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Cornerstone OnDemand, Inc. (NASDAQ:CSOD)

Q2 2011 Earnings Call

August 4, 2011 5:00 PM ET

Executives

Carolyn Bass – IR

Adam Miller – President and CEO

Perry Wallack – CFO

Analysts

Mark Murphy – Piper Jaffray

Israel Hernandez – Barclays

Laura Lederman – William Blair

Brendan Barnicle – Pacific Crest

Scott Berg – Feltl

Good day ladies and gentlemen and welcome to Cornerstone OnDemand Second Quarter 201l Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this conference call is being recorded.

I’d now like to turn the conference over to Ms. Carolyn Bass, Investor Relations for Cornerstone.

Carolyn Bass

Good afternoon, everyone, and welcome to Cornerstone OnDemand second quarter 2011 earnings conference call. I’d like to introduce Adam Miller, Chairman and CEO, and Perry Wallack, CFO.

Today’s call will begin with Adam providing a brief overview of our company and the quarter, and then Perry will review some key financial results for the second quarter. Later, we will conduct a question-and-answer session.

Management will discuss the results of our second quarter, which ended June 30, 2011. By now you should have received a copy of our press release, which was released after the market closed today and furnished with the SEC on Form-8K. You can also access the press release and the detailed financials on our Investor Relations website. As a reminder, today’s call is being recorded and a replay will be made available following the conclusion of the call.

During the call, we will be referring to both GAAP and non-GAAP financial measurers. The reconciliation of our GAAP to non-GAAP information is provided in the press release and in 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, demand for our products, certain projected financial results and operating metrics, product development, customer satisfaction and retention, customer attrition rate, market or business growth, our revenue run rate, investment activity in our business, viability into our business model and result, the effect of capitalized development cost, spending on R&D, professional services and other aspects of our business, our appraisal of our competitors and their products and our ability to compete effectively.

Forward-looking statements involve risk, uncertainties and assumptions. If any of the risks or uncertainties materializes or any of the assumptions prove incorrect, actual results could differ materially from those expressed or implied by the forward-looking statements we make.

Words such as expect, believe, anticipate, plan, illustrate, intent, estimate and other similar words are also intended to identify such forward-looking statements. These risks, uncertainties, assumptions as well as other information on potential factors that could affect our financial results are included in our registration statement on Form S1 and other filings with the SEC.

Finally, please note that due to some of the restrictions imposed by the Securities and Exchange Commission on public offerings, we will not be able to comment on our proposed follow on offering in this form.

With that I’ll turn the call over to Adam.

Adam Miller

Thank you for participating in Cornerstone OnDemand’s second quarter earnings call. This Q2 was our first full quarter operating as a public company. I am very pleased to report that we had an extremely strong second quarter.

Our revenues were $17.4 million, representing a year-over-year increase of 64%. We also added 89 new clients bringing our total to over 640 clients. The best demonstration of our momentum with our Q2 bookings of 20.9 million representing a year-over-year increase of 90%. We continue to support many of the top organizations in the world.

During the second quarter, our new client addition included Akamai Technologies, Walsoft, the Carilion Group (ph), FinishLine, Key Energy Services and Vail Resorts. We continue to strengthen our relationships with many of our existing clients, including significant up sales with the American Bankers Association, (inaudible), a large French National Bank, Camico and a large U.S. hospital chain.

We also sold around the world. We closed deals in the US, Canada, Australia, Brazil, UK, France, Germany, Italy, Spain, Hungary, Belgium Sweden, the Netherlands, and Finland. As you know, Cornerstone is focused on empowering people with our state-of-the-art Learning and Talent Management solutions, delivered purely as Software-as-a-Service.

Our solution consists of five integrated platforms. The learning management, enterprise social networking, performance management, succession planning and enabling the extended enterprise. Our clients use our solution to develop employees throughout their careers, engage all employees effectively to improve business execution, to cultivate future leaders and to integrate with their external network of customers, vendors and distributors.

We have been growing rapidly over the last several years and have enjoyed a compounded annual growth rate since 2007 through 2010 of approximately 60% for bookings, which we define as gross revenue plus change in deferred revenue.

We’ve some acceleration of that growth in the first half of this year. At the same time, we’ve been rewarded for our focus on client success with an average annual dollar retention rate of over 95% from 2002 through 2010. This combination of growth in retention has led to one of the largest SaaS subscriber bases in the market.

