##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 
 þ
    
    Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended September 30, 2008
 OR
 o
    
    Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 Commission File Number: 001-33755
 SUCCESSFACTORS, INC.
  Delaware
    
    94-3398453(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)1500 Fashion Island Blvd., Suite 300San Mateo, California
    
    94404(Address of principal executive offices)
    
    (Zip Code)
 (650) 645-2000
 þ o
  Large accelerated filer
o
    
    Accelerated filer o
    
    Non-accelerated filer  
þ
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ




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##### 



SUCCESSFACTORS, INC.
 Table of Contents
 Page No.PART I. FINANCIAL INFORMATION
    
    3Item 1. Condensed Consolidated Financial Statements:
    
    3Condensed Consolidated Balance Sheets-September 30, 2008 (unaudited) and December 31, 2007
    
    3Condensed Consolidated Statements of Operations-Three and nine months ended September 30, 2008 and 2007 (unaudited)
    
    4Condensed Consolidated Statements of Cash Flows-Nine months ended September 30, 2008 and 2007 (unaudited)
    
    5Notes to Condensed Consolidated Financial Statements (unaudited)
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    16Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    22Item 4. Controls and Procedures
    
    23PART II. OTHER INFORMATION
    
    24Item 1. Legal Proceedings
    
    24Item 1A. Risk Factors
    
    25Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    37Item 3. Defaults Upon Senior Securities
    
    37Item 4. Submission of Matters to a Vote of Security Holders
    
    37Item 5. Other Information
    
    37Item 6. Exhibits
    
    38Signatures
    
    39EX-31.1EX-31.2EX-32.1EX-32.2
  2




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##### Table of Contents



PART I: FINANCIAL INFORMATION
 
 ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 SUCCESSFACTORS, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
  September 30,
    
    
    December 31,2008
    
    
    2007(Unaudited)
    
    
    (Note 1)ASSETS:Current assets:Cash and cash equivalents
    
    $
    41,492
    
    
    $
    82,274Marketable securities
    
    
    60,051
    
    
    
    8,513Accounts receivable, net of allowance for doubtful accounts of $544 and $481
    
    
    40,579
    
    
    
    42,072Deferred commissions
    
    
    5,095
    
    
    
    4,199Prepaid expenses and other current assets
    
    
    4,234
    
    
    
    2,347Total current assets
    
    
    151,451
    
    
    
    139,405Restricted cash
    
    
    1,424
    
    
    
    964Property and equipment, net
    
    
    8,118
    
    
    
    6,532Deferred commissions, net of current portion
    
    
    6,549
    
    
    
    7,343Other assets
    
    
    279
    
    
    
    300Total assets
    
    $
    167,821
    
    
    $
    154,544LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT):Current liabilities:Accounts payable
    
    $
    4,386
    
    
    $
    3,595Accrued expenses and other current liabilities
    
    
    10,168
    
    
    
    7,016Accrued employee compensation
    
    
    17,261
    
    
    
    18,265Deferred revenue
    
    
    115,626
    
    
    
    84,624Current portion of capital lease obligations
    
    
    36
    
    
    
    34Total current liabilities
    
    
    147,477
    
    
    
    113,534Capital lease obligations, net of current portion
    
    
    29
    
    
    
    56Deferred revenue, net of current portion
    
    
    20,431
    
    
    
    16,386Other long-term liabilities
    
    
    2,814
    
    
    
    4,625Total liabilities
    
    
    170,751
    
    
    
    134,601Commitments and contingenciesStockholders equity (deficit):Preferred stock, $0.001 par value, 5,000 shares authorized; no shares
issued or outstanding
    
    
    
    
    
    
    Common stock, $0.001 par value, 200,000 shares authorized as of September
30, 2008 (unaudited) and December 31, 2007; 55,616 and 51,350 shares issued
and outstanding (excluding 428 and 679 legally issued and outstanding) as
of September 30, 2008 (unaudited) and December 31, 2007, respectively
    
    
    56
    
    
    
    51Additional paid-in capital
    
    
    197,356
    
    
    
    161,150Accumulated other comprehensive income
    
    
    (56
    )
    
    
    55Accumulated deficit
    
    
    (200,286
    )
    
    
    (141,313
    )Total stockholders equity (deficit)
    
    
    (2,930
    )
    
    
    19,943Total liabilities and stockholders equity (deficit)
    
    $
    167,821
    
    
    $
    154,544
  3




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##### Table of Contents



SUCCESSFACTORS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenue
    
    $
    29,712
    
    
    $
    16,744
    
    
    $
    78,887
    
    
    $
    44,139Cost of revenue (1)
    
