter as cash generated from operations was offset primarily by capital and strategic investments.

Days sales outstanding ended at 63, at the low end of the 60 to 70 day expected range, primarily due to strong cash collections. Deferred revenue grew to approximately $107 million by quarter end, reflecting approximately 21% growth over the same period of the prior year. As we have mentioned in the past, please note that the change in deferred revenue is not an accurate measure of our bookings growth, since we bill the vast majority of our customers monthly. Please advance to the next slide.

Let’s turn the discussion to expectations for Q2 and the remainder of the year. As Steve mentioned, demand for our services has remained strong. On the strength of Q1 results, we are comfortable with our expectation that FY’14 revenue will grow approximately 26% year over year. For the second quarter, we expect total revenue to grow approximately 30% year over year. We believe we have a large and strategic window of opportunity to further strengthen our leadership position especially in new markets around the globe, our government business and new service offerings associated with the Concur T&E Cloud platform.

As demonstrated by the strong Q1 results, we are finding people to hire in good areas in which to invest capital. As a result, we are maintaining our guidance for operating margin for FY’14 in the range of 10% to 14%. Given the strong demand environment we are experiencing, we will continue to invest at a healthy rate and encourage you to model operating margins toward bottom of that range. As stated last quarter, we expect Q2 to be below this range, Q3 to be in the range and Q4 to be at the high end of the range. We intend to invest every dollar above our revenue guidance back into the business with a 4% to 10% of operating margin for the year as a whole.

Our revenue and operating margin expectations result in non-GAAP pretax earnings per share of at least $0.93 in FY’14. We expect Q2 to contribute $0.14 of the total for the year. I will remind everyone that as business we target annual non-GAAP operating margin EPS goals and are less focused on variations that happen quarter to quarter.

Let me now turn to cash flow. The cash generation dynamics of our business continue to be strong and cash flow from operations should continue to be largely linked to non-GAAP earnings. With strong revenue growth offset by a higher rate of investment we now expect cash flow from operations, excluding the acquisition of the related costs, the tax benefits from share based compensation and non-controlling interest for FY’14 to be at least $72 million, an increase from our previous expectation of $70 million.

Regarding our tax rate, we are still utilizing a large NOL balance. For FirstCall consensus purposes, we encourage you to use 35% federal statutory but recognize this does not reflect the taxes we pay. For FY’14, we expect cash income tax statements to be a single digit percentage in pro forma pretax income. For FY’14, we expect to spend 89% of revenue on capital expenditures due to additional infrastructure investments, including global facilities, data centers and information system enhancements.

Driven by our exceptional Q1 results and our proven ability to execute well, we are excited about the year ahead and our capacity to drive meaningful innovation and value for our customers and our shareholders. Now I would like to turn the call back over to Steve for closing comments.

Steve Singh

Thanks, Frank. There are few messages that I would like you to take away from our comments. Clearly we had an exceptional Q1 and we expect that momentum to continue into Q2. We are comfortable with our full year revenue and earnings outlook and we have an opportunity to deliver another year of compelling bookings growth that will drive visibility and compelling growth into fiscal 2015.

But the most important thing to take away from today’s call and to understand about Concur is that we are reinventing one of the largest industry verticals in the world, corporate travel. We are, always have been and always will be a product company. Across the technology landscape, history shows that the greatest product companies often take the chance to become platform companies, simply by virtue of the pervasive user experience that they enable.

Open platforms enable ecosystems that are healthy, vibrant, large and that help drive customer demand. But they also ensure new value for every participant. The Concur T&E Cloud, our open platform, is creating that ecosystem for corporate travel. Hundreds of developers are innovating on our platform. Millions of individual travellers and thousands of customers have accessed to new wildly compelling services via our platform. And the largest industry participants from the last generation of corporate travel have an opportunity to add value in the next generation of corporate travel by leveraging the Concur T&E Cloud.

We are investing aggressively to deliver this platform and to help transform our industry into what it should be. Quarter after quarter, year after year, all while delivering incredible best-in-class results, fueled by the discipline and focus of my 4000 colleagues at Concur, by our ecosystem partners and by our shareholders. Thank you for your continued support.

With that, operator, let’s open the call to questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from Michael Nemeroff of Credit Suisse.

