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Taleo 10-K 2008 Documents found in this filing:Table of Contents
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C. 20549
Commission File Number:
000-51299
TALEO CORPORATION
4140
Dublin Boulevard, Suite 400
Dublin, California 94568 (Address of principal executive offices, including zip code)
(925) 452-3000
Securities registered pursuant to Section 12(b) of the
Act:
Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definition of
“large accelerated filer,” “accelerated
filer” and “smaller reporting company” in
Rule 12b-2
of the Exchange Act. (Check one):
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
The aggregate market value of the voting common equity held by
non-affiliates of the registrant as of June 29, 2007 was
approximately $470 million (based on the closing sale price
of such shares on the Nasdaq Global Market on June 29,
2007). This calculation excludes the shares of Class A and
Class B common stock held by executive officers and
directors at June 29, 2007. This calculation does not
reflect a determination that such persons are affiliates for any
other purposes.
On February 29, 2008, the registrant had
25,913,293 shares of Class A common stock and
462,118 shares of Class B common stock outstanding.
The registrant has incorporated by reference into Part III
of this
Form 10-K
portions of its Proxy Statement for the registrant’s 2008
Annual Meeting of Stockholders, to be filed with the Securities
and Exchange Commission pursuant to Regulation 14A not
later than 120 days after the end of the fiscal year
covered by this
Form 10-K.
TALEO
CORPORATION
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Table of Contents
This
Form 10-K,
including Part I, Item 1 — Business and
Part II, Item 7 — Management’s
Discussion and Analysis of Financial Condition and Results of
Operations, contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of
1934, as amended. These statements identify prospective
information, particularly statements referencing our
expectations regarding revenue and operating expenses, cost of
revenue, tax and accounting estimates, cash, cash equivalents
and cash provided by operating activities, the discontinuation
of our time and expense processing services related to our Taleo
Contingent solution, the opening of additional data centers, the
demand and expansion opportunities for our products, our
customer base and our competitive position. In some cases,
forward-looking statements can be identified by the use of words
such as “may,” “could,” “would,”
“might,” “will,” “should,”
“expect,” “forecast,” “predict,”
“potential,” “continue,”
“anticipates,” “expects,”
“intends,” “plans,” “believes,”
“seeks,” “estimates,” “is scheduled
for,” “targeted,” and variations of such words
and similar expressions. Such forward-looking statements are
based on current expectations, estimates, and projections about
our industry, management’s beliefs, and assumptions made by
management. These statements are not guarantees of future
performance and are subject to certain risks, uncertainties and
assumptions that are difficult to predict; therefore, actual
results and outcomes may differ materially from what is
expressed or forecasted in any such forward-looking statements.
Such risks and uncertainties include those set forth herein
under Part I, Item 1A — Risk Factors or
included elsewhere in this Annual Report on
Form 10-K.
Unless required by law, we undertake no obligation to update
publicly any forward-looking statements, whether as a result of
new information, future events or otherwise.
We are a leading global provider of talent management software
solutions. Our goal is to help our customers improve business
results through better talent management. We offer recruiting,
performance management, internal mobility and other software
solutions that help our customers attract and retain high
quality talent, more effectively match workers’ skills to
business needs, reduce the time and costs associated with manual
and inconsistent processes, ease the burden of regulatory
compliance, and increase workforce productivity through better
alignment of workers’ goals and career plans with corporate
objectives. In addition, our solutions are highly configurable,
which allows our customers to implement talent management
processes that are tailored to accommodate different employee
types, locations, business units and regulatory environments.
We deliver our solutions on-demand as a hosted service that is
accessed through an Internet connection and a standard web
browser. Our solution delivery model, also called
software-as-a-service or SaaS, eliminates the need for our
customers to install and maintain hardware and software in order
to use our solutions. We believe our SaaS model significantly
reduces the time, cost and complexity associated with deployment
of traditional, on-premise software solutions, and offers a
lower upfront and total cost of ownership than traditional
software solutions. We offer our solutions as a
subscription-based service for which our customers pay a
recurring annual or quarterly fee during the subscription term.
We market Taleo Enterprise
Editiontm,
our suite of talent management solutions for larger, more
complex organizations, through our direct sales force and
indirectly through our strategic partners. We market Taleo
Business
Editiontm,
our suite of talent management solutions for smaller, less
complex organizations, primarily through our telesales team and
Internet marketing efforts. As of December 31, 2007, our
customer base included over 1,500 customers worldwide. Our
customer base ranges in size from large, global organizations,
including 37 of the Fortune 100 and 108 of the Fortune 500, to
small, private companies.
We are a Delaware corporation and were incorporated in May 1999.
We changed our name from Recruitsoft, Inc. to Taleo Corporation
in March 2004 and completed our initial public offering in
October 2005. Our principal executive offices are located at
4140 Dublin Boulevard, Suite 400, Dublin, California 94568.
Our telephone number is
(925) 452-3000,
and our website is located at www.taleo.com.
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Talent management encompasses multiple complex processes with
interconnected elements that together play a vital role in
attracting, sourcing, assessing, hiring, developing and aligning
human capital to our customers’ business objectives.
Most organizations no longer view human capital solely as an
expense to be minimized, but instead as an asset to be
optimized. This shift in thinking has mirrored the evolution of
talent management from a manual, paper-based practice to a
technology-enabled, organization-wide strategic business
initiative.
Over the past several years, organizations have implemented
systems to automate many critical business functions. While this
automation has generated large volumes of data and business
information, the critical knowledge within organizations resides
with its employees. Accordingly, much of the value of the
organization resides in its human capital. To increase their
return on investment in human capital, organizations have begun
to shift their focus from traditional cost and
time-per-hire
metrics to more strategic considerations. These considerations
include quality of hire, time-to-productivity, internal
mobility, employee retention, employee engagement, and employee
contribution measures. Systematically pursuing these goals
increases overall workforce productivity by enabling talent to
be more optimally assigned and redeployed to address business
needs. A comprehensive, unified view of talent management
requires solutions that not only automate discrete recruiting
and performance management transactions, but also improve the
effectiveness and consistency of recruiting and talent
management processes through a more consistent competencies
inventory management process, thereby increasing the quality of
hire, employee retention, and productivity.
Our on-demand, software-as-a-service, delivery model enables our
proprietary software solutions to be accessed and used by our
customers remotely through an Internet connection and a standard
web browser. Our solutions are hosted and maintained by us, thus
eliminating for our customers the time, risk, headcount and
costs associated with installing and maintaining applications
within their own information technology infrastructures. As a
result, our solutions require less initial investment in
third-party software, hardware and implementation services, and
have lower ongoing support costs than traditional enterprise
software. The SaaS model also allows advanced information
technology infrastructure management, security, disaster
recovery and other best practices to be leveraged by smaller
customers that might not otherwise be able to implement such
practices in their own information technology environments. Our
solutions were designed and developed for delivery via the SaaS
model from our inception. Our SaaS delivery model also enables
us to take advantage of operational efficiencies. Since updates
and upgrades to our solutions are managed by us on behalf of our
customers, we are able to implement improvements to our
solutions in a more rapid and uniform way. As a result, we are
required to support fewer old versions of our solutions. This
allows our development resources to focus more effort on
innovative new products.
Our SaaS delivery model, coupled with our subscription-based
license model, effectively replaces the large, front-loaded
cost, typical of most traditional enterprise software
deployments, with a lower risk, pay-as-you-go model. We believe
the SaaS model is well suited to the talent management market in
which we operate.
We offer two suites of talent management solutions: Taleo
Enterprise Edition and Taleo Business Edition. Taleo Enterprise
Edition is designed for larger, more complex organizations and
provides support for unified,
end-to-end
talent management processes ranging from sourcing and recruiting
and, more recently, to performance management, goals management
and succession planning. Taleo Business Edition is designed for
smaller, less complex organizations, stand-alone departments and
divisions of larger organizations, and staffing companies. Our
solutions are designed to addresses multiple worker types,
including professional and hourly, with support for multiple
languages as well as differing geographic and cultural
requirements.
Our solutions are accessed through intuitive role-specific user
interfaces, which allows only the content and functionality
relevant to a user — whether a candidate, current
employee, corporate recruiter, line manager or
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system administrator — to be easily accessed by that
user. The candidate-facing portions of Taleo Enterprise Edition
solutions are available in 25 languages. Taleo Business
Edition is currently available in 4 languages.
Taleo Enterprise Edition includes two distinct product sets,
Taleo Recruiting and Taleo Performance, built on a common
platform.
Taleo Recruiting consists of two core solution offerings and
add-on modules that enable larger, more complex organizations to
acquire talent. Our two core Taleo Recruiting solution offerings
are:
Taleo
Professionaltm
enables organizations to manage professional,
non-hourly
talent management functions, including attracting and evaluating
candidates and employees, matching skills against job
opportunities, and candidate relationship management. Taleo
Professional provides a configurable career site through which
candidates may view and apply for open positions or submit a
profile for future opportunities, many-to-many matching of all
candidates and employees against available job opportunities,
and the ability to structure variable workflows for different
types of workers, locations, workgroups and regulatory
environments.
Taleo
Hourlytm
provides end-to-end process automation for recruiting, selecting
and hiring hourly employees. Taleo career sites allow candidates
to search for jobs by location or radius from zip/postal codes,
and capture skills and experience, plus information key to
hourly hiring such as shift availability, references and
certifications. Tailored candidate application flows include
automated prescreening, with knock-out capabilities. Hiring
features include full applicant tracking, reporting and
collection of country-specific diversity data for compliance.
The additional modules that we offer to complement our core
Taleo Recruiting product offerings include:
Taleo
Agencytm
allows organizations to directly link with third party staffing
agencies, and provides tools to help streamline agency
management and optimize agency spend.
Taleo
Assessmenttm
enables organizations to make assessment tests part of their
online application and selection process, and automatically
incorporates assessment results into the candidate’s
profile.
Taleo
Campustm
automates the campus recruiting process with tools for
attracting, engaging, and closing top collegiate candidates.
Taleo
Compliancetm
provides a foundation to support certain regulatory requirements
relevant to talent management, including certain requirements
promulgated by the U.S. Equal Employment Opportunity
Commission, the U.S. Department of Labor and other
regulatory bodies.
Taleo
Contingenttm
enables the sourcing, screening and selection of contingent
candidates within the Taleo Recruiting solution. Customer users
can create requisitions for contingent workers, invite agencies
to submit workers, review submitted workers and invite agencies
to confirm availability of a contingent worker.
Taleo
Onboardingtm
automates activities related to onboarding newly hired employees
in order to streamline the transition from candidate to
productive new employee while reducing paperwork and improving
compliance.
Taleo
Passporttm
offers pre-built integrations with certified solution partners
for background checks, assessments, tax credit screening and
more.
Taleo Scheduling
Centertm
enables self-service candidate scheduling for interviews.
Taleo
TalentReachtm
provides candidate relationship management, or CRM, tools and
advanced search and sourcing tools to enable organizations to
reach hard to find talent and build a strong talent pipeline.
The module is provided pursuant to a reseller arrangement with
AIRS Human Capital Solutions, Inc., or AIRS, and is developed
and hosted by AIRS.
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Taleo
Verifytm
enables organizations to submit candidates for background
screening from our solutions. Background screening services for
this offering are provided by Verified Person, Inc.
Taleo Workforce
Mobilitytm
supports mobility and retention initiatives by providing tools
to enable increased visibility into internal job openings,
employee capabilities, and career preferences.
Taleo Performance became generally available in February 2008
and is the most recent major addition to our suite of talent
management solutions. Taleo Performance consists of four core
solution offerings that enable larger, more complex
organizations to better align internal advancement with
corporate objectives, develop career plans to increase retention
and address succession. Our four core Taleo Performance solution
offerings are:
Taleo Performance
Managementtm
provides tools to help transform traditional employee assessment
from an annual event to an ongoing, business-driven, evaluation
and process improvement tool.
Taleo Goals
Managementtm
helps clients to better manage business outcomes by automating
the creation, alignment and monitoring of organizational goals.
Taleo Succession
Planningtm
provides access to a complete view of available, qualified
talent and helps identify the best candidates to deliver on
business goals.
Taleo Career
Managementtm,
scheduled for release in the first half of 2008, helps employees
create focused and dynamic career plans to improve individual
performance and increase retention.
Our talent management platform modules may be used in
combination with the Taleo Recruiting and Taleo Performance
product suites. These modules help organizations gain strategic
visibility across all of their talent management solutions and
integrate our products to other systems.
Taleo
Connecttm
uses a services-oriented integration framework to enable
self-service configuration and managed integrations between our
solutions and other systems.
Taleo Reporting and
Analyticstm
offers tools to measure, analyze and optimize
organizations’ talent processes with standard reports, ad
hoc reporting and dashboards.
Taleo Business Edition offers four service options that enable
smaller, less complex organizations to acquire talent. The
intuitive nature of the user interface allows users to create a
customer specific talent management system with easily
configurable objects, fields, layouts, views, workflow, reports
and integration. Our Taleo Business Edition service options are:
Taleo Business Edition —
Personaltm
provides applicant tracking for individual users. It includes
candidate recruiting life-cycle management, requisition
management and contact management. With our Personal service
offering, recruiters can have a hosted career website,
multilingual support, and access to both standard and customized
reports.
Taleo Business Edition —
Standardtm
makes all the functionality of the Personal service offering
available to recruiting departments and teams. Additional
features include interview management and agency access.
Taleo Business Edition —
Plustm
offers a comprehensive hiring management suite to help
organizations manage their entire staffing operations, including
applications for candidate and requisition management, account
and contact management, careers website management, employee
referrals management, and reporting and analysis.
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Taleo Business Edition —
Premiumtm
contains all the benefits of Taleo Business Edition Plus, and,
in addition, provides up to 250 custom fields, custom
“ad-hoc” reporting, multiple career websites and
application forms, and local time zone and other local settings.
Our Taleo Enterprise
Editiontm
solutions reside on a common technology platform. Our component
based platform includes reporting and analytics capabilities,
self-service integration and configuration tools, our
proprietary method for contextualizing the user experience based
upon a variety of organizational, location, and job function
attributes (which we refer to as our SmartOrg feature), the
Talent Master Structured Data Platform (described in further
detail below), and global language and currency capabilities.
Because Taleo Recruiting and Taleo Performance share a common,
native platform, we can provide clients superior
interoperability between applications and a unified view of all
talent management information. The self-service tools and
SmartOrg make our solutions configurable for complex operations,
giving companies enterprise-wide data and process consistency
while being able to adapt the solution locally according to the
organization, location, applicable laws, local staffing model,
types of hires and internal mobility requirements.
The Talent Master Structured Data Platform maintains all
employee, candidate, job and performance data elements required
by our solutions. The data structure within the Talent Master
Structured Data Platform, includes information on skills,
competencies, experience, behaviors and level of interest in a
skill or competency that can be matched precisely to job
requirements and business plans. The Talent Master Structured
Data Platform enables organizations to inventory and search the
skills of its external candidates and current employees in a
common format to help managers and recruiters to decide between
internal and external hires for new business initiatives,
measure skills gaps in the existing workforce and prepare
succession plans using both internal and external talent
profiles.
Our Taleo Enterprise software applications are written in Java
and use Oracle as the relational database management system.
Our technology infrastructure is designed to achieve high levels
of security, scalability, performance and availability. We use
commercially available hardware in our data centers. Our
software and hardware architecture runs on the Linux operating
system and uses some proprietary and commercially available
software as well as
open-source
software components for enhanced reliability and a scalable and
secure computing environment which can accommodate exponential
transaction load increases. Our secure Internet facing
infrastructure includes load balancing and secure socket layer
offloading devices, anti-virus appliances and technology that
allows us to detect and prevent unauthorized access. Our tiered
and virtualized application architecture specializes systems and
application functions on dedicated servers for web, application,
search, reporting, computing utilities, database and storage
services. Each server tier is designed with redundancy, which
allows us to extend systems and application capacity and
availability on demand. All of our equipment and systems are
remotely operated, monitored and managed by our personnel
working on a 24/7 schedule. Key production technology
specialists are also on call at all times on a rotating basis.
Our monitoring technology uses industry leading system
monitoring and performance monitoring tools and we have also
developed our own customized monitoring tools for added insight
into the performance and availability of our systems.
We provide a highly secure computing environment as well as high
application availability. Each customer is provided with their
own secure application instance (which we refer to as a Zone).
Each customer Zone includes its own logical and physical
database schema, text translation management, configuration
settings, tools for custom reporting and defining custom
integration processes. Customers share infrastructure at all
levels. The scalable design of the software and hardware
infrastructure allows us to deploy customer Zones horizontally
across any number of servers and load balance user sessions to
ensure continuous availability and high performance of
applications. Our business continuity measures include daily
incremental database backups to disk with recovery
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capabilities in any of our datacenters and weekly automated tape
backups, which we store off site on encrypted tapes with a
secure third party provider.
We currently operate two data centers for our on-demand software
solutions, and we plan to open one or more additional data
centers in 2008. Our east coast data center facility is leased
from Internap Network Services and our west cost facility is
leased from Equinix, Inc. Both locations provide highly secure
24/7 manned facilities with cage environments, redundant power
and cooling systems with
on-site
backup power generators, multi-layered access using biometric
and access card/PIN code for authentication. Our Internet
bandwidth and access is provided by Internap Network Services.
Our professional services organization leverages our
consultants’ and educators’ domain expertise and our
proprietary methodologies to provide implementation services,
solution optimization services, technical services and training
services that help our customers maximize their return on
investment. We also subcontract or refer consulting engagements
or portions of consulting engagements to our third-party
implementation partners from time to time.
We have developed methodologies that enable us to accelerate the
deployment of our solutions across a variety of industries and
talent management environments:
Taleo Implementation Methodology. Working with
Fortune 500 companies, we developed methods to optimize
critical business processes, while maintaining the integrity of
our customers’ business drivers. The Taleo Implementation
Methodology addresses specific staffing and performance
management processes for position management, requisition
management, candidate management, collaborative workflow, new
hire
on-boarding
review, performance appraisals, goals management, career
management and succession planning. Our Taleo Enterprise Edition
consultants work with our customers to implement our solutions
through a complete review of current business practices, mapping
solution workflows to the organization’s structure and
processes, and ultimately configuring a skills-based platform
for complete talent management.
