Cornerstone OnDemand, Inc.
Q4 2012 Earnings Call Transcript

Published: 13 Feb 2013

[Operator:]

Good day, ladies and gentlemen, and thank you for standing by. And welcome to the Cornerstone OnDemand Fourth Quarter 2012 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 follow at that time. (Operator Instructions) As a reminder, this conference maybe recorded. It’s now my pleasure to turn the floor over to Perry Wallack, Chief Financial Officer. Perry, the floor is yours.

[Perry Wallack:]

Good afternoon, everyone. This is Perry Wallack, CFO of Cornerstone OnDemand, and welcome to our fourth quarter and fiscal year 2012 earnings conference call. Today’s call will begin with Adam providing a brief overview of our company and our performance over fiscal year 2012 and the fourth quarter. And then I will review some key financial results for the fiscal year, which ended December 31, 2012 as well as the fourth quarter results. Later, we will conduct a question-and-answer session. By now, you should have received the copy of our press release, which was released after the market closed today and will be 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 effective 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. Words such as expect, believe, anticipate, plan, illustrate, intent, estimate and other similar words are also intended to identify such forward-looking statements. Forward-looking statements involve risks, uncertainties and assumptions. If any of the risks or uncertainties 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 in the Risk Factors section of our most recent Form 10-K and Form 10-Q. With that, I will turn the call 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 year for Cornerstone OnDemand. Through all of the consolidation and macroeconomic uncertainty in 2012, we achieved another year of record results as we continue to execute exceptionally well in our core business while gaining significant momentum in many new areas. GAAP revenues for the fourth quarter came in at $36.4 million bringing us to $117.9 million for the full year, which represents 56% growth of our fiscal 2011. Bookings for Q4 came in at $56.1 million bringing us to $154.3 million for the full year, which represents 58% growth over fiscal 2011. To put this in perspective, our compounded annual growth rate for revenue and bookings from 2007 through 2011 was 61% and 60% respectively. Clearly, the momentum of our business did not slowdown in 2012. We added more than 120 new enterprise and midmarket clients during the fourth quarter, taking the sizable organic client base to over 1,200 organizations worldwide. New client additions included Deutsche Post, Informatica, Cablevision, the University of Southern California, NCR and the State of North Carolina to name just a few. The diversity of this group of new Q4 clients speak to a trend that characterize the entire year. Whereas in the past, we’ve seen particular success in certain verticals, 2012 definitely proved what we at Cornerstone already knew that our product is applicable to any group of people in any industry anywhere in the world. Some people have asked how we manage to sustain our growth and continue to grow our sales team so aggressively over so many years. The answer again is that Cornerstone is applicable to any group of people. As a result, rather than the seeking to add more and more sales people to the same territories, as some of our acquired competitors have done, we are constantly seeking to increase distribution across three different dimensions, regions, segments and verticals. For example, although we are close to 1 million subscribers in Asia-Pacific, a year ago we had no salespeople in APAC. We historically had no team dedicated to selling strategic multinational mega-accounts and no team selling to small businesses. And we only just now started to meaningfully grow our public sector sales team. We see significant opportunity to grow our distribution in these and other areas. And, we plan to continue to thoughtfully diversifying the business by investing in the areas that we believe have the most incremental opportunity. Our disciplined approach to growth has allowed us to scale the business, while continuing on a path to profitability. As Perry will discuss in detail a little later, not only were we able to once again improve our gross margins in 2012, but we also saw cash flow from operations increase significantly, reaching $11.2 million in 2012, up from just $2.2 million in 2011. As most of you know, 2012 was a year that saw a significant wave of consolidation sweep up several of the major names in talent management. SuccessFactors, Taleo and Kenexa were all acquired leaving us as the leading independent player in the States. While we were initially unsure how things will play out, we’re now convinced that the disruption caused by these acquisitions had significantly improved our competitive positioning. Over and over, leading organizations around the world have opted for Cornerstone’s best-of-breed integrated talent management suite rather than settling for the patchwork solutions offered by the ERPs. BP, Guess, BMW, Ricoh Americas, the world’s leading security systems company, one of the largest consumer products companies in Europe, one of the largest medical equipment companies in the world, and most recently Deutsche post represent just a subset of the many Oracle and SAP clients that we welcomed to the Cornerstone family in 2012. We believe this speaks not only to the momentum of our business, but to the momentum of talent management in general. For the world’s most successful companies, the selection of a talent management platform has become a strategic business decision. These organizations understand the massive