Cornerstone OnDemand, Inc.
Q1 2016 Earnings Call Transcript

Published: 5 May 2016

[Operator:]

Good day, ladies and gentlemen, and welcome to the Cornerstone OnDemand First Quarter 2016 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, this conference call is being recorded. I'd now like to turn the call over to your host, Mr. Perry Wallack, Chief Financial Officer. Please go ahead.

[Perry Wallack:]

Good afternoon, everyone. This is Perry Wallack, CFO of Cornerstone OnDemand, and welcome to our first quarter 2016 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, 2016. Later, we will conduct a question-and-answer session. By now, you should have received a copy of our press release, which was released after the market closed today and was 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. Our discussion will include forward-looking statements including, but not limited to, statements regarding our business strategy, demand for our products, certain projected financial results and operating metrics, product development, client satisfaction and retention, client attrition rate, market or business growth, our revenue run rate, investment activity in our business, visibility into our business model and results, the reduction of DSOs, the effect of capitalized development costs, spending on R&D, professional services and other aspects of our business are 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. 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 and the Risk Factors section of our most recent Form 10-K and subsequent periodic filings with the SEC. Before I turn it over to Adam, I wanted to share some news. As all of you know, I announced my retirement on our last call. Today, following an extensive national search, I am pleased to welcome my replacement, Brian Swartz, to the Cornerstone team. As you may have seen in the press release that was issued earlier today, Brian will be taking over as our new CFO on or before June 1. Brian joins us most recently from Zulily and brings with him a tremendous amount of experience with large scale global companies. We believe his financial, operational and strategic experience will be an important asset to the business in the years to come. I will be staying on as an advisor to Adam and Brian for as long as necessary to ensure a smooth transition. And with that, I will turn the call over to Adam.

[Adam Miller:]

Thanks, Perry, and thank you to everyone joining us today. As Perry said, we're elated to have Brian joining our team. He's an exceptional executive who brings a wealth of public company experience to Cornerstone, and his ability to grow and manage large scale operations will be a tremendous asset for us as we take Cornerstone to the next level. Now on to the results of the quarter. The first quarter represented a very strong start to 2016. And I'm excited to share some of the highlights of the quarter with you all today. GAAP revenue for the first quarter came in at a record $99.3 million, representing a year-over-year increase of 34%. Bookings came in at a record $83.7 million, representing a year-over-year increase of 32%. In addition to this acceleration in top line growth, we also made strong early progress towards our 2016 profitability goals in Q1 by reaching breakeven on a non-GAAP basis two quarters earlier than anticipated. We believe our results speak to both the increasingly robust demand environment that we're seeing as well as our focus on driving operational excellence across the entire business. In Q1, we expanded our organically grown client base to well over 2,600 enterprise and mid-market organizations from around the world, including global leaders in virtually every vertical. New client additions include the world's largest credit card issuer, Citrix, Cathay Pacific Airways, a Fortune 100 global industrials conglomerate, a Fortune 200 supermarket chain, a Fortune 400 life insurance company, the largest company in Romania, Thai Union Group, one of the largest retailers in France, and the Florida Department of Highway Safety and Motor Vehicles. Our combination of growth and industry-leading client retention has helped us establish a user base that is today approximately 25 million strong, giving us what we believe to be one of the world's largest subscriber basis of any cloud software provider in the world. As our new client additions indicate, our momentum at the top end of the market continued through the first quarter and with the strategic accounts and enterprise teams once again exceeding expectations. This helps us bring in more than double the number of seven-figure deals versus any prior Q1 in the company's history, and the second largest number of seven-figure deals in any quarter, period. Closing this volume of large deals this early in the year should serve as a further reaffirmation of our clear leadership position with the world's top companies. We also saw many of our other teams deliver strong performances in Q1. The EMEA team had one of its best sales quarters ever, closing a number of new marquee logos. Our APAC team delivered a strong quarter as well, propelled in part by a rebound in China, a region which did not have a strong 2015. From a vertical perspective, we had a very good quarter in both state, local, and education, which both brought in significant deals, such as the City of Los Angeles, and the IDEA Public Schools. The client sales team also helped us to continue to strengthen our relationships with many existing clients in the first quarter through significant up-sells. These clients include Sanford Health, Sanofi, a Big Four accounting firm, and one of the most prestigious management consultancies in the world, to name just a few. Many of the up-sells in Q1 were driven by our recruiting and onboarding solutions, which both saw a significant rise in penetration rates over the past year. As we continue to invest in innovation and the expansion of our best-of-breed talent management suite, the opportunity within our installed base remains an area of tremendous growth potential for the business. Speaking of innovation, one area of significant focus for us is analytics. Our continued efforts to both improve and expand our analytics capabilities come in a time when the demand for data driven decision making within talent management is reaching a critical inflection point. In the 1990s, talent management was simple and entirely process centric. About a decade ago, the industry began moving towards integrated talent management due to the need for shared information between disparate HR processes. Today HR executives at leading organizations are universally demanding the ability to leverage analytics to better manage their workforces. In anticipation of this, as all of you know, we acquired Evolv in November of 2014 and with that added a world-class team of bid data professionals. The combination of that team and the massive proprietary dataset we have accumulated over the last 15 years, which spans thousands of organizations and tens of millions of employees put us in a unique position to take advantage of the enormous analytics opportunity within talent management that lies ahead. In the 15 months since the Evolv acquisition, we have built a suite of four cutting edge analytics products. In different ways, each of these products will allow our clients to make smarter, more strategic, and more informed decisions around their talent. Cornerstone Insights, which we announced last September, and has already been sold numerous times, uses machine learning to offer prescriptive recommendations that address a specific business challenge. Cornerstone Reporting, also available today, offers the ability to build customized reports imbedded within Cornerstone. Next week at Convergence, we will unveil Cornerstone View, which enables executives to visualize their people data and discover new opportunities for their organization. Also at Convergence, we will release Cornerstone Planning, a workforce planning tool that helps you develop hiring plans over multiple time horizons, monitor progress against those plans and adjust plans based on market or business changes. I look forward to sharing many more details about recruiting and our analytics products as well as many other areas of innovation at Cornerstone, with all of our clients, partners and investors at Convergence. With that, I'd like to turn it back over to Perry to discuss our financial performance in more detail.

