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Executives

Adam Miller – President, Chief Executive Officer

Perry Wallack – Chief Financial Officer

Analysts

Greg Dunham – Goldman Sachs

Laura Letterman – William Blair

Brandon Barnicle – Pacific Crest

Rick Sherlund – Nomura

Raimo Lenschow – Barclays Capital

Ben Jalim – Piper Jaffray

Scott Berg – Feltl

Michael Huang – Needham & Company

Pat Walravens – JMP Securities

Cornerstone OnDemand Inc. (CSOD) Q4 2011 Earnings Call February 14, 2012 2:00 PM ET

Operator

Good day ladies and gentlemen and welcome to Cornerstone OnDemand’s Fourth Quarter and Fiscal Year 2011 Earnings conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question and answer session and instructions will be given at that time. As a reminder, this conference call is being recorded.

And now, I’ll turn the conference over to Perry Wallack, CFO for Cornerstone OnDemand.

Perry Wallack

Thank you. Good afternoon everyone. This is Perry Wallack, CFO of Cornerstone OnDemand, and welcome to our fourth quarter and fiscal year-end 2011 earnings conference call. Today’s call will begin with Adam providing a brief overview of our company and the quarter, and then I will review some key financial results for the fourth quarter. Later, we will conduct a question and answer session. We will discuss the results of our fourth quarter, which ended December 31, 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 8-K. 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 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, 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, visibility into our business model and results, the effect of capitalized development costs, 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 risks, uncertainties and assumptions. If any of the risks or uncertainties materialize 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, intend, 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 S-1 and subsequent periodic filings with the SEC.

With that, I’ll turn it over to Adam.

Adam Miller

Thanks Perry, and thank you to everyone joining us today. Our fourth quarter was a strong finish to a fantastic first year as a public company. Our revenues for the fourth quarter came in at $22.4 million, representing a year-over-year increase of 59%. For the full year, revenues were 75.5 million, representing a 62% increase over 2010. Bookings for the fourth quarter came in at $38.4 million, representing a year-over-year increase of 58%, and full-year bookings were $97.6 million, representing a 60% increase over 2010. Clearly, the momentum of our business did not slow down in 2011.

Even as we invest heavily in the ongoing growth of our business and the success of our clients, we are starting to see leverage in our operating model. On a non-GAAP basis, gross margins for the full year of 2011 were 73% compared to 70% in 2010. Full-year unlevered free cash flow came in at negative $1.4 million, significantly better than our originally expected range of negative 4 to $5 million. As you may remember, we bootstrapped the Company for the first seven years of the business and the disciplined financial management has been a core part of our DNA from the beginning. These results are a testament to that discipline.

In the fourth quarter, we added over 100 new clients, bringing our total to over 800 clients worldwide. We continued to increase our presence amongst the world’s leading companies with new client additions, including Liz Claiborne, Blackbaud, the NASDAQ, one of the world’s largest theatrical exhibition and entertainment companies, one of the world’s largest insurance groups, and arguably the world’s premier investment bank. We increased our penetration within a number of verticals such as healthcare and public sector, and entered new verticals such as gaming and pharma. We also entered new geographies, most notably India where we officially planted our flag with the addition of Tata Motors as our first Indian client.

Our account management team helped us continue to strengthen our relationships with our existing clients in the fourth quarter, delivering significant up-sales to AIG, Air Liquide, one of the world’s largest office supply retail chains, and one of the world’s largest banking institutions.

Looking back on 2011, we are extremely proud of our accomplishments in our first year as a public company. Not only did we once again grow both revenues and bookings by approximately 60% but we added almost 400 new clients, nearly doubling our client base, and added over 2.5 million new users.

Much of this success was driven by the strength of our core businesses. Our direct sales team, which includes both enterprise and mid-market sales teams, had another record year. They closed a greater volume of deals than they ever have, and they also closed bigger deals on average as more and more companies seek comprehensive, integrated solutions to address their talent management needs. In addition, our media team, which manages client relationships in Europe, the Middle East and Africa, continued to be one of our strongest performing business units. The media team substantially grew its client base and did an exceptional job of up-selling many of its existing clients. We did not observe any material change in our EMEA business as a result of the macroeconomic uncertainty that persisted in Europe throughout the year.

The success of our core businesses was supplemented by our alliances and public sector teams, who had a breakout year in 2011. Our alliances team, which manages relationships with distributors globally, exceeded expectations. The team started the year strong, helping us add three strategic alliances in the first quarter with ACS, SunGard Higher Education, and Logica in Europe. They finished the year just as strongly, adding another key distributor in the fourth quarter in Sage North America. Sage is a leading provider of core HR and payroll software for small and midsized businesses. Sage will have the opportunity to resell our solution to its over 3.2 million small and midsized businesses it supports throughout the U.S. and Canada. In addition to cultivating these new relationships, alliance has worked to expand our relationships with existing distributors such as ADP and Talent2 to ensure their continued success.