returns that the right solution can offer by helping them effectively address the challenges they face in powering and maximizing the productivity of their most important asset, their people. Therefore, as the concept of talent management continues to mature, we believe our momentum will only grow stronger, the best-of-breed functionality increasingly winning out over these minimal convenient and immaterial cost savings that ERP vendors solutions offer today. To that end, as our recently acquired companies – as our recently acquired competitors have been busy integrating, we have quietly continued to innovate. Two years ago, we recognized that the way people recruit was undergoing a dramatic shift. Organizations were increasingly leveraging their entire workforce rather than just recruiters, the source of best talent can create internal and external candidate pipeline. Understanding this change, we began building our recruiting cloud to be natively social and deployed to all employees within an organization, allowing companies to accommodate the way people like to recruit today rather than force them to recruit the way it was done 10 or 15 years ago. In addition, by entering the recruiting space when we did, we were able to identify the things our recruiting brethren weren’t doing and we’re doing well, and instead focus on making them better in our solution. Less than two months before we released our solution in late March of 2012, Oracle announced their acquisition of Taleo and less than five months after the release, IBM announced its acquisition of Kenexa. We believe the timing of those two deals couldn’t have been better for us. Not only that the disruption speed up the time to maturity of our product with respect to client acquisition, helping us to sell dozens of recruiting deals in 2012. But it also gave us the window of opportunity to get feedback from the market to guide our continued innovation. As a result, we’re the only vendor in the market today that offers an organically developed enterprise-class applicant tracking system with a fully integrated social recruiting platform. By March of this year, when we expect our recruiting product to be completely state-of-the-art, we will have the only best-of-breed, end-to-end solution in talent management. We also have been innovating in areas that fall outside of the margins of our core business. About two and a half years ago, when we started getting ready to go public, I reflected back on the start of our company. Back then, I’d spent many nights planning how we would someday unseat the early leaders in our space. It occurred to me that there would soon be someone sitting in their one-bedroom apartment, plotting how to one day unseat Cornerstone. Then I thought, why shouldn’t I be that person? Why not figure out how I would start a competitor to Cornerstone. The approach being fairly obvious at the time, leverage one and Amazon EC2 and Force.com, that’s how you would start a company. So that’s what we did. We created a wholly-owned subsidiary and did it. Earlier today, we announced the availability of Cornerstone for Salesforce. The only learning and training solution built natively on Force.com with web services running from EC2. We already have over 50 clients on Cornerstone for Salesforce, including LinkedIn, Fox, Medtronic and Salesforce itself. Cornerstone for Salesforce embeds learning management directly into Salesforce’s platform, enabling clients at tailor training programs for sales and services teams, providing seamless access with sales enablement and just-in-time training from within Salesforce. Cornerstone for Salesforce also compliments Salesforce’s work.com platform by aligning learning and development planning with sales coaching, goal setting, sales motivation, and sales performance management. A disruption in the talent management industry caused by the consolidation has not only helped us get ahead on the innovation front, but also affected changes in the ecosystem, which provided us with the opportunity to strengthen our alliances. Our strategic relationships with Workday, NetSuite, ADP, ACS and (inaudible) continued to perform well. And we added alliances with newer cloud vendors, such as Box and HireVue. We also have been actively partnering with some of the world’s top system integrators. Last week, we announced our alliance with Appirio. For those of you who aren’t familiar with them, Appirio is the leading provider of technology enabled services for cloud platforms. Over the years, they’ve become a trusted cloud advisor to some of the world’s largest and most innovative companies, including salesforce.com, Workday, and Google. In late last year, they acquired Knowledge Infusion, a thought leader in the human capital space. Through our relationship with them, Appirio will serve as a certified services provider for Cornerstone’s entire integrated talent management suite. We look forward to working together with them in the coming years, as we try to continue to provide our clients with the highest quality service. In summary, I’m extremely proud of what our team has been able to accomplish in 2012 and truly excited about the opportunity that lie ahead of us. Through all the changes in the talent management landscape during 2012, our business continued to excel and Cornerstone today is the clear independent SaaS leader in learning and talent management. Our persistent drive to innovate has provided our clients with the best-of-breed, organically developed, end-to-end talent management solutions. And with a truly global market opportunity and our continued focus on client success, the future looks very bright. With that, I’d like to hand it back over to Perry to go over our financial performance in more detail.