Talent Practices Knowledge Base. Our Talent
Practices Knowledge Base templates enable us to understand an
organization’s overall talent management environment,
including internal and external business drivers, talent
management models, hire types and talent management processes
and to recommend best practices to optimize talent management
processes. Our Talent Practices Knowledge Base is a searchable
database of descriptions of the complex enterprise talent
management challenges faced within different industries and
geographies. Our Talent Practices Knowledge Base also provides
specific details of the solutions our consultants implemented to
address these challenges, and the results obtained. This
knowledge base reflects years of talent management experience
across a wide variety of industries. Our consultants use the
collective data from our Talent Practices Knowledge Base to help
our new customers solve their complex talent management
challenges, and to help our existing customers hone their talent
management practices and processes.
Our Taleo Enterprise Edition implementation services begin with
a complete evaluation of a customer’s current talent
management practices. Services include process definition, to
determine the configuration of the solutions, and integration
with existing applications to fit each organization’s
dynamic business requirements. We have a dedicated project
management office that equips our consultants with a library of
toolkits, forms, training documentation and workshop templates.
The project management office also audits customer deployments
to help ensure consistent quality.
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We provide ongoing solution optimization services to help our
customers achieve desired results in quality improvement,
increased productivity, cost savings and operational
effectiveness after the initial deployment of our solution. We
work with our customers to measure improvement in their talent
management processes and we modify and expand configuration of
our solutions to increase their effectiveness, when necessary.
In collaboration with customer project leaders, we establish an
ongoing process for continual evolution and solution
optimization. Using this process, our customers can promote best
practice usage and end user adoption after our solutions have
been deployed.
We offer comprehensive technical services to help our customers
integrate our solutions with other third-party solutions within
our customers’ system portfolios. Many of our Taleo
Enterprise Edition clients leverage our technical expertise to
assist with technical engagements such as data conversion,
ongoing data interfaces, single sign-on for internal users,
third-party integration and technical readiness assessments. We
also provide services to identify and develop reports and
dashboards using our advanced reporting technology. We work with
our clients in various ways, from knowledge transfer to help
them better use our self-service technology, to full-service,
on-site
implementation projects.
Through Taleo University, we offer a full range of
educational services including pre-deployment classroom
training, train-the-trainer programs, system administrator
training, post-deployment specialty training, upgrade training
and eLearning/web-based training. We also offer a variety of
training tools to drive user adoption, including solution user
manuals, process user guides, feature training exercises, a
self-service website for training scheduling and registration,
post-training assessments and both synchronous and asynchronous
web-based training tools for remote users.
Our global customer support organization provides both proactive
and customer-initiated support. We deliver our multilingual
technical assistance via telephone,
e-mail and
our web-based customer care portal, 24 hours a day, seven
days a week. Our customer support organization tracks all
customer support requests and reports the status of these
requests to the user through our customer support portal,
enabling users to know the status of their support requests, the
person responsible for resolving them, and the targeted timing
and process for resolution. Our senior executives review
customer satisfaction reports and support and response metrics
and take action when necessary to ensure that we maintain a high
level of customer satisfaction.
Our objective is to become the leading global provider of
unified talent management solutions. Key elements of our
strategy include:
Extend our Technology Leadership. We believe
we have established advanced technological capabilities and
competitive advantages through our component based and service
oriented architectures. Our advanced technologies have enabled
us to develop our solutions on a common, native and strategic
talent management platform. We intend to leverage our experience
and our internal and third-party development resources to
continue to develop our technology platform, infrastructure and
applications to capitalize on new technologies and
methodologies, such as Web 2.0 design principles, to capitalize
on the talent management market opportunity.
Expand our Solution Offerings. We plan to
continue to expand our suite of talent management solutions
beyond our most recent launch of Taleo Performance to deliver
additional functionality that we can sell into our customer base
and to new customers. We will continue this expansion through
our internal development initiatives and we may also pursue
strategic acquisitions.
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Expand our Multinational Presence. We believe
the increasing globalization of large organizations provides us
with substantial opportunities to capitalize on our leadership
in global deployments. We intend to expand our efforts to deploy
our solutions to more organizations that are based outside of
North America. We also intend to continue to enhance our
multinational functionality and to expand our investment in our
international operations to support organizations of all sizes
globally.
Expand our Target Market Opportunity. We
intend to continue to expand and better serve our potential
customer base by tailoring solutions and service offerings to
meet the needs of specific vertical markets and mid-sized
businesses of varying complexities, in addition to our existing
solutions and service offerings for larger, global and smaller
organizations. We intend to implement marketing campaigns
targeted to the needs and requirements of each of these segments
of the talent management market.
As of December 31, 2007, our customer base included over
1,500 customers worldwide, including 37 of the Fortune 100 and
108 of the Fortune 500. We market our Taleo Enterprise Edition
solutions to larger, more complex organizations, typically with
more than 3,000 employees. We market our Taleo Business
Edition solutions to smaller, less complex organizations,
typically with fewer than 3,000 employees. Our customers
include organizations in the business services, consumer goods,
energy, financial services, healthcare, manufacturing,
technology, transportation and retail sectors, and range in size
from smaller, private companies to large, global corporations
with more than 300,000 employees. No single customer has
accounted for more than ten percent of our revenue or accounts
receivable in any of the last three years.
We sell subscriptions to our solutions through our global direct
sales force and through our strategic partners. Our direct sales
organization has field sales professionals in metropolitan areas
throughout the United States, Canada, Europe, Australia and
Singapore. Our Taleo Enterprise Edition direct sales force
consists of regional sales managers, solutions consultants and
business development representatives that sell our solutions to
new customers. We also maintain a separate team of account
executives that focuses on renewing and selling new solutions
and services to existing Taleo Enterprise Edition customers. In
addition, we have developed partnerships and direct sales
relationships with business process outsourcing, or BPO, human
resources outsourcing, or HRO, and recruitment process
outsourcing, or RPO, providers. Our BPO, HRO and RPO partners
use our solutions to manage talent management for their
customers as part of their broader human resource offerings. Our
Taleo Business Edition offerings are sold primarily through a
telesales team and through self-registration on our website.
Our marketing programs are designed to increase awareness of our
solutions within our target markets and enhance the perception
of our brand. Our marketing initiatives include market research,
product and strategy updates with industry analysts, public
relations activities, web marketing, direct mail and
relationship marketing programs, seminars, industry specific
trade shows, speaking engagements and cooperative marketing with
customers and partners. Our marketing team generates qualified
leads and provides programs for prospects and customers that
build awareness and generate demand for our existing solutions
as well as new products and services. Our marketing department
also produces materials that include brochures, data sheets,
white papers, presentations, demonstrations, and other marketing
tools on our corporate website. We also generate awareness
through electronic and print advertising in trade magazines,
websites, search engines, seminars, and direct customer and
partner events.
Our research and development organization consists of product
management and development employees. Our research and
development organization is primarily located in our Quebec
City, Canada facility. We also have development staff in Dublin,
California and other locations and we use independent
development firms or contractors for portions of our development
related work, as needed. Our development methodology allows us
to implement flexible development cycles that result in more
timely and efficient delivery of new solutions and enhancements
to existing solutions. We focus our research and development
efforts on improving and enhancing
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our existing solution offerings as well as developing new
solutions. The responsibilities of our research and development
organization include product management, product development,
solution release management and software maintenance. We
allocate a portion of our research and development budget to the
development of our technology platform, including our Talent
Master Structured Data Platform (discussed above) and the
platform underlying the configuration capabilities of our
solutions (what we refer to as Configurable Staffing Process
Platform). Our research and development expenditures, net of tax
credits we received from the Government of Quebec, are expensed
as incurred and totaled $22.9 million, $19.5 million,
and $16.7 million in 2007, 2006, and 2005 respectively.
The market for talent management solutions is highly competitive
and rapidly evolving. We believe that the principal competitive
factors in this market include:
We believe that we compete favorably with respect to these
factors. Our Taleo Enterprise Edition solutions compete with
vendors of enterprise resource planning software such as Oracle
Corporation and SAP AG, and also with vendors such as ADP,
Authoria, Cezane, Cornerstone OnDemand, Halogen Software,
HRSmart, Jobpartners, Kenexa, Kronos, Peopleclick, Pilat,
Plateau, Salary.com, Stepstone, SuccessFactors, Technomedia,
TEDS, Vurv, Workday, and Workstream, that offer products and
services that compete with one or more modules in our Taleo
Enterprise Edition suite of solutions. Our Taleo Business
Edition solution competes primarily with Bullhorn, Hiredesk,
iCIMs, Openhire, Monster.com, Virtual Edge from ADP, and Vurv
Express from Vurv.
Our current and potential competitors include large, established
companies who have a larger installed base of users, longer
operating histories, and greater name recognition and resources.
In addition, we compete with smaller companies who may adapt
better to changing conditions in the market. Our competitors may
develop products or services that will be superior to our
products, or that will achieve greater market acceptance.
Our success is dependent in part on our ability to protect our
proprietary technology. We rely on a combination of trademark,
copyright and trade secret laws in the United States and other
jurisdictions as well as confidentiality procedures and
contractual provisions to protect our proprietary technology,
services methodology and brand. We have registered trademarks
for certain of our products and services and will continue to
evaluate the registration of additional trademarks as
appropriate. We also enter into confidentiality and proprietary
rights agreements with our employees, consultants and other
third parties and control access to software, documentation and
other proprietary information. However, we do not have any
patents or patents pending, and existing copyright laws afford
only limited protection.
Despite these efforts, it may be possible for unauthorized third
parties to copy certain portions of our products or to reverse
engineer or otherwise obtain and use our proprietary
information. In addition, we cannot be certain that others will
not develop substantially equivalent or superior proprietary
technology, or that equivalent products will not be marketed in
competition with our products, thereby substantially reducing
the value of our proprietary rights.
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Furthermore, confidentiality agreements between us and our
employees or any license agreements with our clients may not
provide meaningful protection of our proprietary information in
the event of any unauthorized use or disclosure of it. In
addition, the laws of certain countries do not protect our
proprietary rights to the same extent as do the laws of the
United States. Accordingly, the steps we have taken to protect
our intellectual property rights may not be adequate and we may
not be able to protect our proprietary software in the United
States or abroad against unauthorized third party copying or
use, which could significantly harm our business.
In addition, we license third-party technologies that are
incorporated into some elements of our services. Licenses from
third-party technologies may not continue to be available to us
at a reasonable cost, or at all.
Taleo is a registered trademark in the United States and in
various other jurisdictions.
As of December 31, 2007, we had 656 employees, as
compared to 590 as of December 31, 2006 and 519 as of
December 31, 2005. None of our employees is represented by
a collective bargaining agreement and we have never experienced
a strike or similar work stoppage. We consider our relationship
with our employees to be good.
Over the past three years, we acquired new technology or
supplemented our technology by purchasing businesses and assets
focused in the talent management market. During this time
period, we acquired the following businesses:
Our annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
and amendments to such reports are available, free of charge, on
the “Investor Relations” section of our website
(www.taleo.com) as soon as reasonably practicable after
we electronically file such material with, or furnish it to, the
Securities and Exchange Commission. Also available on our
website are printable versions of our Audit Committee charter,
Compensation Committee charter, Corporate Governance and
Nominating Committee charter, Code of Business Conduct and
Ethics, and Process for Handing Complaints Concerning
Accounting, Disclosures, Internal Accounting Controls or Audit
Matters. Information available on, or that can be accessed
through, our website is not part of this report. The public may
also read and copy any materials we file with the SEC at the
SEC’s Public Reference Room at 100 F Street,
N.E., Washington D.C. 20549. The public may obtain information
on the operation of the Public Reference Room by calling the SEC
at
1-800-SEC-0330.
The SEC also maintains an
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Internet website (www.sec.gov) that contains reports,
proxy and information statements and other information regarding
us that we file electronically with the SEC.
EXECUTIVE
OFFICERS OF THE REGISTRANT
The following table provides information concerning our
executive officers as of February 29, 2008:
Michael Gregoire has served as our president and chief
executive officer since March 2005. Prior to joining us,
Mr. Gregoire worked at PeopleSoft, an enterprise software
company, from May 2000 to January 2005, most recently as
executive vice president, global services. Prior to PeopleSoft,
Mr. Gregoire served as managing director for the Global
Financial Markets at Electronic Data Systems Corporation, a
technology services provider, from 1996 to April 2000.
Mr. Gregoire has a master’s degree from California
Coast University, and holds a bachelor’s degree in physics
and computing from Wilfred Laurier University in Ontario, Canada.
Jeffrey Carr has served as our executive vice president,
global alliances and americas sales since June 2006. Prior to
serving as executive vice president, global alliances and
americas sales, Mr. Carr served as our executive vice
president, global marketing and americas sales from May 2005 to
May 2006, and as executive vice president, global marketing and
chief strategy officer from November 2004 to April 2005. Prior
to joining us, Mr. Carr served as chairman and chief
executive officer of Motiva, Inc., a software vendor, from
August 2001 to December 2003. Prior to Motiva, Mr. Carr
served as president of RightWorks Corporation, a business
applications provider, from March 2000 to July 2001. Prior to
RightWorks, Mr. Carr served in a variety of positions at
PeopleSoft, Inc., an enterprise software company, from January
1991 to January 2000, most recently as executive vice president,
worldwide marketing, strategy and emerging markets.
Mr. Carr holds a bachelor’s degree in business from
Miami University (Ohio).
Guy Gauvin has served as our executive vice president,
global services, since April 2005. Prior to serving as our
executive vice president, global services, Mr. Gauvin
served as our executive vice president, worldwide operations,
from March 2002 to April 2005. Prior to serving as executive
vice president, worldwide operations, Mr. Gauvin served as
our vice president, customer services, from August 1999 to March
2002. Prior to joining us, from May 1995 to August 1999,
Mr. Gauvin served as vice president of global services at
Baan Supply Chain Solutions. Mr. Gauvin holds a
bachelor’s degree in mechanical engineering from Laval
University in Canada.
Katy Murray has served as our executive vice president
and chief financial officer since September 2006. Prior to
joining us, Ms. Murray served as chief financial officer of
EXL Services, Inc., a provider of value-added offshore business
process outsourcing solutions, from June 2005 to August 2006.
Prior to EXL, Ms. Murray served as executive vice president
and chief financial officer at i2 Technologies, a
multinational supply chain management software company from
January 2004 to May 2005. Prior to serving as executive vice
president and chief financial officer at i2 Technologies,
Ms. Murray held various leadership positions within the
finance and accounting organization at i2 Technologies,
from February 1998 to December 2003. Prior to
i2 Technologies, Ms. Murray worked for more than four
years at Paymentech, US based processor of internet transactions
as a Director of Accounting. Ms. Murray holds a bachelor
and master’s degree in accounting from Louisiana State
University and is a Certified Public Accountant.
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Because of the following factors, as well as other variables
affecting our operating results and financial condition, past
performance may not be a reliable indicator of future
performance, and historical trends should not be used to
anticipate results or trends in future periods.
Prior to the year ended December 31, 2007, we incurred
annual losses since our inception. As of December 31, 2007
we had incurred aggregate net losses of $37.6 million,
which is our accumulated deficit of $51.4 million less
$13.8 million of dividends and issuance costs on preferred
stock. We may incur losses in the future as a result of expenses
associated with the continued development and expansion of our
business and requirements of being a public company. As we
implement initiatives to grow our business, which include, among
other things, acquisitions, international expansion and new
product development, any failure to increase revenue or manage
our cost structure could prevent us from completing these
initiatives and sustaining profitability. As a result, our
business could be harmed and our stock price could decline. We
cannot be certain that we will be able to sustain profitability
on a quarterly or annual basis.
We expect to continue to derive a significant portion of our
revenue from renewal of software subscriptions and, to a lesser
extent, service fees from our existing customers. As a result,
maintaining the renewal rate of our software subscriptions is
critical to our future success. Factors that may affect the
renewal rate for our solutions include:
Most of our Taleo Enterprise Edition customers enter into
software subscription agreements with a duration of three years
or more from the initial contract date. Most of our Taleo
Business Edition customers enter into annual software
subscription agreements. Our customers have no obligation to
renew their subscriptions for our solutions after the expiration
of the initial term of their agreements. In addition, our
customers may negotiate terms less advantageous to us upon
renewal, which may reduce our revenue from these customers, or
may request that we license our software to them on a perpetual
basis, which may, after we have ratably recognized the revenue
for the perpetual license over the relevant term in accordance
with our revenue recognition policies, reduce recurring revenue
from these customers. Under certain circumstances, our customers
may cancel their subscriptions for our solutions prior to the
expiration of the term. Our future success also depends, in
part, on our ability to sell new products and services to our
existing customers. If our customers terminate their agreements,
fail to renew their agreements, renew their agreements upon less
favorable terms, or fail to buy new products and services from
us, our revenue may decline or our future revenue may be
constrained.
We generally recognize revenue from software subscription
agreements ratably over the terms of these agreements, which are
typically three or more years for our Taleo Enterprise Edition
customers and one year for our Taleo Business Edition customers.
As a result, a substantial majority of our software subscription
revenue in each quarter is generated from software subscription
agreements entered into during prior periods. Consequently, a
decline in new software subscription agreements in any one
quarter may not affect our results of operations in that
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quarter but will reduce our revenue in future quarters.
Additionally, the timing of renewals or non-renewals of a
software subscription agreement during any one quarter may also
affect our financial performance in that particular quarter. For
example, because we recognize revenue ratably, the non-renewal
of a software subscription agreement late in a quarter will have
very little impact on revenue for that quarter, but will reduce
our revenue in future quarters. Accordingly, the effect of
significant declines in sales and market acceptance of our
solutions may not be reflected in our short-term results of
operations, which would make these reported results less
indicative of our future financial results. By contrast, a
non-renewal occurring early in a quarter may have a significant
negative impact on revenue for that quarter and we may not be
able to offset a decline in revenue due to such non-renewals
with revenue from new software subscription agreements entered
into in the same quarter. In addition, we may be unable to
adjust our costs in response to reduced revenue.
In order to grow our business, we must continually add new
customers. Our ability to attract new customers will depend in
large part on the success of our sales and marketing efforts.
