Cornerstone OnDemand, Inc.
Q4 2014 Earnings Call Transcript

Published: 12 Feb 2015

[Operator:]

Good day ladies and gentlemen and welcome to Cornerstone OnDemand Fourth Quarter and Fiscal Year 2014 Earnings Conference Call. At this time all participants are in a listen-only mode, later we will conduct a question-and-answer session with instructions following at that time. As a reminder, this conference call is being recorded. And now, I’ll turn the call over to Perry Wallack, Chief Financial Officer of Cornerstone OnDemand. Please begin.

[Perry Wallack:]

Good afternoon, everyone. This is Perry Wallack, CFO of Cornerstone OnDemand and welcome to our fourth quarter and fiscal year 2014 earnings conference call. Today's call will begin with Adam providing a brief overview of our performance and then I will review some key financial results. 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 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. 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, 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 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. Words such as expect, believe, anticipate, plan, illustrate, intend, 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, the Risk Factors section of our most recent Form10-K and subsequent periodic filings with the SEC. With that, I will turn the call over to Adam.

[Adam Miller:]

Thanks, Perry. And thank you to everyone joining us today. Well we certainly had our share of challenges in 2014 and we have learnt much from the experience. The fourth quarter represented a strong finish to the year, which we believe is indicative of the opportunity in front of us. GAAP revenue for the fourth quarter came in at $76.4 million, taking us to $263.6 million in GAAP revenue for the full year which represents 42% year-over-year growth. Bookings for the fourth quarter came in at $114.2 million taking us to $316.1 million in bookings for the full year which represents 36% year-over-year growth. We added a record 197 new enterprise and mid market clients in the fourth quarter, the most new client adds in the single quarter for us taking the size of our organically grown client base to more than 2,100 companies worldwide. Our new client additions during the quarter included names such as Jones Lang LaSalle, Conway, Nationwide Insurance, Rio Tinto Group, Reliance Capital, Penn State University, New Jersey Transit, London Heathrow Airport and many more. As the volume of new clients indicates we had much success in the mid market in Q4. Many of you may recall that in the first quarter last year we chose to bifurcate our mid market sales team to help us better address the opportunity we were seeing at the lower end of that segment, which resulted in the creation of a new team we call, major accounts. While making this change caused some disruption for us during the first half of the year, our major accounts team made a significant contribution to our over achievement during the fourth quarter. As we look forward, we believe the demand environment for SaaS vendors will continue to strengthen as the inevitability of cloud adoption across the IT landscape has become clear. For us, we expect this tailwind to be further by winning competition and an increasingly sophisticated buyer that is demanding a unified best of breed talent management solution, one that we believe only Cornerstone can offer. When you combine these favorable dynamics with a large greenfield total adjustable market that spans 400 million seats, we believe that we have a significant opportunity to both widen our market presence and deepen client penetration through strong execution in 2015. What makes our approach different this year however is a much tighter focus? Our core business in the U.S. and EMEA has demonstrated a high degree of predictability for many years, and 2014 proved no different, with every team meeting or exceeding historical levels of quota attainment. So as you might imagine, we plan to continue to invest in additional headcount across all of our core teams in the coming months and expect them collectively to remain central to our growth story this year. With respect to widening our market presence the challenges we faced with our emerging businesses last year served as a reminder that technology adaption happens in stages. While we’ve received some level of validation in every area that we’ve invested in, it appears certain markets are simply not mature enough today to allow us to deliver consistent performance, therefore our plan for this year is to sharpen our focus on emerging businesses that offer the most near term upside potential, including Asia Pacific. With a strong foundation of more key clients in every key region, the Asia Pacific business was the fastest growing of our emerging businesses in 2014 and we expect that to be the case again this year. Across all markets we are deepening client penetration through continued success selling multiple products. Our revenue per user which has grown by nearly 50% over the last four years is indicative of this strength. Today, nearly 70% of our clients are using two or more products and roughly 40% are using three or more. And in 2015 we expect to further drive these metrics. Much of the success we are seeing cross selling our products is due to our client’s sales team. As you may recall some of the challenges we faced in the first half of 2014 were due to the complete restructuring of that team in the U.S. but we are now seeing the benefits of that change. Today the team is vertically organized with strong sales management and a focus on deepening our client relationships and we plan to continue to grow the team for added success. We also have strengthened our team of subject matter experts and talent management consultants who have combined with our client sales and client success management teams help our clients realize the massive benefits of unified talent management Of course our cross sell metrics also speak to the strength of our products. We’ve invested heavily in the continued build out of our talent management suite, innovating to drive competitive differentiation and client success. Innovation has been our tradition, and in 2015 continued innovation will remain a priority. Throughout this year you will hear us talk about the results of that drive to innovate. For example, we believe our recent acquisition of Evolv has positioned us to be able to grow deeper in the area of managing talent than anyone else. With over 18 million users already we have one of the largest data sets in the world about people at work and we now have a state of the art machine learning platform to drive insights from that data. Combined with the data signs and engineering expertise we have gained we plan to release visualization tools and predictive analytics to help our clients make better data driven decisions about their people. In addition, we intend to use machine learning to strengthen every aspect of our product suite from recommending candidates to be interviewed from large pool of applicants to recommending training for extended enterprise users. While much of what I’ve discussed relates to topline growth, we remain committed to continuous improvements in profit margins by both following a disciplined approach to incremental investment and by maintaining our industry leading rates of client retention. In 2014, this helped us grow our cash flow from operations by more than 60% year-over-year while also bringing our net loss margin even closer to break even. Our expectations for 2015 which Perry will detail shortly reflect a continuation of those trends. To conclude, I want to take this opportunity to thank our incredible global team for their continued dedication to making Cornerstone one of the most successful companies in the world. I look forward to seeing what we are able to accomplish together in 2015. And with that, I’ll turn it back over to Perry to discuss our financial performance in more detail.

