Public SaaS Company Performance: Winners, Losers

The Technology Authority

CONFIDENTIAL

Public SaaS Company Performance: Winners, Losers & Lessons Learned

2

SAAS MARKET UPDATE – SUMMARY

SaaS stocks are up 71% YTD in 2009, but success has not been universal

– Represents a 110% rebound from the lows of early March

– Median multiples now stand at 3.9x 2009E revenue and 26.3x 2009E free cash flow

– Biggest leaders have been from most maligned sectors: HR, CRM

– Some of the best SaaS companies have been stock laggard

Focus areas for 2010

– CRM, collaboration, compliance are hot sectors.

– HR dropped in this survey.

– Renewal rates remains strong

Investors are desperate for new ideas

– Value bookings growth and consistency

– Key metrics: LTV, CAC, Magic Number

– More consolidation to come

– Keep doing what you are doing…

3

30

40

50

60

70

80

90

100

110

J an-08 Mar-08 May-08 J ul-08 Sep-08 Nov-08 J an-09 Mar-09 May-09 J ul-09 Sep-09

SaaS Index (Equal Weights) SaaS Index (Market Cap Weighted) DJIA NASDAQ

SAAS STOCK PRICES SINCE JANUARY 2008

Notes: SaaS Index includes ATHN, CNQR, CTCT, TRAK, DMAN, KNXA, N, OMTR, RNOW, SLRY, CRM, SFSF, TLEO and VOCS (excludes LOGM).Source: Capital IQ as of 10/12/09.

Market DataDJIA: -25%NASDAQ: -19%

SaaS Index Equal Weights: -24%Market Cap Weighted: -18%

Market DataDJIA: -25%NASDAQ: -19%

SaaS Index Equal Weights: -24%Market Cap Weighted: -18%

4

Stock Price: $61.47 $39.07 $21.41 $38.36 $15.78 $15.44 $24.30 $18.71 $20.20 $14.57 $18.83 $20.81 $12.45 $7.97 $3.09

$2,015

$1,735

$1,354

$1,043 $997$797 $768

$603$474 $468 $419

$281 $251$50

$8,054

$0

$500

$1,000

$1,500

$2,000

$2,500

CRM CNQR OMTR ATHN N SFSF TLEO TRAK CTCT RNOW LOGM VOCS KNXA DMAN SLRY

$8,500

% Change YTD(1)

SAAS MARKET VALUATIONS AND CHANGES YTD

Mean: 71%

Market Capitalization

(US dollars in millions)

Source: Capital IQ and Wall Street estimates as of 10/12/09.(1) Mean percent change year-to-date excludes LOGM; LOGM percent change reflects change since

pricing on 6/30/09.

9/1/08-to-Date: 10% -11% 20% 19% -6% 40% 0% 2% 18% -3% 18% -42% -46% -23% -38% -10% -15%

92%

19%

101%

2%

87%

169%

210%

57% 52%

88%

18% 14%

56%

-1%

41% 35%12%

-50%

0%

50%

100%

150%

200%

250%

CR

M

CN

QR

OM

TR

AT

HN N

SF

SF

TLE

O

TR

AK

CT

CT

RN

OW

LOG

M

VO

CS

KN

XA

DM

AN

SLR

Y

NA

SD

AQ

DJI

A

Best Performers: TLEO, SFSF, OMTR, CRM, RNOW

5

SAAS 2009E REVENUE MULTIPLES

Median: 3.9x


Enterprise Value / 2009E Revenue

2009E Median Revenue Multiple Trendline

Source: Capital IQ and Wall Street estimates as of 10/12/09.

SaaS: 3.9x

Software Universe: 2.5x

0x

1x

2x

3x

4x

5x

6x


EV: $7,649 $1,773 $1,633 $1,269 $927 $889 $736 $589 $496 $385 $368 $328 $234 $183 $39

2009E Rev: $1,279 $255 $354 $192 $166 $149 $199 $230 $129 $149 $74 $84 $157 $79 $46

6.0x

6.9x

4.6x

6.6x

5.6x6.0x

3.7x

2.6x

3.8x

2.6x

5.0x

3.9x

1.5x

2.3x

0.8x

2.5x

0x

1x

2x

3x

4x

5x

6x

7x

8x

CRM CNQR OMTR ATHN N SFSF TLEO TRAK CTCT RNOW LOGM VOCS KNXA DMAN SLRY SW

High Quality has stayed High Multiple

6

SAAS 2009E FCF MULTIPLES

Median: 26.3x


Enterprise Value / 2009E FCF

2009E Median FCF Multiple Trendline

Source: Capital IQ and Wall Street estimates as of 10/12/09.Note: FCF multiples greater than 60x are considered not material ("NM").

