Press Releases

Taleo Announces Third Quarter 2006 Financial Results

Dublin, Calif., — November 13, 2006 – Taleo Corporation (Nasdaq: TLEO), the leading provider of on demand talent management solutions, today announced financial results for its fiscal third quarter ended September 30, 2006.

Business Highlights Include: 

• Q3 2006 revenue increased by 25% year-over-year to $24.9 million.
• Q3 2006 recurring application revenue increased by 27% year-over-year to over $20.3 million.
  

“In the quarter we continued to see steady demand for our talent management solutions.  We added 110 new customers – 15 large enterprise customers and 95 SMB customers bringing our total customer count to over 720,” stated Michael Gregoire, president and CEO of Taleo.  “We are pleased to report strong organic growth that was driven by both new business sales and service engagements as well as strong cross sales of our new Taleo OnBoarding™ and Taleo Reporting and Analytics™ products to our installed base of customers.”

“We are also very excited to announce today that Taleo is developing a new suite of Performance Management applications,” commented Gregoire.   “According to IDC, the Performance Management market is the fastest growing segment of talent management with an estimated market size of $495 million in 2008.  Furthermore, our customers have expressed strong interest in a performance management offering from us. In response to this significant market opportunity and customer demand, Taleo will develop and deliver a fully integrated enterprise-class product that will be highly differentiated from the current competitive offerings. We anticipate these new offerings will be available in the fall of 2007.”

Taleo announced the following results for the quarter ended September 30, 2006:

Revenue: Total revenue for the third quarter was $24.9 million, an increase of 25% on a year-over-year basis.  Recurring application revenue for the third quarter was $20.3 million, an increase of 27% on a year-over-year basis. 

Net Loss and Loss Per Share: Net Loss in accordance with accounting principles generally accepted in the United States, or GAAP, was $(0.8) million for the third quarter, compared to a net loss of $(1.6) million for the same period last year.  Net loss for the third quarter of 2006 includes share-based payment expense of $1.2 million pursuant to the adoption on January 1, 2006 of Financial Accounting Standards Board (FASB) Statement No. 123R, “Share-Based Payment” (SFAS 123R), which requires companies to expense the fair value of employee stock options and similar stock based compensation awards.  Net loss per share was $(0.04) for the third quarter of 2006 based on 20.4 million weighted average shares outstanding compared to net loss per share of $(16.74) for the same period in 2005 based on 149 thousand weighted average shares outstanding. 

Non-GAAP Net Income/Loss and Non-GAAP Income/Loss Per Share: Non-GAAP net income, which excludes restructuring costs and other charges, loss on disposal of fixed assets, stock compensation expense, share-based payment expense pursuant to SFAS 123R, amortization of acquired intangibles, fees for early retirement of indebtedness, net adjustment for tax valuation allowances, and accretion of dividends and issuance costs on preferred stock, was $0.9 million for the third quarter of 2006, compared to a non-GAAP net income of $171 thousand in the same period last year.  Non-GAAP net income per share was $0.04 for the third quarter of 2006 based on 25.7 million weighted average shares outstanding compared to non-GAAP net income per share of $0.01 for the same period in 2005 based on 18.9 million weighted average shares outstanding. 

Additional Third Quarter Business Highlights:

• Taleo added 110 new customers in the quarter, bringing total customers to over 720. 
• New Taleo customers added in the third quarter of 2006 include the following leading companies across a wide variety of industries:  The Gallup Organization, Ministry Healthcare, Phelps Dodge, Phoenix Children’s Hospital, Alcatel Australia, QuickSilver, Kaatar, MySQL, Unified Western Grocers, and Metropolitan Library System.
• Taleo customers have used Taleo solutions to process 51 million candidates and enable more than 1.75 million hires since inception.
• The Company announced the opening of an office in Singapore to support local market demand.  Taleo’s Singapore office will provide additional support to help address the local needs of its global customers and support the growing market demand in Asia Pacific for talent management solutions.
• Taleo received several awards and industry recognition including: “HR Product of the Year” award by Human Resource Executive Magazine for Taleo Analytics & Reporting™;  the CIO 100 Award from CIO Magazine, and the 2006 Enterprise All-Star Award Network World Magazine,  in recognition of the Company’s leadership and innovation with its on demand technology infrastructure.
• Taleo launched a new services offering, Taleo Talent Intelligence.  This new services offering compliments the award winning Taleo Reporting and Analytics solution - a strategic and powerful new way to measure, analyze, and optimize talent for improved business performance.
  