    
    10,187
    
    
    
    6,476
    
    
    
    28,767
    
    
    
    17,213Gross profit
    
    
    19,525
    
    
    
    10,268
    
    
    
    50,120
    
    
    
    26,926Operating expenses: (1)Sales and marketing
    
    
    25,251
    
    
    
    20,119
    
    
    
    70,121
    
    
    
    49,427Research and development
    
    
    6,516
    
    
    
    4,192
    
    
    
    17,975
    
    
    
    11,413General and administrative
    
    
    8,146
    
    
    
    5,759
    
    
    
    22,066
    
    
    
    13,063Total operating expenses
    
    
    39,913
    
    
    
    30,070
    
    
    
    110,162
    
    
    
    73,903Loss from operations
    
    
    (20,388
    )
    
    
    (19,802
    )
    
    
    (60,042
    )
    
    
    (46,977
    )Interest income (expense) and other, net
    
    
    256
    
    
    
    (318
    )
    
    
    1,625
    
    
    
    (2,066
    )Loss before provision for income taxes
    
    
    (20,132
    )
    
    
    (20,120
    )
    
    
    (58,417
    )
    
    
    (49,043
    )Provision for income taxes
    
    
    (256
    )
    
    
    (61
    )
    
    
    (556
    )
    
    
    (120
    )Net loss
    
    $
    (20,388
    )
    
    $
    (20,181
    )
    
    $
    (58,973
    )
    
    $
    (49,163
    )Net loss per common share, basic and diluted
    
    $
    (0.37
    )
    
    $
    (3.30
    )
    
    $
    (1.11
    )
    
    $
    (12.00
    )Shares used in computing net loss per
common share, basic and diluted
    
    
    55,433
    
    
    
    6,120
    
    
    
    53,135
    
    
    
    4,098
 
 (1)
    
    Amounts include stock-based compensation expenses as follows: Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Cost of revenue
    
    $
    283
    
    
    $
    138
    
    
    $
    692
    
    
    $
    259Sales and marketing
    
    
    1,021
    
    
    
    910
    
    
    
    2,707
    
    
    
    1,390Research and development
    
    
    311
    
    
    
    174
    
    
    
    790
    
    
    
    304General and administrative
    
    
    543
    
    
    
    391
    
    
    
    1,718
    
    
    
    688Total
    
    $
    2,158
    
    
    $
    1,613
    
    
    $
    5,907
    
    
    $
    2,641
  4




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##### Table of Contents



SUCCESSFACTORS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 Nine Months EndedSeptember 30,2008
    
    
    2007Cash flows from operating activities:Net loss
    
    $
    (58,973
    )
    
    $
    (49,163
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    2,677
    
    
    
    1,377Amortization of deferred commissions
    
    
    4,913
    
    
    
    2,610Stock-based compensation expense
    
    
    5,907
    
    
    
    2,641Amortization of debt issuance costs
    
    
    
    
    
    
    300Adjustment to fair value of convertible preferred stock warrants
    
    
    
    
    
    
    1,310Changes in assets and liabilities:Accounts receivable
    
    
    1,493
    
    
    
    (604
    )Deferred commissions
    
    
    (5,015
    )
    
    
    (4,835
    )Prepaid expenses and other current assets
    
    
    (1,887
    )
    
    
    (71
    )Other assets
    
    
    20
    
    
    
    (684
    )Accounts payable
    
    
    794
    
    
    
    3,472Other accrued expenses
    
    
    3,532
    
    
    
    3,615Accrued other compensation
    
    
    (1,004
    )
    
    
    224Other liabilities
    
    
    (144
    )
    
    
    1,463Deferred revenue
    
    
    35,047
    
    
    
    22,132Net cash used in operating activities
    
    
    (12,640
    )
    
    
    (16,213
    )Cash flows from investing activities:Restricted cash
    
    
    (460
    )
    
    
    (337
    )Capital expenditures
    
    
    (4,264
    )
    
    
    (3,880
    )Purchase of available-for-sale securities
    
    
    (75,042
    )
    
    
    (2,705
    )Proceeds from maturities of available-for-sale securities
    
    
    15,501
    
    
    
    1,990Proceeds from sales of available-for-sale securities
    
    
    7,983
    
    
    
    Net cash used in investing activities
    
    
    (56,282
    )
    
    
    (4,932
    )Cash flows from financing activities:Proceeds from exercise of stock options, net
    
    
    1,208
    
    
    