[Perry Wallack:]

Thanks, Adam. Before I get to our fiscal year and fourth quarter 2012 financial results, I’d like to remind everyone again that the financial figures I discuss today are non-GAAP unless I state that the measure is a GAAP number. As was the case in prior periods, we talk about non-GAAP numbers for three reasons. First, our non-GAAP revenue for the fiscal year 2012 is our GAAP revenue plus $1.4 million in revenues we did not recognize during the year on a GAAP basis for Sonar Limited. Again, this amount is the full year 2012 portion of the adjustment to reduce the deferred revenue balance by $1.6 million for the client contracts acquired from Sonar Limited upon our acquisition due to purchase accounting rules. Second, non-GAAP financial measures exclude certain items that we believe are not good indicators of Cornerstone’s current or future operating performance. In fiscal year 2012, the excluded items include expenses related to stock-based compensation and related employer payroll taxes, amortization of intangible assets, acquisition costs, adjustments and taxes related to acquisition adjustments and amortization of debt discount and issuance costs. Third, when we discuss revenue, as it relates to fiscal year 2011, we are referring to gross revenue, which excludes the impact of a non-cash revenue reduction of $2.5 million related to a common stock warrant issued to ADP in that period. Additional adjustments pertaining to fiscal year 2011 include amounts related to early retirement of debt and expenses incurred related to our withdrawn secondary offering. You can find the reconciliation of GAAP to non-GAAP results in today’s earnings release. Before we jump into the financials, I’d like to echo some of the comments Adam made earlier. We had another fantastic year meeting or exceeding expectations in every area. Not only were we able to continue to growth the business at an industry leading pace, but we did so while remaining on the path to profitability thus maintaining the discipline that has been a staple of our operational practice since inception. So with that said, let’s discuss the numbers. Our GAAP revenue for the year was $117.9 million, our non-GAAP revenue was $119.4 million, which reflects an add-back for the $1.4 million write-down related to the Sonar6 acquisition previously mentioned. Our revenue results for the full year represent a year-over-year increase of 56% on a GAAP basis and 58% on a non-GAAP basis. Our full year GAAP revenue exceeded the midpoint of our guidance range of $117 million to $118 million by about $400,000. Total bookings, which we define as gross revenue plus change in deferred revenue were $154.3 million for the full year representing a year-over-year increase of 58%. Year-over-year growth was principally driven by continued sales execution in our core markets and growing momentum in new markets such as public sector. This helped the size of our client base increase from 806 clients as of December 31, 2011, to 1,237 clients as of December 31, 2012, representing 53% year-over-year growth. There are two additional items that I would note as you think about our bookings growth. The first is that we did not experience any material anomalies in our bookings during the year. For example, no clients were billed all years of their contract upfront upon signing. The second is that Sonar Limited, which has been rebranded as Cornerstone Small Business or CSB, only represented approximately $3.6 million of our full year bookings. As we’ve stated in prior periods, we track our business on a consolidated basis. And so going forward, CSB’s contribution will not be disclosed separately. In addition to our industry-leading growth, our annual dollar retention rate for 2012 is 94.3%, which we believe to be amongst the highest in the industry. Our ability to keep retention in line with historical levels as the down market concentration of our client base continues to grow, speaks to the differentiation and stickiness of our application, as well as the long term margin profile of our customers and the business overall. Our gross profit for fiscal year 2012 was $87.4 million compared to $54.9 million in 2011, reflecting an increase of $32.5 million or 59%. Gross margins in fiscal year 2012 improved by 40 basis points over 2011, going from 72.8% in 2011 to 73.2% in 2012. Now let’s turn to our operating expenses for the full year. Sales and marketing expense was $69.5 million representing a year-over-year increase of $25.1 million or 57%. This increase was principally driven by increased head count across our sales and marketing organization, as well as increased sales commissions. As a percentage of revenue, sales and marketing expense was 58% in fiscal year 2012 compared to 59% in fiscal year 2011. On a dollar basis, R&D expense increased by $4.5 million or 48%, compared to 2011. The increase in R&D expense is attributable to increased head count as we continue to invest in products development. R&D expense as a percentage of revenue remained flat for the full year 2012 compared to 2011 staying at 12%. G&A expense was $19.5 million, representing