[Perry Wallack:]

Thanks, Adam. Before I get to our fiscal year and fourth quarter 2014 financial results, 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 on our and on our website. We talk about non-GAAP numbers for the following reasons. Non-GAAP financial measures exclude certain items that we believe are not good indicators of Cornerstone's current or future operating performance. For the periods we will discuss today, these items include expenses related to stock-based compensation and related employer payroll taxes, amortization of intangible assets, acquisition related costs, adjustments in taxes related to acquisition adjustments, amortization of debt discount and issuance costs, payments of premium on investments net of amortization and adjustments to our revenue due to the write down of deferred revenue related to our acquisition of Evolv. For periods of the past, this may also include adjustments to our revenue due to the write-down of deferred revenue related to our acquisition of Sonar Limited in April of 2012. You can find the reconciliation of GAAP to non-GAAP results in today's earnings release. The fourth quarter represented a strong finish to what was a bit of an inconsistent year for us. With that said as Adam discussed we have taken much away from the challenges we face in 2014 and believe these learnings will benefit us greatly in 2015 and beyond. Now let’s talk about the numbers. GAAP revenue for the fourth quarter was $76.4 million, representing a year-over-year increase of 39%. For the full year, total GAAP revenue was $263.6 million representing a year-over-year increase of 42%. As discussed on the Q3 call the impact on GAAP revenue from the acquisition of Evolv was not material in the fourth quarter. Our non-GAAP revenue was approximately $455,000 higher than our GAAP revenue due to the write down of $1.9 million to reduce the balance of deferred revenue related to assume client contracts acquired from Evolv. This write down will be amortized over the following eight quarters. As we have consistently highlighted our revenue can be impacted by the timing of when consulting services are delivered to new and existing clients by our services organization and implementation subcontractors. Our continued success selling to the top end of the market as well as an increase in the number of products purchased across all segments and geographies has resulted in a lengthening of our average timeline to complete services related projects. In Q4, we were able to over achieve on revenue as a result of a bit more service related revenue in the quarter. We had many projects progress and/or completed by both by us and our third party implementation partners. As we have stated in the past, we view our SaaS offering as constituting a single group of similar services as software and services are sold in nearly every engagement. As such, our revenue mix between software and services related streams only varies by a few percentage points on a quarterly and annual basis. As is the case with many of our peers, revenue can also be impacted by fluctuations in foreign exchange rates principally due to the quarterly revaluation of deferred revenue. As I have discussed in the past, approximately 30% of our revenue comes from our international clients, nearly all of which is today generated by our EMEA business and a small portion in Australia. For the fourth quarter, the strengthening of the U.S. dollar versus the Euro and British Pound resulted in a relatively small reduction in revenue. In 2015 however, we expect the foreign exchange impact on revenue will be material as I will discuss later. For the fourth quarter bookings which we define as gross revenue plus change in deferred revenue, were $114.2 million representing a year-over-year increase of 35%. We did have a couple of anomalies with respect to bookings in the fourth quarter that impacted the number in both directions. The first stem from a single large client that preferred to be built multiple years upfront resulting in incremental billings for that client of approximately $4.8 million. This has reflected in the increase in our long term deferred revenue balance. The second was related to the strengthening of the