SaaS: 26.3x

0x

5x

10x

15x

20x

25x

30x


EV: $7,649 $1,773 $1,633 $1,269 $927 $889 $736 $589 $496 $385 $368 $328 $234 $183 $39

2009E FCF: $187 $52 $45 $32 -$6 $3 $29 $40 $4 $15 $15 $21 $17 $4 -$2

40.9x

34.0x36.2x

39.7x

NM NM

25.2x

14.7x

NM

26.3x23.9x

16.0x13.6x

45.1x

NM0x

10x

20x

30x

40x

50x

CRM CNQR OMTR ATHN N SFSF TLEO TRAK CTCT RNOW LOGM VOCS KNXA DMAN SLRY

Also true for FCF multiples

7

SAAS 2010E REVENUE MULTIPLES

Median: 3.5x


Enterprise Value / 2010E Revenue

2010E Median Revenue Multiple Trendline


SaaS: 3.5x

Software Universe: 2.4x

0.0x

0.5x

1.0x

1.5x

2.0x

2.5x

3.0x

3.5x

4.0x

J an-09 Feb-09 Mar-09 Apr-09 May-09 J un-09 J ul-09 Aug-09 Sep-09 Oct-09

EV: $7,649 $1,773 $1,633 $1,269 $927 $889 $736 $589 $496 $385 $368 $328 $234 $183 $39

2010E Rev: $1,476 $310 $399 $252 $188 $173 $225 $249 $176 $167 $90 $93 $168 $85 $56

5.2x5.7x

4.1x

5.0x 4.9x 5.2x

3.3x

2.4x2.8x

2.3x

4.1x3.5x

1.4x

2.1x

0.7x

2.4x

0x

1x

2x

3x

4x

5x

6x

7x

CRM CNQR OMTR ATHN N SFSF TLEO TRAK CTCT RNOW LOGM VOCS KNXA DMAN SLRY SW

But, High Multiple does not mean High Performer

8

RECENT MARKET RALLY

Notes: SaaS Index includes ATHN, CNQR, CTCT, TRAK, DMAN, KNXA, N, OMTR, RNOW, SLRY, CRM, SFSF, TLEO and VOCS (excludes LOGM).Source: Capital IQ as of 10/12/09.

Market DataDJIA: +51%NASDAQ: +69%

SaaS Index Equal Weights: +110%Market Cap Weighted: +98%

Market DataDJIA: +51%NASDAQ: +69%

SaaS Index Equal Weights: +110%Market Cap Weighted: +98%

80

100

120

140

160

180

200

220

3/9 3/23 4/6 4/20 5/4 5/18 6/1 6/15 6/29 7/13 7/27 8/10 8/24 9/7 9/21 10/5

SaaS Index (Equal Weights) SaaS Index (Market Cap Weighted) DJIA NASDAQ

Closing Price Price

Company 3/9/09 10/12/09 Change

Salesforce.com 30.89$ 61.47$ 99.0%Concur Technologies, Inc. 18.71 39.07 108.8%Omniture Inc. 10.28 21.41 108.3%Athenahealth, Inc. 26.63 38.36 44.0%NetSuite, Inc. 8.12 15.78 94.3%SuccessFactors, Inc. 5.53 15.44 179.2%Taleo Corp. 7.90 24.30 207.6%DealerTrack Holdings, Inc. 9.28 18.71 101.6%Constant Contact, Inc. 12.60 20.20 60.3%Rightnow Technologies Inc. 6.22 14.57 134.2%Vocus Inc. 12.74 20.81 63.3%Kenexa Corp. 3.98 12.45 212.8%DemandTec, Inc. 7.54 7.97 5.7%Salary.com, Inc. 1.44 3.09 114.6%

Mean 109.6%

Closing Price Price

Company 3/9/09 10/12/09 Change

Salesforce.com 30.89$ 61.47$ 99.0%Concur Technologies, Inc. 18.71 39.07 108.8%Omniture Inc. 10.28 21.41 108.3%Athenahealth, Inc. 26.63 38.36 44.0%NetSuite, Inc. 8.12 15.78 94.3%SuccessFactors, Inc. 5.53 15.44 179.2%Taleo Corp. 7.90 24.30 207.6%DealerTrack Holdings, Inc. 9.28 18.71 101.6%Constant Contact, Inc. 12.60 20.20 60.3%Rightnow Technologies Inc. 6.22 14.57 134.2%Vocus Inc. 12.74 20.81 63.3%Kenexa Corp. 3.98 12.45 212.8%DemandTec, Inc. 7.54 7.97 5.7%Salary.com, Inc. 1.44 3.09 114.6%