[Perry Wallack:]

Thanks, Adam. Before I get to the financial results for the quarter, I'd like to remind everyone that the financial figures I discuss today are non-GAAP unless I state that the measure is a GAAP number. The reconciliation of our GAAP to non-GAAP information is provided in the press release issued earlier this afternoon and on our website. As Adam discussed, the first quarter represented a great start to 2016, not only did we see acceleration in revenue and bookings growth but we also made early progress towards full year profitability as many of our operational efficiency initiatives have begun to take effect. Total GAAP revenue for the first quarter was $99.3 million representing a year-over-year increase of 34%. As we announced last quarter, this quarter is the first quarter for which we will disclose the split between subscription revenue and professional consulting services revenue. Of our total GAAP revenues, subscriptions revenue was $79.7 million, and professional consulting services revenue was $19.6 million, representing a subscriptions and services revenue split of 80.2% and 19.8% respectively. This is in comparison to a subscriptions and services revenue mix of 81.6% and 18.4% respectively in the first quarter of 2015. As we have commented in the past, the subscriptions and services revenue mix on an annual basis has been roughly 80% and 20% respectively, but may vary by a few percentage points on a quarterly basis, principally due to the timing of services revenue recognition. We believe the mix for the full year 2016 will again be approximately 80% subscriptions and 20% consulting services. Bookings, which we define as revenue plus change in deferred revenue, were $83.7 million for the first quarter, representing a year-over-year increase of 32%. This growth was higher on a year-over-year basis than any quarter in all 2015. The size of our client base increased to 2,670 clients as of March 31, 2016, representing 75 net client additions for the quarter. Our user base increased to nearly 25 million users as of March 31, 2016, which represents the net addition of more than 1.1 million users for the quarter. Our gross margin for the first quarter of 2016 was 71.7%, compared to 71.3% in Q1 of last year. Now let's turn to our operating expenses. Sales and marketing represented 50.8% of revenue in the first quarter of 2016, down 460 basis points from 55.4% of revenue in the first quarter of 2015. As Adam has talked about for several quarters, we are completely focused on improving our sales efficiency. R&D represented 9.3% of revenue in the first quarter of 2016, down 220 basis points from 11.5% of revenue in the first quarter of 2015. The reduction is due to slower head count growth in R&D year-over-year as compared to our revenue growth, and an increase in the amount of capitalized software cost relative to our total R&D spend. G&A represented 12.6% of revenue in the first quarter of 2016 in line with the first quarter of 2015. All of this resulted in operating margins of negative 0.8% in the first quarter of 2016, representing a significant improvement of nearly 700 basis points from negative 7.8% operating margins in the first quarter of 2015. Net loss for the first quarter of 2016 was essentially breakeven at $40,000 or a net loss of zero cents $0.00 per share based on weighted average shares outstanding of 54.8 million shares. This compares to a net loss of $9.3 million or a net loss of $0.17 per share based on weighted average shares outstanding of 53.9 million shares in the first quarter of 2015. This is the first time in our history as a public company that we have been this close to achieving non-GAAP profitability, and we believe these results speak to the combination of strong sales momentum and the collective efforts of our team to drive greater efficiency in every area of the business. Free cash flow was negative $21 million in the first quarter of 2016 compared to negative $10.3 million in the first quarter of 2015. Although we only guide the non-GAAP free cash flow annually, it is our goal to improve collections on a quarterly basis. In Q1, we did see an increase in the time in the time (15