U.S. dollar. Although the negative impact on revenue in the fourth quarter from the strengthening U.S. dollar was relatively small, there was a material negative impact on our bookings. The year-end or December 31 deferred revenue balance was lower by approximately $2 million due to the movements in exchange rates. As bookings are calculated as revenue plus change in deferred revenue this reduction in deferred revenue had a negative impact on bookings. So after netting both of these anomalies out we estimate fourth quarter bookings on a normalized constant currency basis were approximately $111.4 million representing 32% year-over-year growth. Total bookings for the year was $316.1 million representing a year-over-year increase of 36%. When adjusting for the foreign exchange and other anomalies on an annual basis we estimate the normalized bookings growth remains approximately 36%. The size of our client base increased to 2153 clients as of December 31, 2014 which reflects the addition of a record 197 clients during the fourth quarter and a record 522 clients during the year. Our user base increased to approximately 18.1 million users as of December 31, 2014 which represents the addition of a record 1.45 million new users during the fourth quarter and a record 4 million new users during the year. Our annual dollar retention rate for 2014 was approximately 94%, which we believe to be amongst the highest in SaaS. The less than 1% decrease in retention versus 2013 is in line with our expectations as we continue to grow the downmarket concentration of our business. We believe our ability to maintain industry leading retention as we reach greater levels of scale, speaks to the stickiness of our solution as well as the long term margin profile of our clients and the business overall. Turning to margins, our fourth quarter gross margin was 73% versus 74% in 2013. The slight decrease can be attributed to an increase in spending associated with third party sub contractors used for implementations. For the full year our gross margin was also 73% remaining flat from fiscal year 2013. This was in line with our expectations. Our use of subcontractors varies on a quarterly basis depending on the timing, size, and geography of deals closed in a given quarter. We expect gross margins to nominally improve in 2015. To quickly detail operating expenses, sales and marketing represented 54.4% of revenue in 2014, up from 53.5% in 2013 resulting from our investments in sales and marketing and related headcount worldwide in our acquisition of Evolv. R&D expense represented 10.2% of revenue in 2014, flat from 10.3% in 2013. And G&A represented 11.9% of revenue, down from 14.4% in 2013, as a percentage of revenue total operating expenses decrease to 76.5% in 2014 compared to 78.2% in 2013. For 2015 we do not expect these amounts to vary materially. Operating loss for the fourth quarter was $2 million compared to an operating loss of $0.4 million for the fourth quarter of 2013. Net loss for the fourth quarter was $3.9 million or net loss of $0.07 per share based on a weighted average shares outstanding of 53.7 million shares compared to a net loss of $1.7 million in Q4 of 2013 or net loss of $0.03 per share based on a weighted average shares outstanding of 52.2 million weighted average shares outstanding. For the full year 2014 net loss was $17 million or a net loss of $0.32 per share based on weighted average shares outstanding of 53.3 million shares compared to a net loss of $12.5 million or net loss of $0.24 share based on a weighted average shares outstanding of 51.4 million shares in full year 2013. The $17 million in full year net loss is in line with our reversed full year non-GAAP net loss guidance approximately $17 million. This also represents a net loss margin of negative 6% which improve from negative 7% in 2013. During the year we recorded a net income tax expense of $855,000 principally related to our international operations. For income tax purposes in the U.S. we continue to expect our net operating losses to offset any domestic earnings for the foreseeable future. Our net loss in 2014 included unrealized and realized losses on foreign exchange in the amount of $2.4 million compared to a loss $316,000 in 