    511Proceeds from early exercise of stock options, net
    
    
    162
    
    
    
    Proceeds from exercise of preferred stock warrants
    
    
    
    
    
    
    20Proceeds from initial public offering, net of offering costs
    
    
    (545
    )
    
    
    Proceeds from follow-on public offering, net of offering costs
    
    
    27,430
    
    
    
    Proceeds from advance on line of credit
    
    
    
    
    
    
    10,000Principal payments on capital lease obligations
    
    
    (25
    )
    
    
    (27
    )Net cash provided by financing activities
    
    
    28,230
    
    
    
    10,504Effect of exchange rate changes on cash and cash equivalents
    
    
    (90
    )
    
    
    27Net decrease in cash and cash equivalents
    
    
    (40,782
    )
    
    
    (10,614
    )Cash and cash equivalents at beginning of period
    
    
    82,274
    
    
    
    26,172Cash and cash equivalents at end of period
    
    $
    41,492
    
    
    $
    15,558Supplemental cash flow disclosure:Cash paid during the period for:Interest
    
    $
    223
    
    
    $
    9Income taxes
    
    $
    177
    
    
    $
    1
  5




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##### Table of Contents



SUCCESSFACTORS, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 1. Organization and Significant Accounting Policies
 Organization
  Basis of Presentation
   Principles of Consolidation
  Use of Estimates
  6




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##### Table of Contents



Revenue Recognition
 Revenue Recognition, Application of
AICPA Statement of Position 97-2 (SOP 97-2) to Arrangements That Include the Right to Use Software
Stored on Another Entitys Hardware, Revenue Arrangements with Multiple
Deliverables
 
    
    there is persuasive evidence of an arrangement;
    
    the subscription or services have been delivered to the customer;
    
    the collection of related fees is reasonably assured; and
    
    the amount of related fees is fixed or determinable.
   Deferred Revenue
  7




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##### Table of Contents



Cost of Revenue
  Deferred Commissions
   Comprehensive Loss
  Income Taxes
  2. Recent Accounting Pronouncements
 Business Combinations Noncontrolling Interests in Consolidated Financial Statements, an
amendment of Accounting Research Bulletin No. 51.
 8




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##### Table of Contents



Effective Date of
FASB Statement No. 157 Fair Value Measurements
 Determining the Fair Value of a Financial
Asset When The Market for That Asset Is Not Active
 3. Cash, Cash Equivalents and Marketable Securities
  As of September 30, 2008Gross
    
    
    Gross
    
    
    EstimatedUnrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueCash
    
    $
    4,609
    
    
    $
    
    
    
    $
    
    
    
    $
    4,609Cash equivalents:Money market funds
    
    
    22,100
    
    
    
    
    
    
    
    
    
    
    
    22,100Commercial paper
    
    
    8,292
    
    
    
    
    
    
    
    
    
    
    
    8,292U.S. Treasury bill
    
    
    2,999
    
    
    
    1
    
    
    
    
    
    
    
    3,000U.S. government agency
    
    
    3,493
    
    
    
    
    
    
    
    (2
    )
    
    
    3,491Total cash equivalents
    
    
    36,884
    
    
    
    1
    
    
    
    (2
    )
    
    
    36,883Total cash and cash equivalents
    
    
    41,493
    
    
    
    1
    
    
    
    (2
    )
    
    
    41,492Marketable securities:U.S. Treasury bills and bonds
    
    
    25,910
    
    
    
    44
    
    
    
    
    
    
    
    25,954U.S. government notes and bonds
    
    
    33,632
    
    
    
    
    
    
    
    (68
    )
    
    
    33,564Corporate notes
    
    
    543
    
    
    
    
    
    
    
    (10
    )
    
    
    533Total marketable securities
    
    
    60,085
    
    
    
    44
    
    
    
    (78
    )
    
    
    60,051Total cash, cash equivalents and marketable securities
    
    $
    101,578
    
    
    $
    45
    
    
    $
    (80
    )
    
    $
    101,543
  9




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##### Table of Contents



As of December 31, 2007Gross
    
    
    Gross
    
    
    EstimatedUnrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueCash
    
    $
    2,904
    
    
    $
    
    
    
    $
    
    
    
    $
    2,904Cash equivalents:Money market funds
    
    
    39,220
    
    
    
    
    
    
    
    
    
    
    
    39,220Commercial paper
    
    
    10,276
    
    
    
    
    
    
    
    
    
    
    
    10,276U.S. government notes and bonds
    
    
    29,865
    
    
    
    9
    
    
    