[Adam Miller:]

I want to thank the global Cornerstone team for their great performance and their commitment to client success and operational excellence. I also especially want to thank Perry for his incredible partnership since the inception of Cornerstone. We have shared some dramatic lows and some unbelievable highs over the years together, and your passion, commitment and wisdom have been keys to our success. We will now take your questions.

[Operator:]

Our first question comes from Brent Thill with UBS. Your line is open.

[Brent Thill:]

Thanks, good afternoon. 32% billings was the best in a year, yet you had one of the slower net new customer adds during the quarter. I guess you could explain that by the push to maybe larger enterprise contracts with fewer customers, but maybe if you could just drill into that dynamic and what you're seeing from that perspective? And I had a quick follow-up.

[Adam Miller:]

Yes. So clearly we are doing more big deals, and we can talk about more later. I don't think you're going to see a dramatic uptick in the client count numbers until the second half of the year. As you remember, last year, we had some issues with our mid-market team. We have worked out solutions to those issues. And it takes a couple of quarters for them to take effect. So I suspect you'll see a much stronger customer count in the second half of this year and for the full year.

[Brent Thill:]

Okay. And maybe a follow-up for Perry, too, just when you look at the head count adds, that your goal for this year will be dramatically lower than what you've added a year back. Can you just walk through productivity measures, kind of, what you're seeing? It seems like you feel like you have plenty of capacity to achieve what was still close to 30% growth. Can you just walk through the dynamic there?

[Perry Wallack:]

Yeah, sure. Let me pass that over to Adam and he'll give you a little bit of color on that, Brent.

[Adam Miller:]

Yeah, Brent, specifically on the head count, it's a direct result of the operational excellence initiatives that we have in place. A lot of the head count reduction or incremental head count reduction, right, we're not actually reducing any existing heads, is based on the success we've had through automation projects and process improvement projects to lower the incremental G&A expense that's required. So we're becoming much more efficient in how we do a lot of back office processes and some of the support and service delivery that enables us to do the work with fewer incremental people. From a sales and marketing perspective, we have a lot of focus on efficiency, and that's happening through better spending and better allocation of head count, but we are still investing in sales and marketing, and so that's going to allow us to fuel growth over the long term.

[Brent Thill:]

Thanks, Adam.

[Operator:]

Our next question comes from Mark Murphy with JPMorgan. Your line is open.

[Mark R. Murphy:]

Yes. Thank you very much, and congratulations on the surprise early breakeven. So, Adam I wanted to ask you on the recruiting side of the ledger. That product seems to have very strong momentum for you. And I am curious if you're able to update us just on what percentage of your installed base has adopted that? I think it was 20% last fall or roughly 20%? And also, where do you think you are recruiting functionality stand today if you compare it to the Taleos and Kenexa of the world and I understand its intended to be a very different type of product, but if there is any way to compare and contrast (25

[Adam Miller:]