Mean 109.6%

Best Performers:KNXATLEOSFSFRNOW

Worst Performers:DMANATHNVOCS CTCT

9

REVENUE MULTIPLES VERSUS GROWTH AND FCF MARGINSE

nte

rpri

se V

alu

e / 2

009E

Rev

enu

e

2009E Revenue Growth

En

terp

rise

Val

ue

/ 200

9E R

even

ue

2009E FCF Margin


ATHN

KNXA

LOGM

CRM

CNQR

OMTR

N

TRAK

SFSF

CTCTVOCS

RNOW

DMAN

TLEO

SLRY

0x

1x

2x

3x

4x

5x

6x

7x

-30% -20% -10% 0% 10% 20% 30% 40% 50% 60%

LOGM

CRM

CNQRATHN

OMTR

N

TRAK

SFSF

CTCT VOCS

RNOW

DMAN

TLEO

KNXA

SLRY

0x

1x

2x

3x

4x

5x

6x

7x

-10% -5% 0% 5% 10% 15% 20% 25% 30%

10

FCF MULTIPLES VERSUS GROWTH AND FCF MARGINSE

nte

rpri

se V

alu

e / 2

009E

FC

F

2009E Revenue Growth

En

terp

rise

Val

ue

/ 200

9E F

CF

2009E FCF Margin

Source: Capital IQ and Wall Street estimates as of 10/12/09.Note: 2009E FCF multiples greater than 60x are not material.

ATHN

LOGM

CRM

CNQROMTR

VOCS

RNOWTLEO

KNXATRAK

0x

5x

10x

15x

20x

25x

30x

35x

40x

45x

0% 5% 10% 15% 20% 25% 30%

ATHNCRM

CNQR

OMTR

VOCS

RNOW

TLEO

KNXA TRAK

LOGM

0x

5x

10x

15x

20x

25x

30x

35x

40x

45x

-30% -20% -10% 0% 10% 20% 30% 40% 50%

11

SaaS Frequency of Quarterly Beats and Raises

Source: Company reports and Wall Street estimates as of 10/12/09.

Last Six Quarters

Last Three Quarters

100%

71%63% 58% 58% 58%

50%42%

33% 33% 33% 29% 25%

0%

20%

40%

60%

80%

100%

120%

SF

SF

CR

M

CT

CT

CN

QR

RN

OW

VO

CS

DM

AN

SLR

Y

KN

XA N

OM

TR

TR

AK

TLE

O

100%

75%

58%50% 50% 50% 50%

42% 42% 42%

25% 25%17%

0%

20%

40%

60%

80%

100%

120%

SF

SF

CR

M

CT

CT

DM

AN N

RN

OW

VO

CS

CN

QR

SLR

Y

TR

AK

KN

XA

TLE

O

OM

TR

12

CONSISTENCY IS KEY TO STOCK SUCCESS

Human Resources – SFSF, TLEO, KNXA.– SaaS is replacing HR departments.

– Job churn despite unemployment increases.

– Multiples were relatively modest.

Customer Relationship Management – CRM, RNOW

– Moving from SFA to Marketing

– 58% of CIO’s plan to purchase SaaS CRM over next 12 month, 33% SFA

Investors reward consistency

– Inherently better consistency in SaaS models

– But, if you change strategy expect some pain (i.e. SLRY, RNOW, CNQR)

13

2010 IT & SAAS BUDGETS WILL IMPROVE

IT budgets are actually increasing.– 56% expect increase 2009 IT budget, largely consistent thru 2009.

But, 24% expect < 2% increase.

– 68% expect increase 2010 IT budget.

But, 29% expect <2% increase.

Biggest priorities are virtualization, CRM, business intelligence and security.

Biggest risks are services (both onshore and offshore), software applications, middleware/SOA, data center co-location.

SaaS at risk had appeared in 1H surveys

14

SAAS WELL POSITIONED

In surveys, satisfaction with SaaS remains high, despite moderating usage with economy.

– 60% usage vs. 71% in 2008 and 25% in 2007.– Satisfaction is up again (49% vs. 40% vs. 23%).

SaaS continues to take market share.– Continues to increase as % of IT budgets (25% vs. 21% vs. 16% vs. 10%).– Renewal rates improved (93% vs 90%).

CRM, collaboration, compliance are hot sectors.– HR dropped in this survey.

