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SuccessFactors, Inc. (NYSE:SFSF)

Q4 2009 Earnings Call Transcript

February 4, 2009 5:00 pm ET

Executives

Bruce Felt – CFO

Lars Dalgaard – Founder, President & CEO

Analysts

Terry Tillman – Raymond James

Sarah Friar – Goldman Sachs

Brendan Barnicle – Pacific Crest Securities

Adam Holt – Morgan Stanley

Brad Whitt – Broadpoint Capital

Phil Rueppel – Wells Fargo Securities

Karl Keirstead – Kaufman Brothers

Curtis Shauger – Caris & Co.

Sasa Zorovic – Janney Montgomery Scott

Thomas Ernst – Deutsche Bank

Operator

Good afternoon and welcome to SuccessFactors fourth quarter fiscal-year 2009 financial results conference call. We have placed all lines on mute and we’ll take questions following prepared remarks. (Operator instructions)

I would now turn the call over to Bruce Felt, Chief Financial Officer of SuccessFactors.

Bruce Felt

Thank you, operator, and good afternoon and welcome to SuccessFactors fourth quarter and fiscal 2009 financial results call for the quarter ended December 31, 2009. The primary purpose of today’s call is to discuss our Q4 and 2009 performance.

However, some of our discussions will contain forward-looking statements, which may include projected financial results or operating metrics, business strategies, anticipated future products and services, anticipated market demand or opportunities and other forward-looking topics. These statements are subject to risks, uncertainties and assumptions. Accordingly actual results could differ materially. For a listing of the risks that could cause this, please see our latest Form 10-Q filed with the SEC as well as the factors identified in today’s press release.

Unless otherwise stated all references to spending margins exclude stock-based compensation, which are non-GAAP measures and reconciliations from non-GAAP to GAAP can be found in our press release.

Today’s call is available via webcast and a replay will be available following the conclusion of the call through Friday, February 12. To access the press release, supplemental financial information or the webcast replay, please consult our Investor Relations Web site. Following our prepared remarks, we’ll have a Q&A session.

I’ll now introduce Lars Dalgaard, SuccessFactors' Founder, President and Chief Executive Officer.

Lars Dalgaard

Thanks, Bruce. I'd like to thank our customers, our people, our partners, and investors for an outstanding Q4 and 2009. In the worst economy, SuccessFactors had our best year. SuccessFactors grew revenue 37% to $153 million and grew our user count by 35% for the year. Billings accelerated throughout 2009. Billings grew 17% from Q1 to Q2. They almost doubled and grew 28% from Q2 to a very strong Q3, and from Q3 to Q4 SuccessFactors grew billings 26% sequentially.

We created a great culture of passionate and accountable people, consistent customer success and product innovation and whom customers come to rely on with their careers and their businesses. Our team really delivered a fantastic year in 2009 growing the top line with less expense than the previous entire year. The team is cranking on 2010, we are fired up. The momentum is like a tsunami wave.

Many companies gave up 2009, but like in sports SuccessFactors doesn’t build character it reveals it. SuccessFactors’ people took market share in 2009. SuccessFactors added 520 customers in 2009 bringing our total customer count to greater than 3,000. Today SuccessFactors has the most unique paying users in the business Cloud with more than 6 million users.

I’ll just talk a little bit about the profitability of our model and show you how ease it would be for SuccessFactors to show a lot more profit if we weren’t investing so aggressively in future growth and continuing to lead and delivering business execution to all employees and businesses in the world.

SuccessFactors leads the Cloud industry with gross margins at almost 80%, 78% for 2009, up from 66% in 2008. We’ve cracked the business model of reputable successful customers that renew at over 100% in dollars, but that revenue annuity costs only 22% of sales to deliver. This will continue to give us even greater cash flow in the future and allow us to continue to invest in growth like none of our competitors because so much is available for operating expense.

The recurring revenue stream is becoming significant. We now have $150 million worth of recurring revenue base from our customers, which had 68% contribution margin, now is equivalent to $100 million worth of annual cash flow to our business every single year, $100 million cash annuity.

We are proud of how cash flow rich our business has become in a very short time and we have a lot more to come. Since going cash flow positive in 2008, we’ve been cash flow positive operations for five quarters straight, while outgrowing the industry. Our Cloud is also the most CapEx efficient from what we can see. Even with the biggest population of active unique paying users we are using less than half the COGS to deliver same size of sales of any of our competitors and less than half the CapEx of any other SAS or Cloud company our size.

Therefore, we have been free cash flow positive for five quarters also. Cash more than doubled from Q3 to Q4 with an almost $30 million positive swing for the year over 2008. Going forward, we expect double cash flow from ops in 2010; yes, double cash flow from ops in 2010. We could easily become a lot more profitable we weren’t to continue in investing leading the industry and building out our platform, while keeping the constraint of non-GAAP operating income positive.

SuccessFactors has raised $215 million in a three-day follow-on offering; once again I’ll just thank our investor for that long-term support.

In September, we launched our new business execution strategy doubling our total addressable market to $36 billion and persisting SuccessFactors to help our customers solve the biggest problem in business today, the strategy execution gap. The results and the deals that have come out of that is what has fueled our acceleration throughout 2009. It’s been an outstanding success.

In June, SuccessFactors signed the world’s largest enterprise Cloud deal with Siemens for 420,000 users across 80 countries in 20 different languages. Currently, more than 300,000 people are using the product of Siemens and more than 220,000 upon their area using SuccessFactors’ goals. It purchased virtually all SuccessFactors modules to link strategy and execution, and each project that we’re rolling out there, which will go on for many years, we started four massive ones right now, we estimate each of those are bigger than anything else going on in SAS and the Cloud in enterprise. It’s a legendary experience and it’s net promoting throughout not just Germany with companies like Deutsche Bank and Allianz, but also in the rest of Europe to Nestle, Lloyds bank and Soso-tuition [ph], and Hilti, the largest elevator company, but across the world for every large deal done in 2009 and being done in 2010.

Siemens is a great example of SuccessFactors continued traction in global expansion. Year-over-year [ph] grew 78% in 2009. New business coming from EMEA, APAC and Latin America accounted for almost a third of our new business, up from 19%. We are continuing to accelerate to all companies of all sizes.

We launched a successful Cloud technology partner and company, while allowing third party applications and data to integrate with SuccessFactors’ BizX suite in the Cloud. Tom Fisher’s work there has really been playing off.

Finally, SuccessFactors joins PricewaterhouseCoopers Japan in one of the largest partnerships in the country to help Japanese organizations. In 2009, our customers continued to produce results with their products. Their investment in BizX has made SuccessFactors the largest pure play Cloud application company in the world with more unique paying users than anyone else.

