Cheezhead Recruiting News and Opinion

Last week I wrote about why November has been a tough month for Taleo, a global provider of talent management software.

The company and its directors have been hit with a steady string of lawsuits since their auditors Deloitte and Touche announced they were going forward with a review of Taleo’s revenue recognition process. The lawsuits allege that Taleo misled or failed to inform the investing public regarding their historical and current accounting practices with respect to the timing for recognition of application and consulting revenues and that “extensive insider selling” may have occurred.

Nate Swanson, Taleo’s VP of Investor Relations, sat down with me to clarify the reevaluation of the revenue recognition process and what this means for Taleo and its investors in the long run.

“Our [revenue recognition] policies have not changed,” Swanson said. “Those are the same policies that we’ve had for many years, probably going back six or seven years since the inception of the company. Unfortunately most of the accounting standards and policies that are out there today were in place prior to the advent of on-demand software business models, and therefore there are a lot of gray areas. The process we are going through now is really a reevaluation. That’s what Deloitte has asked us to do. It’s a collaborative effort to make sure that our interpretation of GAAP is the correct interpretation for a SaaS-based business model.”

Swanson said the process will involve taking a look at all the relevant accounting standards and policies and going through examples of other companies and how they’ve interpreted those standards until Deloitte and Taleo reach a consensus as to what the best interpretation of GAAP really is.

Taleo has said that they want to announce something soon publicly about any resolutions parties involved may have reached. Swanson added that Taleo has maintained they’ve been properly recognizing revenue all along.

“We think our revenue recognition policies provide the greatest transparency into our business for investors into our business, which is a good thing, and it most closely depicts how we do business, as in the timing of the way contracts are structured and the way we collect from our customers,” Swanson said. “So to change it now retroactively – we don’t think really makes a lot of sense.”

With regards to the allegations of insider trading, Swanson had this to say: “We generally don’t comment on lawsuits, but here’s what I would tell you. Number one, at this point the only thing Deloitte has asked us to do is reevaluate our prior revenue recognition policies. Those are the same policies that we’ve had for many years. . . so for somebody to imply that we have been attempting to mislead investors – I think that is really premature and unfounded.

I think if you were to look at all the cumulative stocks sales from insiders, officers, directors, and venture investors, I would say the majority of the stock sales were probably even made at the time of the IPO, as a part of the IPO, or on a secondary offering that was done in late May or early June of 2007.”

Swanson said in the meantime it’s business as usual at Taleo. “We have our heads down and are working hard. We are coming off two very strong quarters: the June quarter was probably our strongest quarter ever in terms of new customer bookings. The September quarter was a very strong quarter as well. Obviously the economy is tough right now but we feel like we’ve put up two very good quarters in a row, and we are doing everything we can to keep that momentum going.”

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