    
    
    
    
    29,874Total cash equivalents
    
    
    79,361
    
    
    
    9
    
    
    
    
    
    
    
    79,370Total cash and cash equivalents
    
    
    82,265
    
    
    
    9
    
    
    
    
    
    
    
    82,274Marketable securities:U.S. government notes and bonds
    
    
    8,513
    
    
    
    
    
    
    
    
    
    
    
    8,513Total marketable securities
    
    
    8,513
    
    
    
    
    
    
    
    
    
    
    
    8,513Total cash, cash equivalents and marketable securities
    
    $
    90,778
    
    
    $
    9
    
    
    $
    
    
    
    $
    90,787
  4. Accrued Expenses and Other Current Liabilities
  As of
    
    
    As ofSeptember 30,
    
    
    December 31,2008
    
    
    2007(unaudited)Accrued royalties
    
    $
    446
    
    
    $
    238Accrued partner referral fees
    
    
    236
    
    
    
    189Accrued other liabilities
    
    
    6,116
    
    
    
    2,930Accrued taxes payable
    
    
    1,279
    
    
    
    613Deferred rent
    
    
    290
    
    
    
    246Sales and use taxes
    
    
    1,801
    
    
    
    2,800$
    10,168
    
    
    $
    7,016
   As of
    
    
    As ofSeptember 30,
    
    
    December 31,2008
    
    
    2007(unaudited)Accrued bonuses payable
    
    $
    5,846
    
    
    $
    7,231Accrued commissions payable
    
    
    5,792
    
    
    
    7,249Accrued vacation
    
    
    4,896
    
    
    
    3,229All other accrued employee compensation payable
    
    
    727
    
    
    
    556$
    17,261
    
    
    $
    18,265
 10




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##### Table of Contents



5. Fair Value Measurements
        Fair Value Measurements as ofSeptember 30, 2008Total
    
    
    Level 1
    
    
    Level 2Cash equivalents (1)
    
    $
    36,883
    
    
    $
    
    
    
    $
    36,883Marketable securities (2)
    
    
    60,051
    
    
    
    
    
    
    
    60,051Total
    
    $
    96,934
    
    
    $
    
    
    
    $
    96,934
 
 (1)
    
    Cash equivalents consist primarily of money market funds with original maturity dates of
three months or less, for which the Company determines fair value through quoted market
prices.(2)
    
    Marketable securities consist of corporate notes, U.S. Government notes and bonds and U.S.
Treasury bills and bonds and are priced using available market information through processes
such as benchmark curves, market valuations of like securities, sector groupings and matrix
pricing.    The Fair Value Option for
Financial Assets and Financial Liabilities  including an Amendment of FASB Statement No. 115
 11




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##### Table of Contents



6. Commitments and Contingencies
  7. Stock-Based Compensation
 Common Stock Options
 Share-Based Payment
  Shares Availablefor GrantBalance at December 31, 2007
    
    
    6,158Options granted
    
    
    (1,452
    )Restricted stock units granted
    
    
    (260
    )Options canceled/forfeited
    
    
    959Balance at September 30, 2008
    
    
    5,405
  Three Months EndedSeptember 30,
    
    Nine Months Ended September 30,2008
    
    2007
    
    2008
    
    2007(Unaudited)
    
    (Unaudited)Expected life from grant date (in years)
    
    
    3.95
    
    
    
    4.14
    
    
    
    3.85
    
    
    
    4.17Risk-free interest rate
    
    
    2.88
    %
    
    
    4.32
    %
    
    
    2.82
    %
    
    
    4.42
    %Expected volatility
    
    
    49.83
    %
    
    
    46.51
    %
    
    
    50.39
    %
    
    
    47.00
    %Dividend yield
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted-average estimated fair value
of options granted during the period
    
    $
    4.78
    
    
    $
    3.58
    
    
    $
    4.55
    
    
    $
    3.34
 12




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##### Table of Contents



Weighted-Shares
    
    
    AverageSubject to
    
    
    ExerciseOptions
    
    
    PriceOutstanding
    
    
    per Share(Shares in thousands)Balance at December 31, 2007
    
    
    13,084
    
    
    $
    5.00Granted
    
    
    1,452
    
    
    
    11.07Exercised (1)
    
    
    (1,482
    )
    
    
    1.96Canceled/forfeited
    
    
    (959
    )
    
    
    6.68Balance at September 30, 2008
    
    
    12,095
    
    
    $
    5.97
 
 (1)
    
    Includes options vested during the period that were early exercised.    Weighted-AverageGrant-DateOutstanding
    