Last year, we had a series of high-profile customers, including General Motors, Bechtel, Columbia Sportswear, DHL do Brasil, British Petroleum, Gulfstream, Nestle, The Cheesecake Factory, JM Smucker, and Nielsen Company. Coca-Cola Enterprises selected SuccessFactors with 60,000 seat of business execution to in line the entire workforce with overall business strategy. Coca-Cola presented to one of our local training and kickoff events in Atlanta couple of weeks ago. The whole company dialed in as it did to several other company presentations across the world, and to hear them describe “how SuccessFactors is a key part of their global operating framework,” was exceptional rewarding for the entire company.

As far as we can see, the opportunity we have created and lead seems unbounded. While no single vertical represents more than approximately 8% of dollars of new business and upsell, similar fastest growing verticals from 2006 to 2009 include agriculture, construction, consumer goods, travel and entertainment, and health care.

Industries with a largest growth rate in 2009, new bookings were travel and entertainment, personnel and administrative services, membership organizations and non-profits that’s between 32% and 102% growth. Who has ever heard of these verticals for software, except maybe for e-mail or Microsoft? We are the only ones penetrating them. We love them. They are eating it up. This is a great business.

Our next investment in 2009 in customer sales and customer support really paid off. Exiting customers continue to increase their investments with us for all of 2009, 45% was from current customers and it was 57% of new sales in Q4. I am grateful that we invested in customer sales and more customer support, it has really paid off and we believe it will continue to do so.

SuccessFactors has obviously always been an innovation leader in Cloud computing, and new product I mentioned continues for the BizX suite. Original applications of performance and goal managements still make up a lot less than 50% of sales. Employee-central really making HR as fun and interesting and easy and truly make something real out of self-service across the enterprise, the new product that we have just organically build and we are continuing to improve on, which we will launch June at SuccessConnect after asking our customers, Jack Welch around, to really buy this from us. It has been a runaway success. We already have over 40 customers on the product and one deal in Q4 was a $3.5 million global deal.

Now, the company is stretching across products areas that are having this traction in the enterprise globally in the Cloud.

We have a lot of questions on this, so we will just give you a little more information on other product areas outside the original products that are contributing substantially. In compensation, we have over 1,000 customers and one is a $2 million deal. Succession we have over 500 customers and one is a $3 million deal. Recruiting, we have close to 100 customers; one is a $5 million deal. Employee profile, we have close to 200 customers and one is a $2.4 million deal. In career development planning, we have close to 400 customers and 2.5 million sheets and one is part of a $5 million deal.

Today is another first for us. We are proud to announce our intention to acquire Inform Business Impact. The company is a global leader in business analytics and workforce planning, and it is a pure play Cloud company and has world-class consulting capabilities, kind of like the McKinsey of this industry. As you know, we are aggressively building out our BizX road map. We have a three-pronged approach, internal development, partnerships and M&A. there is a lot of business intelligence software, but it is all based on the code general ledger and accounting. That is not going to work for our customers. SuccessFactors needed to drive workforce information to drive business decision. Our customers need technology that’s built based on the general ledger, sales and workforce information. With Inform, we can do all three.

It is incredible how well they merge and build the Cloud of all applications and make it all work, standardize data in one place and show it all to you in one place, so that you can bridge the gap between strategy and execution, and you can make the right decisions; only Inform does that for large enterprises. We want to bring it to all companies across the world and it is frankly what Inform is most excited about in this merger is that they will be able to provide this not just to large enterprise companies, but also across S&P.

Inform has a rich legacy that will bring great people and strong leadership with tremendous propriety expertise and over 28 years of work which has produced academic research, published papers, deep content in Cloud technologies.

Inform has taken 600 person [ph] years of intellectual capital and codified it in a rich set of business analytics and workforce planning applications. Inform has deep expertise in these strategic domains, very few other companies have anything like it. They have a lot of it. Their capabilities will be invaluable to our customers and very difficult for our competition to imitate. SuccessFactors customers now have access to predictive analytics, and I have to tell you we are using this product now internally ourselves. It is incredible insights you get into the product. It kind of reminds me, and not that I have experienced this, but the analogies of going to a doctor and being told exactly what is going on, a complete body scan and you know exactly what you need to do to keep running.

Strategic workforce planning, strategic reporting, workforce analytics, workforce reporting, over 2,000 key performance metrics, and this is important, they have a library build up of key benchmarking concept for over 20 industries. Inform is a privately-held company headquartered in Brisbane, Australia with offices around the world. The company was founded in 1982 by Peter Howes with the Chief Executive Officer. Peter and his team will be staying with the company. We are extremely excited to partner with Peter. I was just watching the video he and I have created to launch for all of our employees and the excitement and enthusiasm is something you just can’t buy. We are so happy that Peter is committing his heart and his team to this opportunity.

They were not looking to sell. A lot of companies had asked them whether they would sell, but they did not. But with SuccessFactors, we both saw the power and strategic combination. They are a 100% Cloud-based company with a 130 clients, most of the companies are global corporations with over 100,000 employees including names like StarBucks, Target, Nike, Metlife, USC, Aetna, The McGraw-Hill Companies, BHP Billiton, Thrivent Financial, Blue Cross Blue Shield, Fidelity, Time Warner, and Comcast. And most importantly maybe for the future expansion of business, Inform did great sales with almost no sales force.

The combination of a powerful product the customers love with SuccessFactors’ industry-leading dominant sales force is very exciting. We believe every single one of our customers will want this and it will be very difficult for our competitors to respond except in meaningless PowerPoints and Web pages.

For three years, we have been looking for the right acquisition; not found any they were important or right until now. A year ago, we hired Seksom Suriyapa who has his lawyer from Stanford and a banker from Goldman Sachs and Morgan Stanley and has had the right balance to make sure that when we had a $100 million in cash and then increased it over to $300 million cash, we didn’t do anything to destroy but only accelerate our industry-leading growth. That is why we have not done an acquisition up until now.

As SuccessFactors continues to aggressively grow very selective M&A we will continue to hold this strategy. As it relates to the three criteria we announced in 2007 during our IPO, furthering our technology; two, increasing our content offerings with high-margin contact; and three, geographic presence to improve business execution world-wide for any size company. We try to work hard for it because a lot of companies want to be bought by an industry leader. Section has hired an outstanding team both in the front end and the back end to make sure we have enough bandwidth to understand the business detail and run down every negative and positive indicator and make the right decisions to protect our future value creation for our customer, prospects, colleagues and certainly investors.