Michael Nemeroff - Credit Suisse

Steve, I just want to ask about one of the pieces of the platform, the new platform, the TripLink product itself, and compare maybe the attach rates of the TripLink product to let’s say travel booking at the same stage of the release. And then also I think I saw in the slides that there were 100 customers, or 500 customers on the TripLink platform, and that’s a little bit of a deceleration of growth from last quarter which I think you added 300, how should we look at that number?

Steve Singh

If you go back to when we delivered our travel product integrated with expense and started selling them to the marketplace, roughly about 4 to 6 quarters after we delivered it, we got to [ph] about 30% of attach rate, obviously they started closer to 5%, 10% attach rate in the early quarters. And then I would say about 6 quarters after that, these are ballpark numbers, about 6 quarters after that, we got to about 70% attach rate. And that’s roughly where we operate today. In fact, it’s actually gone up a bit since then.

If you look at where we are today with TripLink, we are certainly in the earlier stages of that attach rate. I will tell you however that there is a couple things to note around that. The 500 number we use is a rounded number, it’s actually well above 500 but we are trying to just use a round number in reporting this information. I do think that –we are very comfortable that we will clear over 1000 customers over the course of the fiscal year. So we don’t see any deceleration here, we think in fact, that you will see a very comparable attach rate on TripLink with time to what we saw with our travel product. The one big difference that’s important to note is while our travel product was certainly complex – and not complex, but sophisticated, the complexity around TripLink is much greater. It’s not just a fantastic application and service that we deliver to our customers, it requires deep integration across our supplier partners and that just takes a bit more time to build out. So we are not at all discouraged by anything around TripLink, in fact, quite the opposite we see a fantastic adoption around it.

And in the last point, I will just – actually to think about it is that, that same set of functionality that we are delivering via TripLink is also available via TriPIt enterprise where – today we stand well above 1500 customers.

Michael Nemeroff - Credit Suisse

One follow up, if I may. On the other side of the open bookings platform, you’ve got the suppliers. Could you just give us an update on the number of suppliers, or how we should think about – should we think about the suppliers that are on open booking as a percentage of those that supply inventory into your travel bookings, how should we think about that and compare the progress there?

Steve Singh

I think today, the way to think about – you are going to get the leading suppliers in each of the major content categories, air, hotel and car. As is typical they will take the lead and the first movers in most things, they end up becoming market standards. And I think the way you are going to see that goes, as time goes that any major supplier in air, hotel, car and frankly, well outside those content sites, is also going to become a open or TripLink partner. So we look at it and say this is just – it’s just a question of time to get those supplier relationships done. I will just remind you that it’s not just putting that business relationship together, it’s also the technology work that has to be done around integration. So it may take a little bit longer than a standard kind of expense receipt integration. But we are seeing certainly very encouraging trends in that direction.

Operator

Our next question comes from Brent Thill from UBS.

Unidentified Analyst

This is John Diane [ph] for Brent Thill. I had a question on the government contract, for those customers that are live, could you talk about the pace of usage, rent, versus the expectation?

Steve Singh

I would say that – a couple things here that are important. First of all, we have about 10 agencies that are either in pilot or live today. Those pilot programs tend to be very long programs where you have very modest usage. And that’s within the expectation, you said that we had talked about in the past and it fits all within the context of course, in fiscal ’13, we signed about 70% of the transactional volumes that were available on through the Concur services stack. And that’s somewhere near 65 or a little bit more than that, 65 plus agencies.

Most of those agencies are actually in various phases of deployment. 10 of course are in pilot or live but in the very early stages of usage. Our view is that there will be very, very modest contribution in terms of revenue to fiscal ’14. However these will certainly help get us more comfortable with our expectations on fiscal ’15 and beyond. And then the last thing I remember is that we are back to ETS1, it was multiple years like for any of these agencies to get live on services and what I love about what Concur has added value is that in six to nine months we’ve gotten the first 10 in pilot or live mode.

Operator

Our next question comes from Steve Ashley with Robert W. Baird.

Steve Singh

Steve, I'm just going to start by apologizing for that joke.

Steve Ashley - Robert W. Baird

No, it was quite all right. I'm actually more of a Packer fan. But I did get it. I will tell you, my question is about the guidance going forward. You guys, obviously, are coming out of the gate a little faster than expected but keeping the full year where you had originally expected, which means that for us we have to model it, have to take the second half of the year down and specifically we would look at growth rates decelerating something less than 25% year-over-year in the second half of the year.