The public sector team also produced impressive results in 2011, particularly the higher ed and federal sectors. In higher ed, our direct and indirect sales efforts enabled us to add a number of new colleges and universities as clients over the course of the year, including Drexel University, the University of Minnesota, the University of Miami, Brown University, and the University of Wisconsin. We also entered the federal sector, as discussed in our second quarter earnings call, with the signing of a five-year, $20 million blanket purchase agreement with the U.S. Department of Treasury. Not only have we already signed multiple task orders with Treasury, but we are also beginning to work with additional agencies throughout the federal sector.

While aggressively scaling our business over the past many years, we have always maintained an unrelenting focus on client success. From 2002 through 2010, we achieved an average annual dollar retention rate of approximately 95%. For 2011, even with our 60% growth, I am proud to announce that we once again achieved a 95% annual dollar retention rate. This accomplishment is not without dedicated effort. Throughout 2011, we made significant investments in the areas of services and technology. We refined our client success framework to help ensure our client success. We strengthened the leadership of our operational teams and we continued to make client success a core value of our organization. Our combination of growth and retention has helped us increase the size of our user base to over 7.5 million users, representing one of the largest SAAS subscriber bases in the world.

As you know, our industry has seen tremendous consolidation over the past (audio interference) and an acceleration of activity since our IPO last March. Most recently, the three-horse race in talent management between us, SuccessFactors and Taleo ended when SAP bought SuccessFactors and Oracle purchased Taleo. These acquisitions represent over $5 billion of investment from the leading ERP vendors to enter the talent management space. As the founder of the clear underdog in a crowded market when we began this fight over a decade ago, I can tell you that it feels great to be the last man standing. We believe the competition will now go back to the way it used to be with ERP suite vendors pitted against best-of-breed vendors, the primary difference now being that back then, there would be a second competition amongst the best-of-breed vendors. Today, if an account wants best-of-breed, we believe we are the clear choice, the independent SAAS leader with an organically developed suite and a complete focus on continuing to offer a state-of-the-art talent management solution. Buyers will now have to choose between integration and innovation, between a system of record and a system of engagement, between something that is convenient for IT and something the employees, business owners and executives want and need.

If history predicts the future, innovation at the acquired companies may go out the window and talent could soon follow. By contrast, we will become a platform vendor. To become a platform company, you must have three essential ingredients: number one, a pure multi-tenant SAAS architecture; number two, an organic enterprise solution; and number three, the size and scale that can support building an ecosystem. Cornerstone is now the only vendor in the market that has all three ingredients to become a platform company.

One can only look at how the CRM market has evolved from where it was seven years ago. In September 2005, Siebel was acquired by Oracle with Oracle determined to dominate the CRM solution space. Shortly after the acquisition, a much smaller vendor named Salesforce.com set out to become an application marketplace. Fast forward seven years and Salesforce has established itself as the dominant CRM player supported by a beloved ecosystem and an $18 million market cap. We believe we have a similar opportunity ahead as a result of these recent events.

So we will continue to invest in our business. We will strengthen our alliances with the many companies that compete with Oracle and SAP around the world. We will continue to move down market, capitalizing on our success in a segment where the large ERP vendors have historically fell. At that point, we have seen an increasingly balanced distribution of sales dollars between our enterprise and mid-market teams. As many of you know, Cornerstone’s roots lie in selling to very large enterprises and consequently the enterprise sales team has historically dominated our direct sales efforts. In 2011, the mid-market team significantly narrowed this gap and we expect this trend to continue in 2012 as we continue to invest in the growth of that team and move further down market.

Despite our continued investment in our business, we are moving forward on a path to profitability. We have demonstrated our ability to provide both high growth and positive cash flow from operations. As I said, our financial discipline has enabled us to build an efficient operating model that provides for a rapidly improving margin profile as we scale. Some of that efficiency is driven by the retention and growth of our existing client base. Today, almost half of our clients use at least two of our learning, performance, and extended enterprise clouds. In March, we plan to roll out our fourth cloud, the recruiting cloud, as well as our volunteer management system. At that point, we will be the only pure play SAAS provider with an end-to-end enterprise class solution for managing the entire employee life cycle.

The timing of our recruiting cloud launch is good since we are already seeing significant demand for recruiting from all segments of our client base, and we believe Oracle’s acquisition of Taleo only further enhances that opportunity.

While we could choose to generate significantly more cash flow this year than the 2012 guidance that Perry will provide, we believe that the shifting competitive landscape provides us with a clear window of opportunity. We are aggressively growing all of our sales and services. In the commercial sector, in the public sector, in Europe and in Asia, we believe we have a strong management infrastructure and the right tools to support the Company’s growth and effectively on-board our growing team. We will continue to innovate and invest in our products and technology. We will continue to enhance our global service and support capabilities, and we will remain opportunistic about accelerating other areas of investment given the new competitive dynamics, including accelerating our entry into new market segments.