When you make these types of high-priority growth decisions, we need to be strategic and precise in how these get integrated. As you read in today’s press release, we have added Judy Blegen to our team, 12 years Cisco veteran of doing only M&A integration. She will be key; we have truly enjoyed seeing the Cisco excellence applied by Judy in our first acquisition. It is a pleasure to see her execute and mutually demand respect from internal and new colleagues and drive the tight ship for success. She actually brings with her large successful companies to the table we are excited to have her leadership and guidance. She has seen over $37 billion worth in acquisition. She is in Australia right now working execution plans with Inform team. Of the three criteria outlined for companies we are look for an acquisition, they need to offer unique technology, resalable high-margin content and a large geographic expansion. Inform has a tick in all three boxes.

This acquisition allows us to provide something none of our competitors can. Software specialized for business execution based on people that rapidly improves our company performance. I still got a few examples to finish off. If you are a CEO, what if you knew you would save $6 million in annual turnover costs without investing a diamond compensation of benefit simply by changing your hiring and on-boarding process, and we could tell you how to do it. If you are a retail chain, and we can tell you exactly what the differences are for you to get top line growth at 10% to 20% more, how about learning that you can increase same-store sales by $28 million by changing store layouts and increasing manager/employee meeting time by 10%; what if you knew you could save $10 million a year by promoting from within rather than hiring from outside or generate a $100 million or $180 million of revenue by reallocating your sales training budgets and we could show you how. This is Biz Execution.

Please go to http://www.informimpact.com to get more details and read a ton of press releases but also most important case studies that prove how this is done. SuccessFactors itself is one of Inform’s latest customers. Both our CFOs, our VP of sales, our VP of HR and myself have been shocked at what you get of systems like this and it probably was the easiest reason for us to decide to go ahead with this.

On people performance, just a few hours of using the products we gained insights into the success of our on-boarding and training programs, programs to retain new employees in high performers, increase genuine critical business role, successful in our geographic expansion initiatives and basic workforce planning; we have already begun changing our plans based on what we learned from the system.

We are offering solutions from Inform immediately on an OEM agreement, working together, selling to joint customers, already working with process with both team targeting and integrating our solutions. It is already clear that the combined value of our offerings is resonating with C-level executives, with HR, and with line managers. We see extensive cross-selling and up-selling opportunities within both customer bases. We also believe that by being the first company to combine these solutions, we have significantly build a wall for penetration and we are creating a unique BizX offering that will open countless new sales opportunities.

Yesterday, we just completed the last training in Munich, Germany, and our entire company globally and sales force has been trained on this product now. We are ready to sell this strong combination. We just had a quick all hands meeting right now, talking about this and the energy and feeling in the room was exceptional. People are extremely excited, and we have already gotten congratulations from our customers, employees; people are extremely excited about this acquisition.

With that, I will hand it over to Bruce Felt.

Bruce Felt

Thank you, Lars. Fourth quarter revenue was $42.2 million a year over year increase of 28% and 9% sequential growth. Our sequential growth is stronger than usual because we experienced very strong billing s this quarter and last. We are able to accelerate the recognition of revenue on our up-sell business, and we were able to deliver some of our products faster than normal. We are pleased with the accelerated revenue during the quarter but are not modeling this to reoccur to this level in Q1 2010.

We experienced revenue growth of 37% for the full-year 2009 finishing at a $153.1 million for the year. Revenue growth was driven from adding approximately 500 net new customers during the year from our existing 2,600 customers at the end of 2008. We maintained high renewals which also contributed to revenue growth.

On spending, total spend Q4 ‘09 was $41.3 million, an increase of 8% from Q3 ‘09 and an increase of 14% from Q4 ’08. This lower expense increased compared to revenue driving margin expansion. We ended Q4 with headcount of 664 compared to 616 last quarter and 596 a year ago. We have been hiring in customer support, implementation, engineering and sales in order to support the acceleration in growth we achieved over the last two quarters.

We planned to continue to hire until 2010. In 2009, total spending was $154.7 million, lower by 15% from 2008. In a tough economic environment, we grew revenue by 37%, while total spending decreased by 15% driving operating profitability improvement from a loss of $57.4 million in 2008 to a loss of $1.7 million in 2009.

Non-GAAP operating margin improved 1 point sequentially and more than 12 points in the last four quarters. Given our confidence in investments and growth will yield positive results, we continue to prioritize our spending in the following order. The first priority is on top line growth; we plan to continue to invest in products and growth infrastructure in order to expand our leadership position and increase our footprints. As you recall, our long-term growth model contemplates annual growth of at least 20%, if the environment continues to improve and our message continues to resonate as well as it has been, we should be able to achieve 20% billings growth in 2010.

The second priority is to generate robust cash flow in 2010, and our model as we increase the top line but spend in a controlled fashion we improve cash flow from operating activities. Our third priority is margin expansion; we remain committed to maintaining non-GAAP profitability but the margin focus has been and will continue to be more on cash generation and billings margin over accounting margin. In Q4, we generated $62.8 million of billings against an expense base of $41.2 million, yielding a billings profit of $21.6 million and billings margin of 34%. We believe that as a measure of current profitability.

Gross margin on an annual basis; the company’s gross margin improved 124 percentage points from 66% in 2008 to 78% in 2009. We believe we had a structural advantage in our cost structure related to delivering services by having the lowest computing costs per seat because of our advanced architecture on the one hand while delivering the most efficient, therefore profitable professional services business in the SAS industry on the other hand.

Consequently, we expect gross margins to remain in the mid 70s or higher range during 2010 even as we grow. Operating expenses increased 7% sequentially to $31.6 million in Q4 ‘09.

For Q4 ‘09 earnings per share; our non-GAAP net earnings per share was $0.01 which excludes stock-based compensation expenses of $3 million, flat quarter over quarter from non-GAAP net income per share of $0.01 in Q3, and up year over year from a non-GAAP net loss per share of $0.06 in Q4 ‘08. We are using 67.7 million weighted average shares outstanding for the quarter. For 2009, our non-GAAP net loss per share was $0.04 which excludes stock-based compensation expense of $10.4 million, a substantial improvement year over year from a 2008 loss of a $1.5 per share. We are using 59.5 million weighted average shares outstanding during the year.

Next, cash flows in the balance sheet; for the year, SuccessFactors generated $15.4 million in cash from operations compared to the use of $12 million of cash operating in activities in 2008. Q4 ‘09 SuccessFactors generated $8.2 million of operating cash flow, up a 129% sequentially from $2.6 million last quarter and up substantially from the $627,000 generated a year ago. Our cash flow growth is attributed to our ability to grow the top line without a proportional increase in expenses. Our focus on sales productivity, maintaining high renewal rates, increasing engineering throughput by expanding on low cost geographies, increasing the efficiency of our professional services staff, and supporting all of this with a leaner G&A infrastructure had lead to some of the highest growth for incremental spend and highest productivity gains in our history.