Yeah. So, recruiting is now 20% penetrated and growing. It was just under 20% last year. We're now approaching best-in-class in recruiting. So we're obviously best of breed in talent management overall. But we are approaching best in class in recruiting. We just brought in the top ATS analyst in the space, who confirmed for us that we are now at parity with Taleo and Kenexa from a feature set perspective, which means we are now able to go to our install base and start doing take-away deals from those companies, which is very ripe right now. You have a lot of situations where it was a Taleo client at an SAP shop, and obviously with Oracle taking over Taleo and the company with SAPs or ERP systems, those things don't fit well together, creates opportunity for us, especially if they're already using Cornerstone as their talent management solution for everything else. And we have many instances of that. We also are seeing great opportunity to sell the full suite today. We now have over 40% of our clients with three or more products; over 70% with 2 or more products. So we're seeing the ability to cross-sell and up-sell the entire client base as well as sell more of our full platform upfront in new deals.

[Mark R. Murphy:]

Thank you for that, Adam. So I wanted to ask as well, along the lines of what Brent had asked you, on the head count transfer this year, as you are focusing on the efficiencies that are driving the profitability, I'm wondering how big of a spread – and, actually, Perry, this might be more of a question for you. How big of a spread do you think you can maintain between the head count growth and the revenue growth, so, for example, it looks like this year, I think in round numbers, the top line is going to grow about 15 points faster than the head count of the company, and I guess, I'm wondering, is that long-term sustainable or is that – is that spread going to narrow perhaps in subsequent years?

[Perry Wallack:]

No, I think it's absolutely sustainable, if we are effective in how we're operating our business. We think there is lots of potential efficiencies that we have not yet captured in our business with regard to all of our back office operations, all of our technology operations. We're working on projects to make our developers more efficient, to make our quality assurance people more efficient. We are working on ways to make our support desk more efficient and drive excellence in all of our operations. All of those things enable you to do more with the same people, which allows us to keep growing the business without having linear growth in head count.

[Mark R. Murphy:]

Okay. Okay. So that would suggest your margins continue to expand pretty rapidly beyond this year, and I realize you're not guiding to that yet at this point, but I think that's what that suggests? The last one I wanted to ask you about, yeah, so, Adam, you're doing extremely well at the high end of the market and I think we had a sense of that but you rattled off a particularly large number of enterprise wins, and it would seem like that signifies a pretty big vote against the concept of the integrated suite. I mean, integrated in terms of core HR and talent management from the same vendor. And so they seem to be voting in favor of using, you know your separate systems for all of talent management. So I'm just wondering how you think those discussions are evolving, you know, why it's tilting that way and just also, is that dynamic any different or is it really the same thing in the mid-market?

[Adam Miller:]

Well, in the mid-market, you don't necessarily have the ERP systems in place. It depends on whether you're talking about the upper mid-market or the lower mid-market and where you draw the line between mid-market and enterprise. Generally, those companies are using extensions of their payroll providers and don't necessarily have full-blown global HRIS systems in place. In the large enterprise segment, all of our clients have an ERP system in place; some of them have many ERP systems in place. And we now have, as you know, thousands of examples of companies that have chosen to work with the best-of-breed talent solution even though their ERP provider offers some version of Talent Management. So we think this is now very well demonstrated in our market. We have proven beyond the shadow of a doubt that we can continue to sell independently of that functionality, and we are winning bigger and bigger deals and more of them. And I don't see that trend changing any time soon.

[Mark R. Murphy:]

Thank you very much.

[Operator:]

Our next question...

[Adam Miller:]

Just to add on to that, part of the reason we've been effective is because of the business impact our solutions have. And the proof is the 95% retention rate that we still have today. The reason we win and keep our clients is because the solution works and it drives real business impacts, saving money, improving compliance, and driving efficiency in all the organizations that we work with.

[Operator:]

Thank you. Our next question comes from Scott Berg with Needham. Your line is open.

[Scott Berg:]

Hi, Adam and Perry, congrats on a very good quarter here. A couple quick ones. Can you talk about the revenue outperformance in the quarter. It was one of your bigger deeds in recent memory. Was it more timing or services related or was it subscription revenue related, relative to the big deals? I'm trying to understand what that balance is like maybe.

[Perry Wallack:]

Yeah. It's a combination of both. We actually had for the first time in a little while a quarter that wasn't so back end loaded, so you do get a little more software revenue within that quarter when you close the deals earlier in the quarter. And then in addition we did have some outperformance on our services revenue. So it was a combination of both factors.