2013. As you’ve heard on calls of our peers, this is due to the larger fluctuations in foreign currencies in 2014. With regard to cash flow, cash flow from operating activities in the fourth quarter was $44.4 million compared to $18.8 million in the fourth quarter of 2013. We believe the improvement in collections in Q4 is evidence of our ability to maintain billing terms for new client, as well as reduce our DSOs on a go forward basis. Cash flow from operating activities for the full year was $33.3 million compared to full year cash from operating activities of $20.6 million in 2013. This represents a $3.3 million over achievement of our revised full year guidance of $30 million, as well as a cash flow from operations margin of approximately 13% compared to 11% margin in 2013. Let me now turn to the balance sheet. As of December 31, 2014 our total cash, account receivable and short term inventory was approximately $367.2 million. On a GAAP basis our deferred revenue balance was $191.4 as of December 31, 2014 compared to $138.8 million as of December 31, 2013 and $153.5 million as of September 30, 2014, represented a year-over-year increase of 38% and the sequential increase of 25%. In 2014 our total CapEx was approximately $11 million or 4% of revenue. In 2015 estimate CapEx would be approximately $17.5 million or 5% of revenue. The increase will principally be driven by the scaling of our technology infrastructure related to big data as a result of question of Evolv. With respect to headcount we added 152 employees during the fourth quarter and 374 employees during the year inclusive of employees related to the acquisition of Evolv. As of December 31, 2014 we had 1361 employees worldwide. This total headcount number represents a 13% sequential increase, and a 38% year-over-year increase. I’d now like to discuss our outlook for 2015 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. As we have discussed our business continues to executive in international markets and therefore we expect the revenue contribution from these markets to increase over time, as a result given the recent movements in the U.S. dollar principally against euro and British pound, but also against other currency such as the Australian dollar. We may experience additional reductions in our forecasted revenue over the course of the year. On the other hand, if the moment and exchange rate become advantageous our revenue could also be positively. Given this potential variability we are planning on implementing a foreign exchange hedging strategy this year which we believe may help us reduce the impact of foreign exchange rate movements. After the taking the adverse foreign exchange impact in recent months into account. We are currency expect GAAP revenue in the range of $336 million to $341 million. At the midpoint this represents approximately 28.5%growth over 2014 GAAP revenue of $263.6 million. For the first quarter of 2015 we currently expect GAAP revenue between $72 million and $73 million. At the midpoint this represents 26.3% growth over the first quarter of 2014 GAAP revenue of $57.4 million. With respect to non-GAAP net income or loss we currently expect a loss for the full year 2015 of approximately $16 million. This implies the non-GAAP net loss per share or $0.29 per share based on fully year weighted average share count of approximately 54.4 million shares. This also implies a net loss margin of approximately 4.7% for the full year 2015, an improvement of approximately 170 basis points over full year 2014. Turning to cash flow, for the full year 2015 we are anticipating non-GAAP cash provided by operating activities of approximately $43 million. This represents cash flow margins of approximately 12.7%. We’ve recognized the importance of continuing to grow cash flow to support our bondholders and satisfy our convertible debt obligations. In summary, despite some challenges in 2014, our business continued to progress in all areas, as evidence by our strong revenue bookings growth and improved net loss and cash flow from operations margins. We look forward to building upon this in 2015 while taking our learnings to further refine our business model. And with that, I’d like to turn it back over to Adam.