For 2010, we are targeting to grow a cash flow from operating activities, as Lars mentioned, to be at least a 100%. Our cash flow pattern this year is anticipated to be the highest in Q1 because of the high year-end account receivable balance.

CapEx is $1.3 million in Q4 compared to $1.2 million in Q3 and was primarily related to expanding our data center operations internationally. We are using this as a quarterly run rate for capital spending for 2010.

On the balance sheet, total cash, cash equivalents, and marketable securities ended the quarter at $323 million, up from a $112 million at September 30, 2009 and up from $102 million at December 31, 2008, due to positive cash flow and our follow-on offering. We will continue to keep our cash in very safe investments and consequently are only earning 30 basis points on the cash during 2010 for purposes of modeling interest income.

Accounts receivable increased from $42.9 million in Q3 ‘09 to $57.6 million in Q4 ‘09 due to our seasonally higher year-end business. Deferred revenue stands at $182 million, in addition to that we have backlog of $143 million as of 12/31/09 providing total future visibility of $325 million.

Inform transaction and our outlook, as Lars mentioned, we signed a definitive agreement to purchase Inform for $40.5 million plus contingent consideration. Contingent consideration is primarily based on retention and bookings results for the 12 months following the close. The retention payment would generate a time-based expense, while the bookings-based consideration will be estimated and changes charged to expenses each quarter. If we achieve results that required full payout of the contingent consideration, the revenue multiple of this purchase will decrease. Index currently employees 121 people. The transaction is subject to customary closing conditions and we are expecting it to close in Q3 of 2010.

To give you a frame of reference for the size of Inform for the calendar-year ended December 2009, indexes revenue was approximately $15 million, has been cash flow positive for every year we examined, but is running at an operating loss. As most of you know, purchase accounting requires that we write down the deferred revenue balance, the timing of the close, and the deferred revenue write down are two important factors in determining the revenue contribution in 2010.

As we approach the close date, we will update our revenue guidance for the Inform contribution and discuss in more detail its impact on our financial statements. The acquisition on a pro forma basis and excluding the write down of deferred revenue balance and the impact of any contingent consideration expense is expected to be mutual for SuccessFactors net income.

On our outlook, we are initiating guidance for the first quarter for full fiscal 2010. We expect revenue for Q1 ‘10 to be in the range of $43 million to $42.5 million, which equates approximately 22% year over year revenue growth. Excluding the impact of stock-based compensation expense, we now expect Q1 ‘10 non-GAAP net income per common share to be about breakeven. For the full-year 2010, revenue is expected to be in the range of $178 million to $180 million, which equates approximately 17% year over year growth.

Non-GAAP net income per common share excluding stock-based compensation expenses is expected to be at breakeven. Because we expect increased top line, while moderating spending increases to be no more than increase in revenue, as we stated, we expect cash flow from operations to accelerate. Consequently we plan to achieve operating cash flow per share of approximately $0.41 per share for the year. Weighted average share count used in our 2010 calculations is 72.6 million shares.

Now let me turn it back to Lars.

Lars Dalgaard

Let us open up the lines.

Question-and-Answer Session

Operator

(Operator instructions) Our first question comes from the line Thomas Ernst with Deutsche Bank. Thomas Ernst, please go ahead with your question sir. Your line is open.

Thomas has withdrawn his question. Our next question comes from the line of Terry Tillman with Raymond James.

Terry Tillman – Raymond James

Hi good afternoon guys. Nice job on the bookings. Hi Lars, just first question relates to just with how strong the bookings were in the quarter. I mean could you maybe prioritize a little bit with some of it budget flush or was it just more generally just an improvement going on and/or just improved execution?

Lars Dalgaard

It was 80% improved execution. Actually there are a lot of bunch of people ask what’s the scaling of this company. The reality is large out there dealing all these deals. I am not largest retail in the world. We wanted, I had nothing to do with. Siemens, nothing to do with it. The types of sales reps, the professional services people we have, the product people we have, their commitments in winning, never seen anything like it anywhere. The deals they come up with is often I just sit back and awe and watch how clever they are. They are so smart. They are so thoughtful. They are so driven and I don’t if you watch football, but the way Garstang from the Kohl's run after the guy who intercepted him and just took the ball back from him. That’s a type of sprit and attitude that these people have. They just came up with an incredible ways of leveraging the customer experience, the references we have, the broadness of products we even frankly did experience and execute.

Terry Tillman – Raymond James

Okay. Just a follow-up on Employee Central; you gave a fair amount of detail there. What I am curious about, well, first $3.5 million deal, would this attributable just to this product? And do you see – and in that deal is that actually replacement of the existing to core HR and how do you see that going forward? Is it supplemental or complementary to core HR systems or do you see this becoming a displacement opportunity? Thanks again.

Lars Dalgaard

So in that particular case that we thought it was worthwhile not just taking about the potential, but showing one example of how big deals can be done. This customer already had several of our other products and Employee Central was the majority of that purchase. They also expand into a couple of others, but the majority was the Employee Central. We haven’t really set out to go in and rip and replace but there are a bunch of customers across the globe and we gave the example earlier of a hotel’s name in – that is one at Hong Kong that decided to start off in their new hotel in Spain with our Employee Central.

So, sometimes it is brand new companies saying it shouldn’t be so hard the way that old companies build this behind the firewall and just sort of had a drug industry running where they could just continue to go back and deal drugs and charge the customer 10x what it cost them to actually buy the products, just to make it work, and then another 5x to change anything. That just still broken and so it a very nice sized industry and it is one that that is really right for the taking. Some of our reps have experienced in that industry and they are extremely excited about going back to their old customer and showing them how the world should be run on these types of systems.

So, that opportunity always is there, but it is certainly also new customers and it does also offer advantages in running the two things together and so there are some companies that do that too. It just drives usage across the company in a different way that you have ever seen before and makes it a lot easier.

Operator

Our next question comes from the line of Sarah Friar with Goldman Sachs.

Sarah Friar – Goldman Sachs

Great, thanks so much for taking my question and a good bookings quarter too. Two questions for you Lars and Bruce. First, Bruce you made the comment that some of the revenue had been accelerated because you are able to implement services and so on a bit quicker. Can you put some bracket around that so we could understand what not to push forward until the revenue to flow through for bookings on to the P&Ls for the next couple of quarters? And then second on the earning guidance for 2010, the EPS, I know you said you are focused on the cash generation rather than an accounting EPS, but it is just troubling to me why it is just breakeven for the full year whenever you are already coming off a quarter even where you clearly had EPS.