Perhaps most importantly, we will also continue to focus on maintaining the culture established by our founding team. We continue to build a global team of people who are smart, cool, dependable and visionary. We are devoted to teamwork and our clients’ success, and we strive to operate as a meritocracy. We embrace talent mobility as evidenced by the fact that over the past year, we’ve promoted or transferred over 25% of our team. Because of this, even with the expiration of the IPO lockup, we had voluntary employee retention of over 97% in 2011.

I’ll now hand it over to Perry to provide more details regarding our financial performance.

Perry Wallack

Thanks, Adam. Before I get to our fourth quarter and our fiscal year 2011 financial results, I’d like to remind you that all of the non-revenue financial figures I will discuss today are non-GAAP unless I state that the measure is a GAAP number. When we discuss revenues, these are of course GAAP results; however, when we mention gross revenues, we are excluding any revenue reductions associated with the issuance of common stock warrants to one of our distributors. Net revenues reflect the reductions of revenue associated with the issuance of these common stock warrants. Non-GAAP financial measures exclude certain items that we believe are not good indicators of Cornerstone OnDemand’s current or future operating performance. In all quarters of 2011, these items included expenses related to stock-based compensation and related employer payroll taxes, and amortization of debt discount and issuance costs. In the first nine months of 2011, these items included common stock warrant charges, changes in the value of preferred stock warrants, accretion related to preferred stock, amounts related to early retirement of debt, and expenses incurred related to our withdrawn secondary offering, all of which we do not expect going forward.

As Adam said, we had a terrific quarter and closed the year with strong annual performance. The business is growing rapidly, client retention rates remain very strong, cash flows and margins are improving year-over-year, and investments in growth continue in order to support global demand for our solution. So with that said, let’s discuss our results.

I will begin by going through our income statement. As Adam mentioned, revenue for the quarter was $22.4 million, representing a year-over-year increase of 59% over gross revenues in the fourth quarter of 2010 and a sequential increase of 12% over the third quarter of 2011. Our fourth quarter revenue exceeded the high end of our outlook of $21.4 million by $1 million, or 4.7%. We exceeded our revenue outlook for the quarter principally due to higher than anticipated revenue related to new sales, renewals, and services revenues.

Total bookings, which we define as gross revenue plus change in deferred revenue, was $38.4 million for the quarter, representing a $14 million increase or a 58% increase over the fourth quarter of 2010, and a sequential increase of 60% over the third quarter of 2011. We had the highest bookings of any quarter in company history.

Our revenue concentration by geography for the fourth quarter of 2011 changed slightly from the third quarter of 2011, reflecting the increase in revenue from our international clients as we continued to penetrate into international markets and expand into new geographic regions. Our U.S. clients accounted for 69% of gross revenues in the fourth quarter of 2011 compared to 72% in the third quarter of 2011 and 71% in the fourth quarter of 2010.

Gross margin for the fourth quarter of 2011 was 73.4%, which is comparable to gross margins for the third quarter of 2011 of 73.5%. When compared to the same quarter of 2010, gross margins improved by 2.8% from 70.6%. As we said in prior quarters, we believe we will continue to improve gross margins on an annual basis; however, we do not expect to always have sequential improvements in gross margins from quarter to quarter. We will continue to invest in our software, network infrastructure, and our implementation service organization to support our growth.

Now let’s turn to our operating expenses for the quarter. Sales and marketing expense was $12.9 million, representing a sequential increase of approximately $1.8 million or 16% from the third quarter of 2011. As a percentage of revenue, sales and marketing expenses increased from 55.8% in the third quarter of 2011 to 57.8% in the fourth quarter of 2011. The increase was principally driven by increased headcount, marketing expenses, and commissions. When compared to the same quarter in 2010, sales and marketing expense increased by $4.8 million or 60%. Similarly, this increase was mainly due to increased headcount, particularly as it relates to our worldwide sales force as we continue to add personnel to help us meet strong demand and further penetrate into new markets and additional geographic locations.

R&D expense was $2.4 million, representing a year-over-year increase of just $429,000 compared to the same period in 2010. The year-over-year increase is mainly due to increased headcount.

G&A expense was $3.8 million, representing a year-over-year increase of $1.2 million when compared to the same period in 2010. The increase in G&A expense during the fourth quarter of 2011 was mainly attributable to increased headcount in order to support our status as a public company, increased professional fees associated with operating as a public company, and increased professional fees associated with expanding into new geographic regions.

Operating expenses as a percentage of revenue in the fourth quarter increased overall to 85.6% from 83.2% in the third quarter of 2011, mainly due to increased sales and marketing expenses as previously discussed. Operating loss for the fourth quarter of 2011 was $2.7 million compared to a loss of $2.8 million for the fourth quarter of 2010.

