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Cornerstone OnDemand, Inc. (NASDAQ:CSOD)

Q1 2014 Earnings Conference Call

May 1, 2013 05:00 AM ET

Executives

Perry Wallack - CFO

Adam Miller - CEO

Analyst

Brendan Barnicle - Pacific Crest

Brent Thill - UBS

Michael Nemeroff - Credit Suisse

Justin Furby - William Blair

Mark Murphy - Piper Jaffray

Greg Dunham - Goldman Sachs

Raimo Lenschow - Barclays Capital

Rick Sherlund - Nomura Asset Management

Operator

Good day, ladies and gentlemen. And welcome to the Cornerstone OnDemand’s First Quarter 2014 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct the question-and-answer session and instructions will be given at that time. As a reminder, this conference call is being recorded.

I’d now like to turn the conference over to Perry Wallack, Chief Financial Officer for Cornerstone OnDemand.

Perry Wallack

Good afternoon, everyone, and welcome to our first quarter 2014 earnings conference call. As always today’s call will begin with Adam providing a brief overview of our performance and then I will review some key financial results for the quarter which ended on March 31, 2014.

A more complete disclosure of our results can be found in our press release which was issued after the market closed today and will be furnished with the SEC on Form 8-K. You can also access the press release and detailed financials on our Investor Relations website. Today’s call is being recorded and a replay will be made available at the conclusion.

During the call, we will be referring to both GAAP and non-GAAP financial measures. The reconciliation of our GAAP to non-GAAP information is provided in the press release and on our website. All of the financial measures that we will discuss today are non-GAAP, unless we state that the measure is a GAAP number. Any non-GAAP outlook we provide has not yet been reconciled with the comparable GAAP outlook because among other things, we cannot reliably estimate our future stock based compensation expenses which are dependent on our future stock price.

Our discussion will include forward-looking statements such as statements regarding our business, strategy, product demand, projected financial results and operating metrics, product development, client retention, market or business growth, investment activity, visibility into our performance, the impact of capitalized development costs, R&D spending, professional services, our appraisal of our competitors and our ability to compete effectively.

Words such as expect, believe, anticipate, plan, illustrate, intent, estimate and other similar words are also intended to identify such forward-looking statements. Forward-looking statements involve risks, uncertainties and assumptions. If any of the risks or uncertainties materialized or any of the assumptions prove incorrect actual results could differ materially from those expressed or implied by the forward-looking statements we make.

These risks, uncertainties, assumptions as well as other information on potential factors that could affect our financial results are included in today’s press release, in the Risk Factor section of our most recent Form 10-K and Form 10-Q.

And with that, I will turn the call over to Adam.

Adam Miller

Thanks, Perry, and thank you to everyone joining us today. The first quarter was a strong start to what we expect will be another year of industry leading growth for Cornerstone OnDemand.

Revenue for the first quarter came in at a record $57.4 million representing a year-over-year increase of 52%, and bookings came in at $49.7 million representing a year-over-year increase of 38%. As we have demonstrated before, the Cornerstone solution is applicable to organizations of all sizes in every region and in every vertical and the diversity of clients added in the first quarter once again speaks to this point.

In the first quarter, we brought on Dignity Health one of the world’s largest mobile service providers, Benihana; GoDaddy; Fossil; NetApp; a Fortune 500 oil and gas company; Idaho State University, New Visions for public schools in the K-12 space, the Delaware Office of Management and Budget and many-many more.

Over the years one of the biggest assets we’ve developed is our marquee client base with 95% retentions since inception we have cultivated an amazing group of clients and we now dominate many enterprise verticals. For example in financial services, our clients include Barclays, BNP Paribas, BBVA, Commonwealth Bank of Australia, Societe Generale, and the top two investment banks in the United States. Our insurance clients include AXA, AIG, Liberty Mutual, MetLife and RSA. Our automotive clients include BMW, Jaguar Land Rover, Peugeot, Subaru, and Volvo. Our food and beverage clients include TGI Friday’s, The Cheesecake Factory, BJ’s, Papa John’s, AB InBev, Carlsberg, Heineken, and New Belgian Brewery. And our retail clients include Neiman Marcus, Guess, Staples, RadioShack, True Value, Walgreens, Reckitt Benckiser, William Fung, and World Duty Free amongst many others. And the list goes on and on and on.