Bruce Felt

Sure on the first question, we have had a – as we discussed we basically had a lag effect and when we build deals, we have been able to get revenue out of them, mostly in the up-sell business and we were able to kind of accelerate that in part during Q4 as well as just accelerate the delivery of some of our products during the quarter and which lead to a 9% sequential revenue growth rate which is high for us and what we were suggesting is use our guidance for modeling for purposes of what we think can happen in Q1 in normal, basically a normal kind of run rate or increase in revenue and obviously we attempt to continue to improve quicker delivery and getting upsell revenue sooner, but we are suggesting to follow our guidance for our revenue to be in Q1 unless let’s just assume it is going to happen again.

Sarah Friar – Goldman Sachs

Okay clear enough. And then on the EPS guidance it side Bruce?

Bruce Felt

Yes, on EPS we are kind of faced with the same situation. We had significant billings increase. We were able to keep expenses reasonably controlled down year over year. We had a billings profit of 16% during the year but just a math of the accounting for our model is revenue so delayed, did you see that over time affected. So the way that we just don’t get it quick enough to make up for our expense growth. So we are saying we booked it. I mean this is why I pointed out in Q4 we had the effect — the very strong billings growth, we had $21.6 million of billings margin, it’s a 34% margin but none of that actually flow to the financial statements. It doesn’t go away; it just takes time for that to play out.

It first becomes cash flow and then becomes GAAP margin and what we are trying to do is we are trying to increase billings much faster than our revenue growth because in the end that’s how you get your growth rates up; however, our spending constraint to our revenue growth. So unless we choose to actually grow revenue less than – or grow billings less than revenue, we face this accounting mechanical kind of issue.

So this is what I’d point to you, but you will see it in cash. That why our plan on cash is going to double. So while we are cash double and earnings not move, it’s the mechanics of our model. It is not that we are spending too much, we aren’t. Some would argue that we are spending too little, but we are spending too much, it is just frankly the mechanics of the model that takes that long to turn bookings into revenue and when you are accelerating billings ahead of revenue it really is extremely difficult to squeeze earnings out; however, they are there. That is why we talk about bookings margins. They are there as evidenced by cash and evidenced by the deferred revenue balance increase that can only become high margin revenue later.

Sarah Friar – Goldman Sachs

Okay and just one follow up on that. So again in terms of just thinking about your absolute cost base for 2010 over 2009, what are your assumptions about things like hiring are you going to kick that back into gear if you are going to the New Year.

Lars Dalgaard

We have been hiring throughout 2008, throughout 2009 and throughout Q1 of 2010, we really cannot grow this business without it. We have found some great people in all pockets, we have just adjusted hiring sometimes towards more in sales, more in customer support, but we are continuing to hire and we have already hired both sales and customer support and developers very aggressively as you see by the delta in new employees from Q4, it is kind of over Q3 and that is continued into – we have obviously got a new VP of HR and we are doing a lot better on our on-boarding and we are actually pretty excited about how we are investing in that new people growth.

But frankly, the Inform process is giving us a lot of insight that we didn’t have before on how we are hiring and what we have hired and frankly the type of seniority we are beginning to get and the impact that has in the business is something we were never able to measure before, so we kind of little bit excited about measuring that impact.

Sarah Friar – Goldman Sachs

Great, okay thank you.

Lars Dalgaard

You are welcome. Get better.

Operator

Our next question comes from Brendan Barnicle with Pacific Crest Securities.

Brendan Barnicle – Pacific Crest Securities

Thanks so much, guys. I have one just follow up, just one quick clarification on Sarah’s question. Yield duration, any change in that or we still running at an average about three-year yield terms.

Lars Dalgaard

Yeah, nothing has changed on bill duration, nothing has changed fundamentally in any of our basic way that we book deals and process deals, so that’s exactly the same.

Brendan Barnicle – Pacific Crest Securities

Great and then can you give us anymore breakdown in terms of the revenue split between the products now that we got some fairly substantial product lines outside of just Performance Management?

Lars Dalgaard

Well we have only been splitting out today that the performance in Goal Management which were pretty much a 100% of our revenue, before it was 40% and it seems to continue to stay that way because we keep bringing out new products, we now have 14, now we have to add in Inform’s four product suite which is substantial. First, we are going to be bringing out new products on top of that, so we continue to expand with available and therefore obviously the historically strong products, those two are going to continue to be probably a minority of a revenue, but still important part because it is the driver, and our goal product really is the driver for Business Execution.

But, we pointed out that we had to enhance the Succession Recruiting, compensation and Employee Central is outstanding frankly and the – I guess the reception will call from our customers and how strategic they view it, so we are happy with all those are getting attraction and that is why the percentage is continuing to be the same. Compensation Planning, Career and Development Planning, Succession Planning, that’s why we – I think we have given you as much pretty colors; we did Brendan on customers and how about deep that penetration is.

Brendan Barnicle – Pacific Crest Securities

Now there is a great lead into my last question which is new products and product growth, Bruce mentioned that you have new products that will be coming out this year, what should we look at in terms of the areas you are looking to expand in future?

Lars Dalgaard

Well, we are excited to continue to invest behind the Inform analytics platform and the code writers that we also have filled at SuccessFactors. There is a lot of things; they are just basically this company did not have a sales force. They are very, very small one and so once we get this in the hands on more use – heard the list of customers, these are incredible customer. They love the product; they run the business on it. So we are going to put a lot more investment behind that.

Employee Central is a platform built to the degree we wanted; it is the one that companies could put to work immediately. But, we want to put a lot more work into that, we have announced a whole list on our website of new products that we are building out, we are going to continue to invest in recruiting, lot of exciting things to build out there, because it has never been right in our opinion and lot of recruiters agree with that, tie in the managers, so that the managers have a role and it is not just problem of the recruiting team, help the recruiting team out, get the managers accountable, get them in all in one place, Business Execution for recruiting, as it comes to 1000 customers in compensation, these customers – this is a very complex area, it has never been done well.

Lots of companies have failed doing it, and we are very committed to the industry, we have the biggest investment than anybody in that area, it is a tough area, it is hard to get right because company saw – a thousands of compensation plans inside the company and so it is really complex algorithm with math. But we have been doing now for six years, and we feel we have got very good at it, and we are going to build a lot of that up.

Collaboration, you know something that very excited about the attraction that we are seeing in that and we are continuing to put it all, it is going to tie in to the Employee Central and really focus on what people know and we are excited about how that works, so those are some of the things that we talked about and there are many more to come, so stay tuned, it’s an extremely full road map.

Brendan Barnicle – Pacific Crest Securities

Great, look forward to watching that.

Lars Dalgaard

Yeah, if you know any engineers tell us about them, because we are hiring everyone in the globe, we need to build a lot of product.