Non-GAAP net loss for the fourth quarter of 2011 was $3 million or negative $0.06 per share based on a weighted average shares outstanding of 48.6 million shares as compared to a non-GAAP net loss for the fourth quarter of 2010 of $3.4 million or negative $0.32 per share based on a weighted average shares outstanding of 10.4 million shares.

With regard to cash flow, during the fourth quarter our cash inflows from operations were $4.9 million as compared to cash inflows of $556,000 during the third quarter of 2011.

In summary, we believe we had a great fourth quarter. However, it wasn’t just a great fourth quarter; it was also a great full-year 2011. In 2011, our gross revenues were $75.5 million compared to $46.6 million in 2010, resulting in a 62% increase year-over-year. Our gross revenue exceeded the high end of our full-year outlook of $74.5 million by $1 million. Total bookings for 2011 were $97.6 million compared to $60.9 million in 2010, representing a year-over-year increase of 60%. Our revenue concentration by geography for 2011 remained constant compared to 2010. Our U.S. clients accounted for 71% of gross revenue while our international clients accounted for the remaining 29%.

Gross margins in 2011 improved by 3.1% over 2010 from 69.5% in 2010 to 72.6% in 2011. Our operating expenses as a percentage of revenues in 2011 remained fairly constant compared to 2010 on an overall basis. During 2011, operating expenses as a percentage of revenue was 88.2% compared to 88.7% in 2010. On a dollar basis, sales and marketing increased by $16.6 million or 60% compared to 2010, and as explained in our quarterly results as well as in prior calls, the increase is mainly due to increased headcount and marketing costs in order to support our continued market penetration and expansion.

R&D expenses as a percentage of revenue increased to 12.4% in 2011 compared to 11.7% in 2010. On a dollar basis, R&D increased by $3.9 million or 72% compared to 2010. G&A expenses as a percentage of revenue in 2011 remained fairly constant compared to 2010. During 2011, G&A expenses as a percentage of revenue were 17.1% compared to 17.4% in 2010. On a dollar basis, G&A expenses increased by $4.8 million or 59% for the same reasons as mentioned previously.

Non-GAAP net loss for 2011 was $12.8 million or negative $0.32 per share based on a weighted average shares outstanding of 39.8 million shares as compared to a non-GAAP net loss of $10.2 million or negative $1.11 per share based on a weighted average shares outstanding of 9.2 million shares for 2010. Our underperformance for this metric versus our outlook by approximately $800,000 was principally due to unrealized foreign exchange losses, including the loss on marking-to-market our intercompany loan, all non-operating expenses. We plan on implementing foreign currency hedging in 2012 to reduce the impact on our non-GAAP net loss. We would like to note that we met our internal forecasts for non-GAAP loss from operations for the full year.

Moving on to cash flow – during 2011, our cash inflows from operations were $1.8 million as compared to cash inflows of $166,000 during 2010. Unlevered free cash flow for 2011 was negative $1.4 million. We exceeded the lower end of our full-year outlook of negative 4 million to negative $5 million by $2.6 million. This reflects our growth in new customer wins, strong renewal rates, as well as maintaining billing terms and collections with our customers.

Let me now turn to the balance sheet. Our total cash and cash equivalents were $85.4 million at December 31, 2011. At December 31, 2011, we had approximately $34.1 million in accounts receivable. In addition, our working capital, current assets less current liabilities excluding deferred revenue, was $112.1 million at December 31, 2011. Our deferred revenue balance was $55.9 million at December 31, 2011, a sequential increase of 40% over a balance of $39.9 million at September 30, 2011, and an increase of 65% over a balance of $33.8 million at December 31, 2010.

With respect to headcount, we added 51 employees during the quarter and 180 employees during the year. As of December 31, 2011, we had 507 employees worldwide. This total headcount number represents an 11% sequential increase compared to the third quarter of 2011 and a 55% year-over-year increase.

Two of the non-financial metrics that we like to track are number of clients and number of users served. We ended the year with 805 clients and approximately 7.5 million subscribers, reflecting year-over-year increases of approximately 67% and 52% respectively. We added 119 clients in the quarter versus 82 in the prior quarter, a sequential increase of 45% in client adds.

Another non-financial metric we believe is a key indicator of the health of our business is the annual dollar retention rate. As a reminder, we only calculate this metric annually, and to reference the disclosure in our S-1, we define annual dollar retention rate as the implied monthly recurring revenue under client agreements at the end of a fiscal year divided by the implied monthly recurring revenue for that same client base at the end of the prior fiscal year. This ratio does not reflect implied monthly recurring revenue for new clients added nor incremental sales to that same client base at the end of the prior fiscal year during the current fiscal year. We define implied monthly recurring revenue as the total amount of minimum recurring revenue contractually committed to under each of our client agreements over the entire term of the agreement, but excluding non-recurring support, consulting and maintenance fees, divided by the number of months in the term of the agreement. Our annual dollar retention rate in 2011 was 95%.