We have also clearly demonstrated our ability to go all the way up market and today have two dozen clients with over 100,000 users each. In the last few quarters, we have brought on Philips Electronics; Nissan; IKEA; the largest food company in the world; and several other large multinationals all organizations with well over 100,000 employees. It’s worth mentioning that as we go hunting for even bigger organizations with our recently formed strategic accounts team, we have some variability in our bookings from quarter-to-quarter given the complexity of the procurement process for those sales. What this means in our current scale is that the timing of when some of these deals close or slip can impact our performance or at least the perception of our performance within individual quarters. Even as we continue to go further up market, we are also aggressively pushing down market. To that end, we have continued to make investments in both our major accounts and SMB teams.

In Q1 we built out the management layer for our major accounts team by promoting a number of our top performing mid-market reps into those roles. And to help accelerate our penetration of the SMB market we just brought on Chad Savoy to head our Global SMB sales team.

And for seven years at SolarWinds, most recently as the Vice President of North American Sales, we believe Chad’s experience in domain expertise with inside sales will be invaluable in his new role with us. On the second half of this year, we should begin to reap the benefits of our investments in these areas.

As we have discussed on past calls, we believe the global market opportunity for cloud talent management solutions is approximately 400 million seats. In order to capture that massive opportunity over the last two years we have significantly enhanced our global infrastructure in our worldwide distribution network.

As we have cemented our leadership position within talent management in recent years, we have also become the partner of choice for the world’s top HR organizations. On the Q1 call, I discussed our global partnership with Deloitte, the single largest human capital management consulting practice in the world.

This morning we followed that up by announcing a key alliance with Aon Hewitt to expand our global reach even further. Aon Hewitt is the world’s leading HR outsourcer with a client list that includes over half of the Fortune 500 and more than a third of the Global 500. Through this relationship Aon Hewitt will complement on best of breed talent management suite with their strategy in outsourcing expertise and help organizations all over the world to improve the effectiveness of their people related initiatives. We expect Aon Hewitt to not only help us build upon our presence within the large enterprise segment in the U.S. and in Europe but also accelerate growth in newer regions such as Asia Pacific in Latin America for us.

Maximizing the available market opportunity, not only means selling to as many of those 400 million seeds as we can but also maximizing the value of each seed. In 2013 our revenue per user grew by 15.2% over 2012, more than double the 7.5% growth in revenue per user that we saw from 2011 to 2012. And given that our business today is likely as concentrated in enterprise sales at it ever will be we expect this trend to continue overtime because of per user pricing down market is typically two to four times higher than the per user pricing in the enterprise segment, of course.

Another aspect to maximizing the opportunity is product penetration. We have continued to grow our product suite, to help our clients empower their people by more effectively managing every aspect of the employee life cycle. In the past I have described us as talent management specialist in the world of generalist and that specialization has only gotten deeper.

As part of our June release, we plan to introduce Cornerstone Onboarding as our newest product. Onboarding lives between recruiting and learning. After completing the recruiting process, organizations need to be onboard when you induct their new employees, which typically includes both administrative processes and new hire training. For many organization the quality of the initial onboarding experience is the primary predictor of employee retention.

In addition of the Cornerstone Onboarding, we expect our June release to feature the introduction of campus recruiting, an incrementally price add on to the Cornerstone recruiting profit. Campus recruiting will allow recruiters to more efficiently manage on campus recruiting events and interview sessions and allow candidates to self-schedule for those events through their mobile devices. This will make Cornerstone Recruiting one of the only enterprise class applicant tracking systems to fully support recruiting events and campus recruiting.

Now as you know, I normally don’t talk about the stock market. But given the extreme volatility recently, I feel compelled to discuss it. Over the past eight weeks, we believe we’ve witnessed a market shift away from many emerging technology leaders. But clearly this is not the first time that this has happened.

In mid-2011, just months after our Initial Public Offering, global macroeconomic uncertainties saw many high growth SaaS names, including us, tumble by 40% or more. Since then Cornerstone has grown by over 300% as leading organizations across all vertical segments and geographies has moved their talent management solutions to the cloud.

Today, the demand environment for what we do is stronger than ever, through accelerating client ads, vertical penetration, geographic expansion and a broadening product suite, we have the ability to continue growing for decades to come. When you combine this growth potential with our 95% retention rate which we expect to maintain again this year, a continuation of the improvement in profitability that we have seen over the past three years is almost inevitable.

Since 2011 we have grown cash flow from operations from 2 million to 11 million and nearly $21 million with guidance set at $33 million this year. Similarly over the same period we’ve improved our operating margins from negative 17% to negative 13% and negative 7% and we expect it to approach breakeven this year with a net loss margin of less than 5%.