Cornerstone now has approximately 6 million users in 176 countries using this solution in 28 different languages. As we’ve discussed before, we belief that Cornerstone is well positioned to benefit from multiple vectors of growth. Specifically including a rapidly growing client roster, further penetration of our installed base, wider distribution through global alliances, international expansion, penetration of the public sector, entry into the SMB space and the release of innovative product expansions through our solutions.

On the last earnings call, I highlighted the success we were having, widening our distribution through global alliances. We continue to see great traction with our distributors, including with ADP. While we continue to strengthen our relationship across ADP’s multiple business units. We also continue to sell indirectly through global growing network of resellers, including many in sales and Talent2 in Australia.

Today, I want to highlight another vector of our growth. Our penetration of the public sector. We really feel that public sector has four distinct verticals, namely; higher education, K-12, state and local government and federal government. We are actively deploying our operations and developing operations in all four areas.

We reported higher education with an indirect sale strategy. Our OEM relationship with SunGard Higher Ed is already productive. In addition, we are leveraging the public sector sales teams of many of our other global resellers who are actively selling to colleges and the universities. With the help of our distributors, we are now rapidly building our roster of higher education clients.

We are also actively building out our K-12 practice. We’re gaining significant experience in the K-12 space to work with Cornerstone OnDemand foundation and we are already working with many of the leading educational non-profits as well as the number of charter management organizations in school districts. We will continue to make investments in K-12 area.

In addition, we are continuing to grow our presence in the state and local sector and enhance a significantly increase the size of that over the next 12 months. By leveraging our roster of existing speak local clients, including State of Nebraska, County of St. Mackay, in Manchester Airport. We believe we are well positioned to take advantage of the large market opportunity in the state and local sector.

Then there is the federal sector. We are starting to have the most exciting deal for Cornerstone in the second quarter with federal government and once the result of a multiyear investment in our public sector operations. In Q2, we signed a five year blanket purchase agreement with the U.S. Department of the Treasury that authorizes but doesn’t guarantee the purchase about the $20 million in software and services from Cornerstone, which is going to be depending on actual task orders received from the government.

We’ve already signed multiple task orders for agencies within the treasury department and more will follow. The first task order under the blanket purchase agreement was executed in the June in the amount of approximately $400,000. Treasury expects to deploy our Software-as-a-Service solution across its departmental offices and operating bureaus which employ more than 162,000 people. We will be leveraging our tools for performance management, succession management, compensation management, learning management and enterprise social network.

Because the U.S. Treasury operates the HR Connect Program Office, one of five Federal Shared Service Centers for the civilian sector of the federal government, the blanket purchase agreement also gives federal agencies beyond the Treasury the ability to deploy Cornerstone’s software in their organization. We are proud to be helping to bring talent management best practices to the federal sector.

In summary, we are quite positive about the strong momentum of the business in the first half of the year, which is certainly the strongest start to year in our history. We are executing in our core markets, with rapid growth in our bookings and new client acquisitions, while simultaneously beginning to expand into new market. In addition, we are capturing global demand for integrated learning and talent management solutions through a growing international ecosystem of both direct sales and indirect sales channels.

I’d now like to turn it over to Perry to review our Q2 financial performance in more detail.

Perry Wallack

Thanks, Adam, and thanks everyone for joining us today. Before I get to our second quarter financial results, I’d like to remind you all that today’s discussion is based primarily on non-GAAP financial measures that exclude common stock warrant charges, expenses related to stock-based compensation and related employer paid payroll taxes, changes in the value of preferred stock warrants, accretion related to preferred stock and amortization of debt discount and issuance cost as well as fees related to early retirement or death.

So, with that said, let’s get to the numbers. I’ll begin by going through our P&L.

As Adam mentioned the gross revenue for the quarter was $17.4 million representing a year-over-year increase of 64% over the second quarter of 2010 and a sequential increase of 10% over the first quarter of 2011. This increase in revenue was driven by the continued strong growth of our customer base both in new client additions and up sells to existing clients as well as the delivery of our consulting services to support these clients.

Net revenue for the quarter was $14.9 million, which reflects a $2.5 million reduction of gross revenues as a result of the issuance of a common stock warrant to ADP. In order to avoid a contractual dispute, in June of 2011, we issued ADP a fully rested and non-profitable warrant to purchase 133,000 shares of our common stock at an exercise price of $0.53 per share.