However, our prospective customers may not be familiar with our
solutions, or may have traditionally used other products and
services for their talent management requirements. In addition,
our prospective customers may develop their own solutions to
address their talent management requirements, purchase
competitive product offerings, or engage third-party providers
of outsourced talent management services that do not use our
solution to provide their services. If our prospective customers
do not perceive our products and services to be of sufficiently
high value and quality, we may not be able to attract new
customers.
Additionally, some new customers may request that we license our
software to them on a perpetual basis, which may, after we have
ratably recognized the revenue for the perpetual license over
the relevant term in accordance with our revenue recognition
policies, reduce recurring revenue from these customers. To
date, we have completed a limited number of agreements with such
terms.
Our operating results may vary based on the impact of changes in
economic conditions globally and within the industries in which
our customers operate. The revenue growth and profitability of
our business depends on the overall demand for enterprise
application software and services. Most of our revenue is
currently derived from large organizations whose businesses may
fluctuate with global economic and business conditions.
Historically, economic downturns have resulted in overall
reductions in corporate information technology spending by large
organizations. Accordingly, the current downturn in global
economic conditions may weaken demand for our software and
services. In addition, an economic decline impacting a
particular industry may negatively impact demand for our
software and services in the affected industry. Some of the
industries we serve, for example financial services and
technology, have recently suffered a downturn in economic and
business conditions and may continue to do so. A softening of
demand for enterprise application software and services, and in
particular enterprise talent management solutions, caused by a
weakening global economy or economic downturn in a particular
sector would adversely effect our business and likely cause a
decline in our revenue.
We have experienced, and expect to continue to experience,
intense competition from a number of companies. Our Taleo
Enterprise Edition solution competes with vendors of enterprise
resource planning software such as Oracle Corporation and SAP
AG, and also with vendors such as ADP, Authoria, Cezane,
Cornerstone OnDemand, Halogen Software, HRSmart, Jobpartners,
Kenexa, Kronos, Peopleclick, Pilat, Plateau, Salary.com,
Stepstone, SuccessFactors, Technomedia, TEDS, Vurv, Workday, and
Workstream, that offer products and services that compete with
one or more modules in our Taleo Enterprise Edition suite of
solutions. Our Taleo Business Edition solution competes
primarily with Bullhorn, Hiredesk, iCIMs, Openhire, Monster.com,
Virtual Edge from ADP and Vurv Express from Vurv. Our
competitors may announce new products, services or enhancements
that better meet changing industry standards or the price or
performance needs of customers. Increased competition may cause
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pricing pressure and loss of market share, either of which could
have a material adverse effect on our business, results of
operations and financial condition.
Certain of our competitors and potential competitors have
significantly greater financial, technical, development,
marketing, sales, service and other resources than we have. Some
of these companies also have a larger installed base of
customers, longer operating histories and greater brand
recognition than we have. Certain of our competitors provide
products that may incorporate capabilities which are not
available in our current suite of solutions, such as automated
payroll and benefits, or services that we do not currently
offer, such as recruitment process outsourcing services.
Products with such additional functionalities may be appealing
to some customers because they can reduce the number of
different types of software or applications used to run their
business and such additional services may be viewed by some
customers as enhancing the effectiveness of a competitor’s
solutions. In addition, our competitors’ products may be
more effective than our products at performing particular talent
management functions or may be more customized for particular
customer needs in a given market. Further, our competitors may
be able to respond more quickly than we can to changes in
customer requirements.
Our customers often require our products to be integrated with
software provided by our existing or potential competitors.
These competitors could alter their products in ways that
inhibit integration with our products, or they could deny or
delay access by us to advance software releases, which would
restrict our ability to adapt our products to facilitate
integration with these new releases and could result in lost
sales opportunities. In addition, many organizations have
developed or may develop internal solutions to address talent
management requirements that may be competitive with our
solutions.
The market in which we operate appears to be in the midst of a
period of vendor consolidation. If one or more of our
competitors were to merge or partner with another of our
competitors, the change in the competitive landscape could
adversely affect our ability to compete effectively. For
example, Kronos acquired Unicru in 2006 and recently acquired
Deploy Solutions. Kronos itself was acquired in 2007 by the
private equity firm Hellman & Friedman. Additionally,
Kenexa acquired Brassring in 2006 and ADP acquired VirtualEdge
in 2006. Unicru, Brassring, VirtualEdge and Deploy Solutions
have been direct competitors of ours in the past and it is
unclear what impact these acquisitions will have on our market
and our long term ability to compete against the combined
companies.
Our competitors may also establish or strengthen cooperative
relationships with our current or future BPO partners, HRO
partners, systems integrators, third-party consulting firms or
other parties with whom we have relationships, thereby limiting
our ability to promote our products and limiting the number of
consultants available to implement our solutions. Disruptions in
our business caused by these events could reduce our revenue.
In connection with the December 31, 2005 year-end
audit of our financial statements, management and our
independent registered public accounting firm identified
deficiencies in our internal control over financial reporting.
These were matters that in our judgment could have adversely
affected our ability to record, process, summarize and report
financial data consistent with the assertions of management in
our financial statements and were deemed to be material
weaknesses. In particular, we discovered errors in respect to
depreciation of fixed assets, and accrual of dividends on
preferred stock which required adjustment. As a result, we
restated our consolidated financial statements. We also
identified a failure to appropriately apply GAAP to certain
aspects of our financial reporting resulting from the lack of a
properly designed financial reporting processes and a lack of
sufficient technical accounting expertise. Certain of such
deficiencies were also deemed to be material weaknesses. We have
remediated all known material weaknesses that were identified as
part of the December 31, 2005 year end audit; however,
we cannot be certain that the measures we have taken will ensure
that those or similar deficiencies and a resulting restatement
will not occur in the future. Execution of restatements like the
one described above could
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create a significant strain on our internal resources, cause
delays in our filing of quarterly financial results, increase
our costs and cause management distraction.
During 2006 we completed a review and redesign of our internal
controls over financial reporting related to our closing
procedures and processes, our calculations of our reported
numbers, including depreciation expense and fixed assets, and
the need to strengthen our technical accounting expertise.
Despite these efforts, we identified a material weakness in
connection with the evaluation of the effectiveness of our
internal controls as of March 31, 2007 prior to the filing
of our financial results for the period ended March 31,
2007, related to the identification of a material adjustment
required, which affected cash, accounts receivable and cash flow
from operations. We continue to focus on improvements in our
controls over financial reporting and will continue to do so in
2008. We have discussed deficiencies in our financial reporting
and remediation of such deficiencies with the audit committee of
our board of directors and will continue to do so as required.
However, we cannot be certain that we will be able to remediate
all deficiencies in the future. Any current or future
deficiencies could materially and adversely affect our ability
to provide timely and accurate financial information.
The majority of our revenue is currently derived from
organizations with complex talent management requirements.
Accordingly, in a particular quarter the majority of our
bookings from new customers on an aggregate contract value basis
are from large sales made to a relatively small number of
customers. As such, our failure to close a sale in a particular
quarter will impede desired revenue growth unless and until the
sale closes. In addition, sales cycles for our Taleo Enterprise
Edition clients are generally between three months and one year,
and in some cases can be longer. As a result, substantial time
and cost may be spent attempting to secure a sale that may not
be successful. The period between our first sales call on a
prospective customer and a contract signing is relatively long
due to several factors such as:
If our sales cycles unexpectedly lengthen, our ability to
forecast accurately the timing of sales in any given period will
be adversely affected and we may not meet our forecasts for that
period.
To keep pace with technological developments, satisfy
increasingly sophisticated customer requirements, and achieve
market acceptance, we must enhance and improve existing products
and continue to introduce new products and services. For
instance, in February 2008 our performance management software
product became generally available in the market. Any new
products we develop or acquire may not be introduced in a timely
manner and may not achieve the broad market acceptance necessary
to generate significant revenue. If we are unable to develop or
acquire new products that appeal to our target customer base or
enhance our existing products or if we fail to price our
products to meet market demand or if the products we develop or
acquire do not meet performance expectations
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or have a higher than expected cost structure to host and
maintain, our business and operating results will be adversely
affected. Our efforts to expand our solutions beyond our current
offerings or beyond the talent management market may divert
management resources from existing operations and require us to
commit significant financial resources to an unproven business,
which may harm our existing business.
We expect to incur additional expense to develop software
products and to integrate acquired software products into
existing platforms to maintain our competitive position. In
addition, we intend to invest in software development locations
other than the locations where we currently develop our
software. Such locations may include locations in Eastern
Europe, Russia, Asia and other locations outside of North
America, and we may engage independent contractors for all or
portions of this work. These efforts may not result in
commercially viable solutions, may be more expensive or less
productive than we anticipate, or may be difficult to manage and
result in distraction to our management team. If we do not
manage these remote development centers effectively or receive
significant revenue from our product development investments,
our business will be adversely affected. Additionally, we intend
to maintain a single version of each release of our software
applications that is configurable to meet the needs of our
customers. Customers may require customized solutions or
features and functions that we do not yet offer and do not
intend to offer in future releases, which may disrupt out
ability to maintain a single version of our software releases or
cause our customers to choose a competing solution.
Acquisitions
and investments present many risks, and we may not realize the
anticipated financial and strategic goals for any such
transactions, which would harm our business, operating results
and overall financial condition. In addition, we have limited
experience in acquiring and integrating other
companies.
We have made, and may continue to make, acquisitions or
investments in companies, products, services, and technologies
to expand our product offerings, customer base and business. We
have limited experience in executing acquisitions. Acquisitions
and investments involve a number of risks, including the
following:
The consideration paid in connection with an investment or
acquisition also affects our financial results. If we should
proceed with one or more significant acquisitions in which the
consideration includes cash, we could be required to use a
substantial portion of our available cash to consummate any such
acquisition. To the extent that we issue shares of stock or
other rights to purchase stock, existing stockholders may be
diluted and earnings per share may decrease. In addition,
acquisitions may result in the incurrence of debt, material
one-time write-offs, or purchase accounting adjustments and
restructuring charges. They may also result in recording
goodwill and other intangible assets in our financial statements
which may be subject to future impairment charges or ongoing
amortization costs, thereby reducing future earnings. In
addition, from time to time, we may enter into negotiations for
acquisitions or investments that are not ultimately consummated.
Such negotiations could result in significant diversion of
management time, as well as incurring expenses that may impact
operating results.
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We are
discontinuing the time and expense processing services of our
Taleo Contingent solution and intend to provide time and expense
processing services to our current customers only through the
expiration of their current agreements. We may have difficulty
replacing the revenue from these customers.
During 2007, we continued to generate revenue from our Taleo
Contingent solution based on a fixed percentage of the dollar
amount invoiced for temporary labor charges processed through
our time and expense functionality. Effective March 2007, we
ceased entering into agreements to provide time and expense
processing services for temporary workers and, accordingly, our
revenue from such processing services will end. We are servicing
our current customers to which we provide such time and expense
processing services through the expiration of their current
agreements with us. Fees for time and expense processing through
our Taleo Contingent product declined throughout 2007; however,
on an annualized basis such fees were still significant in 2007.
We expect revenue from time and expense processing for these
customers to continue to decline and ultimately end in 2008.
We may find it difficult to replace the revenue we currently
receive from the processing of temporary worker time and expense
transactions and our results may be negatively impacted.
We have partnered with a number of business process outsourcing,
or BPO, and human resource outsourcing, or HRO, providers that
resell our staffing solutions as a component of their outsourced
human resource services and we intended to partner with more in
the future. If customers or potential customers begin to
outsource their talent management functions to BPOs or HROs that
do not resell our solutions, or to BPOs or HROs that choose to
develop their own solutions, our business will be harmed. In
addition, we have relationships with third-party consulting
firms, system integrators and software and service vendors who
provide us with customer referrals, integrate their
complementary products with ours, cooperate with us in marketing
our products and provide our customers with system
implementation or other consulting services. If we fail to
establish new strategic relationships or expand our existing
relationships, or should any of these partners fail to work
effectively with us or go out of business, our ability to sell
our products into new markets and to increase our penetration
into existing markets may be impaired.
The intensely competitive market in which we do business may
require us to reduce our prices. If our competitors offer
discounts on certain products or services we may be required to
lower prices or offer our solutions on less favorable terms to
compete successfully. Some of our larger competitors have
significantly greater resources than we have and are better able
to absorb short-term losses. Any such changes would likely
reduce our margins and could adversely affect our operating
results. Some of our competitors may provide bundled product
offerings that compete with ours for promotional purposes or as
a long-term pricing strategy. These practices could, over time,
limit the prices that we can charge for our products or
services. If we cannot offset price reductions with a
corresponding increase in the quantity of applications sold, our
margins and operating results would be adversely affected.
Our solutions involve the storage and transmission of
customers’ proprietary information, and security breaches
could expose us to loss of this information, litigation and
possible liability. While we have security measures in place, if
our security measures are breached as a result of third-party
action, employee error, criminal acts by an employee,
malfeasance, or otherwise, and, as a result, someone obtains
unauthorized access to customer data, our reputation will be
damaged, our business may suffer and we could incur significant
liability. Techniques used to obtain unauthorized access or to
sabotage systems change frequently and generally are not
recognized until launched against a target. As a result, we may
be unable to anticipate these techniques or to implement
adequate preventative measures. Unless our customers elect to
purchase encryption, we do not encrypt data we store for our
customers while such data is at rest in the database. Applicable
law may require that a security breach involving
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certain types of unencrypted data be publicly disclosed. If an
actual or perceived breach of our security occurs, the market
perception of our security measures could be harmed and we could
lose sales and customers.
Our insurance policies may not adequately compensate us for any
losses that may occur due to failures in our security measures.
Our products may contain defects or errors, which could
materially and adversely affect our reputation, result in
significant costs to us and impair our ability to sell our
products in the future. The costs incurred in correcting any
product defects or errors may be substantial and could adversely
affect our operating results. While we test our products for
defects or errors prior to product release, defects or errors
have been identified from time to time by our customers and may
continue to be identified in the future.
Any defects that cause interruptions in the availability or
functionality of our solutions could result in:
While our software subscription agreements typically contain
limitations and disclaimers that should limit our liability for
damages related to defects in our software, such limitations and
disclaimers may not be upheld by a court or other tribunal or
otherwise protect us from such claims.
Our current business model and prospects for increases in
revenue should be considered in light of the risks and
difficulties we encounter in the evolving talent management
market. Because this market is relatively new in comparison to
other enterprise software markets, we cannot predict with
assurance the future growth rate and size of this market, which,
in comparison with the market for all enterprise software
applications, is relatively small. The rapidly evolving nature
of the markets in which we sell our products and services, as
well as other factors that are beyond our control, reduce our
ability to accurately evaluate our future prospects and to
forecast with a high degree of certainty our projected quarterly
or annual performance.
The market for on-demand, vendor hosted enterprise software,
also called software-as-a-service or SaaS, is still relatively
new in comparison to the market for client-server based
software. Our customers access and use our software as a
web-based solution that is hosted by us. If the preferences of
our customers change and our customers require that they host
our software themselves, either upon the initiation of a new
agreement or upon the renewal of an existing agreement, we would
experience a decrease in revenue from hosting fees, and
potentially higher costs and greater complexity in providing
maintenance and support for our software. Additionally, a very
limited number of our customers have the contractual right to
elect to host our software themselves prior to the expiration of
their subscription agreements with us. If the number of
customers purchasing hosting services from us decreases, we
might not be able to decrease our expenses related to hosting
infrastructure in the short term. Potential customers may be
reluctant or unwilling to allow a vendor to host software or
internal data on their behalf for a number of reasons, including
security and data privacy concerns. If such organizations do not
recognize the benefits of the
on-demand
delivery model, then the market for our solutions may not
develop further, or may develop more slowly than we expect.
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We have experienced significant growth in the number of users,
transactions, and data that our hosting infrastructure supports.
Failure to address the increasing demands on our hosting
infrastructure satisfactorily may result in service outages,
delays or disruptions. For example, we have experienced
downtimes within our hosting infrastructure, some of which have
been significant, which have prevented customers from using our
solutions from time to time. We seek to maintain sufficient
excess capacity in our hosting infrastructure to meet the needs
of all of our customers. We also maintain excess capacity to
facilitate the rapid provisioning of new customer deployments
and expansion of existing customer deployments. The development
of new hosting infrastructure to keep pace with expanding
storage and processing requirements could be a significant cost
to us that we are not able to predict accurately and for which
we are not able to budget significantly in advance. Such outlays
could raise our cost of goods sold and be detrimental to our
financial results. At the same time, the development of new
hosting infrastructure requires significant lead time. If we do
not accurately predict our infrastructure capacity requirements,
our existing customers may experience service outages that may
subject us to financial penalties, financial liabilities and the
loss of customers. If our hosting infrastructure capacity fails
to keep pace with sales, customers may experience delays as we
seek to obtain additional capacity, which could harm our
reputation and adversely affect our revenue growth.
In addition, we are in the process of bringing to market a
performance management product for which we may not be able to
accurately predict the number of users, transactions and
infrastructure demands. Such a failure could result in system
outages for our customers and higher than expected costs to
support and maintain our performance management solution, which
could negatively affect our reputation and our financial results.
Our computing and communications infrastructure is a critical
part of our business operations. Our customers access our
solutions through a standard web browser. Our customers depend
on us for fast and reliable access to our applications. Much of
our software is proprietary, and we rely on the expertise of
members of our engineering and software development teams for
the continued performance of our applications. We have
experienced, and may in the future experience, serious
disruptions in our computing and communications infrastructure.
Factors that may cause such disruptions include:
Although we back up data stored on our systems at least weekly,
our infrastructure does not currently include real-time, or near
real-time, mirroring of data storage and production capacity in
more than one geographically distinct location. Thus, in the
event of a physical disaster, or certain other failures of our
computing infrastructure, customer data from recent transactions
may be permanently lost.