Conference Call Details
In conjunction with this announcement, Taleo will host a conference call today at 4:30 pm (EDT) to discuss the company's third quarter 2006 financial results.  To access this call, dial 800-688-0836 (domestic) or 617-614-4072 (international) using passcode 24182063. A replay of this conference call will be available through November 26, 2006, at 888-286-8010 (domestic) or 617-801-6888 (international). The replay passcode is 61035593. A live webcast of this conference call will be available on the "Investor Relations" page of the Company's Web site, (www.taleo.com) and a replay will be archived on the Web site as well.

About Taleo Corporation
Taleo (Nasdaq: TLEO) delivers on demand talent management solutions that enable organizations of all sizes to assess, acquire, develop and align their workforce for improved business performance. Taleo’s customers use its suite of solutions to improve their talent management processes to reduce the time and costs associated with these processes and to enhance the quality, productivity and satisfaction of their workforces. Taleo currently has more than 720 corporate customers with approximately 750,000 registered users who use our services to fill positions in almost 100 countries. For more information visit www.taleo.com.

Forward-looking Statements
This release contains forward-looking statements, including statements regarding Taleo’s future financial performance, new product development, market growth, the demand for Taleo’s solutions and general business conditions.  Any forward-looking statements contained in this press release are based upon Taleo's historical performance and its current plans, estimates and expectations and are not a representation that such plans, estimates, or expectations will be achieved. These forward-looking statements represent Taleo's expectations as of the date of this press announcement. Subsequent events may cause these expectations to change, and Taleo disclaims any obligation to update the forward-looking statements in the future. These forward-looking statements are subject to known and unknown risks and uncertainties that may cause actual results to differ materially, including the possibility that the market for enterprise software does not develop as anticipated; the volatility of our stock price due to the difficulty in predicting operating results and the long sales cycle for our software; failure to develop new software products or enhance existing products; failure to retain key staff; the failure to maintain historical maintenance renewal rates; and the failure to properly protect our proprietary rights and intellectual property.  Further information on potential factors that could affect actual results is included in Item 1A of Taleo’s Annual Report on Form 10-K, as filed with the SEC on April 17, 2006, in Item 1A of Taleo Quarterly Report on Form 10-Q, as filed with the SEC on August 14, 2006, and in other reports filed by Taleo with the SEC.

Non-GAAP Financial Measures
Taleo has provided in this release financial information that has not been prepared in accordance with GAAP. This information includes non-GAAP net income (loss) and non-GAAP earnings (loss) per share. Taleo uses these non-GAAP financial measures internally in analyzing its financial results and believes they are useful to investors, as a supplement to GAAP measures, in evaluating Taleo's ongoing operational performance. Taleo believes that the use of these non-GAAP financial measures provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing its financial measures with other companies in Taleo’s industry, many of which present similar non-GAAP financial measures to investors. As noted, the non-GAAP financial measures discussed above exclude restructuring costs and other charges, loss on disposal of fixed assets, stock compensation expense, share-based payment expense pursuant to SFAS 123R, amortization of acquired intangibles, fees for early retirement of indebtedness, net adjustment for tax valuation allowances, and accretion of dividends and issuance costs on preferred stock.

Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. Investors are encouraged to review the reconciliation of these non-GAAP measures to their most directly comparable GAAP financial measure as detailed above. As previously mentioned, a reconciliation of GAAP to the non-GAAP financial measures has been provided in the tables included as part of this press release.