As mentioned in our S-1, since 2002 we have averaged a 95% annual dollar retention rate. We are proud that we maintained our historical average retention rate while we were able to grow revenue at 62% and bookings at 60% in 2011.

Now I’d like to discuss our outlook for 2012, 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 full year 2012, we currently expect revenue in the range of 112 million to $114 million. At the midpoint, the range suggests 50% growth over 2011 gross revenue of $75.5 million. For the first quarter of 2012, we currently expect revenue of $24 million, suggesting 53% growth over the first quarter of 2011 revenues of $15.7 million. With respect to non-GAAP net income or loss, we currently expect a loss for the full year 2012 between 12 million and $14 million. This range implies a non-GAAP earnings per share range of negative $0.25 to negative $0.29 per share based on a full-year weighted average share count of approximately 49 million shares.

As a result of our growth in 2011 and in response to the strong demand we are seeing the global marketplace due to our organic integrated suite as well as the recent industry consolidation, we are choosing to make further investments in growth in 2012. In addition to growing our U.S. and EMEA direct sales forces, some of the investments we plan on making in 2012 include expanding in Asia Pacific, increasing our footprint in public sector, and increasing our footprint in existing territories and expanding to new territories in EMEA. Finally to display fiscal discipline while continuing to invest in growth, for the full year 2012 we expect positive cash flow from operations of approximately $7.5 million.

We’d like to emphasize that during this period of accelerated growth, we are strategically opting to reinvest some of the incremental profits and cash flows that result from our strong growth back into the business. We believe it is prudent to have positive cash flow for 2012 to show that our business scales and has a clear path to profitability. However, given the current market opportunities and due to the recent consolidation in the marketplace, we may elect to accelerate the pace of our investments throughout the course of 2012.

We are extremely pleased with our results in our first year as a public company, including our SAAS industry-leading revenue and bookings growth rates as well as our client retention rates, and we look forward to continuing this great success.

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

Adam Miller

Thanks, Perry. I would like to thank the entire Cornerstone team for a great 2011, and I look forward to the opportunities ahead to be the preeminent talent management provider for organizations of all sizes.

We will now take your questions.

Question and Answer Session

Operator

Okay, at this time ladies and gentlemen, due to a technical error, if you would re-queue your telephone by pressing the star then one key on your touchtone telephone to queue up for any questions. So again, for any questions press the star then one key on your telephone to queue up for any questions.

We’ll take our first question from Greg Dunham from Goldman Sachs.

Greg Dunham – Goldman Sachs

Yes, thanks for taking my question. I guess quickly, you talked a lot about kind of the impact of SuccessFactor-SAP, Taleo-Oracle. But more specifically, what did you see in terms of Q4 close rates, and then the dynamic there versus competition given the shifts, and what gives you the confidence that you really want to kind of invest more aggressively as you look out to 2012 vis-à-vis the consolidation in this space?

Adam Miller

Well, we’ve seen our win rate either maintain or improve, depending on the segment of the market. Obviously the Oracle acquisition of Taleo happened after the end of the year, so really we’ll see the impact this quarter or, more likely, next quarter. But we’ve seen the ability to continue to grow our business. We have not seen it as a detriment; and if anything, it’s helped competitive deals go our way. It’s still probably too early to tell exactly what the full impact will be, but we are very bullish about the prospects.

Greg Dunham – Goldman Sachs

Thanks for taking my question.

Operator

Thank you, and we’ll take our next one from Laura Letterman from William Blair. Please go ahead.

Laura Letterman – William Blair

Thank you for taking my questions, and congratulations on the strong bookings. Can you talk a little bit about the percentage headcount increase in sales that you expect to add this year so we can get a sense of the type of investment that’s going on there? And also, can you talk a little bit about the percentage of business that’s now coming from alliances, and maybe give a sense of what it was? Essentially, I suppose, zero a year ago, but what it represents now either from and/or referral basis or actually the customer paper being taken by the partner? Thanks.

Adam Miller

So the second question with regard to alliances, it represents somewhere between 20 and 25% of our incremental sales today, and we expect that to continue to grow as we expand our distribution relationships around the world and grow the existing relationships that we have with distributors around the world.

With regard to sales headcount, we have over the last couple of years doubled the sales team twice, and we expect to grow it at a similar pace this year but not equally across all sales teams. For example, we’re investing very heavily in the public sector, in our mid-market team, as well as in EMEA and we will be building out a team in Asia Pacific. The enterprise team is becoming more mature and so it won’t have the same pace of growth, but it is growing as well.

Lisa Letterman – William Blair

Final question from me, which is if you look at new bookings in the quarter, how much of it was from new customers versus up-sell to existing customers?

Adam Miller

We’ve maintained roughly the same percentage that we have historically. We haven’t seen any change in that split over the last several years.

Lisa Letterman – William Blair

Thanks so much.

Operator

Thank you, and we’ll take our next question from Brandon Barnicle from Pacific Crest. Please go ahead.