I'm just wondering if you could walk us through either the math or some of the expectations or color around why the second half of the year would see that kind of slowing.

Steve Singh

Sure. So let me give you a little bit of perspective on it, and then I would just ask you to kind of take it from there. Look, we couldn't be happier with Q1. It was a great quarter for us. We are, obviously, going into Q2 expecting very strong growth into Q2. We are seeing a great demand environment for our services. We are very, very comfortable with where the business is at and how it's executing.

I think a little bit of perspective, just to kind of ask you and everyone else to kind of think about it on this is that, if you look at the -- maybe on -- look at the first six -- the implication of the guidance we are providing with the Q2 guidance and, frankly, the full year guidance, is that the first half of the year roughly goes at about 11% sequentially versus the prior six months. The second half of the year goes roughly about 10% sequentially versus the first six months.

So generally balanced growth. But I also think it's important that we just finished Q1, let's get another quarter under our belt.

Steve Ashley - Robert W. Baird

And then my next question, just as one I am trying to better understand the business traveler constituency within the supply chain. And part of it is asking them to opt in and to provide their consent to shared their unmanaged travel data. How is that process done? I mean just very generally, how do you get those travel -- business travelers to opt in and agree to share that and is TripIt and TripIt Pro part of that process? If you could just help us understand that, that would be great.

Steve Singh

Sure, Steve. So look, this is – it’s really specific by market segment. So I will just try to give the highlights around this, but understand that it’s a market segment by market segment strategy. So it's a strategy we take in the SMB segment, it is very different from the strategy we take in the enterprise segment and even, frankly, geographies. There are different elements to the strategy.

By and large, there's either a corporate decision to move to a open booking or, obviously, what we call TripLink oriented model, which effectively allows the corporation to fully capture all their corporate travel spend. We have yet to find companies that don't want to fully capture all of their corporate travel spend where they don't want to get their corporate rate, where they don't want to ensure that their business travelers also pick up their loyalty. There is a broad, broad adoption and acceptance around these principles.

And so TripLink is a corporate service that allows that to happen. It typically is more consumed by enterprise customers. TripIt enterprise -- again, these are very broad statements. There are no specific lines here that one set of services has driven one market and another type has driven another market. With Tripit enterprise delivers much of that functionality into typically SMB customers. And so while certainly, an individual can make a decision that says, hey, you know what, I want to make sure that all this information is being captured and delivered into my expense reporting service, by and large, we think that with time this will end up being enterprise oriented decision.

Operator

Our next question comes from John DiFucci with JPMorgan.

John DiFucci - JPMorgan

I just want to make sure I understand the upside in Q1. Last quarter you set out to invest for growth in fiscal ‘14, but this quarter actually looks really good, as you point out and others have on the call. Has that investment already started to affect growth, or are these just from some of your other things that you are doing? And I guess you did mention maybe a little about the environment and if you think there is any improvement in the buying environment or is it more your execution?

Steve Singh

John, very good question. Thanks for asking that. I think that as -- I want to make sure people get some clarity around that. The incremental investments that we started ramping in the beginning of this fiscal year or even late in last fiscal year had virtually zero impact into the quarter we just reported. The quarter we reported, the revenue upside was driven by deployment of customers we’ve already launched and signed, or very, very modest transactional kind of upside. And that’s within our normal historical patterns -- very, very single-digit, 1% or less kind of variances.

So it’s really fundamentally driven by accelerated implementation. So the investments we made in the back half of fiscal ‘13 and that we are starting to make in the front half of fiscal ‘14 really start to deliver real value in fiscal ‘15.

Operator

Our next question comes from Samad Samana with FBR Capital Markets.

Samad Samana - FBR Capital Markets

Could you give us an idea of the thousand customers? Can you give us an idea where you’ve seen the greatest contribution in terms of customer size and geography and vertical as where the strength is concentrated?

Steve Singh

We made a little bit of color commentary around this. By definition, when you are adding that many customers a quarter. There has to be obviously a representation of kind of the bell curve distribution where companies exist in any marketplace given the size of companies. Having said that, I don't think -- well, I think it's very important and that people take away from it that we're seeing great demand in enterprise. We are seeing great demand in the SMBP. Where we saw better than anticipated demand as far as new customer growth was in the US and EMEA across both the enterprise and SMB segment.