    
    Fair Value(Shares in thousands)Balance at December 31, 2007
    
    
    
    
    
    $
    Granted
    
    
    260
    
    
    
    10.84Vested
    
    
    
    
    
    
    Canceled/forfeited
    
    
    
    
    
    
    Balance at September 30, 2008
    
    
    260
    
    
    $
    10.84
  Stock Plans
  13




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##### Table of Contents



8. Comprehensive Loss
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net loss
    
    $
    (20,388
    )
    
    $
    (20,181
    )
    
    $
    (58,973
    )
    
    $
    (49,163
    )Change in foreign currency translation gain (loss), net
    
    
    (134
    )
    
    
    21
    
    
    
    (90
    )
    
    
    27Change in unrealized (loss) on marketable securities, net
    
    
    (4
    )
    
    
    
    
    
    
    (21
    )
    
    
    Comprehensive loss
    
    $
    (20,526
    )
    
    $
    (20,160
    )
    
    $
    (59,084
    )
    
    $
    (49,136
    )
 9. Net Loss Per Common Share
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(unaudited)
    
    
    (unaudited)2008
    
    
    2007
    
    
    2008
    
    
    2007Net loss
    
    $
    (20,388
    )
    
    $
    (20,181
    )
    
    $
    (58,973
    )
    
    $
    (49,163
    )Shares used in computing net loss per
common share, basic and diluted
    
    
    55,433
    
    
    
    6,120
    
    
    
    53,135
    
    
    
    4,098Net loss per common share, basic and diluted
    
    $
    (0.37
    )
    
    $
    (3.30
    )
    
    $
    (1.11
    )
    
    $
    (12.00
    )
 14




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##### Table of Contents



Three Months
    
    
    Nine MonthsEnded
    
    
    EndedSeptember 30,
    
    
    September 30,(unaudited)
    
    
    (unaudited)2008
    
    
    2007
    
    
    2008
    
    
    2007Convertible preferred stock (as converted basis)
    
    
    
    
    
    
    32,549
    
    
    
    
    
    
    
    32,547Options to purchase common stock and shares
subject to repurchase
    
    
    5,822
    
    
    
    11,250
    
    
    
    5,664
    
    
    
    10,957Warrants (as converted basis)
    
    
    
    
    
    
    504
    
    
    
    
    
    
    
    5045,822
    
    
    
    44,303
    
    
    
    5,664
    
    
    
    44,008
 10. Income Tax
  15




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
   Overview
    Performance Management Goal Management
   16




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##### Table of Contents



Critical Accounting Policies and Estimates
  Managements Discussion and Analysis of Financial Condition
and Results of Operations
 
    
    Revenue Recognition
    
    Accounting for Commission Payments
    
    Accounting for Stock-Based Awards
    
    Sales and Use Taxes
    
    Allowance for Doubtful Accounts
  17




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##### Table of Contents



Results of Operations
  Three Months
    
    Nine MonthsEnded September 30,
    
    Ended September 30,2008
    
    2007
    
    2008
    
    2007Revenue
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %Cost of revenue
    
    
    34
    
    
    
    39
    
    
    
    36
    
    
    
    39Gross margin
    
    
    66
    
    
    
    61
    
    
    
    64
    
    
    
    61Operating expenses:Sales and marketing
    
    
    86
    
    
    
    120
    
    
    
    89
    
    
    
    112Research and development
    
    
    22
    
    
    
    25
    
    
    
    23
    
    
    
    26General and administrative
    
    
    27
    
    
    
    34
    
    
    
    28
    
    
    
    30Total operating expenses
    
    
    135
    
    
    
    180
    
    
    
    140
    
    
    
    167Loss from operations
    
    
    (69
    )
    
    
    (118
    )
    
    
    (76
    )
    
    
    (106
    )Interest and other income (expense), net
    
    
    1
    
    
    
    (2
    )
    
    
    2
    
    
    
    (5
    )Loss before provision for income taxes
    
    
    (68
    )
    
    
    (120
    )
    
    
    (74
    )
    
    
    (111
    )Provision for income taxes
    
    
    (1
    )
    
    
    
    
    
    
    (1
    )
    
    
    Net loss
    
    
    (69
    )%
    
    
    (120
    )%
    
    
    (75
    )%
    
    
    (111
    )%
  Revenue
  Three Months Ended September 30,
    
    Nine Months Ended September 30,2008
    
    2007
    
    Change
    
    2008
    
    2007
    
    Change(Dollars in thousands)Revenue
    
    $
    29,712
    
    
    $
    16,744
    
    
    