Taleo Corporation
Condensed Consolidated Balance Sheets
(All amounts in thousands)
			(Unaudited)
			Sept 30,	June 30		March 31,		Dec 31,
			2006	2006		2006		2005
ASSETS
	Current assets:
		Cash and cash equivalents	$ 52,989	$ 63,050		$ 62,731		$ 59,346
		Restricted cash	972	961		779		1,110
		Accounts receivable	24,230	17,070		20,517		15,026
		Prepaid expenses and other current assets	4,906	3,729		4,021		3,010
		Investment credit receivable	4,010	3,461		2,815		4,944
		Total current assets	87,107	88,271		90,863		83,436
	Property and Equipment
		Property and equipment	24,433	23,087		16,548		16,217
		Accumulated depreciation - Property and equipment	(11,685)	(10,877)		(9,624)		(9,088)
		Government Assistance						0
	Property and equipment, net		12,748	12,210		6,924		7,129
	Restricted Cash		1,053	1,048		1,248		936
	Other assets		435	274		382		283
	Goodwill		6,027	6,027		6,027		5,947
	Other Intangibles, net		541	791		1,040		1,289
	Total assets		$ 107,911	$ 108,621		$ 106,484		$ 99,020
LIABILITIES AND STOCKHOLDERS' EQUITY
	Current liabilities:
		Capital lease obligation, current	$ 501	$ 602		$ 581		$ 583
		Accounts payable and accrued liabilities	13,579	14,918		11,267		13,063
		Contingent shares issuable	80	80		80		81
		Customer deposits	1,152	1,654		2,397		342
		Deferred revenue	16,149	16,415		17,724		10,870
		Total current liabilities	31,461	33,669		32,049		24,939
	Customer deposits and long term deferred revenue		303	303		187		114
	Other liabilities		889	105		129		155
	Capital lease obligation, long term		46	95		256		399
	Class B redeemable common stock		-	-		-		-
	Total liabilities		32,699	34,172		32,621		25,607
	Exchangeable share obligation		833	1,352		1,713		1,715
	Stockholders' equity:
		Capital stock	-	-		-		-
		Additional paid-in capital	130,621	128,518		125,934		124,947
		Accumulated deficit	(56,880)	(56,123)		(54,295)		(53,701)
		Deferred compensation	-	-		-		(21)
		Treasury Stock	(86)
		Accumulated other comprehensive income	724	702		511		473
		Total Stockholders' equity	74,379	73,097		72,150		71,698
	Total liability and stockholders' equity		$ 107,911	$ 108,621		$ 106,484		$ 99,020

Taleo Corporation Condensed Consolidated Statements of Operations (All amounts in thousands exept per share data) (Unaudited)
			Three Months Ended				Nine Months Ended
			September 30				September 30
			2006		2005		2006		2005
					(Restated)				(Restated)
Revenue:
	Application		$ 20,274		$ 15,987		$ 57,521		$ 46,090
	Consulting		4,609		3,916		12,998		11,277
	Total revenue		24,883		19,903		70,519		57,367
Cost of revenue (note 1):
	Application		4,754		3,876		13,563		11,481
	Amortization of acquired intangibles		250		250		748		720
	Total cost of application revenue		5,004		4,126		14,311		12,201
	Consulting		3,084		2,839		9,617		7,866
	Total cost of revenue		8,088		6,965		23,928		20,067
Gross profit			16,795		12,938		46,591		37,300
Operating expenses (note 1):
	Sales and marketing		7,391		5,471		21,663		16,641
	Research and development		4,844		3,741		14,444		11,857
	General and administrative (note 2)		5,792		3,361		15,566		8,342
	Restructuring costs and other charges		426		-		426		804
	Total operating expenses		18,453		12,573		52,099		37,644
Loss from operations			(1,658)		365		(5,508)		(344)
Other income (expense):
	Interest income		746		138		2,232		295
	Interest expense		(24)		(2,120)		(67)		(2,757)
	Other (expense) income, net		-		-		-		-
	Total other income (expense)		722		(1,982)		2,165		(2,462)
Loss before provision for income tax			(936)		(1,617)		(3,343)		(2,806)
	Income tax benefit		(179)		-		(164)		-
Net loss			$ (757)		$ (1,617)		$ (3,179)		$ (2,806)
Accretion of dividends and
	issuance cost on preferred stock		-		(877)		-		(2,596)
Net loss attributable to Class A common stockholders			$ (757)		$ (2,494)		$ (3,179)		$ (5,402)
Net loss attributable to Class A common stockholders - basic and diluted			$ (0.04)		$ (16.74)		$ (0.16)		$ (52.96)
Weighted average Class A common shares - basic and diluted			20,384		149		19,477		102
NOTES
1.	Includes share-based payments expense pursuant to adoption of SFAS 123R as of January 1, 2006.
	Application COS		$ 55				$ 143
	Service COS		68				159
	COS Subtotal		123				302
	Sales & Marketing Operating Cost		287				750
	R&D Operating Cost		217				494
	G&A Operating Cost		555				1,848
	SG&A Subtotal		1,059				3,092
	Total share-based payments expense		$ 1,182				$ 3,394
2.	Includes $366 of stock compensation expense under SFAS 123 related to a warrant issued to an external consultant
	in the nine months ended September 30, 2005.
Reconciliation of GAAP net loss and non-GAAP net income:
			Three Months Ended				Nine Months Ended
			September 30				September 30
			2006		2005		2006		2005
GAAP net loss reported above			$ (757)		$ (2,494)		$ (3,179)		$ (5,402)
Add back:
	Restructuring costs and other charges		426		-		426		804
	Loss on disposal of fixed assets		-		-		181		-
	Stock compensation expense		-		-		-		366
	Share-based payments (SFAS 123R)		1,182		-		3,394		-
	Amortization of acquired intangibles		250		250		748		720
	Fees for early retirement of indebtedness				1,538				1,538
	Net adjustment for tax valuation allowance		(183)				(183)
	Accretion of dividends and issuance costs on preferred stock		-		877		-		2,596
			1,675		2,665		4,566		6,024
Non-GAAP net income			$ 918		$ 171		$ 1,387		$ 622
Non-GAAP net income per share
	Basic		$ 0.05		$ 1.15		$ 0.07		$ 6.10
	Basic, pro forma as adjusted		$ 0.04		$ 0.01		$ 0.06		$ 0.04
	Diluted		$ 0.04		$ 0.01		$ 0.05		$ 0.03
Reconciliation of basic and diluted share count:
Basic			20,384		149		19,477		102
Add:	Weighted Average - Series B Common Stock		2,919		4,038		3,567		4,038
	Weighted Average - Preferred Stock		0		12,335		0		12,334
	Weighted Average - Warrants & Options		2,381		2,329		2,534		2,371
Diluted			25,684		18,851		25,578		18,845
Less:	Weighted Average - Warrants & Options		(2,381)		(2,329)		(2,534)		(2,371)
Basic, pro forma as adjusted			23,303		16,522		23,044		16,474