Operator

Our next question comes from Adam Holt with Morgan Stanley.

Adam Holt – Morgan Stanley

Good afternoon. (inaudible) congratulations on the billings number in the quarter.

Lars Dalgaard

Thank you, Adam.

Adam Holt – Morgan Stanley

I had a couple of questions about where you think you are in the evolution of BizX? Obviously you are starting to get some larger customers, are you at the point where you are actually getting stand-alone RFPs for the BizX solution? What does the pipeline look like relative to some of the other products?

Lars Dalgaard

We haven’t seen stand-alone RFPs, yet it’s more of a change the game when we get into the account. What we have seen is CEOs coming to us and talking to us about this. We’ve seen a lot of net promotion from this because we’ve given them data points that they’ve never seen before and it’s a little bit of – “I did not know this existed, how does this work, and I’ve been trying to pull this together from all these different sources, how do you guys do this?” And so when they are with their buddies on board to other places it will come up. So that’s probably the closest analogy to getting RFPs that we’ve gotten.

The real difference is that our competitors don’t know how to talk about this and they don’t know how to explain it to customers and they have no research like we did with the top three global consulting firms. We went out to hundreds of customers and got the research data and now we’ve just strengthened and massively accelerated that with Inform, what they are able to do for us and BizX execution is going to massively accelerate.

It’s probably one of the most exciting – I was wondering myself we were ever going to do an acquisition, but this one, when customers came to us, I’ve never been (inaudible) personally in New York with a very large company and the way they talked about it when we brought it up and just asked what do you think about this company and then asking 30 other customers – they are really over 100,000 each – and the way they talked about that it’s a complete game changer, it does something that nobody else is doing in the industry.

It’s something because the content isn’t there, you can’t do with business objects and (inaudible) or anything else. So that – years and years, 600 man years of work of getting it to a place where it’s something that is extremely and immediately actionable is very exciting.

Adam Holt – Morgan Stanley

If you look at your capacity, you talked about how inspired you are by your sales organization. If you look at BizX across your current distribution, are you getting maximum productivity with respect to almost everybody is able to sell it or are you continuing to have to hire new people outside the organization to bring on around BizX?

Lars Dalgaard

Well, (inaudible) are extremely excited about this notion. They in some corners of the organization were doing it themselves and that’s kind of what we’ve found out with this consulting group. They went in and looked at where the most successful deals done. So as we’ve now train the sales force several times in person before we launched it as we are warming up to it and then in the kickoff this year. It’s really becoming mainstay and it’s normal to get an e-mail everyday of several days where employees around the globe are sharing how the board showed up and talked about what’s come out of this, line managers talk about this. So it’s just a real paradigmatic change that we’ve not seen before with anything we’ve launched.

So you can sort of try and copy it, but you got to have the data, the knowledge and you got to be trained. We want to continue to hire reps as you know and we’ve already hired several this year. But the other important area is of course our professional services team that are able to go in there, and so we are brining on some great leadership in those areas also. But this really is like the McKinsey of this industry. But the difference is, it’s online and it’s immediately actionable and you can continue to dive into it to see insights into your company, and they’ve got the consultants and the people to experience how to help the CEOs and other to do it.

Adam Holt – Morgan Stanley

Just one last question from me, Bruce, maybe a housekeeping question, the backlog number. Could you remind me what that backlog number was on a year-on-year basis and over what time period do you expect the off-balance sheet portion to roll into the numbers? Thanks.

Bruce Felt

Yes, backlog is the unbilled portion of a contract. So we tend to do three-year deals that would be year two and year three of the deal. I need to pull up what exactly we had that in the last year – I’ll just have to get back to you on that. It’s a number that I just don’t have right in front of me right now.

Adam Holt – Morgan Stanley

It sounds great. Thanks for your time.

Bruce Felt

Okay. Thank you. Yes, the answer to that is, 110. It was last year, 110.

Operator

Our next question comes from Brad Whitt with Broadpoint Capital.

Brad Whitt – Broadpoint Capital

Hi, guys, thanks for taking my questions. Just curious (inaudible) you could comment a little bit on the ASPs and renewal rates for Inform. It seems like it would be pretty large deals based on some of their customers.

Bruce Felt

Yes, they have pretty large nice size deals sizes and so as we have been seeing the last four year in a row our deal sizes have increased in all areas. So this is a nice way to feel comfortable that they are going to continue to increase. Renewals, very sticky, customers are excited about. This is something that just doesn’t get to them from anybody else. You can have a consultant coming and do it but you can’t have anything from anybody else where you’ve been actually taught how to fish and you can continue to fish afterwards and not just preparing one fish and then leave. This is sustainable, stays with the organization. They pay their renewal and as they call them the members have the opportunity to continue to have strategic impact on their organizations. It’s literally something that grows with you and when you get more and more from it the more applications you tie to it, and as we said all of our application is tied to it immediately simply because all applications in the world are tied to it.

Brad Whitt – Broadpoint Capital

Okay. It sounds like in the press release you’ve got an OEM arrangement of the tier. You will be able to start selling that immediately, just how fast do you think your sales organization can ramp at that product?

Lars Dalgaard

I think the sale organization is ramped. Obviously it takes time to do deals in this market, and sometimes they take six months, but the reality is we are already in front of customers right now talking to them. But as I said, the last training just finished in Germany today. So it’s very new day.

Brad Whitt – Broadpoint Capital

I get it. Bruce, I may have missed this but did you give the number of million dollar deals in the quarter as well as new customers?

Bruce Felt

Yes, it was over 500I am sorry, for Q4 it’s 140 new customers. We had three deals greater than a million. We had 10 deals on top of that, greater than $500,000. What we really liked about the quarter is we had a lot of – we had a good number of large deals but it was not dependent on large deals. We had a very good distribution of kind of just what we call singles. And I think that just shows a good healthy business, not reliant on large deals; not reliant on any particular sales rep or area; it was across the board. And maybe the thing that I like the most about the quarter from a metric point of view is our pricing per module was the highest of the year. So we had the largest billings quarter along with the highest pricing per unit. We think that show a strong demand for the products and a very healthy view on how we dialog with our customers and the fact that they see the value and are willing to pay for it.

Lars Dalgaard

Nice pipeline buildup and a lot of reps made a lot of money. We believe we have the best comp plan in the industry, and people really made a lot of money.

Brad Whitt – Broadpoint Capital

Very good, guys. Thanks for taking my questions.

Bruce Felt

Thank you.

Operator

Our next question is from Phil Rueppel with Wells Fargo Securities.