Brendan Barnicle – Pacific Crest

Thanks so much, guys. Great bookings. Perry, did I miss it – did you give us a Q1 non-GAAP EPS estimate range?

Perry Wallack

No, we do not. We’re guiding for Q1 revenue of $24 million, and for the full-year for non-GAAP net loss.

Brandon Barnicle – Pacific Crest

Okay, just wanted to make sure I hadn’t missed something there. And then if we look at last year, you had bookings about 61 million. We just saw this revenue be about—you came in about 20% higher than where your bookings had been. If we took that same math and applied it to this year, that would suggest something a little bit higher than where you guided to – that 117 type range. What’s wrong with that assumption?

Perry Wallack

What I would tell you is that we’re in our first year, coming off the heels of our first year as a public company; and as you know, we like to be conservative. Now that said, we don’t give guidance on bookings and we cannot control perfectly the timing of the bookings; so headed into 2012, our revenue is forecasted right now at that 112 to 114 range.

Brandon Barnicle – Pacific Crest

Great. And then Adam, I don’t think I heard you mention anything about performance management during the quarter.

Adam Miller

In terms of--?

Brandon Barnicle – Pacific Crest

Just how that did as a product, where you won new things around performance management. Any additional color you can give us around how that did?

Adam Miller

Yeah, as we’ve said over the last year, we are now seeing the ability to sell all three of the existing clouds – the learning cloud, the performance cloud, and the extended enterprise cloud – equally, and we are leading many of our deals with performance. We’re seeing our deals also being increasingly diversified, and so performance has become a larger and larger part of our business, and I would say it’s roughly 50% of the deals today.

Brandon Barnicle – Pacific Crest

And is that driving ASPs higher overall?

Adam Miller

What drives ASPs higher is a combination of the move to the new cloud packaging, which with the four tiers in each cloud we think enables our sales people to better hold price, and results in a higher effective price. We’re not raising our list prices; rather, we now have a better framework for maintaining price points. And we’ve also, as we’ve discussed over the last several calls, continued to get better at selling multiple clouds up front and over time, and so the effective price per seat goes up as you sell more and more product. And it will continue to improve with the launch of the recruiting cloud.

Brandon Barnicle – Pacific Crest

Have you started to see any benefit in your internal recruiting from the SuccessFactor and Taleo acquisitions?

Adam Miller

Well, not Taleo since that happened last week; but we have seen it already with the SuccessFactors acquisition.

Brandon Barnicle – Pacific Crest

Great. And last question from me – you guys had looked at a secondary offering last August and pulled that. What are the circumstances under which you’d consider doing that again?

Adam Miller

Right now, we have no plans for a secondary offering. The four primary groups that we’re selling in that secondary have all now liquidated the positions that they wanted to liquidate in the secondary. They were able to do that primarily in December of last year.

Perry Wallack

Yeah, they liquidated in open market.

Brandon Barnicle – Pacific Crest

Great, thanks guys.

Operator

Thank you, and we’ll take our next question from Rick Sherlund from Nomura. Please go ahead.

Rick Sherlund – Nomura

Yes, I wonder if you could just drill down a little more on what you’ve seen from customers, where you’ve got competitive situations against SuccessFactors. Maybe just give us a little more color on that and any early color, maybe, you’ve got on Taleo.

Adam Miller

Sure. I mean, Taleo, again, it’s too soon to tell – it happened last week. We competed more and have continued to compete more with SuccessFactors than Taleo. I will talk about the SuccessFactors piece two ways – one, pure performance deals against SuccessFactors, and the other learning deals primarily against Plateau, which then became SuccessFactors which is now SAP.

So with regards to the SuccessFactors deals, as I just indicated, we are seeing more and more diversification of our product sales and we’re seeing the increasing ability to lead and win deals with performance in succession, and that’s continued to grow over time. With regard to learning deals, we are in a extremely strong position. Plateau used to be our strongest learning competitor in the LMS space, and since the SuccessFactors acquisition we were already having a significant advantage in winning those learning deals. It’s worth mentioning that since the SAP acquisition of SuccessFactors, it’s been even easier. As you might imagine, the Plateau clients have now been sold twice in a six-month period and many of them, even the incumbents, have started to talk to us about potentially switching vendors.

Rick Sherlund – Nomura

All right. And then can you talk about the margins – if you’re thinking of pushing more into the mid-market, is that lower margin business for you?

Adam Miller

No, it’s not lower margin business. It’s higher price points per seat, so arguably the margins are higher. The absolute dollar amounts are smaller per unit, but the margin profile is at least as good, if not better.

Rick Sherlund - Nomura

Yeah, and the cost of acquiring those customers, you’re considering that as part of the cost that you’re referring to?

Adam Miller

Yes, the cost is lower.

Rick Sherlund – Nomura

Okay, thank you.

Operator

Thank you, and we’ll take our next question from Raimo Lenschow from Barclays Capital. Please go ahead.