So while market dynamics may have changed over the past few weeks nothing has changed here at Cornerstone. We remain as focused as ever on execution and we have been working hard to prepare the company for our next phase of growth as the global leader in talent management. Before I hand it back to Perry I want to take a moment to thank the more than 1,700 organizations that turn to Cornerstone each day to manage our talent management processes for 14.5 million users across the globe. I look forward to seeing many of you at our annual Convergence client conference in San Diego in two weeks.

Now I’ll hand it back to Perry.

Perry Wallack

Thanks, Adam. Before I get to the financial results for the quarter I’d like to remind everyone again that the financial figures I discuss today are non-GAAP unless I state that the measure is a GAAP number.

As was the case in prior periods we talk about non-GAAP financial measures because they exclude certain items that we believe are not good indicators of Cornerstone’s current or future operating performance. For the periods we will discuss today these items include expenses related to stock based compensation and related employer payroll taxes, amortization of intangible assets, acquisition costs, adjustments and taxes related to acquisition adjustments, amortization of debt discount and issuance costs and payments of premium on investments net of amortization.

For periods in the past, this may also include adjustments to our revenue due to the write-down of deferred revenue related to our acquisition of Sonar Limited in April of 2012. You can all find the reconciliation of GAAP to non-GAAP results in today’s earnings release.

As Adam highlighted, Q1 was a strong quarter and a solid kickoff to 2014, not only are we continuing to make progress expanding the business into new segments, verticals and geographies but we are also scaling and developing the internal operations to allow us to realize our long term growth and profitability objectives.

Now let’s talk about the numbers. Our GAAP revenue for the first quarter of 2014 was $57.4 million coming in at the high end of our guidance range and representing a year over year increase of 52% over GAAP revenue for the first quarter of 2013 of $37.7 million. As we’ve highlighted in the past our revenue can be dependent on, among other things the timing of when consulting services are delivered to our clients by both our services organization and third party implementation service providers.

Total bookings which we define as gross revenue plus change in deferred revenue was $49.7 million for the first quarter representing a year over year increase of 38% over bookings for the first quarter of 2013 at $35.9 million. As Adam alluded to our bookings can vary on a quarterly basis depending on the nature and timing of invoicing for new clients, existing clients and renewals. Additionally the historical seasonality of our business has seen a greater number of client sales in Q3 and Q4, compared to Q1 and Q2. There were no material invoicing differences in the quarter compared to what we’ve seen in the past quarters.

The size of our enterprise and mid-market client base which excludes clients of growth addition formerly known as CSB or Cornerstone Small Business, and Cornerstone for Sales Force, increased from 1317 clients as of March 31, 2013 to 1703 clients as of March 31, 2014, representing 386 client additions. Our user base increased from approximately 11 million users as of March 31, 2013 to over 14.5 million as of March 31 2014, representing the addition of approximately 3.5 million users.

Our gross margin for the first quarter of 2014 was 71.6% down slightly from 72.2% in Q1 of last year. In Q1 we continue to invest in our network infrastructure in both the US and in the UK. In addition in order to meet the demand for implementations due to our continued growth we have been increasing the use of third parties to perform these implementations. The margin associated with an implementation when using a third party is lower than when we use our own internal resources. Based on these variables we expect to keep non-GAAP, GAAP gross margins at approximately 73% in the current year.

Now let’s turn to our operating expenses. Sales and marketing expense was $31.4 million in the first quarter of 2014 which represented 55% of revenue versus $21.3 million in the first quarter of 2013 which represented 56% of revenue. This represents the year over year dollar increase of $10.1 million which was principally driven by increased head count across both our sales and marketing organizations. R&D expense was $6.1 million in the first quarter of 2014 which represented 11% of revenue versus $4.1 million in the first quarter of 2013 which also represented 11% of revenue. This represents a year-over-year dollar increase of $2 million which is attributable to increased headcount due to continued investment in product development.

G&A expense for the first quarter of 2014 was $7.6 million which represented 13% of revenue versus $7 million in the first quarter of 2013 which represented 19% of revenue. This represents a year-over-year dollar increase of $637,000 which can be attributed to increased headcounts and increased general overhead including office space to support the growth of the company in both domestic and international markets.

Total operating expenses as a percent of revenue decreased from 86% in the first quarter of 2013 to 79% in the first quarter of 2014. This resulted in an operating loss for Q1 of 2014 of $4 million representing an operating margin of negative 7% compared to $5.1 million in Q1 of 2013 which represented an operating margin of negative 13.5%. As we have demonstrated, operating expenses are the key driver to leverage in our model. We believe the 650 basis point improved we saw in year-over-year operating margins is indicative of the efficiencies we are gaining across the business and we expect further improvement over time as we continue to scale.