[Scott Berg:]

Great. And then, Adam, can you talk a little bit about the bookings outperformance in the quarter. Obviously it was a great quarter, I think we all agree on that. But if you look at the Q1 execution or at least performance, how much would you put as a percentage on a better demand environment that you're seeing in 2016 relative to early 2015 versus just better internal execution?

[Adam Miller:]

I think there is a better demand environment, but in addition, within those deals, we're being more efficient at executing. So, what I mean by that is we're winning not just more deals, but bigger deals. And we've become very effective at holding price and growing the deal size because of the breadth of the product suite at this point. We now not only have multiple products; we essentially have multiple suites of products which give us the ability to drive more revenue in each individual deal.

[Scott Berg:]

Great. And one last quick one for me. We recently picked up that you let go of your mid-market sales leader. Assuming that's accurate, does that mean that the mid-market sales team is going through kind of a complete reorg, obviously given the challenges that segment had last year? Or is this just a small change and we should be able to see those improvements sooner rather than later?

[Adam Miller:]

So, I believe we spoke about this on our last earnings call. We took out the leader of our national accounts team; mid-market to us is both our major accounts team and our national accounts team. In this case, we had difficulty in 2015, specifically in national accounts and so we took out a layer of management and have the regional managers reporting directly to the VP of mid-market sales. And that's proven to be effective. We've stabilized the teams. We had a lot of turnover last year. We have much more stability this year. We made some investment in the pipeline, demand generation for that segment, and that's been effective, and that speaks to my point earlier that you're going to see the client counts improve in the latter half of the year as these changes take effect on that team.

[Scott Berg:]

Great. That's all I have. Congrats on a great quarter. Thanks.

[Adam Miller:]

Thank you.

[Perry Wallack:]

Thank you.

[Operator:]

Our next question comes from Pat Walravens with JMP Securities. Your line is open.

[Patrick D. Walravens:]

Great. Thank you. Hey, Adam, can you give us an overview of where things stand in terms of the competition if there is any changes and if workday is starting to show-up in any way? Thanks a lot.

[Adam Miller:]

Yeah, so we really don't see workday in a competitive position for new deals. What we're seeing is the same competition that we've always seen. So predominantly that's SAP, 80% of the time we see them in the finals anywhere in the world and our win rates continue to improve. We have now proven our ability to sell all the way up market. We now, as you know, have multiple examples of eight figure deals. In fact, we did another one in Q1 and that allows us to continue to sell the full spectrum, all the way up market and all the way down market and become increasingly competitive in the space, which allows us to hold price, it allows us to expand our product footprint earlier, and we continue to service our clients extremely well, which is why the retention is so strong. So, we're seeing the ability to really perform very well in all segments, and I think the competitive landscape is not going shift in part, because we're moving to a data driven world. So, as I talked about earlier analytics has been a big focus for us. We think our clients and quite frankly all cloud computing is moving to a more analytics-driven model. And the benefit there goes to companies that have the data. With now 25 million users in a 191 countries, we have the definition of what it means to have big data. And that gives us a real advantage not only relative to our current competitors but certainly relative to any newcomers into the space.

[Patrick D. Walravens:]

Great. Thanks a lot, Adam.

[Adam Miller:]

Thank you.

[Operator:]

Our next question comes from Raimo Lenschow with Barclays. Your line is open.

[Raimo Lenschow:]

Hey. Thanks for taking my question, and congrats from me as well. That's a great first quarter. Two questions. First of all, Adam, could you talk a little bit about the changes because it looks like the execution has quite quickly improved in Q1? How much of that was kind of short-term measures that you did, and how much of that was items that we will continue to see as we go through the year? And then the second question is we didn't hear that much today about the midmarket product initiatives that was a big focus last year. Can you update also on that please? Thank you.

[Adam Miller:]

Yeah, so I'll start with the last one. I think you mean the small business product initiative...

[Raimo Lenschow:]

Right.

[Adam Miller:]

... with Growth Edition. So Growth Edition...

[Raimo Lenschow:]

Yeah.