Phil Rueppel – Wells Fargo Securities

Yes, thanks very much. On the Inform acquisition, given that it’s taking quite some time to close, is there any kind of integration work that you can do in anticipation that given that it’s a private company and so why is it taking up to three quarters before the close?

Lars Dalgaard

Yes, it’s already happening, like we said Judy Blegen who came from doing integrations for 12 years at Cisco, doing the biggest deals there is in Australia today. And so there is a lot of work being done. Yes, and on the time to close, there is closing conditions. The major one is there need to be an audit performed and the company has not had a formal audit before. So we are just providing plenty of time to allow that to happen, and that’s the fundamental reason why we have a long close period.

Phil Rueppel – Wells Fargo Securities

Okay, great. Then could you comment on your partner ecosystem, has that become any more or less critical as you move BizX into the marketplace? How have your existing partners IBMs Radiant and others performed in the most recent quarter?

Lars Dalgaard

We think it’s been become a lot more critical and also the latest announcement we made around Boomi and the way we are able to integrate through that in the Cloud, the APIs built and continuing to build. Partners are becoming more and more important for this company and it’s exactly the ones you are mentioning, but also a bunch of new ones and it’s exciting opportunity for us because we have partners come into us very aggressively at a cliff we’ve not seen before, which co-tells [ph] you something about your market dominance.

Phil Rueppel – Wells Fargo Securities

Okay, great. That’s it from me. Thanks.

Lars Dalgaard

Thank you.

Operator

Our next question comes from Karl Keirstead with Kaufman Brothers.

Karl Keirstead – Kaufman Brothers

Yes, hi. Thanks for taking my question. It’s about the near-term booking outlook. Bruce, you made a comment around Q1 bookings growth slowing. If I run the math it looks like that would imply a larger than normal seasonal decline in bookings. Now maybe that’s to be expected given how big 4Q was, but maybe you could offer a little color as to why that would be conservatism, the packet that drained, a little color would help. Thanks.

Bruce Felt

Sure. When I was answering Sarah’s question, it was about revenue. It wasn’t really a bookings comment. So I haven’t really given a comment with respect to bookings; however, if you look at our seasonal pattern Q4 is the strongest, and Q1 is usually the lowest. Now the typical drop off from Q4 to Q1, I (inaudible) 29% last year, it’s been on average 33%. Just to give you an idea, if you just look at our history. So we haven’t given any specific guidance about it. We did indicate where we thought we could be on a billings basis for the year at 20%. So I think you just run through your seasonality models and you work through that way to get quarterly billings.

Karl Keirstead – Kaufman Brothers

Is there any reason, Bruce, that the seasonality in Q1 ’10 would be way out of norm?

Bruce Felt

No. there is no information that it would be any different than any other Q1 that we’ve ever had in our near history.

Karl Keirstead – Kaufman Brothers

Okay. That’s helpful. Then a quick second one on Inform, if I may; as I just glanced through the Web site during this call it looks like it also has a consulting business too. Could you just give us a little color on the revenue mix, a shift into a more consulting-oriented company would be a bit of a departure for SuccessFactors, I think, a little color might help. Thanks.

Lars Dalgaard

It’s majority recurring software revenue company. We just like to highlight that their ability because the ability is one that doesn’t exist. We’ve always said that our professional services people are an important part of the business. The consulting they give to people is very different, however, than the one that you know from the last 30 years of software where it was about how do you implement a product. That’s in terms of technical aspects. That’s not what these guys are, nor ours or theirs. These guys are like the McKinsey of our industry. They are basically telling people what they need to change in their company to run it better. And there is not necessarily more of them per sales deal.

The interesting thing in my mind is that if we look at their PowerPoint charts or the analysis they give the company and how they go about doing it, whereas most companies have a part of this PowerPoint which talks about, (inaudible) here’s some problems. What they do is three-quarters of the PowerPoint is about this is what you need to go and do now. And that’s just not something you can go find and seeing them do it for ourselves and seeing it doing for very large customers. They have the experience, the credibility, and knowledge how to do that. So it’s not very heavy in cost. They are a 100% Cloud company, but it is just something that we have not had in terms of expertise, and it’s an expertise we’re extremely happy to attract.

Karl Keirstead – Kaufman Brothers

Okay, great. That’s helpful. Thanks Lars.

Lars Dalgaard

Yes, thank you.

Operator

Our next question comes from Curtis Shauger with Caris & Co.

Curtis Shauger – Caris & Co.

Hi, good evening everyone. Thanks for taking my question. I am in a little bit worse shape. (inaudible) I’ll make it. So in terms of the EPS guidance, it would seem as though other income and yields you are getting on cash would be, perhaps part of the issue here. Is that a fair thing to say, Bruce?

Bruce Felt

Yes, it is. It’s extremely disappointing the yields we are getting out of that. We are evaluating it. I must say we are very risk averse, so it’s done nothing to take on any risk. Obviously we can increase the yield if we did. But right now it’s extremely low and it hurts a lot to have $300 million on the balance sheet, $223 million [ph], and you get 30 basis points.

Curtis Shauger – Caris & Co.

Got it.

Lars Dalgaard

We are not like NetApp. We don’t have five people on a Forex desk sitting and managing. We are focused a 100% on dominating this industry and winning it.

Curtis Shauger – Caris & Co.

Got it. Thanks Lars. As far as the rest of the expense structure, I understand the fact that when you get accelerated bookings, it can have impacts on gross margin. You talked about it last couple quarters and also to the commensurate impact on commissions, etcetera. Can you, Bruce, give us maybe a sense of is it going to be mostly in gross margin? Is it going to be in commissions? Some sense of what the breakdown might be.

Bruce Felt

Well, it will be – we obviously need the staff to implement all the new deals we have and all the large customer deployment that we are going to do. However, we – again, we keep getting more efficient and we are able to deliver more and more of a product with pretty much the same resources. So there may be a little bit of a rollback in gross margin, but not a significant amount. That’s why I mentioned that we still plan to be mid-70s and higher. But when you are growing we do expense most of our sales and marketing. We do expense the professional services.

We do expense all R&D. So if you are growing and expensing everything but the billings does not become revenue immediately, then of course you have pressure on the margins. So we are still committed to be non-GAAP profitable. That means we are putting a meter on how much we will spend and we are trying to get the most billings out of what we are spending. We had great success in Q3 and Q4. We obviously, given the opportunity we have before us, given the decent economy certainly given how our message is resonating we could have a very, very strong 2010.

We want to continue to expand our leadership position, we think we are by far the leader here, and we want to keep it that way and continue to build out products commensurate with being a very, very large company; and we think we’re still just a very small company given the opportunity that we before us.

Curtis Shauger – Caris & Co.

Thanks a lot. One last one, could you refresh us on the long-term model and does the margin guidance for 2010 change the trajectory of obtaining that model?