    77
    %
    
    $
    78,887
    
    
    $
    44,139
    
    
    
    79
    %
     Cost of Revenue and Gross Margin
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2008
    
    
    2007
    
    
    Change
    
    
    2008
    
    
    2007
    
    
    Change(Dollars in thousands)Revenue
    
    $
    29,712
    
    
    $
    16,744
    
    
    
    77
    %
    
    $
    78,887
    
    
    $
    44,139
    
    
    
    79
    %Cost of revenue
    
    
    10,187
    
    
    
    6,476
    
    
    
    57
    %
    
    
    28,767
    
    
    
    17,213
    
    
    
    67
    %Gross profit
    
    $
    19,525
    
    
    $
    10,268
    
    
    
    89
    %
    
    $
    50,120
    
    
    $
    26,926
    
    
    
    86
    %Gross margin
    
    
    66
    %
    
    
    61
    %
    
    
    
    
    
    
    64
    %
    
    
    61
    %
 18




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Operating Expenses
 Sales and Marketing
  Three Months Ended September 30,
    
    Nine Months Ended September 30,2008
    
    2007
    
    Change
    
    2008
    
    2007
    
    Change(Dollars in thousands)Sales and marketing
    
    $
    25,251
    
    
    $
    20,119
    
    
    
    26
    %
    
    $
    70,121
    
    
    $
    49,427
    
    
    
    42
    %Percent of revenue
    
    
    86
    %
    
    
    120
    %
    
    
    
    
    
    
    89
    %
    
    
    112
    %
   Research and Development
  Three Months Ended September 30,
    
    Nine Months Ended September 30,2008
    
    2007
    
    Change
    
    2008
    
    2007
    
    Change(Dollars in thousands)Research and development
    
    $
    6,516
    
    
    $
    4,192
    
    
    
    55
    %
    
    $
    17,975
    
    
    $
    11,413
    
    
    
    57
    %Percent of revenue
    
    
    22
    %
    
    
    25
    %
    
    
    
    
    
    
    23
    %
    
    
    26
    %
  19




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General and Administrative
  Three Months Ended September 30,
    
    Nine Months Ended September 30,2008
    
    2007
    
    Change
    
    2008
    
    2007
    
    Change(Dollars in thousands)General and administrative
    
    $
    8,146
    
    
    $
    5,759
    
    
    
    41
    %
    
    $
    22,066
    
    
    $
    13,063
    
    
    
    69
    %Percent of revenue
    
    
    27
    %
    
    
    34
    %
    
    
    
    
    
    
    28
    %
    
    
    30
    %
   Interest Income (Expense)
  Three Months Ended September 30,
    
    Nine Months Ended September 30,2008
    
    2007
    
    Change
    
    2008
    
    2007
    
    Change(Dollars in thousands)Interest income
    
    $
    555
    
    
    $
    131
    
    
    
    323
    %
    
    $
    1,911
    
    
    $
    580
    
    
    
    229
    %Interest expense
    
    
    79
    
    
    
    (470
    )
    
    
    (117
    )
    
    
    117
    
    
    
    (1,359
    )
    
    
    (109
    )Other income (expense)
    
    
    (378
    )
    
    
    21
    
    
    
    (1,848
    )
    
    
    (403
    )
    
    
    (1,287
    )
    
    
    (69
    )Percent of revenue
    
    
    1
    %
    
    
    (2
    )%
    
    
    
    
    
    
    2
    %
    
    
    (2
    )%
   20




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Provision for Income Taxes
   Liquidity and Capital Resources
   Nine Months Ended September 30,2008
    
    2007(Unaudited)Net cash used in operating activities
    
    $
    (12,640
    )
    
    $
    (16,213
    )Net cash used in investing activities
    
    
    (56,282
    )
    
    
    (4,932
    )Net cash provided by financing activities
    
    
    28,230
    
    
    
    10,504
 Net Cash Used in Operating Activities
   21




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Net Cash Used in Investing Activities
   Net Cash Provided by Financing Activities
  Capital Resources
  Off-Balance Sheet Arrangements
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Foreign Currency Exchange Risk
  22




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Interest Rate Sensitivity
  Fair Value of Financial Instruments
  
 ITEM 4. CONTROLS AND PROCEDURES
 (a) Disclosure Controls and Procedures
  (b) Changes in Internal Control Over Financial Reporting
  23