To finish on the P&L, net loss for the first quarter of 2014 was $5.1 million or a net loss of $0.10 per share yielding a net loss margin of negative 8.8% compared to a net loss of $5.3 million or net loss of $0.10 per share yielding a net loss margin of negative 14.1% in the first quarter of 2013. This represents a 530 basis point improvement over the prior year.

With regards to cash flow, our cash flow from operating activities was $201,000 compared to $536,000 in the first quarter of 2013. As we have communicated in the past, collections, and (thus DSOs) [ph], fluctuate throughout the year significantly; and, thus are based analyzed on annual basis.

Let me now turn to the balance sheet. As of March 31, 2014, our total cash, accounts receivable and short term investments balanced was approximately $345.7 million. Our deferred revenue balance was $131.1 million as of March 31, 2014, compared to $138.8 million as of December 31, 2013 and $90.5 million as of March 31, 2013. We like to remind you that we typically experienced reduction in deferred revenue from Q4 to Q1 due to the seasonal nature of our business. As we have stated in the past, our business is still very enterprise focused which limits our ability to control the timing of implementations and hence the amount of services related revenues recognized in a given quarter.

With respect to headcount, we had 94 employees in the first quarter of 2014. As of March 31, 2014, we had 1,081 employees. This total headcount number represents a year-over-year increase of 35% and a sequential increase of 10% respectively.

I’d now like to discuss our outlook for the second quarter in full year 2014 which fall under the safe harbor provisions outlined at the start of the call and are based on preliminary assumptions which are subject to change overtime.

For the full year 2014, we are raising our previously communicated GAAP revenue guidance range of $267 million to $270 million to a range of $267.5 million to $270.5 million. At the midpoint, this range suggests 45% growth over 2013 GAAP revenue of $185.1 million.

For the second quarter of 2014, we currently expect GAAP revenues to range from $63 million to $64 million. At the midpoint this range represents 43% growth over the second quarter of 2013 GAAP revenues of $44.3 million. With respect to full year 2014 non-GAAP net income or loss, we are maintaining our previously communicated guidance of a loss of approximately $13 million, which implies a non-GAAP loss per share of approximately $0.24 per share based on a weighted average shares outstanding of 53 million shares outstanding.

Turning to cash flow, for the full year of 2014 we are maintaining our previously communicated guidance of positive non-GAAP cash flows provided by operating activities of approximately $33 million which represents an approximately 12% margin at the midpoint of the revenue guidance range. As we have done in the past, we will selectively reinvest any overachievement back into the business to take advantage of the market opportunity and build upon our leadership position.

We believe that investing in growth while continuing to increase the leverage of the model as we have done over the past several years is the best way to create long-term shareholder value.

With that, I'd like to turn it back over to Adam.

Adam Miller

Thanks, Perry. With declining global competition a massive market opportunity improved worldwide distribution, a track record of innovation, and a blue-chip client roster, we remain as bullish as ever about Cornerstone. I want to end by thanking our growing global team for the performance, commitment and focus on clients success.

We will now take your questions.

Question-and-Answer Session

Operator

(Operator Instructions) So our first question comes from Brendan Barnicle from Pacific Crest. Brendan, please go ahead.

Brendan Barnicle - Pacific Crest

Thanks so much. Adam in your comments you were discussing, as you move down market, the increase in ASPs, as you make that transition, will that give you better visibility and predictability, as you move away towards that and move away from larger deals? And if so, when might we see that start to show up in the numbers?

Adam Miller

The answer is absolutely, particularly for that segment because it happens more on a monthly cadence than a quarterly cadence. In fact, in some cases it happens weekly. So you’re not waiting till the end of the quarter to see how you did, it’s happening on a monthly basis. Having said that at the same time we’re going down market, we’re also pushing further up market and so to a certain extent those two things net themselves out. And I don’t know to what extent it will change the predictability in the business, it might slightly improve it and the ASP should continue to rise, but it will not dramatically change the overall predictability because those two (extremely) [ph] cancel themselves there.

Brendan Barnicle - Pacific Crest

And Adam, did you see any change in the U.S. enterprise market during the quarter?

Adam Miller

No. None at all.

Brendan Barnicle - Pacific Crest

Any areas in the world where you saw changes, or any verticals in the market, where there was a change from what you'd seen previously?