[Adam Miller:]

Thanks, Perry. As I look back on 2014, there is no question that it was our toughest year to-date as a public company. But at our core Cornerstone is a learning organization, and from last year’s challenges we learn much about business in managing expectations that we may not have figured out any other way. Remember that, for our first three years as a fast growing public company we could seemingly do no wrong and over that period we climbed by more than 400%. The beating we took in 2014 was a call to arms for Conerstone, not only remember but it directive to regain the hunger and humility that we had during our days as a little known scrappy startup. And while our stock chart doesn’t show it yet, we are truly in a better place today than we were a year ago, stronger, more humble and more focused. We will now take your questions.

[Operator:]

[Operator Instructions] Our first question comes from Brent Thill with UBS. Your line is open.

[Brent Thill:]

Great. Thanks. Adam, if you could just talk little about the traction inside the larger enterprise accounts and what you’re looking at this year in terms of the pipeline of opportunity. And, Perry, if you could just follow-up little bit about the FX exposure for Q1, the magnitude of that headwind? I think the guidance was certainly a little bit below where the Street was expecting. Can you just maybe walk through your approach for Q1, is there any else in Q1 from a seasonal perspective that you’re anticipating that may have been factored into the guidance you gave? Thank you.

[Perry Wallack:]

Yes. Sure. I’ll take that first Brent. If you take a look at our seasonality over the last couple of years especially in 2014, you’ll find that the midpoint for our guide for Q1 is right in line with the normal quarterly seasonality that we’ve been experiencing. There is a little bit of headwind in foreign exchange, we have really quantified it, but suffices to say that we don’t think our seasonality is really that much from the prior years. And then, I’ll turn it over to Adam and talk about the large deals in the pipeline.

[Adam Miller:]

Yes. Just on the guidance point, the guidance is solely reflecting the FX hit, otherwise it’s exactly where the Street was, I think from next year perspective. With regard to the high end of the market obviously last year we did two very large deals and then we did another one at the very end of the year. We actually did multiple 8 figure deals essentially during the year, and we think that’s going to continue going into 2015. So our pipeline is much stronger at the beginning of this year for strategic accounts than it was a year ago, and we’re feeling good about our ability to compete at the end of the market with the largest best known companies in the world. And we expect to do quite well this year. But we have muted our expectations given the inconsistent results we had last year.

[Brent Thill:]

Right. Thank you.

[Operator:]

[Operator Instructions] Our next comes from Brendan Barnicle with Pacific Crest Securities. Your line is open.

[Brendan Barnicle:]

Thanks. I wanted to follow-up on Brent’s question on seasonality. Perry, if I look, I mean, we’ve typically seen sequential improvements from Q1 to Q2. And we’re seeing, I mean, even the currency aside, you’re seeing a particular sequential decline. What’s the different now from what we see in the past couple?

[Perry Wallack:]

Yes. That has to deal with the overachievement on revenue in the fourth quarter, mostly due to the execution in the services team. So, what you’ll find is that normally our Q1 is somewhere between, let’s just call it 20% and 22% of our full year. And I think at the midpoint of the guide, we’re at about 21.4% for Q1. So it’s right in line with the average or normal seasonality that we’ve had over last couple of years. The reason from this sequential decline is merely against I guess you would call maybe a little bit of tougher comp or overachievement in revenue in Q4.

[Brendan Barnicle:]

Got it. Adam, in your prepared remarks you talked about focusing on the Asia-Pac business for your emerging businesses. Does that mean, you’re going to emphasize Latin America and Federal which it lagged last year?