The warrant was valued at $2.5 million using a Black-Scholes option-pricing model and of the issuance date and was recorded as a non-cash reduction of revenue in the quarter ended June 30, 2011. In connection with the issuance of this warrant, ADP agreed and acknowledged that it is no longer eligible to earn or receive any additional warrants pursuant to our distributer agreement.

Total bookings, which we defined as gross revenue plus change in deferred revenue, was $20.9 million for the quarter, representing a year-over-year increase of 90% and a sequential increase of 46% over the first quarter. This growth reflects our strong second quarter performance as well as the continued momentum that we are seeing our business. The thing which is very important to keep in mind about bookings is that they can vary from quarter to quarter based on the nature and timing of the invoicing. It is a not a metric that we are able to manage consistently on a quarterly basis, especially with our large enterprise customers.

Billing terms is only one of several metrics that drive compensation of our sales forces. When we look at Q2 billings, a higher percentage of client contracts were billed upfront as compared to Q1. However, even when we adjust for this, our bookings growth well exceeded the rate of growth in Q1. Also, it should be noted that there were no significant client contracts that billed a 100% upfront in Q2. In addition, only 10% of the initial $400,000 cash quarter signed under the U.S. Treasury blanket purchase agreement was billed in the second quarter.

As discussed on our first quarter earnings call, two other non-financial metrics that we like to track are the number of clients and the number of users served. We believe that our ability to expand our client base is an indicator of our market penetration and the growth of our business as we continue to invest in our direct sales teams and distributor relationships. Because our clients generally pay fees based on the number of users of our solution within their organizations, we believe that total number of users is an indicator of the growth of our business.

We ended the quarter with over 640 clients and approximately 6 million subscribers reflecting a year-over-year increases of approximately 76% and 55% respectively. We define clients as the number of independent entities we have signed at the end of a period. Note that we define users or subscribers as the number of users that are live and up and running on our solutions. Therefore, we will have instances where we have signed significant clients during the quarter with user bases that have not gone live and thus are not reflected in our subscriber count.

When considering revenue by geography, our U.S. clients accounted for 72% of gross revenues in the second quarter of 2011, while our international clients accounted for the remainder. In Q2 of 2010, U.S clients accounted for 71% of gross revenues. As such, we believe we will continue to see solid opportunities to expand our business internationally.

Gross margin for the first quarter of 2011 was 71% slightly above the 70.2% gross margin for the second quarter of 2010, and the 70.9% gross margin for the first quarter of 2011. We believe we will continue to improve gross margins year-over-year through efficiencies gained by our services teams as well as the scalability of our network infrastructure.

Now, turning to our operating expenses for the quarter. Sales and marketing expense was $10.9 million representing a sequential increase of 10% from the first quarter of 2011. This increase was principally driven by increased hiring particularly as it relates to our worldwide sales force as we continue to add personnel to help us meet strong demand.

R&D expense was $2.6 million representing a sequential increase of 13% from the first quarter of 2011, reflecting our investments in our technology. G&A expense was $3.6 million representing a sequential increase of less than 1% from the first quarter of 2011.

Operating loss for the second quarter of 2011 was $4.7 million, excluding the charge for common stock warrants issued to ADP, compared to a loss of $2 million for the second quarter of 2010 and a loss of $4.6 million in the first quarter of 2011. The increase in net loss is due mainly to the higher level of expenditures representing investments in sales and marketing, research and development and G&A.

Non-GAAP net loss for the second quarter of 2011 was $3.4 million or negative $0.07 per share as compared to a non-GAAP net loss of $2.1 million or negative $0.24 per share for the second quarter of 2010.

Let me now turn to the balance sheet. We closed the quarter with over $48 million in cash and cash equivalents. We also moved approximately $34 million of cash into short-term marketable securities in the form of U.S. Treasury bills in the second quarter of 2011. So, our total cash in marketable securities were over $82 million at June 30, 2011.

Given our revenue recognition model and the reporting in amortization of deferred revenue we do not use the traditional DSO calculation as an internal metric. We manage the total cash collection goals, days bills outstanding and write-offs. All of these metrics continue to remain well within our target ranges for the second quarter. Our deferred revenue balance was $35.9 million at the end of the second quarter, representing a year-over-year increase of 85%.

Moving on to cash flow. During the second quarter, our cash flow from operations was negative $5 million as compared to negative $4.3 million during the comparable period in 2010, as was the case in Q1 of 2011. We are pleased with the cash flow performance in the quarter given our high growth rates and seasonality.