year-over-year increase of $6.6 million or 51%. The increase in G&A expense can be attributed to increased head count, legal and accounting fees and increased overhead to support the growth of the company. As a percentage of revenue, G&A expense represented 16% of revenue for the full year compared to 17% in 2011. As a percentage of revenue, operating expenses decreased to 86% in full year 2012, compared to 88% in full year 2011. Operating loss for the full year 2012 was $15.5 million, compared to $11.7 million in full year 2011. Net loss for the full year 2012 was $60 million or net loss of $0.32 per share based on a weighted average shares outstanding of 49.9 million shares, compared to a net loss of $12.7 million or net loss of $0.32 per share based on a weighted average shares outstanding of 39.8 million shares in the full year of 2011. Our full year net loss fell well within our guidance range with net loss between $15.5 million and $17.5 million. With regards to cash flow, our cash flow from operating activities was $11.2 million for the full year 2012, compared to full year 2011 cash flow from operating activities of $2.2 million. This represents a $3.7 million over achievement of our full year guidance of $7.5 million. We believe this growth and the fact that we beat our guidance speak to our ability to maintain billing turns and collect timely from our clients. Now, let’s talk a little bit about Q4. Fourth quarter of 2012 GAAP revenue was $36.4 million and non-GAAP revenue was $36.7 million, which reflects the $293,000 write-down for Sonar Limited in the fourth quarter. Our fourth quarter 2012 revenue results represent a year-over-year increase of 63% on a GAAP basis and 64% on a non-GAAP basis. Total bookings for the fourth quarter 2012 were $56.1 million compared to $38.4 million in the same period in 2011, representing a year-over-year increase of 46%. As a reminder, our bookings can vary on a quarterly basis, depending on the nature and timing of invoicing. There were no material invoicing differences in the quarter versus our historical averages. Our gross profit in the fourth quarter of 2012 was $26.7 million compared to $16.5 million from the fourth quarter of 2011, which represents an increase of $10.2 million or 62%. Gross margin for the fourth quarter of 2012 was 72.6% compared to 73.5% for the fourth quarter of 2011. As we’ve said in prior quarters, as a result of our continuing investments, we do not necessarily expect to see sequential improvements in gross margins on a quarterly basis. In addition to investments in our software and network infrastructure and our implementation and service organization to support our growth, we are increasing our use of third parties to perform implementations and that impacts our gross margins within quarters. In the fourth quarter of 2012, our sales and marketing expense was $19.5 million representing a year-over-year increase of $6.5 million or 51%. R&D expense in the fourth quarter of 2012 was $3.9 million compared to $2.4 million in the same period in 2011, reflecting a year-over-year increase of $1.5 million or 64%. G&A expenses in the fourth quarter of 2012 increased by $2.3 million compared to the same period in 2011, from $3.8 million to $6.1 million. All of these increases are a reflection of the growth of our business over the prior year. Total operating expenses in the fourth quarter of 2012 came in at $29.5 million or 80% of revenue compared to $19.2 million in the same period in 2011 or 86% of revenue. Operating loss for the fourth quarter of 2012 was $2.8 million compared to $2.7 million in the fourth quarter of 2011. Net loss for the fourth quarter of 2012 was $2.9 million or net loss of $0.06 per share based on a weighted average shares outstanding of 50.5 million shares compared to a net loss of $3 million or net loss of $0.06 a share based on a weighted average shares outstanding of 48.6 million shares in the fourth quarter of 2011. With regards to cash flow, during the fourth quarter of 2012 our cash flow from operating activities was $14.2 million compared to cash flow of $5.2 million in the fourth quarter of 2011. The improvement in collections in Q4 is evident of our ability to maintain billing terms for new customers, as well as reduce our DSOs on a go forward basis. Let me now turn to the balance sheet. As of December 31, 2012, our total cash and accounts receivable balance was approximately $124 million. Our capital strategy continues to be to re-invest some of our bottom line execution and manage our balance sheet wisely in order to continue to invest in our growth. Our total cash and cash equivalents were $76.4 million as of December 31, 2012 compared to $64.5 million as of September 30, 2012 and $85.4 million as of December 31, 2011. The decrease in our cash balance from December 31, 2011 is principally attributable to the use of cash for the acquisition of Sonar Limited on April 5, 2012. As of December 31, 2012, we had approximately $47.5 million in accounts receivable compared to $34.1 million as of December 31, 2011, an increase of 39% over the prior year. Our year-over-year growth in accounts…