[Adam Miller:]

Yes. So the investment were already made in Federal we have not reduced our investment in Federal. We just haven’t grown it. That was a macro issue. We think there could be a comeback this year, but our expectations as we’ve said before very muted until we see a change. With regard to Latin America, we are focusing only on Mexico and Brazil now, so we have reduced our investment there and we had very good results in APAC from a growth perspective. We think that’s the most promising of our emerging businesses. And so that’s where you’ll see the most investment in the emerging businesses. Of course, we’re still investing heavily in the core businesses.

[Brendan Barnicle:]

Right. And then just lastly, Saba are taken private, it’s getting taking private, announcement came out earlier this week. Does that have any competitive impact one way or other for you?

[Adam Miller:]

Absolutely, I mean, it’s one last competitor in the market. We’ve had other competitors that are been acquired by PE firms. They tend to disappear into the ether after that happens. We get very good traction from recruiting standpoint is well and we’ve have seen that already in the case of Saba.

[Brendan Barnicle:]

Great. Thanks.

[Operator:]

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

[Unidentified Analyst:]

Hi, thank you. This is a [indiscernible] sitting in for Mark and congratulations on the quarter. I just want to ask about Evolv. I guess you have Evolv for a few months now, have you started showcasing it to the customers? And if you can tell us what is the early reaction been there?

[Adam Miller:]

Yes. Our client base is very interesting in big data, it’s something that they been looking for. It’s the reason we made the acquisition of Evolv. It helps us both with our existing products and with new products we want to develop around predictive and prescriptive analytics. The reaction has been extremely strong. We just had a client advisory board meeting couple of weeks ago, where we had the CEO of Evolv present what we are working on and, again, the reaction was extremely positive. We have not put these new products in market yet, that will happen later this year.

[Unidentified Analyst:]

Okay. Thank you. And in the same context about new products, I mean, perhaps we have heard a lot about the marketplace from the channel, good thing about the marketplace of the channel. I wanted to hear what is your longer term vision around that? It feels like investors are probably not aware of it as much as the channel is bullish on it?

[Adam Miller:]

Yes. We’ve intentionally not talked a lot about our platform and the marketplace. We’ll be talking about that later this year. We want to make sure we’ve fully develop what we’re working on before we bring it out to market. But expect us to make some announcements around our client conference, which is in May of this year.

[Unidentified Analyst:]

Okay. And Perry is there – could you talk about the drop off in the CapEx number this quarter? Is there anything that’s going on there?

[Perry Wallack:]

Yes. Are you talking about in Q4?

[Unidentified Analyst:]

Yes.

[Perry Wallack:]

Yes. No, there’s nothing really going on there. As I mentioned in the prepared remarks, CapEx last year was about $11 million and over the course of 2014 and we expected to be about $17 million in 2015 related to technology infrastructure upgrades mostly related to our acquisition of Evolv.

[Unidentified Analyst:]

Okay. And the calculated billings number if you look at from the cash flow statement, I am getting around 39%. Is that mainly because that does not – not adjusting for the FX or…?

[Perry Wallack:]

Yes. That most likely not adjusting for the FX or the large upfront payment that we received from the one client in the quarter.

[Unidentified Analyst:]

Okay. Right. Okay. All right. Thank you. That’s all.

[Perry Wallack:]

Thank you.

[Operator:]

Our next question comes from Michael Nemeroff with Credit Suisse.

[Michael Nemeroff:]

Thanks for taking my questions. Adam, in you prepared remarks you’d said that you’re going to start to focus in a little bit more on the cross selling to the installed base. Could you just maybe give us a sense of what percent of the bookings each quarter come from the cross-sell versus new customers? And what percent of the new bookings you expect that to be from cross-sell in 2015 and 2016, just rough percentages if you would, please?

[Adam Miller:]

Yes. Its roughly 20% of bookings, that’s been fairly consistent for the past several years, we think there’s an opportunity to grow that and we’ve characterize that as a $1 billion potential opportunity, if you just look at the price points and the value of the products that have yet to penetrated across client base. We built the team last year really verticalized, focused on going after that opportunity, that team is firmly in place now. They are actively pursuing those opportunities and we think could provide significant upside both this year and next year.