It should be noted that because our business is seasonal, we typically experience net cash inflows of cash in the first and fourth quarters of each year and net cash outflows in the second and third quarters of each year. Unlevered free cash flow for the quarter was negative $6.3 million. Unlevered free cash flow defers from cash flow from operations due to adjustments for purchases of PP&E, capitalized software costs and cash paid for interest.

With respect to headcount, we had 35 employees during the quarter and are now up to 410 employees in total. This total headcount number represents a 57% year-over-year increase and 9% sequential increase.

Now I’d like to discuss our forward-looking guidance, which falls under the Safe Harbor provisions outlined at the start of the call and is based on preliminary assumptions, which are subject to change over time.

For the third quarter of 2011, we are projecting revenue of $18.5 million, representing an increase of 50.4% year-over-year and 6.3% sequentially. As you might recall, during our first quarter earnings call, we provided full year 2011, gross revenue guidance in the range of 71 to $72 million. After a strong second quarter performance and a promising outlook for the reminder of the year, we are raising our full year 2011, gross revenue guidance today by $1 million, to the range of $72 million to $73 million. At the midpoint, this range suggests 55.6% growth over 2010 gross revenue of $46.6 million.

We would like to reiterate that during this period of accelerated growth, we are reinvesting some of the incremental profits and cash flows resulting from our first half of the year performance, back end of the business. In addition, we are maintaining the flexibility to make for further investments for the remainder of 2011. As such, with respect to non-GAAP net income or loss we are maintaining our projected loss for the full-year 2011 between negative $11 and $12 million.

The range imply the non-GAAP EPS range of negative $0.27 to negative $0.30 per share based on a full year weighted average share count of approximately 40 million shares. In addition, we are also maintaining our guidance for our unlevered free cash flow. For the full year 2011, we expect unlevered free cash flow to be between negative $4 million and negative $5million.

In closing, we are very proud of our performance during the second quarter as well as for the first half of the year. And with that I would like to turn it back over to Adam.

Adam Miller

Thanks, Perry. It is clear that the momentum of our business is accelerating. We’re seeing global demand for our solution from all verticals in both the private and the public sectors. We are pure competitors with pipelines and we are executing with both our direct and indirect sales channels. At the same time, we have the resources now that continue investing in our technology and service offerings to ensure our client’s ongoing success.

In other words, we are quite positive about Cornerstone. Thank you again for your participation. And we will now take your questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question comes from the line of Mark Murphy from Piper Jaffray. Your question please.

Mark Murphy – Piper Jaffray

Yes. Thank you, Adam, the 90% billings growth is an interesting development and I had a couple of questions on that, first of all, would you say that any other business closed materially earlier than expected possibly to the determent of the Q3/Q4 pipeline or do you think that that the near-term pipeline is still pretty solid?

Adam Miller

No, actually fortunately the Q3 forecast and pipeline is as strong if not better than the Q2 forecast was at the same time in quarter.

Mark Murphy – Piper Jaffray

Okay.

Adam Miller

So, we are feeling good about it.

Mark Murphy – Piper Jaffray

Thank you. And also did any of the deferred billings from Q1 get billed in Q2 in a material way, I think you had said in Q1 the single biggest deal had deferred billings?

Adam Miller

Yeah. So no, not in a material way. The deal that we had had talked about in the first quarter is billed monthly and so it’s spread out over 12 months. So yes we would have been three months of any other – that deal and any other deals that billed monthly but there was nothing material from the first quarter that is billed in the second quarter.

Mark Murphy – Piper Jaffray

Was there anything about the deferred revenue pop in Q2 that you would describe as unusual, for example like you have normally large single transactions?

Adam Miller

No, as we talked about on the call, we did bill a little bit more than upfront upon signing than we did in Q1, but even when you normalize for that, the growth rate in bookings is still as I said exceeding – well exceeding the growth rate in bookings that we experienced in Q1.

Mark Murphy – Piper Jaffray

Okay, and then as far as the up to $20 million transaction with the U.S. Treasury, is that specifically related, do you know, to the Cloud First government initiative and if so could it mean that you’re having broader discussions with some of the other Federal government agencies beyond the five that you are alluding to yours?