[Operator:]

Ladies and gentlemen, please standby, your conference will resume momentarily. Again, ladies and gentlemen, thank you for your patience, please standby, your conference will resume momentarily. Okay, presenters, you may proceed.

[Perry Wallack:]

Our year-over-year growth in accounts receivable reflects our higher levels of sales and continued growth as well as some improvement in DSOs. On a GAAP basis, our deferred revenue balance was $92.3 million as of December 31, 2012, compared to $55.9 million as of December 31, 2011 and $72.6 million as of September 30, 2012, representing a year-over-year increase of $36.4 million or 65%, and a sequential increase of $19.7 million or 27%. With respect to head count, we added 243 employees during the year and 49 employees during the fourth quarter. As of December 31, 2012, we had 750 employees worldwide. This total head count number represents a 48% year-over-year increase and 7% sequential increase compared to the third quarter of 2012. As we look ahead, we expect to continue to have year-over-year head count growth to support the business. In summary, when we look at our business on both a quarterly and annual basis, we continue to grow at industry-leading rates of 58% for bookings and 58% for revenues. We continue to show improvement in gross margins, sales and marketing, R&D and G&A expenses as a percentage of revenue and hence improvement in operating margins. Our cash flow from operations margin reached approximately 9% while we executed the above growth. And now, I’d like to discuss our outlook for 2013, 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 2013, we are currently expecting revenue in the range of $179 million to $182 million. At the midpoint, the range suggests 53% growth over 2012 revenue of $117.9 million. For the first quarter of 2013, we currently expect revenue between $37 million and $38 million suggesting 56% growth over first quarter of 2012 revenues of $24 million at the midpoint. With respect to non-GAAP net income or loss, we currently expect a loss for the full-year 2012 of approximately $9 million. This implies a non-GAAP net loss per share of $0.17 per share based on full-year weighted average share count of approximately 51.5 million shares. Turning to cash flow, for the full year 2013 we are anticipating non-GAAP cash provided by operating activities of approximately $18 million. As we have indicated in the past, based upon our strong execution, we are choosing to continue to reinvest some of our top line overachievement back into the business in order to drive further growth in the future. And with that, I’d like to turn it back over to Adam.

[Adam Miller:]

Thanks, Perry. I would like to thank the global Cornerstone team for their dedication and vision and our clients for their ongoing partnership. We will now take your questions.

[Operator:]

Thank you, gentlemen. (Operator Instructions) Our first question comes from the line of Mark Murphy with Piper Jaffray. Please go ahead. Your line is now open.

[Mark Murphy:]

Yes. Thank you and congrats on a strong year. Perry, I wanted to ask you, there’s a noticeable spike in the deferred commissions on the balance sheet, seems a bit unusual. Wondering if you could please explain the underlying dynamic there? Was there some kind of a change in the comp plans? Was there a change in the timing of the payouts? Or maybe something else going on?

[Perry Wallack:]

No. We have a little bit of a difference in a payment term for our internal sales force, where there’s different cut-off dates for the end of the year for sales commissions, but I don’t think it’s really that material and whatever spike you saw will be flushed in Q1.

[Mark Murphy:]

Thank you. As a follow-up, Adam, I wanted to ask you a question regarding competitor pricing out there in the marketplace. Based on some of our field checks, we have heard indications of, I guess I’d say, desperation pricing or at a minimum unnaturally low pricing in certain cases, out of SuccessFactors specifically, and I’m just wondering if that’s anything you’ve observed? And if so, maybe what do you read into that behavior or what do you think is behind it?

[Adam Miller:]

Yeah, I mean, it definitely is deal-by-deal, so it’s very deal specific. We do see high variability. I think it has to do with which teams are working on particular deals, but we have seen some unnatural pricing as you’re describing. I think it’s temporary, we’ve seen it before, tends to happen towards the end of the year, as people are trying to hit numbers, and I do not think it’s a widespread change.

[Mark Murphy:]

Adam, I also wanted to ask you, in terms of Cornerstone for Salesforce, anything you can share with us in terms of how big you think that can be considering it’s something you’ve been working on in the background for a while, and that I think sales enablement and training is a pretty pervasive and pretty big need for a large number of companies?

[Adam Miller:]

Yeah, we certainly believe it’s a real opportunity for us. We clearly are seeing demand for it, and it fits in perfectly with our overall strategy around learning and talent management. With regard to the exact size, as you know we don’t breakout product sizing or our performance, but I will tell you that we think there is a big opportunity. Salesforce is obviously doing extremely well and therefore there are many, many corporate sales teams out there using salesforce.com and we think this gives us yet another competitive advantage over the competition.