We have computing and communications hardware operations located
at third-party facilities in the United States with Internap on
the east coast and with Equinix on the west coast. We do not
control the operation of these facilities and must rely on these
vendors to provide the physical security, facilities management
and communications infrastructure services to ensure the
reliable and consistent delivery of our solutions to our
customers. Although we believe we would be able to enter into a
similar relationship with another third party should one of
these relationships fail or terminate for any reason, we believe
our reliance on any third-party vendor exposes us to risks
outside of our control. If these third-party vendors encounter
financial difficulty such as bankruptcy or other events
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beyond our control that cause them to fail to secure adequately
and maintain their hosting facilities or provide the required
data communications capacity, our customers may experience
interruptions in our service or the loss or theft of important
customer data. In the future, we may elect to open computing and
communications hardware operations at additional third-party
facilities located in the United States, Europe or other
regions. We are not experienced at operating such facilities in
jurisdictions outside the United States and doing so may pose
additional risk to us.
We have experienced system failures in the past. If our
customers experience service interruptions or the loss or theft
of their data caused by us, we may be required to issue credits
pursuant to the terms of our contracts and may also be subject
to financial liability or customer losses. Such credits could
reduce our revenues below the levels that we have indicated we
expect to achieve and adversely affect our margins and operating
results.
Our insurance policies may not adequately compensate us for any
losses that may occur due to any failures or interruptions in
our systems.
Our success depends on the continued employment of our senior
management and other key employees, such as our chief executive
officer and our chief financial officer. If we lose the services
of one or more of our senior management or key employees, or if
one or more of them decides to join a competitor or otherwise to
compete with us, our business could be harmed. We do not
maintain key person life insurance on any of our executive
officers. Additionally, our continued success depends, in part,
on our ability to attract and retain qualified technical, sales
and other personnel.
Further, because our future success is dependent on our ability
to continue to enhance and introduce new products, we are
particularly dependent on our ability to retain qualified
engineers with the requisite education, background and industry
experience. In particular, because our research and development
facilities are primarily located in Quebec, Canada, we are
substantially dependent on that relatively small labor market to
attract and retain qualified engineers. We intend to invest in
development centers in other locations but to date our
development in operations in locations other than Quebec, Canada
is not substantial.
During the twelve months ended December 31, 2007, revenue
generated outside of North America was 9.8% of total revenue,
based on the location of the legal entity of the customer with
which we contracted. We currently have international offices
outside of North America in Australia, France, the Netherlands,
Singapore and the United Kingdom, which focus primarily on
selling and implementing our solutions in those regions.
However, we currently maintain data centers only in the United
States. In 2008, we plan to continue our research and
development operations in Quebec, Canada and expand our
international operations, including opening product development
locations and data centers outside of North America. We may also
expand our international sales and services locations. These
initiatives will involve a variety of risks, including:
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If we invest substantial time and resources to expand our
international operations and are unable to do so successfully
and in a timely manner, our business and operating results will
suffer.
We currently have foreign sales denominated in foreign
currencies, including the Australian dollar, British pound
sterling, Canadian dollar, the euro, New Zealand dollar,
Singapore dollar and Swiss franc and may in the future have
sales denominated in the currencies of additional countries in
which we establish or have established sales offices. In
addition, we incur a substantial portion of our operating
expenses in Canadian dollars and, to a much lesser extent, other
foreign currencies. Any fluctuation in the exchange rate of
these foreign currencies may negatively affect our business,
financial condition and operating results. For instance, in
2007, the impact of changes in foreign currency exchange rates
compared to the average rates in effect during 2006 was a
$1.2 million decrease in earnings. In 2008, we expect that
the volatility in exchange rates for foreign currencies may
continue and we could incur additional losses from the impact of
such fluctuations. We have not previously engaged in foreign
currency hedging. If we decide to hedge our foreign currency
exposure, we may not be able to hedge effectively due to lack of
experience, unreasonable costs or illiquid markets.
Our success is dependent, in part, upon protecting our
proprietary technology. We rely on a combination of copyrights,
trademarks, service marks, trade secret laws, and contractual
restrictions to establish and protect our proprietary rights in
our products and services. We do not have any issued or pending
patents and do not rely on patent protection. We will not be
able to protect our intellectual property if we are unable to
enforce our rights or if we do not detect unauthorized use of
our intellectual property. Despite our precautions, it may be
possible for unauthorized third parties to copy our products and
use information that we regard as proprietary to create products
and services that compete with ours. Some license provisions
protecting against unauthorized use, copying, transfer and
disclosure of our licensed products may be unenforceable under
the laws of certain jurisdictions and foreign countries in which
we operate. Further, the laws of some countries do not protect
proprietary rights to the same extent as the laws of the United
States. To the extent we expand our international activities,
our exposure to unauthorized copying and use of our products and
proprietary information may increase. We enter into
confidentiality and invention assignment agreements with our
employees and consultants and enter into confidentiality
agreements with the parties with whom we have strategic
relationships and business alliances. No assurance can be given
that these agreements will be effective in controlling access to
and distribution of our products and proprietary information.
Further, these agreements do not prevent our competitors from
developing technologies independently that are substantially
equivalent or superior to our products. Initiating legal action
may be necessary in the future to enforce our intellectual
property rights and to protect our trade secrets. Litigation,
whether successful or unsuccessful, could result in substantial
costs and diversion of management resources, either of which
could seriously harm our business.
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We are sometimes subject to legal proceedings and claims that
arise in the ordinary course of business. Litigation may result
in substantial costs and may divert management’s attention
and resources, which may seriously harm our business, overall
financial condition, and operating results. In addition, legal
claims that have not yet been asserted against us may be
asserted in the future, see Note 12 — Commitments
and Contingencies in our notes to consolidated financial
statements.
Software product developers such as us may continue to receive
infringement claims as the number of products and competitors in
our space grows and the functionality of products in different
industry segments overlaps. For example, Kenexa, a competitor,
filed suit against us for patent infringement in August 2007 and
other infringement claims have been threatened against us. We
can give no assurance that such claims will not be filed in the
future. Our competitors or other third parties may also
challenge the validity or scope of our intellectual property
rights. A claim may also be made relating to technology that we
acquire or license from third parties. If we were subject to a
claim of infringement, regardless of the merit of the claim or
our defenses, the claim could:
We entered into standard indemnification agreements in the
ordinary course of business and may be required to indemnify our
customers for our own products and third-party products that are
incorporated into our products and that infringe the
intellectual property rights of others. Although many of the
third parties from which we purchase are obligated to indemnify
us if their products infringe the rights of others, this
indemnification may not be adequate.
In addition, from time to time there have been claims
challenging the ownership of open source software against
companies that incorporate open source software into their
products. We use open source software in our products and may
use more open source software in the future. As a result, we
could be subject to suits by parties claiming ownership of what
we believe to be open source software. Litigation could be
costly for us to defend, have a negative effect on our operating
results and financial condition or require us to devote
additional research and development resources to change our
products.
Our insurance policies will not compensate us for any losses or
liabilities resulting from patent infringement claims.
We include in the distribution of our solutions certain
technology obtained under licenses from other companies, such as
Oracle for database software, and Business Objects for reporting
software. We anticipate that we will continue to license
technology and development tools from third parties in the
future. Although we believe that there are commercially
reasonable software alternatives to the third-party software we
currently license, this may not always be the case, or we may
license third-party software that is more difficult or costly to
replace than the third party software we currently license. In
addition, integration of our products with new third-party
software may require significant work and require substantial
allocation of our time and resources. Also, to the extent that
our products depend upon the successful operation of third-party
products in conjunction with our products, any undetected errors
in these third-party products could prevent the implementation
or impair the functionality of our
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products, delay new product introductions and injure our
reputation. Our use of additional or alternative third-party
software would require us to enter into license agreements with
third parties, which could result in higher costs.
In order to manage our business effectively, we must continually
manage headcount in an efficient manner. In the past we have
undergone facilities consolidations and headcount reductions in
certain locations and departments, and we may do so again. In
such events we may incur charges for employee severance. As many
employees are located in jurisdictions outside of the United
States, we are required to pay the severance amounts legally
required in such jurisdictions, which may exceed those of the
United States. Further, we believe reductions in our workforce
and facility consolidation create anxiety and uncertainty, and
may adversely affect employee morale. These measures could
adversely affect our employees that we wish to retain and may
also adversely affect our ability to hire new personnel. They
may also negatively affect customers.
Enterprise deployments of our products require a substantial
understanding of our customers’ businesses, and the
resulting configuration of our solutions to their business
processes and integration with their existing systems. We may
encounter difficulties in managing the timeliness of these
deployments and the allocation of personnel and resources by us
or our customers. In certain situations, we also work with
third-party service providers in the implementation or software
integration-related services of our solutions, and we may
experience difficulties in managing such third parties. Failure
to manage customer implementation or software
integration-related services successfully by us or our
third-party service providers could harm our reputation and
cause us to lose existing customers, face potential customer
disputes or limit the rate at which new customers purchase our
solutions.
Accounting principles generally accepted in the United States,
or GAAP, are subject to interpretation by the Financial
Accounting Standards Board, or FASB, the American Institute of
Certified Public Accountants, or AICPA, the SEC and various
other organizations formed to promulgate and interpret
accounting principles. A change in these principles or
interpretations could have a significant effect on our projected
financial results.
Pursuant to the application of GAAP we recognize the majority of
our application revenue monthly over the life of the application
agreement. In certain instances, the straight-line revenue
recognized on a monthly basis may exceed the amounts invoiced
for the same period. If our history of collecting all fees
reflected in our application agreements negatively changes, the
application of GAAP may mandate that we not recognize revenue in
excess of the fees invoiced over the corresponding period for
new agreements. The application of GAAP also requires that we
accomplish delivery of our solutions to our customers in order
to recognize revenue associated with such solutions. In the
context of our model, delivery generally requires the creation
of an instance of the solution that may be accessed by the
customer via the Internet. We may experience difficulty in
making new products available to our customers in this manner.
In the event we are not able to make our solutions available to
our customer via the Internet in a timely manner, due to
resource constraints, implementation difficulties or other
reasons, our ability to recognize revenue from the sales of our
solutions may be delayed and our financial results may be
negatively impacted.
The majority of our research and development activities are
conducted through our Canadian subsidiary, Taleo (Canada) Inc.
We participate in a government program in Quebec that provides
investment credits based upon qualifying research and
development expenditures. These expenditures primarily consist
of the salaries for the persons conducting research and
development activities. We have participated in the program
since 1999, and expect that we
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will continue to receive these investment tax credits through
December 2010. In 2007, we recorded a CAD $2.6 million
reduction in our research and development expenses as a result
of this program. We anticipate the continued reduction of our
research and development expenses through application of these
credits through 2010. If these investment tax benefits are
reduced or eliminated, our financial condition and operating
results may be adversely affected.
In addition to the research and development investment credit
program described above, our Canadian subsidiary has applied to
participate in a scientific research and experimental
development, or SRED, program administered by the Canadian
federal government that provides income tax credits based upon
qualifying research and development expenditures, including
capital equipment purchases. In June 2007, we filed our initial
SRED credit claims with respect to our 2005 and 2006 tax years
and recorded combined credits of CAD $2.1 million and CAD
$1.1 million in 2007. Our Canadian subsidiary is eligible
to remain in the SRED program for future tax years as long as
its development projects continue to qualify. These federal SRED
tax credits can only be applied to offset federal taxes payable
and are reported as a credit to tax provision to the extent they
reduce taxes payable to zero with any residual benefits recorded
as a net deferred tax asset. We believe that our Canadian
subsidiary is in compliance with these government programs and
that all amounts recorded will be fully realized. If these
investment credits are reduced or disallowed by the Canada
Revenue Agency (“CRA”), our financial condition and
operating results may be adversely affected.
Our Canadian subsidiary is under examination by the Canada
Revenue Agency (“CRA”) with respect to tax years 2000
and 2001. We have settled certain issues raised in the audit and
are appealing the CRA’s treatment of Quebec investment tax
credits. Final resolution of the CRA’s examination will
have bearing on the tax treatment applied in subsequent periods
not currently under examination. We have recorded income tax
reserves believed to be sufficient to cover the estimated tax
assessments for the open tax periods and have estimated the
potential range of additional income, as a result of the Quebec
investment tax credit, to be between CAD $1.0 million and
$18.4 million.
There could be a significant impact to our uncertain tax
position over the next twelve months depending on the outcome of
the on-going CRA audit. In the event the CRA audit results in
adjustments that exceed both our income tax reserves and
available deferred tax assets, our Canadian subsidiary may
become a tax paying entity in 2008 or in a prior year including
potential penalties and interest. Any such penalties cannot be
reasonably estimated at this time.
We are seeking United States tax treaty relief through the
appropriate Competent Authority tribunals for the settlements
entered into with CRA and will seek treaty relief for all
subsequent final settlements. Although we believe we have
reasonable basis for our tax positions, it is possible an
adverse outcome could have a material effect upon our financial
condition, operating results or cash flows in a particular
quarter or annual period.
As we continue to expand internationally, we may become subject
to review by various foreign taxing authorities which could
negatively impact our financial results. While we have reserved
for these uncertainties and do not expect the outcomes of these
reviews to be material to our operations, our current assessment
as to the potential financial impact of these reviews could
prove incorrect and we may incur income tax liability in excess
of our current reserves.
As Internet commerce continues to evolve, increasing regulation
by federal, state or foreign agencies may become more likely. We
are particularly sensitive to these risks because the Internet
is a critical component of our business model. For example, we
believe increased regulation is likely in the area of data
privacy, and laws and regulations applying to the solicitation,
collection, processing or use of personal or consumer
information could affect our customers’ ability to use and
share data, potentially reducing demand for solutions accessed
via the Internet and restricting our ability to store, process
and share data with our customers via the Internet. In addition,
taxation of services provided over the Internet or other charges
imposed by government agencies or by private organizations for
accessing the Internet may also be imposed. Any regulation
imposing greater fees for internet use or restricting
information exchange over the Internet could result in a decline
in the use of the Internet and the viability of internet-based
services, which could harm our business.
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We believe that developing and maintaining awareness of our
brand in a cost-effective manner is critical to achieving
widespread acceptance of our existing and future solutions and
is an important element in attracting new customers.
Furthermore, we believe that the importance of brand recognition
will increase as competition in our market intensifies.
Successful promotion of our brand will depend largely upon the
effectiveness of our marketing efforts and on our ability to
provide reliable and useful solutions at competitive prices. In
the past, our efforts to build our brand have involved
significant expense, and we expect to increase that expense in
connection with our branding and marketing processes. Brand
promotion activities may not yield increased revenue, and even
if they do, any increased revenue may not offset the expenses we
incur in building our brand. If we fail to promote successfully
and maintain our brand, we may fail to attract enough new
customers or retain our existing customers to the extent
necessary to realize a sufficient return on our brand-building
efforts, and our business could suffer.
The stock market in general and the market for
technology-related stocks in particular has been highly
volatile. As a result, the market price of our Class A
common stock is likely to be similarly volatile, and investors
in our Class A common stock may experience a decrease in
the value of their stock, including decreases unrelated to our
operating performance or prospects. The price of our
Class A common stock could be subject to wide fluctuations
in response to a number of factors, including those listed in
this “Risk Factors” section and others such as:
If we need to raise additional funds due to unforeseen
circumstances, we cannot be certain that we will be able to
obtain additional financing on favorable terms, if at all, and
any additional financings could result in additional dilution to
our existing stockholders. If we need additional capital and
cannot raise it on acceptable terms, we may not be able to meet
our business objectives, our stock price may fall and you may
lose some or all of your investment.
Our certificate of incorporation and bylaws contain provisions
that could increase the difficulty for a third party to acquire
us without the consent of our board of directors. For example,
if a potential acquirer were to make a hostile bid for us, the
acquirer would not be able to call a special meeting of
stockholders to remove our board of directors or act by written
consent without a meeting. In addition, our board of directors
has staggered terms, which means that replacing a majority of
our directors would require at least two annual meetings. The
acquirer would also be required to provide advance notice of its
proposal to replace directors at any annual meeting, and will
not be able to cumulate votes at a meeting, which will require
the acquirer to hold more shares to gain representation on the
board of directors than if cumulative voting were permitted.
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Our board of directors also has the ability to issue preferred
stock that could significantly dilute the ownership of a hostile
acquirer. In addition, Section 203 of the Delaware General
Corporation Law limits business combination transactions with
15% or greater stockholders that have not been approved by the
board of directors. These provisions and other similar
provisions make it more difficult for a third party to acquire
us without negotiation. These provisions may apply even if the
offer may be considered beneficial by some stockholders.
Not applicable.
Our principal offices are in Dublin, California, where we lease
approximately 35,000 square feet of space. We entered into
the Dublin lease in March 2006. The term of the Dublin lease is
seven (7) years, commencing on June 15, 2006, and we
have one option to renew the lease for an additional term of
five (5) years. Over the term, our base rent ranges from
approximately $52,000 per month to approximately $85,000 per
month, in addition to operating expenses and taxes.
Our primary research and development facility is in Quebec City,
Canada, where we lease approximately 39,000 square feet of
space. The Quebec lease has been in effect since December 1998
and expires on November 30, 2008. Our base rent is
CAD$72,000 per month, in addition to operating expenses and
taxes.
Our former principal offices in San Francisco, California,
consisting of approximately 12,109 square feet, was
subleased on October 19, 2006. The term of the sublease
commenced on October 31, 2006, and will end on
July 30, 2009. Under the sublease, we will receive monthly
rental payments of approximately $22,000 until
September 30, 2008, and $24,000 from October 1, 2008
to July 30, 2009. The monthly base rent payable by the
sublessee under the sublease was abated for the first two months
of the term. The sublease also provides for the payment of
additional rent for operating expenses and taxes.
In North America, we have additional sales and services
personnel throughout the United States, including offices in
Chicago and Toronto. Outside of North America, we maintain
offices for our sales and services personnel in the London area,
Melbourne, Paris, Singapore and Sydney.
We believe that our facilities are adequate for current needs,
though we may open additional sales, services, development and
support locations in 2008. We believe that suitable additional
or substitute space will be available as needed to accommodate
foreseeable expansion of our operations.
From time to time, we are involved in claims, legal proceedings
and potential claims that arise in the ordinary course of
business. For example, Kenexa Brassring, Inc., filed suit
against us in the United States District Court for the District
of Delaware for patent infringement on August 27, 2007.
Kenexa asserts that we have infringed patent numbers 5999939 and
6996561, and seeks monetary damages and an injunction enjoining
us from further infringement. Management has reviewed this
matter and believes that our software products do not infringe
any valid and enforceable claim of these patents. We have filed
an answer to the complaint filed by Kenexa Brassring, Inc., and
litigation is proceeding.