Adam Miller

No I would say the main difference was as you know from the last call, we made significant changes with sales organization moving our mid-market team up market and bringing in a new team down market, the major accounts team. As a result of that change we moved a lot of our mid-market reps further up market and we promoted many of them to a management position on a major accounts team, but that left during the quarter a little bit of a vacancy in that segment which obviously is getting filled now. And I think we’ll see the real benefits of that as I mentioned earlier in the second half of the year.

Brendan Barnicle - Pacific Crest

But did those vacancies have any impact on bookings or closings?

Adam Miller

No, but it had, I would say the impact was more on units because at the low end of the market we did not sell as many units as we normally do, because of the fact that we have this transition. But I think you’ll see the inverse of that happen in the second half of the year. As that like really ramps up.

Operator

Thank you. And our next question comes from Brent Thill from UBS. Brent, please go ahead.

Brent Thill - UBS

Hi good afternoon. Perry, just on the short-term deferred $6 million versus flat last year, is there any reason why you saw that change in terms of the seasonality? And I had a quick follow-up for Adam.

Perry Wallack

Yes, sure. So Brent when we look at deferred revenue, we actually don’t look at it between short term and long term in isolation. We look at it in total and I think what you’ll find is that first off and I mentioned this in the previous remarks that deferred revenue goes down every single year between Q4 and Q1 and that’s due to the seasonality of our business.

Second off, if you look at them in total, you'd find that we were down just above 5% versus around 2% in the prior year period. And so one of the other things that you have to look at is the mix of revenue that’s being recognized in the quarter versus the mix of revenue that’s being added from new clients in a quarter. And if that mix skews off between software and services meaning if you’re recognizing a little more services revenues in any given quarter versus adding even more software in that quarter from new client sales, you can see that reduction change a little bit between years.

Brent Thill - UBS

Okay, great. And, Adam, just as a quick follow up to Brendan's question, there was obviously a lot of controversy on some of the sales changes and the impact that you felt in the quarter. And it sounds like that there wasn't a major impact, but certainly when you see these changes, there's room for some deals to move around. But I guess, from your perspective, are most of the changes done now, so that any re-optimization you've done, you should start to really feel that kick in as a tailwind for you going forward?

Adam Miller

Yes, I think in particularly in the second half of the year, you’re going to see the benefits of all the changes we’ve made and we were very clear as we were making them the changes that the company is moving to the next phase of growth, we’re in this for the long term. And as a result we knew that we had to make some short term changes to position the company for long term continued growth, that’s exactly what we did. And we believe we’ll see all the benefit of that starting in the second half of this year.

Operator

Thank you. And our next question comes from Michael Nemeroff from Credit Suisse. Michael please go ahead.

Michael Nemeroff - Credit Suisse

Hey guys thanks for taking my question. Nice quarter. I'm sure you're glad you can talk about it now.

Adam Miller

Exactly.

Perry Wallack

Thank you.

Michael Nemeroff - Credit Suisse

Adam, could you give us a sense for what the pipeline of recruiting deals looks like? Some of the research that we’ve been uncovering is that there’s a lot of dissatisfaction on some of the larger customers that Kenexa and Taleo had signed a couple of years ago, now that a lot of those are coming up for renewal. So can you give us a sense for what that looks like over the next couple of quarters?

Adam Miller

Yes, I would say that the pipeline for recruiting is definitely very strong. And the pipelines overall are extremely strong. So we have seen continued demand around the world that’s why we have that reorganization in sales force just to reiterate a lot of people associate reorganizations with the layoffs that absolutely did not happen here. We’ve never had a layoff in the history of the company. In this case, we reorganized which meant predominately promoting a lot of people in order to allow us to dramatically expand the sales team globally which is what we did at the end of the last year and the beginning of this year. We won’t see the benefit of that but at the same time we continued our marketing and demand generation efforts and never slowed those down so the pipelines are very robust.

Michael Nemeroff - Credit Suisse

So, maybe you could just put the issue to bed, and just give us a sense on how the bookings were in the month of April, at the start of the second quarter?

Adam Miller

With my lawyer sitting here I definitely cannot answer that question.

Michael Nemeroff - Credit Suisse

Okay. Perry, just on the billing terms, was there any change in the billing terms that would have affected the billings number at all this quarter? Or was it similar to the previous year’s quarter?

Perry Wallack

No, it was all similar.

Operator

Thank you. And our next question comes from Justin Furby from William Blair. Please go ahead.