[Adam Miller:]

... was released at the very end of last year. We continue to work on the product. The focus there is for the second half of the year, which becomes peak selling season for that particular product line. And we will have had multiple releases by the time the second half of the year hits. And that's going to put us in a really good position for that segment. So we've geared up the sales teams for that particular product line – Growth Edition. With regard to our margins, we are just at the beginning of our operational excellence initiative. We've put a number of programs into place; some of them have already taken effect. You see that in the margin improvement that we've already been able to demonstrate, but we're just at the beginning. We think there's a lot of opportunity for continued margin expansion in all areas. We have initiatives that are targeted to each of the different segments of our business operationally, and some of it, again, is based on automation, some of it is based on process improvement, and some of it is based on rethinking how we do things. So one that I've spoken about before is the initiative we have around delivery, we call it project accelerate. And our focus there is decreasing the time it takes us to deliver a new client, essentially implement a new deal in half. So we want to take the average enterprise implementation from roughly four months to about two months. If we do that effectively, it will dramatically improve our margin as it relates to cost of sales. And there's opportunities like that throughout the entire business.

[Raimo Lenschow:]

Thank you. Well done. Good luck.

[Adam Miller:]

Thank you.

[Perry Wallack:]

Thank you.

[Operator:]

Our next question comes from Justin Furby with William Blair. Your line is open.

[Justin A. Furby:]

Hi, guys, congrats on the quarter. Apologies I jumped on late but just a couple questions, one in terms of pipeline, obviously big outperformance in Q1 Adam. I'm just curious what, as you look at pipeline entering Q2, how is it different from maybe a year ago in terms of the mix of enterprise across geographies, the types of deals that are multi element, any color there would be helpful around pipeline growth you're seeing there? And then I've got one follow-up. Thanks.

[Adam Miller:]

Yeah. I mean, obviously I'm limited in what I can say about pipeline, but I will say in general, the demand environment is very good. We're seeing the ability to go further up market than we have in the past, and more large deals out there in the pipeline. We also are seeing general demand for full talent management, so we're doing more deals that involve the full platform. A lot of the product initiatives we have, whether we're talking about recruiting and onboarding or we're talking about the whole analytics suite or even edge are all based on market demand, based on being responsive to our existing clients and the prospects that are out there, and we think we have the right product strategy, which obviously is being proven out by our ability to continue to execute.

[Justin A. Furby:]

Got it. That's helpful. And then I think probably 18 months or so ago; you said sort of a framework to think about the medium term growth as somewhere in the 30% to 35% range, inclusive of some new product initiatives. I'd just be curious for an update of how you're sort of over the last year-and-a-half how you're thinking about that, is that the right framework or what's changed since then? Thanks very much.

[Adam Miller:]

I mean, we said we could be relatively consistent with the growth we had last year and that obviously is demonstrated by our guidance that Perry gave. So, we think there's an opportunity to keep growing the business over the long-term. We don't see ourselves as being on the edge of a cliff. We certainly have not saturated the market. I've spoken before about the fact that even though our business is already 33% international, we believe that half of our business could be international. So, there's plenty of greenfield opportunity around the world. There's also clearly greenfield opportunity down market and another area that we haven't spoken about this quarter is just our ability to execute in the verticals. So, as we look at healthcare or life sciences or government or education, we're seeing the ability to tailor our products for specific industries and be extremely effective in those industries. All this...

[Justin A. Furby:]

Yeah. Thanks very much. Sorry, go ahead.

[Adam Miller:]

All this is also benefited by the fact that we now have a series of significant partnerships with the major system integrators around the world. So whether our direct team is walking into those opportunities or they're being brought in by the system integrators, our ecosystem is now solid globally, and that's given us a really good position to continue to expand.

[Justin A. Furby:]

Great. Thank you.

[Operator:]

Our next question comes from Brad Sills with Bank of America Merrill Lynch. Your line is open.

[Bradley Sills:]

Hey, guys. Thanks for taking my question. I just had one on the partner channel, both in the large enterprise and in the national major accounts. I wonder if you could comment a little bit about progress you've made over the last year or two with some of the global (43

[Adam Miller:]

Yeah. So with regards to major accounts, our pipeline from partners has always been strong, ADP in particular has been extremely effective there. We have since moved further up the mid-market chain and are being effective now with bringing in incremental pipeline and referrals for that team. That's part of what's driving the growth in pipeline for national accounts specifically. And with regard to large accounts, we're seeing a real ability to truly partner with these companies. So these are not reseller deals with the largest consulting firms out there. These are teaming deals. So we go in together, they walk us into accounts, if we're already in an account, they will help influence the deal in our favor, and it's allowed us to really cover the entire playing field in a way that we haven't been able to a couple years ago. It also allows us to level the playing field when we're in a particular deal. Obviously companies like SAP and Oracle have a lot of support from those vendors, and our partnerships have neutralized their advantage in that area, which allows us to compete on products and service, and there we always win.