Adam Miller

Not specifically related to that initiative although that initiative has opened up the possibility of the agencies working with cloud companies in general and we’re seeing lots of opportunity across the entire civilian sector of the federal government. And we have many active discussions going on right now.

Mark Murphy – Piper Jaffray

Great and then just one last one, how much did ADP contributed to Q2 bookings, if you’re able to comment on that and did that see a similar surge to remain at roughly about 10% level?

Adam Miller

Yes, we don’t break it out on a quarterly basis, but what I can tell you is that for the full year there are still on track to represent about 10% of new sales.

Mark Murphy – Piper Jaffray

Okay. Thank you very much.

Operator

Thank you. Our next question comes from the line of Israel Hernandez from Barclays. Your question please,

Israel Hernandez – Barclays

Hey guys, congrats on the quarter. Adam, could you maybe talk about how with respect to the new customers that you added in the quarter, how those customers growth in terms of learning versus performance versus buying the all of the different modules, it would be very helpful. Thanks.

Adam Miller

I would say we are maintaining our same mix, it’s a good combination of people buying all of the different pillars of the solution so learning, performance, succession, social networking and extended enterprise. And I would say it’s been consistent as it has been over the last year, about 60% of the deals include two or more of the platforms.

Israel Hernandez – Barclays

And there has been some, obviously some competitive moves into space, so M&A, could you may be talk about what changes if any you’ve s in the competitive landscape? What impact does it had on selling cycles and your ability to compete with some of the larger transactions? Thanks.

Adam Miller

Sure. So, most of the consolidations happened at the low end of the market with the exception of the Plateau deal. And I would say that has helped us from an effective pricing standpoint whereby we are not having as much pricing pressures we had seen before, before these companies have gotten acquired. And with regard to the market at large we simply have fewer competitors so that makes it easier to sell. We have less companies to compete with, it has from a pricing standpoint and it helps in the overall sales cycle. It has not materially shifted the timing of the sales cycles but it has made for clearer competition and I would say much more professional competition. That makes any sense. There is a less street fighting going on and the less price war is going on. All of which helps us in the overall deal.

Israel Hernandez – Barclays

And lastly it’s about – it’s still relatively early in the quarter, but we’ve had about five weeks behind us, could you maybe talk about what you’re hearing from customers today in light of some of the macro conditions particularly out in Europe?

Adam Miller

Yeah, I mean up until this week we have seen no real impact in the macro environment on our sales. As you know we’ve lived through multiple recessions and we’ve grown the business through each of them including having a record year in 2009 when we had the obviously global macroeconomic meltdown and we expect to be able to perform regardless of the overall economic environment.

Israel Hernandez – Barclays

Okay, thank you guys.

Operator

Thank you. Our next question comes from the line of Laura Lederman from William Blair. Your question please.

Laura Lederman – William Blair

Yes, nice quarter guys. Talking about the HR Connect contract, I’ve been playing through the website and some of the slides (inaudible); it says that Plateau is the learning platform for that. Can you talk a little bit about whether that’s even though it’s dated July whether that’s still the learning platform. And I guess related to that look at the PO, what products of few yours are approved on the blank order?

Adam Miller

Great. Let me take the last part of that first, so the blanket purchase agreement authorizes the purchase of all of our products and we see significant interest in all the various areas of the solution. With regard to the competition for the deal, Plateau is the incumbent and has been the incumbent. So in effect we’ve taken a significant portion of that deal away from them particularly with regard to performance and succession which is where the deal started. Over time they will be learning components as well.

Israel Hernandez – Barclays

Okay, that’s helpful. Because it looks like on those slides they still talk about Plateau platform for learning, so that’s helpful. Could you talk a little bit and I hate to be the dead horse on the economies since Israel already asked about that, but maybe what are CFOs saying to you about this, here adding up you spend time with the CFOs when you are chatting with them on a daily basis, but what are people sort of anecdotally saying about how they feel about the economy and everything that’s happened just so maybe little anecdotes or stories that might be helpful.

Adam Miller

I can tell you that up until two weeks ago people were relatively bullish. We see most of our clients are growing, we’ve seen obviously the cash surpluses in the balance sheets of many of these larger accounts and we’ve seen lots of positive activity globally from our clients. I think we’ve seen a major change over the last two weeks, but we haven’t really sense that yet in the marketplace, it’s more seeing it on TV and obviously the stock market.

Israel Hernandez – Barclays

Can you talk also about enterprise versus middle market, I realize you are newer to the middle market, but maybe just give us an update on how the growth is going in both areas, large customers and medium?