15

SAAS AS % Of IT BUDGET - Q3

4%

61%

24%

11%

0%

1%-24%

25%-49%

50%-74%

9%

52%

28%

11%

0%

1%-24%

25%-49%

50%-74%

2009 Budget Projections 2010 Budget Projections

Survey of 80 CIO’s, July 2009, Pacific Crest Securities, Inc.

16

SaaS As % Of IT BUDGET - Q1

2009 Budget Projections 2010 Budget Projections

8%

66%

19%

7%

0%

1%-25%

25%-49%

50%-74%

5%

61%

24%

10%

0%

1%-24%

25%-49%

50%-74%

Survey of 74 CIO’s, March 2009, Pacific Crest Securities, Inc.

17

RENEWAL RATE UP TO 93% FROM 90%

93%

7%

Yes

No

93%

7%

Yes

No

90%

10%

Yes

No

Q3 2009-93% Renewal Rate



Survey of 80 CIO’s, July 2009, Pacific Crest Securities, Inc.



18

SAAS PRIORITIES FOR NEXT 12 MONTHS

Customer Relationship Mgmt – 58% Collaboration – 43% Compliance & Risk Mgmt – 39% Industry Specific Applications – 38% Procurement/Supply Chain – 38%

Enterprise Resource Planning – 36% Web Analytics – 35% Sales Force Automation – 33% Real Time Dashboards – 28% Human Resource Mgmt – 20% E-Commerce – 15%

Big Increase in CRM

Big Drop in HR

19

PRIMARY SAAS BENEFITS

Faster Implementation Time – 55% Access To Current Version – 55% Lower Internal IT Costs – 54% Lower TCO – 50% System Reliability- 46%

Security – 41% Integration With Existing Infrastructure – 39% Ready Remote User Access – 38% Reduced Hardware Requirements – 28% Ability To Customize Applications – 24%

Former Obstacles Are Now Assets

20

SAAS EFFICIENCY RATIOS

Magic Number

=Δ Revenue

S&M costsCAC Ratio

=Δ Gross Profit

S&M costs

LTV =MRR GP

Churn– CAC

21

($400)

($200)

$0

$200

$400

$600

$800

$1,000

Lif

eti

me

Cu

sto

me

r V

alu

e

Monthly Customer Gross Profit Net Customer Value

LTV ILLUSTRATION

Breakeven in Month 12

$825 Net Customer

Value

45 Month Customer

Life

(2.2% Churn)

Cash Flow Stream of New Customer

Months

Net Customer Value =

Churn

(MRR GP)

Constant Contact: $300 CAC; $35 MRR; 71% GM; 2.2% Churn

– CAC =2.2%

$25 – 300

22

CAC RATIO ILLUSTRATION

Company Profile: $20M Run-Rate; 36% Growth; 70% GM

Q1 Q2 Δ Δ ARR

$5.0 $5.4 $0.4 $1.6

3.5 3.8 0.3 1.2

Revenues

Gross Profit

Scenario 1

CAC Ratio = 1.0

Q1 S&M = $1.2M

Q1 CF = +$0.5M

5-Year CF = +$25M

Scenario 2

CAC Ratio = 0.5

Q1 S&M = $2.4M

Q1 CF = -$0.6M

5-Year CF = -$26M

23

SAAS COMPANY MARGIN ANALYSIS

~$25M ~$50M ~$100M

Median Run-Rate

72%

60%

23%

15%

(26%)

(13%)

Gross Margin

Sales & Marketing

Research & Dev.

EBIT Margin

General & Admin.

FCF Margin

68%

47%

19%

15%

(17%)

(4%)

70%

46%

12%

17%

(1%)

5%

Median includes ATHN, CNQR, CTCT, DMAN, KNXA, LOGM, N, OMTR, RNOW, SLRY, CRM, SFSF, TLEO and VOCS.~$25M median excludes ATHN, CNQR and RNOW.~$100M median excludes DMAN, LOGM, SLRY and VOCS.

24

INVESTORS DESPERATE FOR NEW IDEAS

Bookings growth and consistency are key Companies are looking for growth

– Consolidation from legacy software vendors (ADBE/OMTR)

– Consolidation within SaaS (TLEO/Vurv, KNXA/Brass Ring)

– Consolidation within industries (AMEX investment in CNQR)

New revenue streams are starting to emerge– TLEO selling resumes– RealPage

So, keep doing what you are doing…

The Technology Authority

CONFIDENTIAL

Public SaaS Company Performance: Winners, Losers & Lessons Learned

Documents

Public SaaS Company Performance: Winners, Losers