Other infringement claims have been threatened against us, in
the past, see Note 12 — Commitments and
Contingencies in our notes to our consolidated financial
statements. Based upon currently available information,
management does not believe that the ultimate outcome of these
unresolved matters, individually and in the aggregate, is likely
to have a material adverse effect on our financial position or
results of operations. However, litigation is subject to
inherent uncertainties and our view of these matters may change
in the future. If we should be subject to an unfavorable ruling
by a court, there exists the possibility of a material adverse
impact on our financial position and results of operations for
the period in which the unfavorable outcome occurs, and
potentially in future periods.
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None.
Our Class A common stock has been listed on the Nasdaq
Global Market under the symbol “TLEO” since
September 29, 2005. Prior to that time, there was no public
market for our Class A common stock. The following table
sets forth the range of high and low sales prices on the Nasdaq
Global Market of the Class A common stock for the periods
indicated.
As of February 29, 2008, there were approximately 68
holders of record of our Class A common stock and
1 holder of record of our Class B common stock.
Because many of our shares of Class A common stock are held
by brokers and other institutions on behalf of stockholder, we
are unable to estimate the total number of stockholders
represented by these record holders.
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We have never declared or paid any cash dividends on our
Class A common stock. We currently expect to retain any
future earnings for use in the operation and expansion of our
business and do not anticipate paying any cash dividends on our
Class A common stock in the foreseeable future.
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The Securities and Exchange Commission declared our registration
statement, filed on
Form S-1
(File
No. 333-114093)
under the Securities Act in connection with the initial public
offering of our Class A common stock, $0.00001 par
value, effective on September 28, 2005. Since 2005, we have
used the net proceeds for general corporate purposes, including
the expansion of our sales and marketing and research and
development efforts, working capital, capital expenditures and
acquisitions of complementary businesses, products and
technologies.
The following graph shows a comparison from September 28,
2005 through December 31, 2007 of cumulative total return
for Taleo’s Class A common stock, the Nasdaq stock
Market (U.S.) Index and the Nasdaq Computer and Data Processing
Index. The graph assumes that $100 was invested on
September 28, 2005 in (i) Taleo’s Class A common stock
and (ii) each of the indices as noted below, including
reinvestment of dividends. No dividends have been paid or
declared on Taleo’s Class A common stock. Note that
historic stock price performance is not necessarily indicative
of future stock price performance.
COMPARISON OF 27 MONTH CUMULATIVE TOTAL RETURN*
Among Taleo Corporation, The NASDAQ Composite Index
And The NASDAQ Computer & Data Processing Index
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The information below is derived from our consolidated financial
statements and should be read in conjunction with
Item 8. — Financial Statements and
Supplementary Data and Item 7. —
Management’s Discussion and Analysis of Financial
Condition and Results of Operations. The consolidated
statement of operations data for each of the years ended
December 31, 2004 and 2003 and the consolidated balance
sheet data as of December 31, 2005, 2004 and 2003 are
derived from our consolidated financial statements which are not
included in this report. Our historical results are not
necessarily indicative of results for any future period.
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The following discussion should be read in conjunction with our
Item 8 — Financial Statements and Supplementary
Data.
We are a leading provider of on-demand, talent management
software solutions. We offer recruiting, performance management,
internal mobility and other talent management solutions that
help our customers attract and retain high quality talent, more
effectively match workers’ skills to business needs, reduce
the time and costs associated with manual and inconsistent
processes, ease the burden of regulatory compliance, and
increase workforce productivity through better alignment of
workers’ goals and career plans with corporate objectives.
Our performance management solution became generally available
in February 2008 and accordingly did not contribute to net
revenues in 2007 or prior years.
We offer two suites of talent management solutions: Taleo
Enterprise Edition and Taleo Business Edition. Taleo Enterprise
Edition is designed for larger, more complex organizations.
Taleo Business Edition is designed for smaller, less complex
organizations, stand-alone departments and divisions of larger
organizations, and staffing companies. Our revenue is primarily
earned through subscription fees charged for accessing and using
these solutions. Our customers generally pay us in advance for
their use of our solutions, and we use these cash receipts to
fund our operations. Our customers generally pay us on a
quarterly or annual basis.
We focus our evaluation of our operating results and financial
condition on certain key metrics, as well as certain
non-financial aspects of our business. Included in our
evaluation are our revenue composition and growth, net income,
and our overall liquidity that is primarily comprised of our
cash and accounts receivable balances.
Non-financial
data is also evaluated, including, for example, purchasing
trends for software applications across
31
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industries and geographies, input from current and prospective
customers relating to product functionality and general economic
data relating to employment and workforce mix between
professional, hourly and contingent workers. We use this
aggregated information to assess our historic performance, and
also to plan our future strategy.
On June 26, 2007, we entered into an asset purchase
agreement (the “Wetfeet Asset Purchase Agreement”) by
and among us, Universum Communications Holdings, Inc, Wetfeet,
Inc. (“Wetfeet”) and U.S. Bank National
Association as escrow agent, for the acquisition by us of
certain assets of Wetfeet relating to Wetfeet’s hiring
management solutions business (the “Wetfeet
Transaction”). The Wetfeet Transaction closed on
July 3, 2007. The net cash amount paid by us at closing in
connection with the acquisition was approximately
$0.3 million in cash, of which approximately
$0.1 million was placed into escrow for one year following
the closing, to be held as partial security for certain losses
that may be incurred by us in the event of certain breaches of
the representations and warranties covered in the asset purchase
agreement or certain other events. The Wetfeet Asset Purchase
Agreement provides for additional payments of up to
approximately $1.3 million to be made to Wetfeet in July
2008 upon the achievement of certain milestones by the first
anniversary of the closing date (“Second Payment”). As
of December 31, 2007, such milestones had been
substantially achieved. As in the case of the payment placed in
escrow, the Second Payment is subject to adjustment for certain
breaches of the representations and warranties covered in the
asset purchase agreement or certain other events. The total cost
of the acquisition including legal, accounting, valuation and
other professional fees will be $1.7 million. Under the
terms of the Wetfeet Transaction, we acquired a portion of
Wetfeet’s intellectual property, technology and customer
contracts. We have substantially converted the Wetfeet customers
to our products, and plan to discontinue the Wetfeet product in
2008. As such, we retained certain Wetfeet services and
development personnel on a contractual basis. In addition, we
assumed certain liabilities relating to the purchased assets.
On March 2, 2007, we entered into an asset purchase
agreement (the “JobFlash Asset Purchase Agreement”) by
and among us, JobFlash, Inc. (“JobFlash”) and
U.S. Bank National Association as escrow agent, for the
acquisition by us of certain assets of JobFlash relating to
JobFlash’s talent management and human resources solutions
business (the “JobFlash Transaction”). The JobFlash
Transaction closed on March 7, 2007. The total
consideration paid by us in connection with the JobFlash
Transaction was approximately $3.1 million, of which
$0.5 million was placed into escrow for one year following
the closing to be held as partial security for certain losses
that may be incurred by us in the event of certain breaches of
the representations and warranties covered in the JobFlash Asset
Purchase Agreement or certain other events. The total cost of
the acquisition including legal, accounting, valuation and other
professional fees was $3.3 million. Under the terms of the
JobFlash Transaction, we acquired substantially all of
JobFlash’s intellectual property, technology, and customer
contracts. We hired the majority of JobFlash’s sales,
services, and development personnel. In addition, we assumed
certain liabilities relating to the purchased assets. JobFlash
provides a telephone interactive voice response solution for job
applicants and interview scheduling solutions. As of
December 31, 2007, assets acquired in the JobFlash
transaction have provided the basis for our Taleo Scheduling
Center solution and hourly hiring management tools for our Taleo
Business Edition solution.
During the first quarter of 2007, we decided to discontinue the
time and expense processing services related to our Taleo
Contingent solution. There are approximately 38 full time
positions that may be terminated as part of this transition,
which is targeted to be completed in 2008. As of
December 31, 2007, 15 positions had been terminated and
4 employees had been reassigned to other departments. The
total estimated liability for exit packages is expected to be
$0.7 million.
We derive our revenue from two sources: application revenue and
consulting revenue.
Application revenue is generally comprised of subscription fees
from customers accessing our applications, which includes the
use of the application, application and data hosting, and
maintenance of the application. The majority of our application
subscription revenue is recognized monthly over the life of the
application agreement, based on a stated, fixed-dollar amount.
Revenue associated with our Taleo Contingent solution is
recognized based
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on a fixed contract percentage of the dollar amount invoiced for
contingent labor through use of the application. Effective March
2007, we ceased entering into agreements to provide time and
expense processing as a component of our Taleo Contingent
solution and, accordingly, our revenue model based on a
percentage of spend from such processing services will end. We
are servicing our current customers to which we provide such
time and expense processing services through the expiration of
their current agreements with us. We expect revenue from time
and expense processing for these customers to continue to
decline and ultimately end in 2008. The term of our application
agreements for Taleo Enterprise Edition signed with new
customers in 2007, 2006, and 2005 was typically three or more
years. The term of application agreements for Taleo Business
Edition is typically one year. Our customer renewals on a dollar
basis have historically been greater than 95%.
Application agreements entered into during 2007, 2006, and 2005
are generally non-cancelable, or contain significant penalties
for early cancellation, although customers typically have the
right to terminate their contracts for cause, if we fail to
perform our material obligations.
Consulting revenue consists primarily of fees associated with
application configuration, integration, business process
re-engineering, change management, and education and training
services. Our consulting engagements are typically billed on a
time and materials basis, although we may sell consulting
services under milestone or fixed fee contracts, and in such
cases, recognize consulting revenues on a
percentage-of-completion basis. From time to time, certain of
our consulting projects are subcontracted to third parties. Our
customers may also elect to use unrelated third parties for the
types of consulting services that we offer. Our typical
consulting contract provides for payment within 30 to
60 days of invoice.
Cost of application revenue primarily consists of expenses
related to hosting our application and providing support,
including employee related costs and depreciation expense
associated with computer equipment. We allocate overhead such as
rent and occupancy charges, employee benefit costs and
depreciation expense to all departments based on employee count.
As such, overhead expenses are reflected in each cost of revenue
and operating expense category. We currently deliver our
solutions from two primary data centers that host the
applications for all of our customers, though we plan to open
one or more additional data centers in 2008.
Cost of consulting revenue consists primarily of employee
related costs associated with these services and allocated
overhead. The cost associated with providing consulting services
is significantly higher as a percentage of revenue than for our
application revenue, primarily due to labor costs. We also
subcontract to third parties for a portion of our consulting
business. To the extent that our customer base grows, we intend
to continue to invest additional resources in our consulting
services. The timing of these additional expenses could affect
our cost of revenue, both in dollar amount and as a percentage
of revenue, in a particular quarterly or annual period.
Sales and marketing expenses consist primarily of salaries and
related expenses for our sales and marketing staff, including
commissions, marketing programs, and allocated overhead.
Marketing programs include advertising, events, corporate
communications, and other brand building and product marketing
expenses. As our business grows, we plan to continue to increase
our investment in sales and marketing by adding personnel,
building our relationships with partners, expanding our domestic
and international selling and marketing activities, building
brand awareness, and sponsoring additional marketing events. We
expect that our sales and marketing expenses will increase in
dollar terms as a result of these investments, however the
overall sales and marketing expense as a percentage of revenue
is expected to stay consistent.
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Research and development expenses consist primarily of salaries
and related expenses and allocated overhead , and third-party
consulting fees. Our expenses are net of the tax credits we
receive from the Government of Quebec. We focus our research and
development efforts on increasing the functionality and
enhancing the ease of use and quality of our applications, as
well as developing new products and enhancing our
infrastructure. We expect that the amount of research and
development expenses will increase in dollar terms and as a
percentage of revenue as we upgrade our existing applications
and develop new technologies.
General and administrative expenses consist of salaries and
related expenses for executive, finance and accounting, human
resource, legal, operations and management information systems
personnel, professional fees, board compensation and expenses,
expenses related to potential mergers and acquisitions, other
corporate expenses, and allocated overhead. We expect that the
amount of general and administrative expenses will slightly
increase in dollar terms as we add personnel over the next year,
however as a percentage of revenue are expected to stay
consistent.
Effective January 1, 2008, we instituted a 401(k) matching
program with the following specifics: (i) for employee
contributions to the our 401(k) plan of up to 4% of the each
employee’s base salary, we will match such employee
contributions at a rate of $0.50 for every $1.00 contributed by
the employee; and (ii) our 401(k) matching program has a
three year vesting period with one third of the employer
contribution match vesting each year over the three year period.
We expect to incur additional employee related costs in 2008 as
a result of the adoption of this program.
Our consolidated financial statements are prepared in accordance
with accounting principles generally accepted in the United
States, or GAAP. The preparation of these consolidated financial
statements requires us to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenue,
costs and expenses and related disclosures. We base our
estimates on historical experience and on various other
assumptions that we believe to be reasonable under the
circumstances. In many instances, we could have reasonably used
different accounting estimates, and in other instances changes
in the accounting estimates are reasonably likely to occur from
period to period. Accordingly, actual results could differ
significantly from the estimates made by our management. To the
extent that there are material differences between these
estimates and actual results, our future financial statement
presentation, financial condition, results of operations and
cash flows will be affected.
In many cases, the accounting treatment of a particular
transaction is specifically dictated by GAAP and does not
require management’s judgment in its application, while in
other cases, management’s judgment is required in selecting
among available alternative accounting standards that allow
different accounting treatment for similar transactions. We
believe that the accounting policies discussed below are
critical to understanding our historical and future performance,
as these policies relate to the more significant areas involving
management’s judgments and estimates. Our management has
reviewed these critical accounting policies, our use of
estimates and the related disclosures with our audit committee.
We derive revenue primarily from fixed subscription fees for
access to and use of our on-demand solutions, which fees are
collectively reflected as application revenue, and secondarily
from professional services, which are reflected as consulting
revenue.
In addition to fixed subscription fees arrangements, on limited
occasions, we have entered into arrangements including a
perpetual license with hosting services to be provided over a
fixed term. For hosted arrangements, revenues are recognized
under the provisions of Emerging Issues Task Force or EITF
No. 00-3,
Application of
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AICPA Statement of Position
97-2 to
Arrangements That Include the Right to Use Software Stored on
Another Entity’s Hardware.
Our application revenue is recognized when all of the following
conditions have been satisfied:
We utilize the provisions of EITF
No. 00-21,
“Revenue Arrangements with Multiple Deliverables”
to determine whether our arrangements containing multiple
deliverables contain more than one unit of accounting. Multiple
element arrangements require the delivery or performance of
multiple products, services
and/or
rights to use assets. Typically, we measure and allocate the
total arrangement fee among each of the elements based on their
fair value.
The majority of our application revenue is recognized monthly
over the life of the application agreement, based on stated,
fixed-dollar amount contracts with our customers and consists of:
Our revenue associated with the time and expense processing
functionality of our Taleo Contingent solution is recognized
based on a fixed, contracted percentage of the dollar amount
invoiced for contingent labor through use of the application,
and is recorded on a net basis under the provisions of EITF
No. 99-19,
“Reporting Revenue Gross as a Principal versus Net as an
Agent” as we are not the primary obligor under the
arrangements, the percentage earned by us is typically fixed,
and we do not take credit risk.
Consulting revenue consists primarily of fees associated with
application configuration, integration, business process
re-engineering, change management, and education and training
services. Our consulting engagements are typically billed and
recognized on a
time-and-materials
basis, although in some instances we sell consulting services
under milestone or fixed-fee contracts and, in those cases, we
recognize consulting revenues on the lower of the milestone or a
percentage of completion basis.
In arrangements that include both subscription and consulting
services we recognize consulting services as they are performed
if the consulting services qualify as a separate unit of
accounting in the multiple element arrangement. Consulting
services qualify as a separate unit of accounting when they have
stand alone value and when fair value has been established. If
the consulting services do not qualify as a separate unit of
accounting, the related consulting revenues are combined with
the subscription revenues and recognized ratably over the
subscription term.
We account for software development costs under the provisions
of Statement of Financial Accounting Standards, or
SFAS No. 86 “Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise
Marketed.” Accordingly, we capitalize certain software
development costs after technological feasibility of the
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product has been established. Such costs have been immaterial to
date, and accordingly, no costs were capitalized during the
years ended December 31, 2007 and 2006.
We adopted SFAS 123(R) “Share-Based Payment”
effective January 1, 2006. Under the provisions of
SFAS 123(R), we recognize the fair value of stock-based
compensation in financial statements over the requisite service
period of the individual grants, which generally equals a four
year vesting period. We have elected the modified prospective
transition method for adopting SFAS 123(R), under which the
provisions of SFAS 123(R) apply to all awards granted or
modified after the date of adoption. The unrecognized expense of
awards not yet vested at the date of adoption is recognized in
our financial statements in the periods after the date of
adoption using the same value determined under the original
provisions of SFAS 123, “Accounting for Stock-Based
Compensation,” as disclosed in previous filings. We
recognize compensation expense for the stock option awards
granted subsequent to December 31, 2005 on a straight-line
basis over the requisite service period, see
Note 2 — Summary of Significant Accounting
Policies Stock-Based Compensation in our notes to
consolidated financial statements. Estimates are used in
determining the fair value of such awards. Changes in these
estimates could result in changes to our compensation charges.
In accordance with SFAS 142, “Goodwill and Other
Intangible Assets,” we conduct a test for the
impairment of goodwill on at least an annual basis. We adopted
October 1 as the date of the annual impairment test and,
therefore, we performed our first annual impairment test on
October 1, 2004. The impairment test compares the fair
value of reporting units to their carrying amount, including
goodwill, to assess whether impairment is present. Based on our
most recent assessment test, we do not have impairment as of
October 1, 2007. We will assess the impairment of goodwill
annually on October 1, or sooner if indicators of
impairment arise.
SFAS 144, “Accounting for the Impairment or
Disposal of Long-Lived Assets,” requires the review of
the carrying value of long-lived assets when impairment
indicators arise. The review of these long-lived assets is based
on factors including estimates of the future operating cash
flows of our business. These future estimates are based on
historical results, adjusted to reflect our best estimates of
future market and operating conditions, and are continuously
reviewed. Actual results may vary materially from our estimates,
and accordingly may cause a full impairment of our long-lived
assets.