Taleo Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All amounts in thousands)
(Unaudited)
			Nine Months Ended Sept 30,
			2006		2005
Cash flows from operating activities:
	Net loss		$ (3,179)		$ (2,806)
	Adjustments to reconcile net loss to net cash provided by operating activities:
		Depreciation and amortization	3,505		3,721
		Loss on disposal of fixed assets	399		89
		Amortization of tenant inducements	(170)		-
		Stock-based compensation expense	3,394		380
		Changes in working capital accounts:
		Interest Receivable			127
		Change in fair value of derivatives			1,538
		Accounts receivable	(9,113)		2,583
		Prepaid expenses and other assets	(971)		(698)
		Investment credit receivable	1,145		(1,604)
		Accounts payable and accrued liabilities	314		2,339
		Deferred revenues and customer deposits	6,193		(2,856)
		Net cash provided by operating activities	1,517		2,813
Cash flows from investing activities:
	Acquisition of fixed assets		(8,777)		(1,918)
	Restricted cash		31		(7,816)
	Acquisition of business, net of cash acquired		-		(3,348)
		Net cash used in investing activities	(8,746)		(13,082)
Cash flows from financing activities:
	Proceeds from long-term debt		-		20,215
	Principal payments on long-term debt		-		(5,678)
	Principal payments on capital lease obligations		(444)		-
	Increase in other assets		-		(1,065)
	Proceeds from stock options exercises		1,255		427
		Net cash provided by financing activities	811		13,899
Effect of exchange rate changes on cash and cash equivalents			61		321
Increase in cash and cash equivalents			(6,357)		3,951
Cash and cash equivalents:
	Beginning of period		59,346		5,773
	End of period		$ 52,989		$ 5,829
Supplemental cash flow disclosures:
	Cash paid for interest		$ 34		$ 987
Supplemental disclosure of non-cash financing and investing activities:
	Fixed asset purchases included in accounts payable and accrued liabilities		$ 615		$ 390
	Accretion of dividends and issuance costs on preferred stock		$ -		$ 2,596

# # #

Press Contacts:
Krista Canfield
Tel: 415.905.4011
e-mail: kcanfield@horngroup.com