Raimo Lenschow – Barclays Capital

Thanks for taking my question, and well done on the bookings number. Two questions from me – can you talk a little about when you started your planning assumptions for 2012, how much of the accelerator, a key amount of that is SuccessFactor and Taleo, do you compare to your earlier assumptions as you think about the September-November timeframe before the deals happened? And then secondly, if I do the math on the deals, you have 805 customers and 7.5 million subscribers, that’s giving me about 9,000 per customer employee number. Is that a number that you’re going to track going forward in terms of your moving deeper into enterprise but also going into mid-market, and is that a number to think about from our perspective as a piece of analysis?

Perry Wallack

Okay, so let me answer your question about the 805 customers and the 7.5 million subscribers. It’s important to note that the customer number are the customers that have actually signed deals, and the subscriber number is the subscribers that actually have gone live. And so as we sell a lot in the third and fourth quarters of each year, you’ll find that we have more subscribers that usually go live in the first and second quarters, so those two numbers are not exactly equivalent or represent the same populations. It is a rough guide, if you will, to looking at what our average customer size is.

Adam Miller

And with regard to your other question, when SAP acquired SuccessFactors, as many of you know, we had predicted that Oracle would acquire Taleo; and our planning assumption since that point has been that Oracle would acquire Taleo and so our plans for growth this year since December of last year have included the assumption that both of those players would be taken out by the ERP vendors, and our growth plans were based on that assumption. So we have not made any changes to our strategic or operational plan for this year since making those assumptions at the end of last year.

Raimo Lenschow – Barclays Capital

Okay, thank you.

Operator

Thank you, and we’ll take our next question from Mark Murphy from Piper Jaffray. Please go ahead.

Ben Jalim – Piper Jaffray

Hi, congrats on the quarter. This is Ben Jalim for Mark. Just wanted to ask on the sales guys – I know that you have been adding a lot of sales force, almost doubling 2010, 2011. Are we seeing some of those guys who have been added late 2010 ramped up fully and contributing materially to the business?

Adam Miller

Yes, absolutely. So our sales ramp is tracked vey closely. We have models to dictate what the productivity we expect per rep, and those models have proven to be very accurate over time. We also have invested very heavily in sales enablement, so we continue to refine our on-boarding processes as a talent management company. Obviously we’re very focused on on-boarding and enablement of our own people, and we use the Cornerstone suite internally to drive more efficient on-boarding of our sales people.

We look at time to productivity differently for mid-market and enterprise reps as well as public sector reps, and we track those expected time frames very closely with the productivity of the individual people. So we track it closely. It’s continued to improve over time, and the simplified packaging that we introduced at the end of last year contributes to more efficient sales enablement as well.

Ben Jalim – Piper Jaffray

Okay, thank you. And I assume your plan to double the sales headcount by mid-2012 is still there, and do you think you’re going to exceed that by the end of 2012? Is there any estimate by the end of 2012 in terms of sales headcount?

Adam Miller

Yeah, we manage it on a half-year to half-year basis, effectively from July to June each year; and we will work on doubling through June of this year and then determine next steps at that point.

Ben Jalim – Piper Jaffray

Okay, got it. And could you shed some color on the Sage deal that you referred to – do they sell any other talent management vendors, or this an exclusive kind of a deal?

Adam Miller

For Sage North America, they’re focused on using Cornerstone for talent management, specifically learning and performance. It’s not an exclusive deal, however.

Ben Jalim – Piper Jaffray

Okay, thanks a lot.

Adam Miller

In either direction.

Ben Jalim – Piper Jaffray

Got it, thanks.

Operator

Thank you, and I’m showing our next question is coming from Scott Berg from Feltl. Please go ahead.

Scott Berg – Feltl

Hi Adam and Perry. Nice quarter here. I guess a couple quick questions. Adam, what can you tell us about the first five or six weeks of the quarter in terms of what you’re seeing in the market relative to the same period a year ago? Obviously, it sounds like you’re continuing to sell larger deals; but outside of that, is there anything unique in terms of what customers are buying or how they’re buying?

Adam Miller

Our lawyers are saying we shouldn’t be responding to a question like that! I will tell you that our pipeline at the beginning of this year was significantly higher than the pipeline at the beginning of last year, and our coverage with regard to the pipeline is stronger this year than last year in the same way that last year was stronger than the prior year. So we feel good about our start to the year.

Scott Berg – Feltl

Okay, great. And then I guess some further color on the sales and marketing increases this year – Perry, should we expect similar spend rates as a percentage of revenue on sales and marketing, or should we expect some leverage in that line since you’ve essentially spent the same amount for the last two years?

Perry Wallack

Yeah, no, it should be pretty similar.

Scott Berg – Feltl

All right, that’s all I have. I’ll jump back in the queue. Thank you.

Operator

Thank you, and our next question is coming from Michael Huang from Needham & Company. Please go ahead.

Michael Huang – Needham & Co.