[Michael Nemeroff:]

Then Perry on the – thanks, Adam. Perry on the big $4.8 million contract, what’s the duration of that contract and maybe is this a new customer or an existing customer renewal?

[Perry Wallack:]

Yes, sure. It’s a new customer. It’s a five-year deal. What was the rest of the question?

[Michael Nemeroff:]

That was it. Thanks very much.

[Perry Wallack:]

Yes.

[Operator:]

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

[Justin Furby:]

Hey, guys. Thanks. Adam, I wanted to ask about the 30% to 35% framework that you talk about last quarter. I think that sort of best case revenue frame work for the last two years and I know you don’t guide specific to bookings and there’s lot of puts and takes with that number, but is it fair to say over the next couple of years that sort of how you’re viewing bookings, calculate bookings as well. And I think I just ask the question, because if you look at the normalized bookings rate I think you said, it was 32% this quarter down from 35%. I am just wondering where you think that stabilizes over the next two quarters?

[Adam Miller:]

Yes. We don’t guide bookings. What I will say is that bookings tend to be less than revenue in the given year. And that’s been true if you go back as far as you want. The bookings percentage growth allows for higher revenue growth in the following year.

[Justin Furby:]

Okay. And then, I want ask also on the renewal, that’s sounded like you guys have another good year there. I’m just curious that the step down from 95 to 94, is that solely a function of more mid market exposure. Did you see any big 20,000, 30,000, 40,000, 50,000 type C customers that you might have lost during the year?

[Adam Miller:]

No. Our renewal rates are been very consistent over the years. The only difference is and we’ve expected this for a long time as we have more of our client base down market. You could expect there to be some incremental churn. The reality is we’ve had very minimal incremental churn despite the fact that we have aggressively gone down market over the last couple of years.

[Justin Furby:]

Okay. Great. And then one last one if I could on the pricing environment. Just curious what you saw this quarter versus maybe last year, versus the year ago from as per seat pricing standpoint and the competitive dynamics there?

[Adam Miller:]

Yes. So that varies tremendously by segment, we’ve seen our revenue per user continue to go up as it has over the past couple of years and we think it will continue to improve overtime.

[Justin Furby:]

Okay. Great. Thanks guys.

[Operator:]

Our next question comes from Brad Sills with Merrill Lynch your line is open.

[Brad Sills:]

Hey thanks guys, thanks for taking my question. Just one Adam on cross sell that metric, the 70% of customers running two or more has been gapping up nicely over the last few years. Can you just talk a little bit about during the quarter where you saw some progress in the specific modules, please?

[Adam Miller:]

Yes so recruiting is up to about 15% penetration. We think we are going to see some good upsell this year in connect as we release social learning and we have seen adoption of on-boarding and just across the board of our products. I think the main takeaway is that we now have 40% of our client base with three or more products and 70% with two or more products. So generally the company at large has gotten quite good at cross selling upselling products.

[Brad Sills:]

Okay. Great. Thanks. And then, your comment on pipelines this year being stronger than last year in the strategic accounts. Can you just comment on where those are coming from? I guess the incremental growth in the pipeline. Are these guys’ replacement deals? Is there something going on competitively vis-à-vis some of the larger enterprise competitors, or is it greenfield or a combination? Thanks very much.

[Adam Miller:]

Yes the way to think about it is we have 150 strategic accounts globally. We assume at any given time maybe 20% will be active, meaning we’ll have a legitimate opportunity in play of those maybe 10% will be actively pursued during the year and our goal is to win as many of those as possible.

[Brad Sills:]

Great. Thanks, Adam.

[Operator:]

Our next question comes from Michael Huang with Needham and Company. Your line is open.

[Michael Huang:]

Thanks very much. Just a quick follow-up on the large customer who decided to pay upfront [ph]. I am curious, what drives that customer to pay upfront? Were there any special incentives for these guys to step up like that?