Bruce Felt

What we just saw happen actually increases our ability and speed of reaching our target model, which is about 86% gross margins and 25% operating margins. The reason that is as the larger we can make our recurring revenue business, that’s now $150 million that Lars had pointed to is basically a $100 million of profit. The larger we can make that business that would mean that’s the faster we can actually get to our operating model because all that we need to do is scale back sales and marketing, scale back the growth, and as you saw in 2009 the margin just flow through the financial statement. So we’ve just helped our ability to hit our long-term model and probably maybe even gave ourselves the opportunity to do better than it by what we just did this quarter.

Curtis Shauger – Caris & Co.

Thank you very much.

Operator

Our next question comes from Sasa Zorovic with Janney.

Sasa Zorovic – Janney Montgomery Scott

Hi, guys. Nice quarter.

Lars Dalgaard

Thank you.

Sasa Zorovic – Janney Montgomery Scott

I was wondering about the acquisition or first of all why was there a mix of cash and stock, while your big cash pile, did you give voice [ph] on your stock.

Lars Dalgaard

Thank you. That’s my favorite question simply because they are fired up about the future. I don’t maybe thing you have done, I did hundreds of them at Unilever and you can’t get anybody to take stock as they didn’t want to get out. These guys want to stay in and they are fired up about the future and they want stock because they want to be a part of the upside. That’s exactly we want to see. You don’t get a quotient like this. I don’t know whether it’s 40% or whatever, but it’s because they wanted it. We want to be part of the future. We think this can be more than it can be without. So the future is there.

Sasa Zorovic – Janney Montgomery Scott

Got it. Can you give us any kind of indication of how much the conversions could turn out to be, if they all play out or what’s the realistic expectation there?

Bruce Felt

I am sorry, on the continued consideration?

Sasa Zorovic – Janney Montgomery Scott

There is like the delay on the deal.

Bruce Felt

Yes, it’s entirely – it’s like a rep comp plan. It’s entirely tied to sales. We are not going to reveal that, but it’s entirely tied to sales. Yes, and the comment I made was it is an incentive plan because we all want to grow the business, and we said that’s important part of that. But I did make the point that if we were to pay it out based on the results against which would trigger the payment our multiple goes down. So we are happy that that’s the structure, so extremely good alignment between the two companies.

We think it’s just a very, very good acquisition. It’s a very good partnership. I think we are just going to work very well to get in and we are completely aligned financially, which kind of let you be able to – so pretty good that you got a good structure in place.

Sasa Zorovic – Janney Montgomery Scott

(inaudible) in fighting about my deal, your deal, everybody working together to get lots of deals done. But maybe just explain this a little more in double click on the how are – based on the multiple that more they sell?

Bruce Felt

It’s based on the multiple because the growth required to trigger the payment is substantial. It’s higher than the guidance I gave you for what we expect for our billings for 2010. That’s actually the floor for when it commences. So it just goes to show that we – it’s about growth and the whole financial philosophy behind the product is it’s a great product. The customers really like it. They have a handful of sales people. We have more feet on the street than anybody else, they admittedly are great technicians but we really like to leverage our expertise in sales and marketing. And that’s why it’s just such a good combination.

Operator

Our final question comes from the line of Thomas Ernst with Deutsche Bank.

Thomas Ernst – Deutsche Bank

Hi, good afternoon guys. This time I will actually ask a question.

Lars Dalgaard

Okay. Now you find time to think about a good one.

Thomas Ernst – Deutsche Bank

That’s right. Although I must say I am amazed that there is so much confusion. It seems like you really significantly raised your outlook for operating cash flow margin and for billings. My number looks like your guidance is more than 10 points above my number for billings next year. I am surprised with all the confusion on holding the bottom line the way you told us you are going to. But that wasn’t the question, there are two, one sure question, one Follow up. The acquisition is not included in the guidance at this point is that correct?

Bruce Felt

That’s correct.

Thomas Ernst – Deutsche Bank

Okay. Then this is a smaller acquisition. You’ve got a lot of cash. You talked a little bit about that cash. Can you do more than one acquisition at once or do you digest this one for a little bit?

Lars Dalgaard

We make sure that this one is digested well. But, yes, we took the time to hire a superb world-class team that can do this well. I meant what I said in my prepared remarks. It’s pretty exciting to sit in the meeting and you are literally looking at some of the best performance you’ve ever seen in your life, seeing this team teach you how to do integrations. The way they are just thinking ahead over this and how fired they are about making a legendary contribution to the world and how everybody goes to work every day. It blows you away. So our (inaudible) on becoming one of the most important software companies ever built, one of the most profitable, one that have the most fund, most passion and really change the way the world was.

Our customers are going to be very, very excited because they are going to change the way they run their companies based on what we do. So in our mind, we are just beginning and we just need to make sure that once we see something that is right for the right reasons we don’t have to worry about going out and getting money and waiting two or four days to do that. Two or four days is a lot of time in our mind and we need to just be able to pull the trigger.

I like Buffet the best when he says buying a railway of $34 billion, where it was? He will ask, how can you do that so quick? Well, it’s not the actual transaction. It is doing all the research, all the analysis, all the knowledge, all the insights, speaking to customers for many, many years. That puts you in a position to make the transaction immediately. They will need to be competitive, strong, and make it clear to everybody that we want to get what we want to get, so if there are other acquisitions and we obviously always had many in the pipeline that we are filtering through. Then we will go get them and that could be, as we said, core technologies, it could be content with a high resalable margin; the content that Inform brings to the table is really exciting content. And it could be geographic expansion and it’s very important for us to win this market globally.

Thomas Ernst – Deutsche Bank

Okay. Thanks again.

Lars Dalgaard

Thank you.

Operator

There are no further questions at this time. Please proceed with any closing remarks.

Lars Dalgaard

So again, 2009 was just exceptional year for SuccessFactors. We spent a lot less money than we did the previous year and we did a lot more sales. And so we are very happy to have rewarded our investors with that. We plan to do a lot more in 2010. We’ve now shown how thoughtful we are in acquisitions. We have the team to continue to do them if they are right at the pace that we want to. We have an incredibly exciting road map of organic growth coming out. We are seeing our pipelines everywhere in the world continue to increase and really excited about the future. It’s exciting to have created this market, credit, $100 million cash, renewal annuity, and we’ve just begun. This is like just the tip of the iceberg and that’s how the whole company feels. So thanks for your time and thanks for your trust in us.

Bruce Felt

Thank you.

Operator

Ladies and gentlemen, this does conclude today’s conference call. You may now disconnect.

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Source: SuccessFactors, Inc. Q4 2009 Earnings Call Transcript
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