Justin Furby - William Blair

I got kicked off, so if I’m repetitive, apologies. The recruiting product, Adam, where are we with penetration today in terms of your install base and where does that go in the year; where do you think that could go?

Adam Miller

So it’s over 10% now and we think it will continue to grow last year, it went from roughly from 2% to 10%. And we think overtime it will get to 60% just like performance. Now, I can’t tell you with what rate it’s going to get to the 60% but we see no reason from the demand that we’re seeing across the board from our client and from the prospect, that it won’t be identical to two performance overtime.

Justin Furby - William Blair

Okay. And do you feel like its more middle-market today, in terms of what the opportunities you’re seeing, or across the board?

Adam Miller

No, it’s definitely across the board and around the world.

Justin Furby - William Blair

Okay. And then on the partners, this quarter, what percentage were partner led deals or implemented deals versus you guys? And on the Aon and Deloitte deals, just to be clear, are these just consulting engagements? Are they actually going to be taking on SI work as well?

Adam Miller

So I'll answer the second question first, in both the case of Deloitte and in the case of Aon Hewitt, these are the largest consulting companies in the world or amongst the largest. We also have a relationship as you know the Accenture. And the opportunity for us to service our accounts globally as well as get introductions to new accounts around the world through these partnerships is very real and that includes in some cases, general consulting work in other cases, very detailed system integration work and in still other cases, processes like outsourced administration and integration work happening by all those partners.

Justin Furby - William Blair

Okay, and then the percentage?

Adam Miller

And then to answer your first question, we read the notes that come out. I know there was a lot of confusion this quarter based on a couple of very isolated conversions with partners. As all of you know we have many partners today. We give different partners different types of work. We do not give all of our work to all of the same partners. As a result, partners tend to have very skewed perception of what the reality is at Cornerstone. And that’s all due to a combination of the work we do in-house, as you all know we’ve grown our team significantly over time as well as the type of work we give to those partners. So for example certain partners only get midmarket work. Other partners only get European enterprise work. So it varies by region it, varies by segment, it also varies by vertical and therefore it’s impossible for a partner to really to understand the overall picture of the company.

Justin Furby - William Blair

Okay. And so, I'm sorry -- I missed it if you said it -- but what -- did you give us the number in terms of this quarter, what it looked like for you guys versus the aggregate partner community?

Adam Miller

Are you saying partners that have come in and partners that we've outsourced services to?

Justin Furby - William Blair

Just in terms of the new customers you sign, I'm just curious if it's helpful to know, how many of those are you guys actually going to be putting in the software versus some other person, some other partner?

Adam Miller

Yes that’s the amount of work we do, that varies by quarter because the business is seasonal. We tend to staff to the mean. We do the same amount of services during the year by our team so that our people are fully utilized. And we will outsource different types of projects to different partners at different times during the years. So there is not consistency there on a quarterly basis on an annual basis, it equates to about 30% of services.

Justin Furby - William Blair

Okay, great. And then just last one, I know you can't really talk to April versus March. But is there any -- I guess, how does bookings feel versus your expectations for Q1? And then is there any reason why they don't accelerate into Q2?

Adam Miller

So what I would say about bookings in Q1 is they meet our expectations, they were in line with what we thought we would do and as you know Q1 generally for the company is not a significant quarter as it relates to the overall bookings on an annual basis and the proportion that’s done in Q1, also tell you if some of you have discussed before in your notes that we did have some very large deals that we're working on which will now happen later in the year, not in the first quarter. And as a result, had any of those deals come in earlier we would have had substantially higher bookings for the quarter. Even one of those deals would have had a material impact on the quarter. And we believe even without that deal we were exactly in line with where we expect it to be, and are well positioned for Q2 and the entire year.

Operator

Thank you. And our next question comes from Mark Murphy from Piper Jaffray. Please go ahead, Mark.

Mark Murphy - Piper Jaffray

Thank you very much. Adam, following up on that, just given your earlier commentary that you are hunting for even larger organizations, how would you assess the deal pipeline entering Q2 and beyond? Just in particular on the larger side, are you seeing larger opportunities versus a year ago in terms of seed count, in terms of multi-module deals, or in terms of bookings opportunity?

Adam Miller

Yes, absolutely. We see more large enterprise activity in the pipeline than we ever have before. And that is true not just in North America but around the world.

Mark Murphy - Piper Jaffray

Okay. It's great to hear. And then, Perry just drilling into the billings a bit more, your Q1 billings have typically contributed about 15% to 16% of the full year total, as Adam said, not that much really. I'm wondering, as we consider the reported Q1 billings, did you expect when the year is over and everything is said and done that that will be within that range of about 15% to 16%? And would it be fair to use that as a guide for building a full-year model?