We are subject to income taxes in both the United States and
foreign jurisdictions and we use estimates in determining our
provision for income taxes. Deferred tax assets, related
valuation allowances and deferred tax liabilities are determined
separately by tax jurisdiction. This process involves estimating
actual current tax liabilities together with assessing temporary
differences of items for tax and accounting purposes. These
differences result in deferred tax assets and liabilities which
are recorded on the balance sheet. Our deferred tax assets
consist primarily of net operating loss carry forwards. We
assess the likelihood that deferred tax assets will be recovered
from future taxable income and a valuation allowance is recorded
if it is deemed more likely than not some portion of the
deferred tax assets will not be recognized. In 2006, we reversed
our Canadian subsidiary’s valuation allowances by
approximately $1.3 million since it was determined more
likely than not these assets would be realized. At
December 31, 2007, we reversed valuation allowances in our
remaining foreign subsidiaries which resulted in a tax provision
benefit of approximately $0.4 million. We continue to
maintain a full valuation allowance against our deferred tax
assets. A portion of our valuation allowance relates to deferred
tax assets established in connection with prior acquisitions. To
the extent this portion of the valuation allowance is reversed
in the future, goodwill will be adjusted. Although we believe
that our tax estimates are reasonable, the ultimate tax
determination involves significant judgment that could become
subject to audit by tax authorities in the ordinary course of
business.
Compliance with income tax regulations requires us to make
decisions relating to the transfer pricing of revenue and
expenses between each of our legal entities that are located in
several countries. Our determinations
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include many decisions based on our knowledge of the underlying
assets of the business, the legal ownership of these assets, and
the ultimate transactions conducted with customers and other
third-parties. The calculation of our tax liabilities involves
dealing with uncertainties in the application of complex tax
regulations in multiple tax jurisdictions. We are periodically
reviewed by domestic and foreign tax authorities regarding the
amount of taxes due. These reviews include questions regarding
the timing and amount of deductions and the allocation of income
among various tax jurisdictions. In evaluating the exposure
associated with various filing positions, we record estimated
reserves for probable exposures. Such estimates are subject to
change.
The following tables set forth certain consolidated statements
of operations data expressed as a percentage of total revenue
for the periods indicated. Period-to-period comparisons of our
financial results are not necessarily meaningful and you should
not rely on them as an indication of future performance.
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Comparison
of the Years Ended December 31, 2007 and 2006
Dollar amounts in tables are shown in thousands.
The increase in application revenue was primarily attributable
to increased sales of our applications, including sales to 78
new Taleo Enterprise Edition customers, 717 new Taleo Business
Edition customers (including the customers of JobFlash and
Wetfeet), and sales of additional products and services to our
current customers. The increase in consulting revenue was
attributable to higher demand for services from new and existing
customers. We expect total revenues to continue to increase as
we continue to sell new and existing applications into our
installed customer base as well as to new customers.
Our U.S. company is the contracting party for all sales
agreements in the United States and our Canadian subsidiary is
the contracting party for all Taleo Enterprise Edition sales
agreements in Canada. Prior to January 1, 2005, certain of
our subsidiaries outside of North America were the contracting
parties for sales transactions within their regions. After
January 1, 2005, our U.S. company has been the
contracting party for all new sales agreements and renewals of
existing sales agreements entered into with customers outside of
North America. As our customers renew their agreements with us
over time, the percentage of total revenue identified to our
subsidiaries outside of North America should decline.
Accordingly, the geographic mix of total revenue, based on the
country of location of the Taleo contracting entity, in the year
ended December 31, 2007 was 93.2%, 5.5% and 1.3% in the
United States, Canada and the rest of the world, respectively,
as compared to 91.1%, 5.9% and 3.0%, respectively, in the year
ended December 31, 2006. We also track the geographic mix
of our revenue on the basis of the location of the contracting
entity for our customers. The geographic mix of total revenue,
based on the country of location of the customer contracting
entity, in the year ended December 31, 2007 was 90.2% from
North America and 9.8% from the rest of the world, as compared
to 92.1% from North America and 7.9% from the rest of the world
in the year ended December 31, 2006.
The increase in cost of application revenue was primarily
attributable to a $1.8 million increase in
employee-related
costs (including $1.1 million due to headcount increase of
12, $0.4 million in severance costs related to the
discontinuation of the time and expense processing services of
our Taleo Contingent solution, and $0.2 million in
SFAS 123(R) costs), $1.3 million increase in
infrastructure costs relating to hardware, software and
third-party fees for our hosting facilities and
$0.2 million in outside professional services.
We expect the cost of application revenue in dollar terms will
increase over 2008 as revenue increases but we expect cost of
application revenue to remain consistent as a percentage of
application revenue.
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The increase in cost of consulting revenue was primarily due to
a $3.4 million increase in employee-related costs as a
result of increasing headcount in 2007 by 21 and an increase of
$0.2 million in SFAS 123(R) costs). In addition, there
was an increase of $0.8 million in fees to third parties
that we subcontracted portions of our consulting business to and
$0.2 million in cross charges from other functional groups
supporting consulting engagements. The remaining
$0.8 million increase represented increases in general
overhead and depreciation expenses relating to the increase in
personnel. We expect the cost of consulting revenue to increase
in dollar terms over this year as consulting revenue increases,
and to decrease as a percentage of consulting revenue, as we
expect the utilization rates for our consultants, which is the
percentage of time out of a 2,080 hour work year that each
consultant is billable, to improve in 2008.
The increase in gross profit was a result of higher application
and consulting revenues and specifically due to an improvement
in the gross profit margin on application revenues for the year
ended December 31, 2007. Gross profit on application
revenue improved as a result of our ability to drive greater
productivity from the headcount that supports this revenue
stream. Employee-related costs for application revenue grew by
17%, whereas application revenue grew by 33%. Gross profit on
consulting decreased due to a decrease in integration related
engagements for our technical services team as we introduced,
Taleo Connect, our self-service integrations solution.
Consulting gross profit was also impacted by the timing of the
revenue recognition for milestone based consulting engagements.
We expect the total gross profit percentage to remain consistent
over the near term.
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Sales and Marketing. We increased sales and
marketing related activities and increased headcount by 22 over
the year to increase growth of our business, resulting in a
$5.9 million increase in employee-related costs (including
$5.2 million in salary, bonus and commission and
$0.7 million in SFAS 123(R) costs). Marketing programs
increased by $0.9 million due primarily to investment
related to marketing our Taleo Business Edition solution. We
also incurred $0.6 million in increased travel, training
and overhead expenses. In 2008 we expect sales and marketing
expenses to moderately increase in dollar amount and remain
consistent as a percentage of revenue.
Research and Development. The increase in
research and development expenses consisted primarily of a
$0.9 million increase in employee related costs driven by
an increase in headcount in 2007 of 10 and including
$0.5 million in SFAS 123(R) costs. The increase was
also driven by a $0.8 million increase in professional
service expense related to the development of our Taleo
Performance Management solution, a $1.1 million increases
in software maintenance and depreciation, $0.7 million
increase in travel, training and overhead expenses. The increase
in expenses discussed above includes the impact of the U.S.
dollar weakening against the Canadian dollar. We expect that the
amount of research and development expenses will increase in
dollar terms and as a percentage of revenue as we upgrade our
existing applications and develop new technologies.
General and Administrative. General and
administrative expenses increased due to an increase in
employee-related costs of $5.0 million (including
$4.2 million increase in salaries, bonus and associated
benefits and $0.7 million in SFAS 123(R) costs and
other personnel expense of $0.1 million). Although the net
increase in headcount was 1, the increase in employee-related
costs reflects the move of the finance function from Canada to
the U.S. in 2006 and 2007. Foreign currency loss was
$0.5 million greater than prior year, primarily due to the
devaluation of the U.S. dollar against the Canadian dollar.
Secondary offering costs accounted for a $0.6 million
increase. This was offset by a decrease in temporary help costs
of $1.7 million, due to the elimination of consulting
support for compliance with the Sarbanes Oxley Act and SEC
reporting obligations, a decrease of audit fees of
$0.7 million, a decrease in recruiting costs of
$0.4 million, $0.3 million in bad debt reserve,
$0.2 million in lower insurance and public company related
costs and a decrease in travel and entertainment costs of
$0.2 million
Restructuring charges. During the year ended
December 31, 2006, restructuring and other charges were
$0.4 million for the exit from our San Francisco
facility, see Note 16 — Severance and Exit Costs
in our notes to our consolidated financial statements.
Application contribution margin increased 48% year over year.
This was due to a 33% increase in revenue while application
costs increased only by 17% and research and development expense
by 18%. Efficient management of the production environment, and
controlled hiring in research and development contributed
towards margin improvement. Consulting contribution margin
declined by 6% year over year as a result of an increase in
headcount by 21 (a 26% increase in headcount) and the ramp time
involved before the new hires were fully utilized. In addition,
a higher proportion of consulting revenue was delivered by
subcontractors contributing to a lower margin and we experienced
delays in consulting revenue recognition as a result of
milestone based consulting engagements.
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Interest Income. The increase in interest
income is primarily attributable to a higher cash balance
throughout 2007 when compared to 2006 and that each quarter we
grew our overall cash balance. We experienced a decline in the
average rate earned on our cash balance from 5.02% at the
beginning of the year to 4.2% by the end of the year, but as a
result of the cash balance increasing throughout the year,
interest income increased year over year.
Interest Expense. The increase in interest
expense is attributable to imputed interest related to two
financing agreements for software purchases entered into in the
second and fourth quarter of 2007.
We recorded an income tax provision of $2.7 million in 2007
compared to an income tax benefit of $(131,000) in 2006. The
provision was generated principally from the recording of an
income tax reserve associated with our ongoing Canadian revenue
audit and current income tax expenses, offset by the reversal of
valuation allowances in our non Canadian foreign subsidiaries.
At December 31, 2007, a full valuation allowance remains
only against our U.S. company’s deferred tax assets,
as it was deemed more likely than not these assets will not be
realized. If, based on the operating results of 2008 and other
evidence we are to conclude the U.S. deferred tax assets
will be realized in the future, we will reverse the valuation
allowance which would likely have a material impact on our
financial results in the form of reduced tax expense or
increased tax benefits in the period the reversal occurs. There
can be no assurances we will reverse our
U.S. company’s valuation allowance in 2008.
Comparison
of the Years Ended December 31, 2006 and 2005
Dollar amounts in tables are shown in thousands.
The increase in application revenue was primarily attributable
to increased sales of our applications, including sales to new
customers and additional sales to our current customers. The
increase in consulting revenue was attributable to higher demand
for services from new and existing customers plus higher than
usual billable activity in the end of year holiday period.
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Our U.S. company is the contracting party for all sales
agreements in the United States and our Canadian subsidiary is
the contracting party for all Taleo Enterprise Edition sales
agreements in Canada. Prior to January 1, 2005, certain of
our subsidiaries outside of North America were the contracting
parties for sales transactions within their regions. After
January 1, 2005, our U.S. company has been the
contracting party for all new sales agreements and renewals of
existing sales agreements entered into with customers outside of
North America. As our customers renew their agreements with us
over time, the percentage of total revenue identified to our
subsidiaries outside of North America should decline.
Accordingly, the geographic mix of total revenue, based on the
country of location of the Taleo contracting entity, in the year
ended December 31, 2006 was 91.1%, 5.9% and 3.0% in the
United States, Canada and the rest of the world, respectively,
as compared to 88.1%, 7.1% and 4.8%, respectively, in the year
ended December 31, 2005.
The cost of application revenue increase was primarily
attributable to a $0.9 million increase in employee-related
costs (including $0.2 million for the impact of adopting
SFAS 123(R)) and a $2.0 million increase in our
infrastructure costs relating to hardware, software and
third-party fees for our hosting facilities.
The cost of consulting revenue increase was primarily
attributable to a $1.4 million increase in employee-related
costs in our consulting group resulting from an increase in
headcount (including $0.2 million for the impact of
adopting SFAS 123(R)). The remaining $0.3 million
increase represented increases in general overhead expenses
relating to the increase in personnel.
The increase in gross profit was a result of higher application
and consulting revenues and of improved gross profit margin on
those revenues for the year ended December 31, 2006. Gross
profit margin on professional services increased as a result of
improved utilization rates within our consulting group. Gross
profit margin on application revenue improved as a result of our
ability to drive greater productivity from the headcount that
supports this revenue stream. Employee-related costs grew by
10%, excluding the impact of adopting SFAS 123(R), whereas
revenue grew by 25%.
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Sales and Marketing. In order to support our
growth, we increased investment in sales and marketing related
activities resulting in a $4.1 million increase in
employee-related costs (including salary and commissions
increases of $2.4 and $1.0 million for the impact of
adopting SFAS 123(R)), a $1.7 million increase in
marketing program costs and $1.1 million in travel expense
and overhead expenses.
Research and Development. The increase in
research and development consisted primarily of a
$2.0 million increase in employee-related costs (including
$0.7 million for the impact of adopting SFAS 123(R))
and a $0.8 million cost for overhead allocations.
General and Administrative. General and
administrative expenses increased due to an increase in
employee-related costs of $6.8 million (including
$2.3 million for the impact of adopting SFAS 123(R),
$1.8 million increase in salaries, $1.8 million
temporary help, $0.8 million increase in employee benefits
and $0.1 million net in other employee-related cost). In
addition, we experienced an increase in accounting, legal and
consulting fees associated with implementing Sarbanes Oxley Act
controls, turnover in staff and relocation of our finance
department from Quebec to California.
Restructuring charges. During the year, ended
December 31, 2006, restructuring and other charges were
$0.4 million for the exit from our San Francisco
facility, see Note 17 — Severance and Exit Costs
in our notes to our consolidated financial statements. In the
year ended December 31, 2005, we recorded a charge of
$0.8 million associated with workforce reduction of
$0.7 million and consolidation of excess facilities of
$0.1 million. All of these amounts were paid in 2005.
Application contribution margin increased 34% year over year.
This was due to a 25% increase in revenue while application
costs increased by 18% and research and development increased by
17%. In 2006, application revenue increased due to higher
customer demand. This increase was offset by an increase in
personnel cost resulting from the adoption of SFAS 123(R)
as well as minimal increases in production and research and
development related cost. Consulting contribution margin
increased 26% year over year as a result of improved utilization
rates within our consulting group. This increase was offset by
personnel cost associated with the adoption of SFAS 123(R),
share-based compensation expense.
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Interest Income. The increase in interest
income is primarily attributable to a higher cash balance
throughout 2006 resulting from IPO proceeds received in October
2005.
Interest Expense. The reduction in interest
expense is attributable to a lower debt balance throughout 2006
compared to the prior year. In 2006, long-term debt consisted
solely of capital lease obligations, whereas in the prior year,
we had approximately $20.0 million of gross debt
outstanding with Goldman Sachs Specialty Lending Group,
including debt issuance costs, until the fourth quarter of 2005.
We recorded an income tax benefit of $(0.1) million in 2006
compared to an income tax provision of $4,000 in 2005. The
benefit was generated from minimal taxes payable from
non-U.S. operations,
a reversal of approximately $(1.3) million of Canadian
valuation allowances, and tax reserves of approximately
$1.1 million associated with the ongoing examination by the
Canadian Revenue Agency relating to our Canadian subsidiary and
uncertainty around historical tax loss carryforwards benefited
by our other international subsidiaries.
We have funded our operations primarily through cash flows from
operations and the 2005 initial public offering of our common
stock. As of December 31, 2007, we had cash and cash
equivalents totaling $86.1 million, net accounts receivable
of $30.3 million, and investment credits receivable of
$4.7 million. In addition, we have $1.1 million in
restricted cash, including $1.0 million in security
deposits on our property leases and $0.1 million in escrow
funds for the acquisition of certain assets of Wetfeet, Inc.
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Net cash provided by operating activities of $30.1 million
in the year ended December 31, 2007, compares to net cash
provided by operating activities of $9.3 million in the
year ended December 31, 2006.
A significant item impacting our net cash provided by operating
activities is accounts receivable, net of allowances, which
increased by $3.7 million in 2007. Our accounts receivable
balance fluctuates from period to period, depending on the
timing of sales and billing activity, cash collections, and
changes to our allowance for doubtful accounts. We use days
sales outstanding, or DSO, calculated on a quarterly basis, as a
measurement of the quality and status of our receivables. We
define DSO as (1) accounts receivable, net of allowance for
doubtful accounts, divided by total revenue for the most recent
quarter, multiplied by (2) the number of days in that
quarter. DSO was 81 days at December 31, 2007 compared
to 90 days at December 31, 2006. The decrease in DSO
reflects the effectiveness of the receivables management, and
impact of our cash collection efforts resulting in higher cash
collection in 2007. DSO was 66 days at December 31,
2005. The increase in DSO from December 31, 2006 as
compared to December 31, 2005 was primarily attributable to
slower than normal collections in 2006.
Another significant item affecting our net cash provided by
operating activities is our deferred revenue. We record deferred
revenue in connection with the invoicing related to the sale of
our applications. Our total deferred revenue increased in 2007
by $17.3 million as a result of customers paying cash prior
to receiving services. Deferred revenue increased in 2006 as
compared to 2005 by $7.6 million for the same reason.
In addition, our stock-based compensation expense was
$6.7 million for the year ended December 31, 2007
compared to $4.5 million stock-based compensation expense
for the year ended December 31, 2006. We expect to continue
to incur stock-based compensation expense and that will increase
in dollar terms in 2008 as a result of ongoing new hire and
annual performance grants.
Depreciation and amortization expense was $6.9 million for
the year ended December 31, 2007 compared to
$4.8 million for the year ended December 31, 2006. The
increase was due to additions to fixed assets as well as
increase in intangibles due to the acquisition of JobFlash and
Wetfeet. Depreciation and amortization expense decreased by
$64,000 for the year ended December 31, 2006 compared to
December 31, 2005. The decrease was due to some fixed
assets being fully amortized in 2006.
Cash provided by operating activities is driven by sales of our
applications. The timing of our billings and collections
relating to the sales of our applications and consulting
services is a significant component of our cash flows from
operations, as are the level of the deferred revenue on these
sales. Additionally, cash flows from operations will continue to
be affected significantly by stock based compensation expense,
and depreciation and amortization of fixed assets and
intangibles.