Samad Samana - FBR Capital Markets

And then can you give us an update on how close the company is to integrating TRX GDSX [ph] and then getting those products out to customers in the market again?

Steve Singh

So one last thing on the last question you asked on. It's kind of just important kind of perspective. We added a thousand customers this quarter just for kind of some comparison. You might think of 4000 customers that we added in 2013, so we are off to – it’s obviously a very, very good start. On the integration of TRX and GDSX, this is a multi core initiative. I think what’s really important here and to keep in mind is that what we are trying to drive with those services is not just the integration of the core applications that both those companies had and continue to improve upon the values that those companies delivering into TMC clients.

But we think that they can have a material contribution over the long term into the Concur T&E Cloud platform. Because the elements of that will be integrated into the T&E cloud platform and we will start to address some of the comments that Raj spoke about in his prepared remarks relative to an open platform, open set of data architectures that people can add value on top of.

Operator

Our next question comes from Michael Huang with Needham & Company

Michael Huang - Needham & Company

Just a quick question for you. So you talked about some strength that you are seeing in the SMB segment. I was wondering if you could share some thoughts on how Concur force is doing. Is that a driver in that segment, or is this all Concur breathe [ph], maybe you could just give us some sense for kind of how those product areas are doing.

Steve Singh

Look, the real growth in the SMB segment continues to be today what it was in the last couple years, which is the standard Concur travel and expense services. We certainly have different flavors of implementation around that, but the implementation model that we deploy in the SMB segment that we have been deploying in the SMB segment over the last several years continues to be the primary set of services we are delivering into the SMB market. Concur Force continues to do well but make no mistake about it, it is our standard Concur travel and expense offering that’s driving the -- adoption driving the customer curve within the SMB segment.

Operator

Our next question comes from Karl Keirstead with Deutsche Bank.

Jobin Mathew - Deutsche Bank

Hey, Steve, it’s actually Jobin Mathew on behalf of Karl. I just had a follow-up question on the government business. Obviously, last quarter you guys updated that you had signed a 70% of the opportunity. Is there any meaningful update to that number? And also when you see that you signed 10 customers, are these among the larger customers that are out there? In other words, are these customers that contribute maybe a bigger share of the 70% opportunity that you had at the end of fiscal ’13?

Steve Singh

I think you got a couple of the metrics crossed. But let me see if I can bring some clarity to that. There is no meaningful update to that 70% plus of the transactional volume that we signed in fiscal ‘13. As we said in the last couple of calls, you should expect the remaining 30% to take a little bit of time before decisions are made around that.

On the 10 number you referenced, it is really not related to the 70% of the transactional volume. What I'm saying is that we have 10 agencies that are either in pilot mode or in live production mode. And I'm not going to speak to today which one of those agencies that represents. It's a mix of small and large, but we are really happy with the fact that relatively modest period of time compared to certainly ETS1 deployments that we are seeing real traction on getting our agency customers in pilot and/or live production mode. And on top of that, frankly, every one of the customers that we signed in the first year of the contract is in some stage of implementation today.

Operator

Our next question comes from Ross MacMillan with Jefferies.

Ross MacMillan - Jefferies

I just had a question actually on the gross margin progression that you have seen over the last couple quarters. I think you made a comment on it regarding the impact from the acquisition of TRX and GDSX. Is that solely the answer or is there anything else happening in the core Concur revenue mix perhaps around full services as you, for example, address the big opportunity in ETS2 or elsewhere?

Steve Singh

No Ross, and Frank can chime in if he needs to, but that's it. I wouldn't read too much into that that that margin downturn is pretty modest honestly. We are certainly investing, as we always do in the beginning of each year. We tend to invest a little more aggressively in the beginning of the year in anticipation of bookings growth. So there is nothing outside of kind of a normal pattern of business growth plus a little bit of the impact of frankly cost structure that has a modest kind of support around revenue.

Operator

Now we have no more questions in queue. I will turn it back to Mr. Singh for closing remarks.

Steve Singh

John, and Frank and I and, Raj, want to thank all of you for joining us today. We look forward to updating you on the progress on our company at the next earnings call in April. Thanks so much everybody.

Operator

Ladies and gentlemen, thank you for participation. You may all disconnect. Have a good day.

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