On-Demand Software Update: SuccessFactors Files For IPO, Acquisition Target for Salesforce.com?

SA Editors submit: Here are key excerpts from SuccessFactors' S-1 filing. The underwriter is Goldman Sachs:

Company Description

SuccessFactors provides on-demand performance and talent management software that enables organizations to optimize the performance of their people to drive business results. Our application suite includes the following modules and capabilities: Performance Management; Goal Management; Compensation Management; Succession Management; Learning and Development; Recruiting Management; Analytics and Reporting; Employee Profile; 360-Degree Review; Employee Survey; and Proprietary and Third-Party Content. We deliver our application suite to organizations of all sizes across all industries and geographies. Since we were formed in 2001, our customer base has grown to over 1,300 customers, across over 60 industries with more than two million end users in over 150 countries using our application suite in 18 languages.

We sell subscriptions to our application suite pursuant to agreements that cover a specified number of modules and a specified number of users per module. Our customer agreements typically have terms of one to three years, with some agreements having durations of up to five years. We provide configuration services, typically for a fixed fee, and other consulting services. We also offer standard customer support services as part of our subscriptions, with enhanced levels of support available for additional fees. We recognize revenue for all of these services ratably over the term of the subscription agreement.

...Our Application Suite

We offer a suite of performance and talent management applications delivered on demand, that enable organizations to optimize the performance of their people to drive business results. Our modules utilize a single code base and reside on a multi-tenant architecture. To address the varied needs of different sized organizations, we market three principal editions of our application suite:

• Enterprise. For organizations with more than 1,500 employees, we market Enterprise Edition. Enterprise Edition is our most fully-featured offering, providing functionality and configurability that can scale to support the complex needs of large, global enterprises with tens of thousands of employees.

• Mid-Sized Business. For organizations with 300-1,500 employees, we market SuccessPractices. Mid-sized organizations typically need a robust solution but may not require the advanced functionality of our Enterprise Edition. Each of the SuccessPractices modules is pre-configured with best-practice workflows, form templates and other content tailored for the needs of mid-sized organizations and designed to allow for rapid implementations.

• Small Business. For organizations with up to 300 employees, we market Professional Edition. Small businesses typically need an automated solution but may not require the more advanced functionality of our other editions. Professional Edition includes modules pre-configured with the best practices of smaller organizations.

We also separately market Manager’s Edition, which is targeted at individual managers who want a tool for writing performance reviews but may not want a company-wide solution.

Customers

As of June 30, 2007, we had over 1,300 customers of all sizes in over 60 industries...

Competitors

...Within the performance and talent management market, the most common type of competitive solution consists of paper-based processes or desktop software tools that are not specifically designed for performance and talent management. We also face competition from custom-built software that is designed to support the needs of a single organization, and from third-party human resource application providers. These software vendors include, without limitation, Authoria, Inc., Cornerstone OnDemand, Inc., Halogen Software Inc., Kenexa Corporation, Oracle Corporation, Plateau Systems, Ltd., Salary.com, Inc., SAP AG, Softscape, Inc., StepStone Solutions GmbH, SumTotal Systems Inc., Taleo Corporation and Vurv Technology (formerly Recruitmax).

Market Background

...Effective management has always required setting clear goals that are understood throughout an organization, demanding accountability and transparency, identifying and rewarding the best talent while addressing underperformers, paying for performance, understanding organizational strengths and weaknesses, developing employee skills and planning for succession. Although these principles have been widely appreciated, it has often been difficult to implement them effectively and systematically throughout an organization.

Given the increasing challenges of effective human capital management, organizations need new ways to manage and optimize their human capital to drive business results. Just as organizations have implemented systems to manage critical business functions such as manufacturing, supply chains and customer relationships, they need a system to strategically manage and optimize their human capital, which we refer to as a performance and talent management system. In particular, organizations need a performance and talent management system to:

• align employee performance goals with overall organizational goals;

• measure and manage employee performance against aligned goals throughout the organization;

• pay employees based on their performance;

• recruit talent internally and externally to fill critical gaps in the organization;

• identify employee skill gaps and provide needed training for current and future job requirements; and

• plan for succession in the event of promotions, transfers and employee departures.

Risk Factors

We have a history of losses, we expect to continue to incur losses and we may not achieve or sustain profitability in the future...

Because we recognize revenue from our customers over the term of their agreements, downturns or upturns in sales may not be immediately reflected in our operating results...

Because we recognize revenue from our customers over the term of their agreements but incur most costs associated with generating customer agreements upfront, rapid growth in our customer base will result in increased losses....

Our business depends substantially on customers renewing their agreements and purchasing additional modules or users from us. Any decline in our customer renewals would harm our future operating results...

We have limited experience with respect to our pricing model. If the prices we charge for our application suite are unacceptable to our customers, our revenues and operating results may be harmed...

We have derived a substantial majority of our subscription revenue from sales of our performance management and goal management modules. If these modules are not widely accepted by new customers, our operating results will be harmed...

The market in which we participate is intensely competitive, and if we do not compete effectively, our operating results could be harmed...

We rely on a small number of third-party service providers to host and deliver our application suite, and any interruptions or delays in services from these third parties could impair the delivery of our application suite and harm our business...

Financials

04 05 06 q107
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Revs 10 13 33 12.4

Gross Margins 58% 42% 56% 59%

Gross Profit 5.9 5.4 18.2 7.3

Operating Loss (5) (21) (32) (12.5)

Billings n/a n/a 61mm

Bookings n/a n/a 130mm

Comments

[TimButler:]

Why is Seeking Alpha doing straight PR pieces directly from the company issuer?

2007 Jul 26 11:01 AM