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PART IIOTHER INFORMATION
 
 Item 1. Legal Proceedings
   24




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Item 1A. Risk Factors
 A restated description of the risk factors associated with our business is set forth below.
This description includes any material changes to and supersedes the description of the risk
factors included in our Annual Report on Form 10-K , as amended on June 3, 2008, by Form 10-K/A for
the year ended December 31, 2007. The risks and uncertainties described below are not the only ones
facing us. Other events that we do not currently anticipate or that we currently deem immaterial
also may affect our results of operations and financial condition.
 We have a history of losses, we expect to continue to incur losses and we may not achieve or
sustain profitability in the future.
  Current uncertainty in global economic conditions makes it particularly difficult to
predict demand and other related matters and makes it more likely that our actual results could
differ materially from expectations.
  Our independent registered public accounting firm identified numerous material audit
adjustments in prior years, all of which we subsequently recorded, and noted certain material
weaknesses in our internal control over financial reporting. Failure to achieve and maintain
effective internal control over financial reporting could result in our failure to accurately
report our financial results.
   25




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##### Table of Contents



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.
  26




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##### Table of Contents



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 revenue and operating results may be
harmed.
  We have experienced rapid growth in recent periods. If we fail to manage our growth
effectively, we may be unable to execute our business plan, maintain high levels of service or
adequately address competitive challenges.
  Failure to adequately expand and ramp our direct sales force and develop and expand our
indirect sales channel will impede our growth.
  If our security measures are breached or unauthorized access to customer data is otherwise
obtained, our application suite may be perceived as not being secure, customers may curtail or stop
using our application suite, and we may incur significant liabilities.
  27




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##### Table of Contents



Because our application suite collects, stores and reports personal information of job
applicants and employees, privacy concerns could result in liability to us or inhibit sales of our
application suite.
   The market for our application suite depends on widespread adoption of strategic HR software.
  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.
 Performance
Management Goal Management
 The market for on-demand applications is at an early stage of development, and if it does not
develop or develops more slowly than we expect, our business will be harmed.
  
    
    perceived security capabilities and reliability;
    
    perceived concerns about ability to scale operations for large enterprise customers;
    
    concerns with entrusting a third party to store and manage critical employee data; and
    
    the level of configurability of on-demand applications.
  28




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##### Table of Contents



The market in which we participate is intensely competitive, and if we do not compete
effectively, our operating results could be harmed.
    Our quarterly results can fluctuate and, if we fail to meet the expectations of analysts or
investors, our stock price and the value of your investment could decline substantially.
  
    
    our ability to attract new customers;
    
    customer renewal rates;
    
    the extent to which customers increase or decrease the number of modules or users upon any
renewal of their agreements;
    
    the level of new customers as compared to renewal customers in a particular period;
    
    the addition or loss of large customers, including through acquisitions or consolidations;
    
    the mix of customers between small, mid-sized and enterprise customers;
    
    changes in our pricing policies or those of our competitors;
 29




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##### Table of Contents




    
    seasonal variations in the demand for our application suite, which has historically been
highest in the fourth quarter of a year;
    
    the amount and timing of operating expenses, particularly sales and marketing, related to
the maintenance and expansion of our business, operations and infrastructure;
    
    the timing and success of new product and service introductions by us or our competitors
or any other change in the competitive dynamics of our industry, including consolidation
among competitors, customers or strategic partners;
    
    network outages or security breaches;
    
    the timing of expenses related to the development or acquisition of technologies or
businesses and potential future charges for impairment of goodwill from acquired companies;
and
    
    general economic, industry and market conditions.
  The market for our application suite among large customers may be limited if they require
customized features or functions that we do not intend to provide.
  We depend on our management team, particularly our Chief Executive Officer and our development
personnel, and the loss of one or more key employees or groups could harm our business and prevent
us from implementing our business plan in a timely manner.
   If we cannot maintain our corporate culture as we grow, we could lose the innovation,
teamwork, passion and focus on execution that we believe contribute to our success, and our
business may be harmed.
  Our growth depends in part on the success of our strategic relationships with third parties.
  30




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##### Table of Contents



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.
    If our application suite becomes unavailable or otherwise fails to perform properly, our
reputation will be harmed, our market share would decline and we could be subject to liability
claims.
  
    
    lost or delayed market acceptance and sales;
    
    breach of warranty claims;
    
    sales credits or refunds to our customers;
    
    loss of customers;
    
    diversion of development and customer service resources; and
    
    injury to our reputation.
  31




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We rely on third-party computer hardware and software that may be difficult to replace or
which could cause errors or failures of our service.
  If we are not able to develop enhancements and new features that achieve market acceptance or
that keep pace with technological developments, our business will be harmed.
   If we fail to develop widespread brand awareness cost-effectively, our business may suffer.
  Because our long-term success depends, in part, on our ability to expand the sales of our
application suite to customers located outside of the United States, our business will be
susceptible to risks associated with international operations.
  32




