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San Mateo company SuccessFactors reports wider net losses but higher billings in fourth quarter

By Kelsey Williams | 21 Feb 2011

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San Mateo's cloud software company, SuccessFactors, reported financial losses in February after acquiring three companies. (Photo: Kelsey Williams)

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SuccessFactors, Inc., (NASDAQ: SFSF) a maker of cloud-based business and human resources software, reported losses in the fourth quarter, due in part to the costs of the three acquisitions in the past year.

The San Mateo, Ca. based company reported losses of $4.05 million, or five cents a share, compared to a loss of $2.7 million, or four cents per share, in the same period last year.

Excluding various one-time acquisition and integration costs, the company basically broke even, reporting earnings of $262,000, or zero cents per share, compared to $339,000, or one cent per share, a year ago. These results are in line with the guidance given in the company’s third quarter earnings call and matched analysts’ general expectations for the fourth quarter.

The company reported revenues of $60.2 million, up 42.5 percent from the $42.2 million reported for the same period a year ago.

Despite the wider fourth quarter losses , the company’s year-end results reported annual loss   of $12.45 million, or 17 cents per share, as compared to its net loss of $12.6 million, or 21 cents per share, in 2009.

Excluding one-time charges, annual net income grew to $5.3 million, or seven cents per share, from a net loss of $2.2 million or four cents per share, in 2009. Annual revenues also grew to $205.9 million, up 35.4 percent from $153.1 million in 2009.

High costs derived from three acquisitions contributed to the wider losses in the fourth quarter as compared to the same period last year, the company said. However, the new acquisitions Cubetree, Inc., Infohrm Pty., Ltd. (Inform), and YouCalc, Inc., have allowed the company to broaden the scope of its current software suite by offering applications for social networking, workplace analytics and an integrated calculator feature. By the end of the year with the acquisitions, SuccessFactors had expanded it product line to include eight distinct products and modules.

With a wider range of products, SuccessFactors hopes to gain market share through attracting new customers as well as marketing its expanded product line to its existing customer base. Already in the fourth quarter, SuccessFactors showed higher billings of $88.5 million, an increase of 41 percent from the same quarter last year. That could be an indication of  both a positive reception of new products as well as the general surge in billings across the industry, said Lars Dalgaard, SuccessFactors founder and chief executive officer.

During the Feb. 9 earnings conference call  company Chief Financial Officer Bruce Felt, reminded analysts that the company anticipated higher revenues later in the year due to its increased bookings this quarter and its method of revenue recognition.

Looking ahead, Felt, said he anticipated an increase in adjusted revenues of between $265 million and $270 million for 2011, figures that surpassed analysts’ expectations of $250 million. With the number of deals this past quarter; however, Felt mentioned that the company needs to continue to spend on updating its distributions and infrastructure.

During the conference call, Tom Ernst, analyst for Deutsche Bank, asked how the company would handle increased competition in the cloud and software- as-a-service industry. Dalgaard was hesitant to give specifics about plans and strategies. But Felt explained that the company’s general plan was to continue to add value to its current software suite through investing in research and development and future acquisitions.

“One module invites the selling of another module, and it’s why we’ve invested so aggressively in R&D and why M&A continues to be a big part of what we want to do. We just want to keep getting more product into the hands of our sales force because the customers will buy it when we do that,” Felt said.

Looking ahead, Felt also offered forward guidance on earnings for the next quarter. With plans for more spending in the coming year, Felt gave future guidance of for non-GAAP earnings in the first quarter to remain at zero cents a share and for revenues between $62.5 and $63.5 million.

“The company’s reported results were extremely strong,” said Scott Berg, research analyst for Feltl and Co. “There was a lot of deal strength that surpassed analysts’ expectations.”  He added, “the additional bookings will push revenues in 2011.”

After the close of trading on Feb. 9, shares of Success Factors fell 3.4 percent to close at $30.10 on the NASDAQ stock market.  However, the stock bounced back in after hours trading after the earnings announcement and the conclusion of the earnings conference call, moving up $1.90 or 6.31 percent to $32. Since the earnings announcement the stock has risen to a new 52-week high of $37.69 on Feb. 18. The stock’s 52-week low, $17.80, occurred in Feb. 2010.

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