[Mark Murphy:]

And, Adam, one last one if I may. Just considering the pipeline that you’ve got and the economic climate, however that feels to you entering 2013, what are your thoughts about just the prospects specifically for your new business bookings in the course of that year? Would you think that that would run at a fairly consistent level, maybe slightly better, or slightly worse? Again just specific to the new bookings portion of the total business.

[Adam Miller:]

Yeah I mean obviously I can’t comment on 2013 progress year-to-date, but I can tell you that we are feeling good about our position this year. We’ve seen very good momentum coming out of last year and we think the market opportunity continues to grow for us internationally.

[Mark Murphy:]

Thank you.

[Operator:]

Thank you, Mr. Murphy. Our next question comes from the line of Rick Sherlund with Nomura. Please go ahead. Your line is open.

[Rick Sherlund:]

Yes, thank you. Good quarter. I wonder if you could talk about the pull through that you’re getting for the entire suite now, any metric you can give us in terms of how the other products might be attaching to learning?

[Adam Miller:]

Yeah, so as we’ve discussed on prior calls, we are seeing the real ability to sell through the entire suite as well as a significant percentage of our client base using more than learning; more than half of our client-base specifically uses two or more of our clouds. And only 85% of our client base is using learning today. About two-thirds – over 65% of our client base is using our performance cloud. So we are seeing a clear ability to cross sell. Early adoption of recruiting has been better than any of our other products released to-date, and we believe we’re at the beginning of what’s become a real trend around integrated talent management.

[Rick Sherlund:]

And I wonder if you could comment on any deal slip that at the end of the year you might have seen relating to concerns over the fiscal cliff or macro issues? Any material deal slippage that would be unusual in nature?

[Adam Miller:]

I mean we definitely had deal slip in Q4. There definitely were concerns around the fiscal cliff, and we definitely saw some of the large clients delay their decisions. But a lot of those are back in play now. So I don’t think it was a significant impact; it was a temporary effect.

[Rick Sherlund:]

Great. Thank you.

[Operator:]

Thank you, Mr. Sherlund. Our next question comes from the line of Brendan Barnicle with Pacific Crest Securities. Please go ahead, your line is open.

[Brendan Barnicle:]

Great. Adam I just wanted to follow-up, you’ve had pretty consistent increase in customer count, but you’ve seen a nice increase in bookings. Can you give us any more color on what you’re seeing in terms of deal sizes or sort of ASPs in general?

[Adam Miller:]

Yeah, our deal size has continued to stay strong and has being going up across the board, both at the mid-market and with regard to enterprise. We think the market’s maturing overall. As we go further down market, our per seat pricing is significantly higher, because you don’t have the volume discounts, and as the market truly understands both the returns around talent management as well as the fact that there’s, number one less competition, and number two more product to sell for our reps, all of those are contributing to higher ASPs across the board.

[Brendan Barnicle:]

And just following up a little on Mark Murphy’s question about SuccessFactors, what are you seeing out of Plateau in that acquisition that they did?

[Adam Miller:]

Well, I think I talked about this two calls ago, which was to say that we though most of the talent at Plateau was leaving and I think that’s essentially complete. There are very few original Plateau people at the company. It’s one of the reasons that we’ve seen such strong performance out of our public sector team, which left a big opportunity for us, and it’s one of the reasons that we really are taking a very dominant position in learning at this point.

[Brendan Barnicle:]

Great. And then, Perry, I had a couple of quick ones for you. Any more color on Q1 earnings?

[Perry Wallack:]

No, we don’t give guidance on a quarterly basis except for revenue. So we have not done that since we went public and we’re not going to change that process for this year. We’ve guided to Q1 revenue, full year revenue, full year non-GAAP cash flow from operations and full year EPS.

[Operator:]

Thank you Mr. Barnicle. Our next question comes from Laura Lederman with William Blair. Please go ahead. Your line is open.

[Laura Lederman:]

Yes, thank you for taking my questions. Can you give us a little bit of an update on the government and how the pipeline looks there and how business did in 2012? And also can you talk a little bit about, outside of government, just large sales in general and what you’re seeing?

[Adam Miller:]

Sure. So with regard to public sector specifically, we really think about public sector today as four separate verticals

[Laura Lederman:]

Can you talk a little bit about the kind of average price you’re seeing for recruiting and where that has been falling? And is it changing in terms of since you announced the product?