Net cash used in investing activities increased to
$13.8 million in 2007 primarily due to capital expenditures
related to our data centers, acquisitions of certain assets of
JobFlash and Wetfeet and purchase of other hardware and software.
The increase to $12.1 million in net cash used for
investing in 2006 was primarily due to capital expenditures
related to our data center, relocation of our corporate offices
and implementation of a new general accounting system.
In 2007, net cash provided by financing activities was
$10.1 million and this is primarily the result of
$10.5 million in net proceeds received from the exercise of
stock options, warrants and contributions to the employee stock
purchase plan, offset by $0.4 million of payments related
to capital lease obligations. We had $0.1 million
outstanding as of December 31, 2007 under capital leases.
In 2006, net cash provided by financing activities was
$2.4 million and this is primarily the result of
$3.0 million in proceeds received from the exercise of
stock options, warrants and contributions to our employee stock
purchase plan, offset by $0.6 million of payments related
to capital lease obligations. Net cash provided by financing
activities was less than in the year ended December 31,
2005 due to the timing of our initial public offering in the
fourth quarter of 2005 and the $68.2 million of net
proceeds received from the initial public offering in 2005.
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We had historically maintained a financing arrangement with
National Bank of Canada. This agreement had been in place since
1999. In January and March 2005, we amended our agreement with
National Bank of Canada. In April 2005, we terminated our debt
arrangement with National Bank of Canada and repaid all amounts
owed to National Bank of Canada and entered into a loan
agreement with Goldman Sachs. Under the $20.0 million term
loan with Goldman Sachs, which closed on April 25, 2005, we
received net proceeds of approximately $15.5 million net of
deferred financing costs and the repayment of outstanding
amounts to National Bank of Canada. The deferred financing costs
were amortized to interest expense over the life of the term
loan. The term loan accrued interest at LIBOR plus 6.0%, and
interest payments were due monthly. A portion of the proceeds of
the term loan were restricted as to our ability to access the
funds.
On October 4, 2005, we completed our initial public
offering of 6,700,000 shares of common stock at a price of
$14.00 per share. We sold 5,360,000 shares in the offering.
Certain of our selling stockholders sold the remaining
1,340,000 shares in the offering. Upon the closing of the
offering, we received net proceeds, after deducting underwriting
discounts and commissions and other offering costs, of which
$2.0 million was paid in 2004, of $65.9 million.
Simultaneous with the completion of the IPO, 69,877,241
outstanding shares of preferred stock, outstanding as of
September 30, 2005, plus 4,136,489 shares issuable
under antidilution provisions converted into
12,335,598 shares of Class A common stock as a result
of the IPO. In addition, as of the date of our initial public
offering, the holders of 17,879,362 Class A preferred
exchangeable shares of
9090-5415
Quebec, Inc. and of 6,350,400 Class B preferred
exchangeable shares of
9090-5415
Quebec Inc. could elect, or we could require them to exchange
their exchangeable shares for 4,038,287 shares of
Class A common Stock at any time. Shares exchanged during
the years ended December 31, 2007 and 2006 were 1,218,159
and 2,1164,476, respectively. No shares were exchanged during
2005. Also upon completion of the IPO, we issued
841,124 shares of Class A common stock in lieu of
payment of accrued dividends on our outstanding preferred stock
based on the initial public offering price of $14.00 share.
The amount paid in cash for accrued dividends on preferred stock
was $0.2 million.
On October 5, 2005, following completion of its initial
public offering and pursuant to the terms of our credit
agreement with Goldman Sachs, we made cash payments for
outstanding principal and prepayment fees in the amount of
$20.6 million. We had no further borrowing capabilities
with Goldman Sachs as of December 31, 2005.
We had $0.1 million and $0.4 million outstanding as of
December 31, 2007 and 2006 respectively under capital
leases from other unrelated third parties. These are subject to
interest rates ranging from 4.5% to 15.9% and mature at varying
dates through 2010.
We do not participate in transactions that involve
unconsolidated entities or financial partnerships, such as
entities often referred to as structured finance or special
purpose entities, which have been established for the purpose of
facilitating off-balance sheet arrangements or other
contractually narrow or limited purposes. Excluding operating
leases for office space, computer equipment, software, and third
party facilities that host our applications, that are described
below, we do not engage in off-balance sheet financing
arrangements.
We believe our existing cash and cash equivalents, and
anticipated cash provided by operating activities will be
sufficient to meet our working capital and capital expenditure
needs for at least the next year. Additionally, our future
capital requirements will depend on many factors, including our
rate of revenue growth, the expansion of our sales and marketing
activities, the timing and extent of spending to support product
development efforts and expansion into new territories, the
timing of introductions of new applications and enhancements to
existing applications, and the continuing market acceptance of
our applications. To the extent that existing cash and cash
equivalents, and cash from operations, are insufficient to fund
our future activities, we may need to raise additional funds
through public or private equity or debt financing. We may enter
into potential investments in, or acquisitions of, complementary
businesses, applications or technologies, in the future, which
could also require us to seek additional equity or debt
financing. Additional funds may not be available on terms
favorable to us or at all.
We generally do not enter into long-term minimum purchase
commitments. Our principal commitments, which are not included
in our debt agreements discussed above, consist of obligations
under leases for office space, operating leases for computer
equipment and to a lesser extent for third-party facilities that
host our applications.
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The following table summarizes our commitments to settle
contractual obligations in cash under operating leases and other
purchase obligations, as of December 31, 2007:
Legal expenditures could also affect our
liquidity. We are regularly subject to legal
proceedings and claims that arise in the ordinary course of
business, see Note 12 — Commitments and
Contingencies in our notes to our consolidated financial
statements. Litigation may result in substantial costs and may
divert management’s attention and resources, which may
seriously harm our business, financial condition, operating
results and cash flows.
Our revenue is generally denominated in the local currency of
the contracting party. The majority of our revenue is
denominated in U.S. dollars. In the year ended
December 31, 2007, 5% and 2% of our revenue, was
denominated in Canadian dollars and currencies other than the
U.S. or Canadian dollar, respectively. Our expenses are
generally denominated in the currencies in which our operations
are located. Our expenses are incurred primarily in the United
States and Canada, including the expenses associated with our
research and development operations that are maintained in
Canada, with a small portion of expenses incurred outside of
North America where our other international sales offices are
located. Our results of operations and cash flows are therefore
subject to fluctuations due to changes in foreign currency
exchange rates, particularly changes in the Canadian dollar, and
to a lesser extent, to the Australian dollar, British pound
sterling, Euro, Singapore dollar and New Zealand dollar, in
which certain of our customer contracts are denominated. For the
year ended December 31, 2007, the U.S. dollar weakened
by approximately 5% against the Canadian dollar on an average
basis compared to the same period in the prior year. This change
in value decreased our earnings by $1.2 million which was
comprised of increased revenue of $0.3 million, offset by
$0.5 million of additional cost of sales and
$1.0 million of incremental operating expenses. If the
U.S. dollar continues to weaken compared to the Canadian
dollar, our operating results may suffer. We do not currently
enter into forward exchange contracts to hedge exposure
denominated in foreign currencies or any derivative financial
instruments for trading or speculative purposes. In the future,
we may consider entering into hedging transactions to help
mitigate our foreign currency exchange risk.
We had cash and cash equivalents of $86.1 million at
December 31, 2007. This compares to $58.8 million at
December 31, 2006. These amounts were held primarily in
cash or money market funds. Cash and cash equivalents are held
for working capital purposes, and restricted cash amounts are
held as security against various lease obligations. We do not
enter into investments for trading or speculative purposes. Due
to the short-term nature of these investments, we believe that
we do not have any material exposure to changes in the fair
value of our investment portfolio as a result of changes in
interest rates. Declines in interest rates, however, will reduce
future interest income.
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To the Board of Directors and Stockholders of
Taleo Corporation
Dublin, California
We have audited the accompanying consolidated balance sheets of
Taleo Corporation and subsidiaries (the “Company”) as
of December 31, 2007 and 2006, and the related consolidated
statements of operations, stockholders’ equity (deficit)
and comprehensive income (loss), and cash flows for each of the
three years in the period ended December 31, 2007. These
financial statements are the responsibility of the
Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of the
Company as of December 31, 2007 and 2006, and the results
of its operations and its cash flows for each of the three years
in the period ended December 31, 2007, in conformity with
accounting principles generally accepted in the United States of
America.
As described in Note 2 to the consolidated financial
statements, the Company adopted Financial Accounting Standard
Board (“FASB”) Interpretation No. 48,
“Accounting for Uncertainty in Income Taxes —
an interpretation of FASB No. 109,” effective
January 1, 2007 and Statement of Financial Accounting
Standards No. 123(R), “Share Based
Payment,” effective January 1, 2006.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
Company’s internal control over financial reporting as of
December 31, 2007, based on the criteria established in
Internal Control — Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated March 13, 2008 expressed an
unqualified opinion on the Company’s internal control over
financial reporting.
/s/ Deloitte & Touche LLP
San Jose, California
March 13, 2008
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To the Board of Directors and Stockholders of
Taleo Corporation
Dublin, California
We have audited the internal control over financial reporting of
Taleo Corporation and subsidiaries (the “Company”) as
of December 31, 2007, based on criteria established in
Internal Control — Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission. The Company’s management is responsible for
maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control
over financial reporting, included in the accompanying
Management’s Report on Internal Control Over Financial
Reporting. Our responsibility is to express an opinion on the
Company’s internal control over financial reporting based
on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a
process designed by, or under the supervision of, the
company’s principal executive and principal financial
officers, or persons performing similar functions, and effected
by the company’s board of directors, management, and other
personnel to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the
financial statements.
Because of the inherent limitations of internal control over
financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements
due to error or fraud may not be prevented or detected on a
timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting
to future periods are subject to the risk that the controls may
become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2007, based on the criteria established in
Internal Control — Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheet as of December 31, 2007 and the
related consolidated statements of operations,
stockholders’ equity (deficit) and comprehensive income
(loss), and of cash flows for the year ended December 31,
2007, of the Company and our report dated March 13, 2008
expresses an unqualified opinion on those financial statements
and includes an explanatory paragraph regarding the adoption of
Financial Accounting Standard Board (“FASB”)
Interpretation No. 48, Accounting for Uncertainty in
Income Taxes — an interpretation of FASB
No. 109, effective January 1, 2007 and Statement
of Financial Accounting Standards No. 123(R),
“Share Based Payment,” effective
January 1, 2006.
/s/ Deloitte & Touche LLP
San Jose, California
March 13, 2008
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Management of Taleo Corporation and its subsidiaries
(“Taleo”) is responsible for establishing and
maintaining adequate internal control over financial reporting
as defined in
Rules 13a-15(f)
and 15(d)-15(f) under the Securities Exchange Act of 1934.
Taleo’s internal control over financial reporting is
designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. Internal control over
financial reporting includes those policies and procedures that:
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions and that the degree
of compliance with the policies or procedures may change over
time.
Management assessed the effectiveness of Taleo’s internal
control over financial reporting as of December 31, 2007.
In making this assessment, Taleo’s management used the
criteria set forth in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).
Taleo management has concluded, based on our assessment of
internal controls over financial reporting, that as of
December 31, 2007, Taleo’s internal control over
financial reporting was effective to provide reasonable
assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles.
Management’s assessment of the effectiveness of
Taleo’s internal control over financial reporting as of
December 31, 2007 has been audited by Deloitte &
Touche LLP, an independent registered public accounting firm, as
stated in their report which appears on page 49.
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TALEO
CORPORATION
CONSOLIDATED
BALANCE SHEETS
See accompanying Notes to Consolidated Financial Statements.
Table of Contents
TALEO
CORPORATION
CONSOLIDATED
STATEMENTS OF OPERATIONS
See accompanying Notes to Consolidated Financial Statements.
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TALEO
CORPORATION
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
Years Ended December 31, 2007, 2006, and 2005
See accompanying Notes to Consolidated Financial Statements.
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TALEO
CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
See accompanying Notes to Consolidated Financial Statements.
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TALEO
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Nature of Business — Taleo Corporation and its
subsidiaries (the “Company”) provide on-demand talent
management solutions that enable organizations of all sizes to
assess, acquire, develop, and align their workforces for
improved business performance. The Company’s software
applications are offered to customers primarily on a
subscription basis.
The Company was incorporated under the laws of the state of
Delaware in May 1999 as Recruitsoft, Inc. and changed its name
to Taleo Corporation in March 2004. The Company has principal
offices in Dublin, California and conducts its business
worldwide, with wholly owned subsidiaries in Canada, France, the
Netherlands, the United Kingdom, Singapore, and Australia. The
subsidiary in Canada performs the primary product development
activities for the Company, and the other foreign subsidiaries
are generally engaged in providing sales, account management and
support activities.
Basis of Presentation — The consolidated
financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of
America. The consolidated financial statements include the
accounts of Taleo Corporation and its wholly owned subsidiaries.
All intercompany balances and transactions have been eliminated.
Stock Split — The accompanying financial
statements reflect a one-for-six reverse stock split of the
Company’s common stock that was approved by the Board of
Directors and stockholders effective April 25, 2005. All
share and per share information herein has been retroactively
restated to reflect this split.
Allocation of Overhead Costs — The Company
allocates overhead such as rent and occupancy charges, employee
benefit costs and depreciation expense to all departments based
on employee count. As such, overhead expenses are reflected in
each cost of revenue and operating expense category.
In September 2006, the FASB issued Statement of Financial
Accounting Standard No. 157 (“SFAS 157”),
Fair Value Measurements. SFAS 157 defines fair
value, establishes a framework for measuring fair value in
accordance with GAAP, and expands disclosures about fair value
measurements. SFAS 157 will be effective for the Company in
its fiscal years beginning January 1, 2008. The Company is
currently evaluating the impact of SFAS 157 on its
consolidated financial statements.
In February 2007, the FASB issued Statement of Financial
Accounting Standard SFAS No. 159, The Fair Value
Option for Financial Assets & Financial
Liabilities — Including and Amendment of
SFAS No. 115 (“SFAS 159”).
SFAS 159 permits companies to choose to measure financial
instruments and other items of fair value. The standard requires
that unrealized gains and losses are reported in earnings for
items measured using the fair value option. SFAS 159 will
become effective for the Company in its fiscal year beginning
January 1, 2008. The Company is currently evaluating the
impact of SFAS 159 on its consolidated financial statements.
In December 2007, the FASB issued Statement of Financial
Accounting Standards No. 141 (Revised 2007)
(“SFAS 141R”), Business Combinations.
SFAS 141R requires an acquiring entity to recognize all the
assets acquired and liabilities assumed in a transaction at the
acquisition-date fair value with limited exceptions.
SFAS 141R applies prospectively to business combinations
for which the acquisition date is on or after the beginning of
the first annual reporting period beginning on or after
December 15, 2008. Earlier adoption is prohibited.
Accordingly, the Company is required to record and disclose
business combinations following existing U.S. GAAP until
January 1, 2009. The Company is currently evaluating the
requirements of SFAS 141R, and has not yet determined the
impact on its financial statements.
In December 2007, the FASB issued Statement of Financial
Accounting Standards No. 160 (“SFAS 160”),
Noncontrolling Interests in Consolidated Financial
Statements — An Amendment of ARB No. 51.
SFAS 160 establishes new accounting and reporting standards
for the noncontrolling interest in a subsidiary and for the
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TALEO
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
deconsolidation of a subsidiary. SFAS 160 is effective for
fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2008. Earlier adoption
is prohibited. The Company is currently evaluating the
requirements of SFAS 160, and has not yet determined the
impact on its financial statements.
Use of Estimates — The preparation of financial
statements in conformity with accounting principles generally
accepted in the United States of America, or GAAP, requires
company management to make estimates and assumptions that affect
the amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates. Items subject to the use of estimates include
revenue, product development costs, bad debt expense, certain
accrued liabilities, amortization of acquired intangibles,
stock-based compensation and income tax expense.
Revenue Recognition — The Company derives its
revenue primarily from fixed subscription fees for access to and
use of its on-demand solutions, which fees are collectively
reflected as application revenue, and secondarily from
professional services, which are reflected as consulting revenue.
In addition to fixed subscription fees arrangements, the Company
has on limited occasions, entered into arrangements including a
perpetual license with hosting services to be provided over a
fixed term. For hosted arrangements, revenues are recognized
under the provisions of Emerging Issues Task For or EITF
No. 00-3,
Application of AICPA Statement of Position
97-2 to
Arrangements That Include the Right to Use Software Stored on
Another Entity’s Hardware.
The Company’s application revenue is recognized when all of
the following conditions have been satisfied:
The Company utilizes the provisions of EITF
No. 00-21,
“Revenue Arrangements with Multiple Deliverables”
to determine whether its arrangements containing multiple
deliverables contain more than one unit of accounting. Multiple
element arrangements require the delivery or performance of
multiple products, services
and/or
rights to use assets. Typically, the Company measures and
allocates the total arrangement fee among each of the elements
based on their fair value.
The majority of the Company’s application revenue is
recognized monthly over the life of the application agreement,
based on stated, fixed-dollar amount contracts with its
customers and consists of:
The Company’s revenue associated with the time and expense
processing functionality of its Taleo Contingent solution is
recognized based on a fixed, contracted percentage of the dollar
amount invoiced for contingent labor
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TALEO
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
through use of the application, and is recorded on a net basis
under the provisions of EITF
No. 99-19,
“Reporting Revenue Gross as a Principal versus Net as an
Agent” as the Company is not the primary obligor under
the arrangements, the percentage earned by the Company is
typically fixed, and the Company does not take credit risk.
Consulting revenue consists primarily of fees associated with
application configuration, integration, business process
re-engineering, change management, and education and training
services. The Company’s consulting engagements are
typically billed and recognized on a
time-and-materials
basis, although in some instances it sells consulting services
under milestone or fixed-fee contracts and, in those cases, it
recognizes consulting revenues on the lower of the milestone or
a percentage of completion basis.