Adam Miller

Yes. So we are seeing growth proportionally in both areas. We’ve grown our midmarket team addressing and we continue to do so. So we are seeing that as a very large opportunity. It is almost entirely greenfield with regard to integrated talent management solutions. And we consider the midmarket companies with between 250 and 3000 employees and so that’s a very large market segment in terms of number of potential customers. And is also largely greenfield, most of the companies that we were with our coming off of either no system or some homegrown system or may be a small functional silo, so we…

Israel Hernandez – Barclays

And final question from me, billed rates, you mentioned it went up versus what you saw sequentially. What did bill duration do year-over-year, was it up as well?

Adam Miller

Yeah, so we did not give any color on bill duration. The color that we gave was that we build a little more in Q2 than we billed upfront in Q1.

Israel Hernandez – Barclays

But on a year-over-year basis is that the same as well or the bill duration roughly the same year-over-year?

Adam Miller

So, year-over-year it’s probably a little bit better again, so in Q2 of this year we did bill a little more upfront than we did in Q1 and a little more on average, but even when you adjust for that, our commentaries that the bookings growth still far outstripped the bookings growth that we experienced in Q1 of this year.

Israel Hernandez – Barclays

Thank you so much. I’ll pass the questions on.

Operator

Thank you. Our next question comes from the line of Brendan Barnicle from Pacific Crest. Your question please.

Brendan Barnicle – Pacific Crest

Thanks so much, guys, great quarter. Terrific billings. Anything going on in the pricing environment, you noticed any changes there?

Adam Miller

No, I guess that because of the consolidation of the space our effective pricing has improved. We are seeing the ability to stick more closely to our list prices. And specifically that relates to the lack of price wars going on. The consolidation has taken out the low-cost competitors and that’s helped preserve pricing in the deals. Whether we win the deal or not we are seeing that the price points of the deals are higher at the end of the day.

Brendan Barnicle – Pacific Crest

So, you’re seeing your competitors discount less as well.

Adam Miller

Correct.

Brendan Barnicle – Pacific Crest

So, any range on what it’s at. I mean I was talking to somebody earlier tonight, he was talking about their discounts more like 1% or 2% lower or 1% or 3% lower than what they had been say a year ago. Anything – any comparable metric you guys can sight.

Adam Miller. I don’t have specific numbers; I can tell you anecdotally it is more than that. I mean we are seeing far less discounts in the deals both in the US and in internationally. And it’s because of this low cost competitors are out of the mix.

Brendan Barnicle – Pacific Crest

Right. Anything you, I’m sure you hit on some of this already on the competitive front that you noticed during the quarter.

Adam Miller

Nothing significant. Again the competition has gotten easier, there is fewer competitors and we’ve obviously established ourselves as a viable company in the industry. And that’s made it easier for us to sell. It sped up the sales cycle and it is great. We don’t have as much financial due diligence as he had previously and those are all positive impacts of being a public company.

Brendan Barnicle – Pacific Crest

And then lastly on your European side of the business, have you noticed in that environment recently.

Adam Miller

No, it’s improved. Again same competitors, roughly fewer competition overall, we had some consolidation in Europe as well and that has helped us compete very effectively; hold effective pricing at higher levels. And I think they are becoming a dominant player in Europe as well and that made it easier to get leads. We are also seeing activity in all parts of Europe. So in the past most of our activity had been in the code markets where we operated, now we are seeing sales activity throughout all of Europe including Northern Europe, Southern Europe and Eastern Europe.

Brendan Barnicle – Pacific Crest

Great, that’s terrific. Thanks so much. I will pass it on.

Operator

Thank you. Our next question comes from the line of Scott Berg from Feltl. Your question please.

Scott Berg – Feltl

Very nice quarter, here. I guess one of my question is, have you seen any change in how customers are buying your products during the quarter, maybe I guess with regards to maybe some macro changes or types of modules that they are buying or sales cycles. Is there any change in I guess in any of those components on how they are buying today?

Adam Miller

Let’s say for us historically we’ve seen almost all of our sales happening at the very end of the quarter, each quarter. We still see some of that but our midmarket operations and our public sector operations have smooth that out somewhat, so we’re seeing more sales happen throughout the quarter not just at the end of the quarter which is what you will traditionally see within employee (ph) software. We also, because we have a lot of international activity today, are seeing sales happening at different times of the year. You have more fiscal year companies were buying different quarters and that’s helped the seasonality of the business somewhat overall.