[Adam Miller:]

Yeah, we think about the three sort of core clouds learning, performance, and recruiting as equivalent. And so, they’re basically priced the same. We want a rep selling what the – we want our sales teams selling what the client needs, not what’s going to garner potentially higher commission. And as a result, there is no advantage to a sales person at Cornerstone selling one cloud over another; they’re essentially equivalent.

[Operator:]

Thank you. Our next question comes from the line of Greg Dunham with Goldman Sachs. Please go ahead. Your line is open.

[Frank Robinson:]

Hi, yeah it’s Frank Robinson here for Greg. Good quarter guys.

[Adam Miller:]

Thank you.

[Frank Robinson:]

I wanted to ask, I guess you doubled your head count in both 2011 and 2012. Can you like sort of talk about what you expect to add percent wise on in 2013? And also maybe touch on what percent of the business is coming from alliances?

[Perry Wallack:]

Yeah, so we really don’t detail out exact numbers of head count in the different departments. If you’re trying to drill into something right around sales head count, we don’t give that detail. Our standard metric is roughly a third of the company is in sales and marketing, and they’re not all quota carrying reps. One of the other pieces of color that we often give is when we grow our sales force, we don’t necessarily grow our sales force linearly from year-to-year. So in other words, if we grow our enterprise sales team at a certain rate in 2012, that team is not going to grow at that same rate in 2013. So I think that answers your first question. And your second, could you repeat that?

[Frank Robinson:]

Second question was just what percent of business is coming from alliances or partnerships?

[Adam Miller:]

Yeah. So about 10% of our – I’m sorry, about 20% of our incremental sales come from alliances and that’s been pretty consistent over the last couple of years. What’s changed is the mix of those alliance partners and what the sources are of the agreements that we’re making. But what I will say is that, as a percentage of total incremental bookings, it’s been very consistent. And our goal has been to diversify our partner mix so that we don’t have too much concentration with any single partner, but maintain that 20% in direct sales count.

[Operator:]

Thank you. Our next question comes from the line of Brent Thill with UBS. Please go ahead, your line is open.

[Brent Thill:]

Thanks. Adam, on your comment on the recruiting component becoming – putting the finishing touches on by March, can you just give us a sense of what this gives you now once you get past March? Are you completely where you want to be on the recruiting side? And I guess secondarily for Perry, when you look at the guidance you’ve given this year, have you factored in a lot of recruiting or is this mainly coming from the other clouds?

[Adam Miller:]

What I would tell you is that with regard to the roadmap for recruiting, we’ve learned a long time ago that the roadmap never ends. We obviously have been building learning for a very long time and that roadmap is still very robust. We expect the same thing to happen in recruiting. We have a very detailed roadmap that takes us out over quite some time. So we’re going to keep building out capabilities. The point we were making is that, by March, we have both an enterprise class ATS and a state-of-the-art social recruiting platform that was organically built and that has no rival in the market from a product standpoint.

[Perry Wallack:]

Sure. And then as far as guidance goes, you know, we don’t give necessarily specific guidance on our different products and our different revenue streams. What I would just highlight is we’ve I think proven to be sort of conservative from the last couple of years and we tend to be conservative, and so we don’t like to over-promise and under-deliver. And we’re looking forward to selling a lot of this, this year, and we will look forward to giving you updates on that progress throughout the year.

[Brent Thill:]

Thanks, Perry.

[Operator:]

Thank you, sir. Our next question comes from the line of Michael Nemeroff with Credit Suisse. Please go ahead. Your line is open.

[Mike Nemeroff:]

Hey guys, thanks for taking my questions and a very nice 2012. I didn’t hear you mention the number of million-dollar deals. I was wondering if you’ve given that or if you could give that?

[Adam Miller:]

We’ve never given that statistic. It’s been consistently growing since inception and it’s still growing, so. We’re seeing more larger deals than we’ve seen before both in 2012 and in the pipeline.

[Mike Nemeroff:]

Thanks, Adam. And then Perry, I don’t know if you mentioned it, but the geographic breakdown? And if Adam you could comment on the particular geographies, where you saw some of the more – bigger areas of strength in Q4?

[Adam Miller:]

Yeah, I would say generally about 30% of our revenue is coming internationally. Most of that is coming from EMEA, but we do see opportunity in all regional markets. The product today is in use in 186 countries in 42 languages, so we’re seeing the opportunity to sell around the world. And we’re seeing growth both domestically and internationally in the 60% range. So I would tell you that most of that 30% is coming from EMEA today, but we are starting to build out teams in both APAC and Latin America, where we believe there is significant dormant opportunity right now.