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##### Table of Contents




    
    our ability to comply with differing technical and certification requirements outside the
United States;
    
    difficulties and costs associated with staffing and managing foreign operations;
    
    greater difficulty collecting accounts receivable and longer payment cycles;
    
    unexpected changes in regulatory requirements;
    
    the need to adapt our application suite for specific countries;
    
    difficulties in understanding and complying with local laws, regulations and customs in foreign
jurisdictions;
    
    tariffs, export controls and other non-tariff barriers such as quotas and local content rules;
    
    more limited protection for intellectual property rights in some countries;
    
    adverse tax consequences;
    
    fluctuations in currency exchange rates;
    
    restrictions on the transfer of funds; and
    
    new and different sources of competition.
  Because competition for our target employees is intense, we may not be able to attract and
retain the quality employees we need to support our planned growth.
  Any failure to protect our intellectual property rights could impair our ability to protect
our proprietary technology and our brand.
   33




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##### Table of Contents



We may be sued by third parties for alleged infringement of their proprietary rights.
  Our use of open source and third-party technology could impose limitations on our ability to
commercialize our application suite.
  Changes in laws and/or regulations related to the Internet or changes in the Internet
infrastructure itself may cause our business to suffer.
   We may acquire other companies or technologies, which could divert our managements attention,
result in additional dilution to our stockholders and otherwise disrupt our operations and harm our
operating results.
  34




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##### Table of Contents




    
    unanticipated costs or liabilities associated with the acquisition;
    
    incurrence of acquisition-related costs;
    
    diversion of managements attention from other business concerns;
    
    harm to our existing business relationships with business partners and customers as a result of
the acquisition;
    
    the potential loss of key employees;
    
    use of resources that are needed in other parts of our business; and
    
    use of substantial portions of our available cash to consummate the acquisition.
   We might require additional capital to support business growth, and this capital might not be
available on acceptable terms, or at all.
  Our business is subject to changing regulations regarding corporate governance and public
disclosure that will increase both our costs and the risk of noncompliance.
  35




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##### Table of Contents



Changes in financial accounting standards or practices may cause adverse, unexpected financial
reporting fluctuations and affect our reported results of operations.
  If there are substantial sales of shares of our common stock, the price of our common stock
could decline.
  If securities or industry analysts do not publish research or publish inaccurate or
unfavorable research about our business, our stock price and trading volume could decline.
  Our directors, executive officers and principal stockholders have substantial control over us
and could delay or prevent a change in corporate control.
  
    
    delaying, deferring or preventing a change in our control;
    
    impeding a merger, consolidation, takeover or other business combination involving us; or
    
    discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain
control of us.
 36




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Delaware law and provisions in our restated certificate of incorporation and restated bylaws
could make a merger, tender offer or proxy contest difficult, which could depress the trading price
of our common stock.
  
    
    our Board of Directors is classified into three classes of directors with staggered
three-year terms;
    
    only our Chairperson of the Board of Directors, our Chief Executive Officer, our
President or a majority of our Board of Directors are authorized to call a special meeting
of stockholders;
    
    our stockholders can only take action at a meeting of stockholders and not by written
consent;
    
    vacancies on our Board of Directors can be filled only by our Board of Directors and not
by our stockholders;
    
    our restated certificate of incorporation authorizes undesignated preferred stock, the
terms of which may be established and shares of which may be issued without stockholder
approval; and
    
    advance notice procedures apply for stockholders to nominate candidates for election as
directors or to bring matters before an annual meeting of stockholders.
 
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
   
 Item 3. Defaults Upon Senior Securities
 None
 
 Item 4. Submission of Matters to a Vote of Security Holders
 None
 
 Item 5. Other Information
 None
 37




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Item 6. Exhibits
 EXHIBIT INDEX
 Exhibit No.
    
    Document31.1
    
    Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a) or 15(d)-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a) or 15(d)-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
 38




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SIGNATURES
  SuccessFactors, Inc.By:
    /s/ Bruce FeltBruce FeltChief Financial Officer
(Principal Financial and Accounting Officer)  39




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EXHIBIT INDEX
 Exhibit No.
    
    Document31.1
    
    Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a) or 15(d)-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a) or 15(d)-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.