In arrangements that include both subscription and consulting
services the Company recognizes consulting services as they are
performed if the consulting services qualify as a separate unit
of accounting in the multiple element arrangement. Consulting
services qualify as a separate unit of accounting when they have
stand alone value and when fair value has been established. If
the consulting services do not qualify as a separate unit of
accounting, the related consulting revenues are combined with
the subscription revenues and recognized ratably over the longer
of the subscription term or the period over which the consulting
services are performed.
Deferred Revenue and Customer Deposits —
Deferred revenue and customer deposits primarily consists of
billings or payments received in advance of revenue recognition
from the Company’s solutions described above and are
recognized as the revenue recognition criteria are met. The
Company generally invoices its customers in quarterly or annual
installments. Accordingly, the deferred revenue balance does not
represent the total contract value of all, noncancelable
subscription agreements in effect.
Commission Expense — Commissions are the
incremental costs that are directly associated with revenue
contracts. In the case of commissions for application revenue
contracts, the commissions are calculated based upon a
percentage of the revenue for the first contract year. The
commission payment is earned by the Company’s sales persons
over the twelve-month period following the initiation of a new
customer contract. To the extent that a commission is paid
before it is expensed, it is recorded as a prepaid expense and
amortized over the period benefited by the service period of the
sales person.
Goodwill and Other Intangible Assets — In
accordance with SFAS No. 142, “Goodwill and
Other Intangible Assets,” the Company conducts a test
for the impairment of goodwill on at least an annual basis.
October 1 has been adopted as the date of the annual impairment
test and the Company performed its first impairment test on
October 1, 2004. The impairment test compares the fair
value of reporting units to their carrying amount, including
goodwill, to assess whether impairment is present. Based on the
most recent impairment test conducted on October 1, 2007,
the Company has concluded that there was no impairment of
goodwill as of that date. The Company will assess the impairment
of goodwill annually on October 1 or sooner, if other indicators
of impairment arise.
Impairment of Long-Lived Assets —
SFAS No. 144, “Accounting for the Impairment
or Disposal of
Long-Lived
Assets,” requires the review of the carrying value of
long-lived assets when impairment indicators arise. The review
of these long-lived assets is based on factors including
estimates of the future operating cash flows of the business.
These future estimates are based on historical results, adjusted
to reflect the Company’s best estimates of future market
and operating conditions. Actual results may vary materially
from the Company’s estimates, and accordingly may cause a
full impairment of the long-lived assets.
Income Taxes — Recognition of deferred tax
assets and liabilities is provided for the expected future tax
consequences of events that have already been recognized in the
Company’s consolidated financial statements or tax returns.
Deferred tax assets and liabilities are determined based on the
differences between the financial accounting and tax bases of
assets and liabilities using enacted tax rates expected to be in
effect for the year in which the differences are expected to
reverse. Valuation allowances are provided against net deferred
tax assets when it is more likely than not that such assets will
not be realized.
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TALEO
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The Company is subject to income taxes in both the United States
and foreign jurisdictions and uses estimates in determining its
provision for income taxes. Deferred tax assets, related
valuation allowances and deferred tax liabilities are determined
separately by tax jurisdiction. This process involves estimating
actual current tax liabilities together with assessing temporary
differences resulting from differing treatment of items for tax
and accounting purposes. These differences result in deferred
tax assets and liabilities, which are recorded on the balance
sheet. The Company’s deferred tax assets consist primarily
of net operating loss carry forwards. The Company assesses the
likelihood that deferred tax assets will be recovered from
future taxable income and a valuation allowance is recognized if
it is more likely than not that some portion of the deferred tax
assets will not be recognized. In 2006, the Company reversed its
Canadian subsidiary’s valuation allowances by approximately
$1.3 million since it was deemed more likely than not that
these assets would be realized. At December 31, 2007, the
Company reversed valuation allowances recorded in its remaining
foreign subsidiaries resulting in a tax provision benefit of
approximately $0.4 million. The Company continues to
maintain a full valuation allowance against its
U.S. deferred tax assets. A portion of the remaining
U.S. valuation allowance relates to deferred tax assets
established in connection with prior acquisitions. To the extent
this portion of the valuation allowance is reversed in the
future, goodwill will be adjusted.
Effective January 1, 2007, the Company adopted the
provisions of the Financial Accounting Standards Board
(“FASB”) Interpretation (FIN) No. 48,
Accounting for Uncertainty in Income Taxes — an
interpretation of FASB Statement No. 109. FIN 48
contains a two-step approach to recognizing and measuring
uncertain tax positions accounted for in accordance with
SFAS No. 109, Accounting for Income Taxes. The
first step is to evaluate the tax position for recognition by
determining if the weight of available evidence indicates it is
more likely than not that the position will be sustained on
audit, including resolution of related appeals or litigation
processes, if any. The second step is to measure the tax benefit
as the largest amount which is more than 50% likely of being
realized upon ultimate settlement. The Company considers many
factors when evaluating and estimating its tax positions and tax
benefits, which may require periodic adjustments and which may
not accurately anticipate actual outcomes. The impact of
FIN 48 on the Company’s financial position is
discussed in Note 11 — Income Taxes. Accordingly,
the Company reports a liability for unrecognized tax benefits
resulting from the uncertain tax positions taken or expected to
be taken in a tax return and recognizes interest and penalties,
if any, related to uncertain tax positions in income tax expense.
Compliance with income tax regulations requires the Company to
make decisions relating to the transfer pricing of revenue and
expenses between each of its legal entities that are located in
several countries. The Company’s determinations include
many decisions based on its knowledge of the underlying assets
of the business, the legal ownership of these assets, and the
ultimate transactions conducted with customers and other
third-parties. The calculation of its tax liabilities involves
dealing with uncertainties in the application of complex tax
regulations in multiple tax jurisdictions. The Company is
periodically reviewed by domestic and foreign tax authorities
regarding the amount of taxes due. These reviews include
questions regarding the timing and amount of deductions and the
allocation of income among various tax jurisdictions. In
evaluating the exposure associated with various filing
positions, the Company records estimated reserves for probable
exposures. Such estimates are subject to change.
Taleo Contingent Accounts Receivable and Staffing Suppliers
Payable — The staffing supplier companies that use
Taleo Contingent to record services provided to the
Company’s customers do so under agreements whereby the
Company is not obligated to pay the staffing suppliers unless
payment is received by the Company from its customer. Customers
of the Company remit the full amount of the invoice for
contingent labor to the Company. The Company, after deducting
its service fee, then remits payment to the staffing supplier.
Service fees earned on invoices that remained unpaid by the
Company’s customers totaled $0.1 million and
$0.3 million as of December 31, 2007 and 2006
respectively.
Allowance for Doubtful Accounts — The Company
maintains an allowance for doubtful accounts for estimated
losses resulting from the inability of customers to make
required payments. This allowance is established using estimates
formulated by the Company’s management based upon factors
such as the composition of the
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TALEO
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
accounts receivable aging, historical bad debts, changes in
payments patterns, customer creditworthiness, and current
economic trends. Following is a summary of the activity in the
allowance for doubtful accounts:
Cash and Cash Equivalents — The Company defines
cash and cash equivalents as cash and highly liquid investments
with maturity of three months or less when purchased.
Restricted Cash — The Company’s restricted
cash balance of $1.1 million at December 31, 2007 is
maintained in two Money Market accounts in the amounts of
$1.0 million and $0.1 million. The $1.0 million
collateralizes two letters of credit for $0.8 million and
$0.2 million issued to the Company’s landlords as
security deposits. The $0.1 million represents the escrow
amount for the Wetfeet acquisition, and will be disbursed in
accordance with the purchase agreement within the next
12 month period. The Money Market accounts bear interest at
prevailing market rates. The rates at December 31, 2007
ranged from 1.5% to 3.8%.
Concentration of Credit and Market Risk —
Financial instruments that potentially subject the Company to
credit risk consist primarily of cash and cash equivalents,
accounts receivable and debt. The Company maintains
substantially all of its cash in financial institutions that are
believed to have good credit ratings and represent minimal risk
of loss of principal. The Company grants credit to customers in
the ordinary course of business and provides a reserve when
necessary for potential credit losses. The Company is not
exposed to any material credit concentration risk. A portion of
the Company’s revenues and expenses are generated in
Canadian dollars as well as other foreign currencies and, as a
result, the Company is exposed to market risks from changes in
foreign currency exchange rates.
Fair Value of Financial Instruments — The
carrying amounts of the Company’s financial instruments,
which include cash and cash equivalents, restricted cash,
accounts receivable, accounts payable, and other accrued
expenses, approximate their fair values due to their short
maturities. Based on borrowing rates currently available to the
Company for loans with similar terms, the carrying value of
capital lease obligations approximates fair value.
Foreign Currency Translation — The
U.S. dollar is the reporting currency for all periods
presented. The financial information for entities outside the
United States is measured using local currency as the functional
currency. Assets and liabilities are translated into
U.S. dollars at the exchange rate in effect on the
respective balance sheet dates. Application revenues from
service contracts are translated into U.S. dollars at the
exchange rate in effect at the billing dates when revenue is
deferred. Other income and expenses are translated into
U.S. dollars based on the average rate of exchange for the
corresponding period. Exchange rate differences resulting from
translation adjustments are accounted for as a component of
accumulated comprehensive income. Gains or losses, whether
realized or unrealized, due to transactions in foreign
currencies are reflected in the consolidated statements of
operations under the line item general and administrative
expense. Amounts included in the statements of operations for
exchange losses were $0.5 million, $0.2 million, and
$0.4 million in 2007, 2006 and 2005, respectively.
Property and Equipment — Property and equipment
are stated at cost, less accumulated depreciation. Expenditures
for maintenance and repairs are charged to operations.
Depreciation is provided using the straight-line method over the
estimated useful lives of the related assets or, for leasehold
improvements, the
Table of Contents
TALEO
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
shorter of lease term or useful life of the asset. The following
table presents the estimated useful lives of the Company’s
property and equipment:
Investment Credits — The Company participates
in a special government program in Quebec that provides
investment credits based upon qualifying research and
development expenditures including capital equipment purchases.
The Company has participated in the program for nine years, and
management expects that the Company will continue to be eligible
to earn these investment credits through December 2010, when the
program is scheduled to end. The credits are estimated and
recognized when the expenditures are made. The credits earned
are reported as a reduction of related research and development
expense in the year incurred. During the years ended
December 31, 2007, 2006, and 2005, approximately
$2.5 million, $2.2 million and $2.1 million,
respectively, have been recorded as a reduction of research and
development expenses. In addition to the research and
development investment credit program described above, the
Company’s Canadian subsidiary has applied to participate in
a scientific research and experimental development, or
SR&ED, program administered by the Canadian federal
government that provides income tax credits based upon
qualifying research and development expenditures, including
capital equipment purchases. In June 2007, the Company filed its
initial SR&ED credit claims with respect to the
Company’s 2005 and 2006 tax years and recorded combined
credits of $2.1 million. The Company’s Canadian
subsidiary is eligible to remain in the SR&ED program for
future tax years as long as its development projects continue to
qualify. In addition, the Company’s Canadian subsidiary is
entitled to a SR&ED credit administered by the province of
Quebec to the extent it has not already applied eligible costs
to the research and development investment credit. These credits
are treated as a reduction of research and development expenses.
In June 2007, the Company filed Quebec provincial SR&ED
credit claims of approximately $0.2 million with respect to
the Company’s 2005 and 2006 tax years and these credits
were treated as a reduction of research and development expenses
in the quarter ended June 30, 2007. The Company is
estimating its 2007 Quebec provincial SR&ED credits to be
approximately $0.1 million and have recorded these credits
in a similar manner.
Advertising Expense — The cost of advertising
is expensed as incurred. Advertising costs were approximately
$0.8 million, $0.6 million, and $0.5 million for
the years ended December 31, 2007, 2006, and 2005,
respectively.
Product and Software Development Costs — The
Company accounts for software development costs under the
provisions of SFAS No. 86, “Accounting for the
Costs of Computer Software to be Sold, Leased or Otherwise
Marketed.” Therefore, the Company capitalizes certain
software development costs after technological feasibility of
the product has been established. Such costs have been
insignificant to date, and accordingly, no costs were
capitalized in 2007, 2006 or 2005. The Company follows the
guidance set forth in Statement of Position
98-1,
Accounting for the Cost of Computer Software Developed or
Obtained for Internal Use
(“SOP 98-1”),
in accounting for the development of its on-demand application
service.
SOP 98-1
requires companies to capitalize qualifying computer software
costs, which are incurred during the application development
stage and amortize them over the software’s estimated
useful life of five years.
Stock-Based Compensation — Prior to
January 1, 2006, the Company accounted for its share-based
employee compensation plans under the measurement and
recognition provisions of Accounting Principles Board Opinion
(“APB”) No. 25, Accounting for Stock Issued to
Employees, and related Interpretations, as permitted by
Financial Accounting Standards Board Statement of Financial
Accounting Standards (“SFAS”) No. 123,
Accounting for Stock-Based Compensation. The Company
generally recorded no employee compensation expense for options
granted prior to January 1, 2006 as options granted
generally had exercise prices equal to the fair market value of
its common stock on the date of grant. In accordance with
SFAS No. 123, the Company disclosed its net loss per
share as if it had applied the fair value-based method in
measuring compensation expense for its share-based incentive
awards.
Effective January 1, 2006, the Company adopted the fair
value recognition provisions of SFAS No. 123(R),
Share-Based Payment, using the modified prospective
transition method. Under that transition method,
Table of Contents
TALEO
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
compensation expense that the Company recognizes beginning on
that date includes expense associated with the fair value of all
awards granted on and after January 1, 2006, and expense
for the unvested portion of previously granted awards
outstanding on January 1, 2006. Results for prior periods
have not been restated for the adoption of SFAS No. 123(R).
Comprehensive Income (Loss) — Comprehensive
income (loss) consists of net loss or gain on foreign currency
translations and net income or loss from operations and is
presented in the consolidated statements of stockholders’
equity. This includes charges and credits to equity that are not
the result of transactions with stockholders. Included in other
comprehensive income or loss are the cumulative translation
adjustments related to the net assets of the operations of the
Company’s foreign subsidiaries. These adjustments are
accumulated within the consolidated statements of
stockholders’ equity under the caption “Accumulated
other comprehensive income.” Comprehensive
income / (loss) for the years ended December 31,
2007, 2006, and 2005, was approximately $5.7 million,
$(2.8) million and $(2.2) million, respectively.
On June 26, 2007, the Company entered into an asset
purchase agreement (the “Wetfeet Asset Purchase
Agreement”) by and among the Company, Universum
Communications Holdings, Inc, Wetfeet, Inc.,
(“Wetfeet”) and U.S. Bank National Association as
escrow agent, for the acquisition by the Company of certain
assets of Wetfeet relating to Wetfeet’s hiring management
solutions business (the “Wetfeet Transaction”). The
Wetfeet Transaction closed on July 3, 2007. The net cash
amount paid by the Company at closing in connection with the
acquisition was approximately $0.3 million in cash, of
which approximately $0.1 million was placed into escrow for
one year following the closing to be held as partial security
for certain losses that may be incurred by the Company in the
event of certain breaches of the representations and warranties
covered in the asset purchase agreement or certain other events.
The Wetfeet Asset Purchase Agreement provides for additional
payments of up to approximately $1.3 million to be made to
Wetfeet in July 2008 upon the achievement of certain milestones
by the first anniversary of the closing date (“Second
Payment”). As of December 31, 2007, such milestones
had been substantially achieved and the $1.3 million has
been fully accrued and included in the cost of the acquisition.
As in the case of the payment placed in escrow, the Second
Payment is subject to adjustment for certain breaches of the
representations and warranties covered in the asset purchase
agreement or certain other events. The total cost of the
acquisition including estimates for legal, accounting, valuation
and other professional fees will be $1.7 million. Under the
terms of the Wetfeet Transaction, the Company acquired a portion
of Wetfeet’s intellectual property, technology and customer
contracts. The Company has substantially converted the Wetfeet
customers to its products and plans to discontinue the Wetfeet
product in 2008. As such, the Company retained certain Wetfeet
services and development personnel on a contractual basis. In
addition, the Company assumed certain liabilities relating to
the purchased assets.
Under purchase accounting, the purchase price has been
preliminarily allocated to the net identifiable intangible
assets based on their estimated fair value at the date of
acquisition. The Company also performed a preliminary allocation
of the purchase price among the acquired identifiable intangible
assets of Wetfeet. The excess of the purchase price over the net
identifiable intangible assets has been recorded to goodwill.
The Company did not record any in-process research and
development charges in connection with the acquisition.
Table of Contents
TALEO
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The Company has not presented pro forma financial statements for
this acquisition, as the pre-acquisition operations of Wetfeet
were not material.
On March 2, 2007, the Company entered into an asset
purchase agreement (the “JobFlash Asset Purchase
Agreement”) by and among the Company, JobFlash, Inc.
(“JobFlash”) and U.S. Bank National Association
as escrow agent, for the acquisition by the Company of certain
assets of JobFlash relating to JobFlash’s talent management
and human resources solutions business (the “JobFlash
Transaction”). The JobFlash Transaction closed on
March 7, 2007. The total purchase price paid by the Company
in connection with the JobFlash Transaction was approximately
$3.1 million, of which $0.5 million was placed into
escrow for one year following the closing to be held as partial
security for certain losses that may be incurred by the Company
in the event of certain breaches of the representations and
warranties covered in the Asset Purchase Agreement or certain
other events. The total cost of the acquisition including
estimates for legal, accounting, valuation and other
professional fees was $3.3 million. Under the terms of the
JobFlash Transaction, the Company acquired substantially all of
JobFlash’s intellectual property, technology and customer
contracts. The Company hired the majority of JobFlash’s
sales, services and development personnel. In addition, the
Company assumed certain liabilities relating to the purchased
assets. As of December 31, 2007, assets acquired in the
JobFlash transaction have provided the basis for the
Company’s Taleo Scheduling Center solution and hourly
hiring management tools for the Company’s Taleo Business
Edition solution.
Under purchase accounting, the purchase price has been
preliminarily allocated to the net identifiable intangible
assets based on their estimated fair value at the date of
acquisition. The Company also performed a preliminary allocation
of the purchase price among the acquired identifiable intangible
assets of JobFlash. The excess of the purchase price over the
net identifiable intangible assets has been recorded to
goodwill. The Company did not record any in-process research and
development charges in connection with the acquisition.
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