[Operator:]

Thank you, sir. Our next question comes from the line of Scott Berg with Northland Capital Markets. Please go ahead. Your line is open.

[Scott Berg:]

Hi, Adam and Perry, nice quarter here, congratulations.

[Adam Miller:]

Thank you.

[Scott Berg:]

Can you talk about attrition in the quarter

[Adam Miller:]

No, there was nothing substantial. In fact, we had what I would describe as one save where we thought we were going to lose a customer and we actually were able to retain them. Nothing unusual, we’ve stayed in the mid-90%s. As Perry mentioned we believe that as we go further and further down market, it’s going to be harder and harder to retain that 95% exactly, but we are right around that range and we’ve stayed in the mid-90%s, and we expect to stay there.

[Scott Berg:]

Great. And I guess my last question Adam is around growth investments for the year. You guys are obviously very bullish on the environment and it sounds like you’re going to continuing to invest heavily. But from an optics perspective, do you see more of them falling in the first half of the year versus second half of the year or is it pretty consistent and linear to what you’ve invested in the last couple of years? Thank you.

[Adam Miller:]

So as I’ve mentioned in the past, we try to be very disciplined in our growth, and as a result we believe we understand that what level of hiring we can effectively on-board, and we’ve tried to be very consistent about our hiring plans, about the growth of our teams, about the on boarding processes that we follow, including the use of our own product internally. And that’s enabled us to not just continuously grow our sales teams, but never have to have a layoff and be able to have optimal productivity of the reps early in their careers. So, you’ll see it fairly consistent throughout the year, it won’t be all upfront.

[Operator:]

Thank you. And it appears we have time for one final questioner. Our final questions come from the line of Michael Huang with Needham & Company. Please go ahead, your line is now open.

[Michael Huang:]

Thanks so much. Just a couple quick ones for you guys. So first of all, in terms of the Cornerstone for Salesforce offering, I was wondering if you could share how it’s priced and how it’s being sold? And then more importantly I was wondering do you see this as an opportunity to up sell these customers to the core Cornerstone suite over time. How should we be thinking about that? Thanks.

[Adam Miller:]

We really – as you know, Michael we often will do enterprise-wide ideals; that’s our typical deal is enterprise wide. We believe that this will be a supplemental increase to our deals specifically for the Salesforce. Now, there will be cases where we’ll go in salesforce.com and that has been the case with some of the deals we’ve already done, in which case we will work with them, with the tools and solutions that they have, and that could lead to up sell opportunities down the road. But initially those deals would be primarily Cornerstone for Salesforce combined with work.com and chatter for example.

[Michael Huang:]

Okay. So, the Salesforce sales reps, are they getting any quota credit for this at all?

[Adam Miller:]

There is a portion of it where – and I don’t want to get too detailed in the Salesforce economics, but obviously you need a platform license and the reps are getting credit for the platform license. They’re not getting full credit for CFS but they’re getting the platform component of that deal.

[Michael Huang:]

Okay. And then last question for you. So, in terms of kind of how you see competition trending through this year, obviously very favorable landscape for you guys. But when you’re – what are your assumptions around Oracle and SAP kind of through this year? Do you expect them to get their act together relative to last year? Or what would be kind of your view baked within your guidance? Thanks.

[Adam Miller:]

I mean my view is that Oracle is going to become less and less relevant in this industry over time. They have a weaker solution, they are obviously focused on lots of different areas including things like CRM and marketing automation and have less focus on talent management specifically. SAP, it remains to be seen what they do with SuccessFactors and the level of independence they’re going to give SuccessFactors. Right now, they’re a more credible competitor, but depending on what moves they make, that could change as well. So, I’m very optimistic about the competitive landscape. Obviously, there’s also competition in our space but we’ve learned to live with that and I think we’re comfortable with our partnerships and the opportunities we have ahead of us.

[Michael Huang:]

Awesome. Thanks guys.

[Adam Miller:]

Hugh we can take two more questions as well.

[Operator:]

Okay. (Operator Instructions) Presenters, there appears to be no additional questioners in the phone queue at this time. I’d like to turn the program back over to Mr. Miller.

[Adam Miller:]

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

[Perry Wallack:]

Yes, thank you everybody.

[Operator:]

Thank you, presenters. Again ladies and gentlemen, this does conclude today’s conference. Thank you for your participation and have a wonderful day. Attendees, you may log off at this time.