Perry Wallack

Yes, so good question Mark, but unfortunately you know we do not guide to bookings and so I can’t answer that question without really guiding the bookings. What I would say just in general, so everybody has the appropriate perspective on bookings, and this is really no different than many of the other staff companies is that, bookings can really vary from quarter-to-quarter, there are a lot of different things that can move around whether that’s the billing terms that large enterprises can demand, whether that’s the number of large enterprises that can close in a quarter, the number of deals obviously, there is just a lot of things that move bookings around. And so in generally it's a proxy, it’s one of the proxies for judging the growth or the health and welfare of the organization, but it’s just one of them. And so we need to keep that in perspective, you know oftentimes when people talk about is better to look at it on a rolling four quarter basis and that can be instructive but the bottom line is we don’t guide to bookings and they can be very, very variable.

Mark Murphy - Piper Jaffray

And so, Perry, as a follow-up relating to that, I think we heard you state that billings duration or term, I think didn't have a material impact. You had also mentioned the timing of services. Just curious, if you net that out, did that -- in particular benefit or hinder any of the metrics that we're seeing in Q1?

Perry Wallack

Yes, no there was no material impact from any of that.

Mark Murphy - Piper Jaffray

Okay. One last one, Adam. How material do you think Aon Hewitt can become as a partner, just if you compare it to what you expect in the future from Deloitte or Appirio or Accenture or ACS or any of the others, is there any way to compare it in terms of how many employees they will train or certify or just what kind of uplift you think they can deliver?

Adam Miller

Yes, what I would say in particular is that, with the addition of Aon Hewitt we now have a very well rounded partner ecosystem with all of the major consulting players working with us and allowing us to service account truly anywhere in the world. In addition to that, Aon Hewitt in particular is working closely with half of the Fortune 100. And I think a third of the Global 100. So today their client base represents exactly the kind of large global enterprises we’re going after at this point particularly with our strategic accounts group and positions us well in that segment of the market.

Operator

Thank you. And our next question comes from Greg Dunham from Goldman Sachs. Greg, please go ahead.

Greg Dunham - Goldman Sachs

Hi. Yes, thanks for taking my question. You know it's good that you're reminding us that these big deals can be lumpy and can also flip. I guess, have you seen any differences in terms of what's causing the slippage this year, versus in years past? Any differences in terms of the scope of the deals that you're doing that could help maybe provide some color?

Adam Miller

Yes, I mean the one thing I would say in particular about Q1 is that we’re working on some deals that have extremely large scope and scale and as a result the procurement process is longer than for example a major accounts deal which might be completed in a matter of hours, so you have a significant difference in the procurement process given the size and complexity of these deals, also the number of partners involved in deals like this, we’re talking about the global FIs, they obviously get involved when you're talking about the largest companies in the world, and as a result, it’s very difficult to ‘time’ those deals. Do they happen in some ways when they’re going to happen, and we look at the overall pipeline on a rolling basis, we look at the overall health of the organization on a rolling basis and we feel like we were absolutely in line for Q1 and that had even one of these deals come in early, we would have blown away any of the expectations about the first quarter, instead we’re in line with expectations for the first quarter and we’re well positioned for the future.

Greg Dunham - Goldman Sachs

One follow-up, if you permit me. You listed a ton of companies, Philips, Nissan, through the list of brands that we all know and I know one of the things you highlighted going into the year is deeper penetration into those accounts that you already have. Where are we in that progression? And what are the signposts we should look for this year and next, to gauge your progress there? Thanks.

Adam Miller

Yes, good question, I would say in some of those accounts it has to do with the pace of the global rollout, so we’re talking about in many cases accounts of over a 100,000 users, in some cases over 200,000 or 300,000 users, and as a result, the rollouts don’t happen overnight, they take a while, they involve often regional deployment and in many cases sun setting existing systems that they had in place that we’re replacing. As a result one measure is how quickly and how effectively we’re rolling out globally and I will tell and you'll hear this story at Convergence in San Diego in a couple of weeks, many of these client beat their internal expectations of how long it would take to roll out and we are routinely the fastest global deployment they’ve had of any system they ever tried to deploy at that scale in any application area. That’s one way to measure it. A second way to measure it is the product penetration within those accounts and we are seeing more and more of those large enterprise deals, include a suite of products, often buying two or three products upfront and then very quickly following that up with additional product purchases, so that penetration becomes another measure of the stickiness and effectiveness of our products in those accounts.