[Adam Miller:]

Yes we had upfront billing since 2002. We used to do annual billings. We used to do monthly billing in arrears and we switched to annual billings upfront back in 2002 and we’ve been able to hold that line steadily from day one. There are – there’s nothing special about it, there’s no special incentives driving that, that’s been our policy from day one.

[Michael Huang:]

Okay.

[Adam Miller:]

In the case of the particular deal that data front [ph] it had to do with the fact that they had extra cash during the end of the year and the way they operated internally and they requested it. But 99.9% of our deals are paid annually upfront and the typical deals are three year deal.

[Michael Huang:]

Got you. Okay. Great. And then just with respect to the over achievement in professional service in the quarter, I was curious like what drove this? I mean was this some catch up run from Q3 or was there something else here and then just in general I think you had mentioned that deployment cycles are lengthening. I mean is this potentially offset by the success that you see in down markets?

[Adam Miller:]

Yes deployment cycles are lengthening only for the largest accounts and specifically we are selling bigger deals, it’s not that our deployment cycles apples-to-apples are lengthening we are now just selling much larger deals that have more complex implementations. As we go down market we’ve actually seen our implementation cycles shrink and we are able to deploy it very quickly in fact one program we’ve talked about before is one, two, three live which gets the client live literally in three weeks. So we’ve had a lot of success doing that down market. What you saw in the fourth quarter was a lot of focus on ensuring that our projects were kicked off and successful. We had a lot of clients who had objectives of getting projects completed by the end of the year often for a launch January 1st and so we did a lot of work to meet our client’s requirements. And it’s difficult to predict that on any given quarter but we’re getting better and better at doing that.

[Michael Huang:]

Great. Thanks so much.

[Operator:]

Thank you. Our next question comes from Pat Walravens with JMP Group. Your line is open.

[PatWalravens:]

Oh great thank you. One sort of tactical question and that a bigger picture one. The tactical one was, Adam, if I heard you right, you said 2015 revenue guidance would have been in line with the consensus but for FX. So is it fair to say the impact for full year is $3 million to $4 million?

[Perry Wallack:]

That’s right.

[Adam Miller:]

Yes its’ actually a little bit more than that, because it really has two pieces. It has the deferred revenue piece that’s rolling in from all the existing customers that are closed in 2000 –as '12,'13 or '14 and then it impacts the forecast of all the new sales that we are planning on doing in 2015. So if you look at the changes in exchange rates from post the Q3 earnings call to now the deferred revenue piece of that probably adds up to at least $4 million and on the new sales piece its at least a couple of million. So it’s probably north of $6 million.

[Pat Walravens:]

Okay. That's helpful. And then, bigger picture, one question that I get is whether talent management is a standalone category over the long term. And so, I would love it if you could address that and then also address whether the answer is different when you look at the enterprise level versus in the SMB.

[Adam Miller:]

Well my short answer is I have 2000 data points that say yes, talent management can be a standalone solution with well over 2000 clients now in the mid-market and enterprise. We think this is part of the reality of cloud software which relatively easy to integrate solutions together and so often clients will make the decision of going best-to-breed over going with an ERP solution. Now having said that, we’re not going to win every single deal. There are companies particularly at the high end of the large enterprise phase that do choose to centralize and the single solution, but we have seen time and again the ability to be extremely competitive against those ERP solutions and provide real value to our clients who are re-upping year after year. So again these are three year deals and three year renewals. And the example I often give people when they ask this question, can you have best of breeds against an ERP suite over the long time, my best data point really at the end of the day is salesforce.com which obviously is best-to-breed at sales marketing today and has performed extremely well and we think we have a very similar opportunity around managing people.

[Pat Walravens:]

Great. Thank you.

[Operator:]

This ends the Q&A session for today. I’ll turn it back to Adam Miller, CEO of Cornerstone OnDemand for closing remarks.

[Adam Miller:]

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

[Operator:]

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