[Bradley Sills:]

Great. Thanks, Adam. And then one more if I may. You mentioned good progress with multiple products in accounts. I wonder if you could comment a little bit on the new signing. Are you seeing most of those larger new account signings come in with both learning and performance? If you could kind of compare that to, say, a year ago, or two years ago, what kind of trend you're seeing there and then succession in compensation, I assume those might come later, but just more on the kind of new signings, what are you seeing on initial sales? Thanks again.

[Adam Miller:]

Yes. I'd say for quite a while now the majority of our deals have been learning and performance. What's happened more recently is that they're now learning performance and recruiting. And so these are becoming three pronged deals instead of two-pronged deals right out of the gate. That obviously creates a beachhead for us to move into Analytics, Edge, Link, and continue to broaden the suite with incremental products. So our footprint is growing in these accounts, which make them stickier and also creates incremental up-sell opportunities because obviously from analytics, the more a client is using the system, the more data they have. And therefore the more effective our analytic tools are. So you end up creating a virtuous cycle in the account. The more they use us, the more they use us, and that creates really good opportunity for us long-term. It's part of the reason that we've made some significant investment over the last 18 months in client sales. We think there's a real upside opportunity in growing our install base, and bigger initial footprint we have in an account, the more likely we are able to grow it over time.

[Bradley Sills:]

Great. Thanks, Adam.

[Adam Miller:]

Thank you.

[Operator:]

Our last question comes from Kyle Chen with Credit Suisse. Your line is open. Kyle Chen - Credit Suisse Securities (USA) LLC (Broker) Hi, thanks for taking the question. Just really quickly, how large would you size the recruiting opportunity you referenced relative to Taleo, Kenexa, specifically, how many clients/seats do you think are available to replace and up-sell?

[Adam Miller:]

Well, we believe there's 400 million seats out there for everything we do including recruiting. We now have 25 million so we can grow the company many, many times over as we go after that opportunity. With regard to Taleo and Kenexa there are pretty good saturation of the enterprise market. I would say is probably 80% saturated by those two companies. Many of our existing clients have one of those two solutions in place. And in cases where they are either dissatisfied since the acquisitions of those companies or there's other issues that have risen, it creates opportunity for us to go in and be their replacement solution. In particular, where we've have been. Also there are many, many greenfield opportunities in recruiting, particularly in the middle market as well as in government and education. So we're seeing opportunities in all those segments to go in with recruiting. And in some of those, we actually lead with recruiting. For example, in education, we'll lead with recruiting in the deals. Kyle Chen - Credit Suisse Securities (USA) LLC (Broker) Got it. That's helpful. And just quickly, what was the impact of FX in terms of revenue and deferred this quarter? And also were there any changes to the average billing terms of the quarter that may have impacted the optics of the bookings growth?

[Adam Miller:]

Yeah, sure, so the average billing term was roughly in line with historical periods. As far as revenue goes, FX had a drag of a little over $1 million dollars, and from a booking standpoint it had a drag of a little over $2 million. Kyle Chen - Credit Suisse Securities (USA) LLC (Broker) Got it. Thanks for the color.

[Operator:]

This ends our Q&A session. I'll turn it back to Adam Miller, CEO, for Closing remarks.

[Adam Miller:]

Thank you all for joining the call. As I think this quarter has demonstrated, there is truly global demand for unified talent management and we're at the forefront of that space. I also want to once again thank Perry for his incredible partnership over the last 16 years, and welcome Brian to the team. I think we are ready to move to the next phase of our business and become a mid cap company. I'm looking forward to seeing everybody next week at Convergence, our global client conference in Los Angeles on May 10. Thank you.

[Operator:]

Ladies and gentlemen, thanks for participating in today's program. This concludes the program. You may all disconnect.