Operator

And our next question comes from Raimo Lenschow from Barclays, sir please go ahead.

Raimo Lenschow - Barclays Capital

Thanks for taking my question. A lot of them have been answered. But, one thing, since we saw a decent amount of IPO activity in your space, with mid-market vendors coming to the market, can you talk a little bit about the competition you are seeing in the mid-market there? A lot of them, we didn't know beforehand. Is that something that you look out for? And then a lot of question, there are a lot of investors asking us on Workday, and the potentially changing nature of the competition there. Thank you.

Adam Miller

Yes, what I would say with regards to the midmarket specifically is that we've had the same basic competitive set that we’ve had for several years and we don’t see any difference in that arena, in fact if anything there have been acquisitions of lesser known players in the mid-market space particularly in certain geographies and verticals which has made it easier to sell into that segment. With regard to our larger technology partners, we’re as I’ve mentioned before on prior calls, we’re obviously in a world of cooptation and so we have several partners including Workday where there is some overlap in our products but we partner much more than we compete.

Raimo Lenschow - Barclays Capital

Yes, can I -- if I do like, can do one follow-up. If you think about the account management team that you started now that seems like a big opportunity. Can you talk a little bit about where you are in terms of product penetration of the different products in the accounts, and how quickly do you think that can deliver?

Adam Miller

Yes so, as we’ve mentioned before Learning is about 85% penetrated, Performance about 60% penetrated, Succession is about 30% penetrated, Comp is about 20% penetrated, Connect today is about 25% penetrated and Recruiting is still only at about 10% it’s over 10% today and of course On Boarding is not yet out, when it comes out, it will obviously have no penetration since we’re just starting. We see upside opportunity in all those accounts, two thirds of our accounts today have two or more products and that’s across 1,700 plus mid-market enterprise accounts, so we clearly have the ability to upsell and cross sell our products. We clearly understand the relationship between the products as you think about managing the employee lifecycle and we believe we have become the only true specialist in a world of generalists and that gives us very significant advantages not just in new sales but also with regard to upselling the install base which we’ve been doing very aggressively now.

Operator

Okay, thank you and our last question for today will come from Rick Sherlund from Nomura, Rick please go ahead.

Rick Sherlund - Nomura Asset Management

A couple, if you -- you sound like you're pretty confident about the timing of the big deals in the second half, but you haven't really said anything about Q2. Is there -- and it's probably prudent that you cannot pin yourself down on Q2. But is there a likelihood that we could see some of these larger deals hitting in Q2?

Adam Miller

It’s absolutely possible.

Rick Sherlund - Nomura Asset Management

Okay. And as far as go-lives, I know that affects, when you can recognize revenue, the implementation. Was there any variability in terms of the pace of partner implementations that impacted Q1 in any way?

Adam Miller

Not in particular, we continue to onboard our partners particularly these newer global FIs that are starting to do some of the service work as well, so we’ve been spending time, working on enabling those partners but overall there hasn’t been a material shift in the timelines to get those done. We continue to expand the use of 1-2-3-live which is (all wrapped) [ph] in implementation process in the mid-market and that dramatically reduces the implementation time 1-2-3-live literally refers to three weeks before the client is live, and in the case of some of the larger mid-market deals, that is a very significant accomplishment that other companies simply aren’t able to do in this space. So, we’re seeing the opportunity to keep speeding up our implementation times, we think we will be able to continue to do that particularly as our overall business shifts to a more equivalent mix of enterprise and mid-market or down market deals and we continue to refine and improve our processes overall.

Rick Sherlund - Nomura Asset Management

And at the user conference upcoming, we're going to hear about Onboarding, a few new things, or what else are we going to hear about, architecture, new UI, what else should we be anticipating?

Adam Miller

Yes, so we’ve been very vocal about our consumerization of the enterprise initiative where we have been over the last 2.5 years now dramatically improving the overall UX to the application to make it consumer like, so it works and it's as easy to use as a consumer internet application. In addition we’ve added a lot of functionality to our existing products for example in Recruiting, will be the first enterprise class ATS to have true campus recruiting fully integrated and are organically built into the product, we are continuing to build out our mobile capabilities and our analytics capabilities we’re going to be talking about all of those things.

Operator

Thank you. I’d now like to turn the call back to Adam Miller for closing remarks.

Adam Miller

Thank you all for your participation and we look forward to speaking to you again soon. Thank you.

Operator

Okay, ladies and gentlemen this does conclude your conference. You may now disconnect and have a great day.

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