Having said all that we still have a big spike at the end of each quarter and that was true in the second quarter as well.

Scott Berg – Feltl

Great. Sorry, one follow-up here, in terms of sales headcount right now and you might have addressed this earlier. Do you feel that you are capacity constrained, you had a great quarter this quarter but how does the sales force looked I guess as you look out through the next two to three quarters.

Adam Miller

Yeah, so if you look at the next 12 months we are continuing, will be continuing to aggressively grow the sales team both domestically and internationally both in the private and public sector. We also are still ramping up many of the sales people that we had recently hired. And so despite the strong productivity that we’ve had the belief there is significant upside going forward as this newer reps become more productive themselves.

Scott Berg – Feltl

Great, that’s all I have. I’ll jump back in.

Operator

Thank you. And we have time for one more question. Our final question comes from the line of Michael Hong (ph) from Needham. Your question please.

Unidentified Analyst

Hi, just a few questions for you. So first of all, so the deal with the Department of Treasury, who did you compete with on this and how many vendors now are competing for the future task orders?

Adam Miller

That’s a great question. I think the initial competition was pretty much everyone in the space, obviously Plateau being an incumbent was the factor. And we won the Treasury deal, we are now seeing because of this blanket purchase agreement less competition going forward and it’s more of a decision for the various other agencies of Treasury as to whether they want to move on to a new platform for a stay using the existing systems whether they were a third party or proprietary systems. If they are moving their moving to Cornerstone and so we’re seeing a lot of this activity right now.

Unidentified Analyst

Okay. And just to clarify, so I think you had alluded to all you had mentioned that 400,000 in orders that have already been won as some of these new task orders. Now is that an annual billing or is that a – is that can be spread over a multiple years?

Adam Miller

You are right. So that’s first of all months, first-year contract value at 400,000. There’s actually been multiple task orders signed, that one was signed in June in Q2. And we have several more that we are looking on today.

Unidentified Analyst

Okay. And then in the press release I think you talk about a $ 20 million number that could be covered under this blanket order, is that annually or is that spread over five.

Adam Miller

It’s spread over five years, but it could be spent at any time during those five years.

Unidentified Analyst

Okay. And then final question here, so 89 new customers added, I’m assuming that’s a gross number here not a net new one. So for the ones that are no longer the Cornerstone, any color on why some are no longer with Cornerstone family, was it more competitive reasons or it was something else?

Adam Miller

So, as has been true before, we are seeing no substantial difference in churn versus last year or prior years. In fact looks like our churn is better meaning less than prior years at this point. And the churn we tend to see are companies that either got acquired went bankrupt or had a change in overall strategy and so what we are doing this is no longer relevant. We will from time to time have very small deals where they are dissatisfied for one reason or another, but that is few and far between and we’re seeing our ability to maintain that dollar retention rate that we’ve had since inception of over 95%, last year as you know it was over 96%. And that’s despite the rapid growth we’re having of over 90% bookings growth.

Perry Wallack

Yeah, and the exclamation point that I would put on that, Michael, is that most of the churn that we do still really is in the lower end of the market. It is not even in the midmarket or specially enterprise.

Unidentified Analyst

Great. Actually one more question for you, so in terms of just the strength of bookings, could you give us a sense for how that’s straight out between up sells and new customer acquisition, are you seeing any distinct trends here?

Adam Miller

Yeah. So we’ve seen no real difference on a proportional level between the growth of the installed base and net new sales. What I will say and I know Mark was alluding to this earlier as well, we are seeing excellent production in all aspects of our business, we are exhibiting on all fronts and that is what’s driving this significant bookings growth. It is not an anomaly bookings or billing terms, is not an anomaly in the competitive landscape or what we are selling, it is not an anomaly caused by very large deal rather it’s our execution in direct and indirect sales and in the private and the public sector both domestically and internationally.

Unidentified Analyst

Great, thanks very much.

Operator

Thank you. This does include the question and answer session of today’s program. I would like to turn the program back to Mr. Adam Miller, CEO for any further remarks.

Adam Miller

Thank you very much. And we look forward to speak again on our next call. Take care.

Perry Wallack

Thank you.

Operator

Thank you, ladies and gentlemen for your participation in today’s conference. It does conclude the program. You may now disconnect. Good day.

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