Thanks very much. Just a couple quick ones for me. First off, in terms of your interest around—interest that you’re seeing around recruiting, was wondering what would be the target number of customers that you could get onto recruiting by end of 2012, and as we think about pricing around that product, what’s a typical recruiting transaction like?

Adam Miller

So from a transaction basis, it is extremely similar to the way we’re pricing all of our other clouds, based on a per-user model. With regard to targets, we don’t disclose specific numbers about client counts per product, but we are seeing good demand from our install base.

Michael Huang – Needham & Co.

Would it be unrealistic to see recruiting contribute 10% of bookings in a year, or is that too quick of a ramp?

Adam Miller

We haven’t forecasted that in that way.

Michael Huang – Needham & Co.

Okay. And then another question just kind of with respect to Salesforce.com bought Rypple. I know Rypple doesn’t often come up in competitive conversations, but I was just wondering your view on whether or not Salesforce and what they’re doing around HEM or social performance management, whether or not that’s something that you need to consider or keep on top of, at least over the next year or two/

Adam Miller

Yeah, so we’ll be talking about that in the future. I will tell you that we already work pretty closely with Salesforce today and we’ll be talking about that more in the future. We also believe that Rypple was one of a couple of cool HR functional companies out there, and we think there’s some other interesting ones out there as well. So it is an interesting application. They have pushed the envelope on what it means to do social performance management; there are other companies that do similar things. We keep a close eye on the state of the art of all aspects of talent management.

Michael Huang – Needham & Co.

All right. And just a last question of me – just wanted your comments around seeing some improving ASPs. Just wanted to clarify – was that both on new and up-sell transactions, or was it primarily on the up-sell where you’re seeing some broader uptake of more clouds? Thanks.

Adam Miller

No, it’s actually primarily on the new; so on new client logos, new client acquisition, we’re seeing the initial deal size continue to grow over time. We’ve always seen growth in the installed base over time, so that continues. That’s been true historically. What’s changed is the initial deal size and the average selling price of the upfront deal.

Michael Huang – Needham & Co.

Great, thanks very much.

Operator

Thank you, and we’ll take our next question from Pat Walravens from JMP Securities. Please go ahead.

Pat Walravens – JMP Securities

Thank you. Can you guys update us on your partnerships with ADP and with Workday, and then perhaps touch on the impact of the consolidation in this space on your prospects for other alliances.

Adam Miller

Yeah, so obviously the consolidation helps us with regard to the alliance ecosystem out there, including both ADP and Workday as well as others who compete with SAP and Oracle. So to the extent Taleo and/or SuccessFactors have relationships with companies that are competitive with the ERPs, those companies are now looking to Cornerstone as a potential alliance partner, so we’re seeing a lot of opportunity already in that regard.

ADP has continued to strengthen as a relationship. We are now working with multiple aspects of ADP, multiple sales teams, multiple geographies, and multiple product areas; and we are seeing strong growth in pipeline forecast and revenue from that relationship, and we continue to expand the number of units that are joint customers with both us and ADP. So we’re feeling very good about that relationship, and the Workday relationship, while still early, has proven to be very strong already with regard to our mutual referral relationship. We have today now clear common enemies, and that makes for good friends; and so we will continue to grow that relationship.

Pat Walravens – JMP Securities

Great, thank you. And I guess if I could just sort of sneak a big-picture one back in here, is it fair to say, Adam, that you’re not particularly demand constrained at the moment in this business; and if so, what are the bottlenecks, what are the factors that are regulating your growth?

Adam Miller

Yes, I don’t think we’re demand constrained at all. We’re seeing the ability to sell into literally all geographies. We have users today in over 179 countries. The application itself is in 31 languages already. We are seeing the ability to sell into all verticals. We are just in the final stages of CFR21 Part 11 certification, which allows us to expand our footprint in pharmaceuticals. We already are selling into the public sector, including federal, state and local, and education; and we’ve already been selling into all commercial areas. We also see the ability to sell into all sized organizations, whether it be global enterprises, small businesses, or mid-market companies. And so we’re really not seeing any constraints in demand.

Where we are constrained, if at all, is around our ability to efficiently onboard and service our client base, so onboard new employees and service our existing and growing client base. And so we want to make sure that client success comes first and we want to make sure that we’re growing in a disciplined and organized way, and that’s allowed us to maintain that 95% client retention we’ve had over the last many years.

The other thing we want to do is make sure that we’re moving on a clear path to profitability, so even as we put up 60% growth numbers, we want to make sure that we’re clearly moving in the direction of profitability and we don’t believe we have to make a trade-off between margin and growth – that we can do both, and we will continue to demonstrate that over time.

Pat Walravens – JMP Securities

Great, thank you.

Operator

Thank you, ladies and gentlemen. As it is the top of the hour, I’ll turn it back over to management for any concluding remarks.

Adam Miller

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

Perry Wallack

Thank you everybody.

Operator

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

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