Cornerstone OnDemand Announces First Quarter 2018 Financial Results
SANTA MONICA, Calif. – May 8, 2018 – Human capital management software provider Cornerstone OnDemand, Inc. (NASDAQ: CSOD) today announced results for its first quarter ended March 31, 2018.
“We had a solid Q1 while demonstrating strong progress against our strategic transformation plan,” said Adam Miller, the Company’s CEO. “We feel our ability to deliver in the midst of this major transformation is a positive indicator that we are moving in the right direction. We believe the changes we are implementing will make us stronger, more focused, and better positioned for growth.”
Adoption of the New Revenue Recognition Standard - ASC 606
The Company adopted the new revenue recognition accounting standard Accounting Standards Codification (“ASC”) 606 effective January 1, 2018 on a modified retrospective basis. Financial results for reporting periods during 2018 are presented in compliance with the new revenue recognition standard. Historical financial results for reporting periods prior to 2018 are presented in conformity with amounts previously disclosed under the prior revenue recognition standard ASC 605. This press release includes additional information to reconcile the impacts of the adoption of the new revenue recognition standard on the Company’s financial results for the quarter ended March 31, 2018. This includes the presentation of financial results during 2018 under ASC 605 for comparison to the prior year.
First Quarter 2018 Results - ASC 606 (standard adopted effective January 1, 2018):
• Revenue for the first quarter of 2018 was $133.1 million compared to a guided range of $126.0 million to $128.0 million.
• Subscription revenue for the first quarter of 2018 was $113.1 million compared to a guided range of $111.0 million to $113.0 million.
• The Company’s operating loss for the first quarter of 2018 was $(8.8) million, yielding a margin of (6.6)%.
• Non-GAAP operating income for the first quarter of 2018 was $12.9 million, yielding a margin of 9.7%.1
• The Company’s net loss for the first quarter of 2018 was $(16.2) million, or a $(0.28) diluted net loss per share.
• Non-GAAP net income for the first quarter of 2018 was $9.0 million, or a $0.14 diluted net income per share.1
• Unlevered free cash flow for the first quarter of 2018 was $(10.2) million, yielding a margin of (7.6)%, compared to $(13.8) million, yielding a margin of (12.4)% in 2017.1
First Quarter 2018 Results - ASC 605
• Revenue for the first quarter of 2018 was $132.7 million, representing a 18.9% increase compared to the prior year. Revenue growth on a constant currency basis was 14.8%.1
• Subscription revenue for the first quarter of 2018 was $114.4 million, representing a 23.1% increase compared to the prior year. Subscription revenue growth on a constant currency basis was 19.1%.1
• The Company’s operating loss for the first quarter of 2018 was $(9.6) million, yielding a margin of (7.2)%, compared to $(13.1) million, yielding a margin of (11.8)%, in the prior year.
• Non-GAAP operating income for the first quarter of 2018 was $12.2 million, yielding a margin of 9.2%, compared to $4.9 million, yielding a margin of 4.4%, in the prior year.1
• The Company’s net loss for the first quarter of 2018 was $(17.0) million, or a $(0.30) diluted net loss per share, compared to a net loss of $(16.2) million, or a $(0.29) diluted net loss per share, in the prior year.
• Non-GAAP net income for the first quarter of 2018 was $8.2 million, or a $0.13 diluted net income per share, compared to $4.8 million, or a $0.08 diluted net income per share in the prior year.1
“The first quarter outperformed expectations in all areas, from top line growth to unlevered free cash flow,” said Brian Swartz, the Company’s CFO. “We are pleased with this performance and believe there are opportunities to drive even more improvement as Cornerstone continues to execute on its strategic plan.”
• The Company announced a partnership with Facebook, focused on its integration between Workplace by Facebook and the Cornerstone Learning Suite. The integration is focused on bringing the Company’s recently introduced “learning playlist” functionality into Workplace, further integrating learning and development into the flow of daily work and promoting a collaborative work environment.
• The Company announced a surge of European client demand in the third and fourth quarters of 2017. Growth in new clients nearly doubled in the latter half of 2017, when compared to the first half of the year, reaching a total of approximately 650 clients in Europe.
• The Company hired Jennifer Gianola as its new Vice President of Investor Relations and Chris Wheaton as its new Vice President of Field Operations.
• The Company announced the University of Tennessee System selected its learning and extended enterprise solutions to provide crucial training for its faculty and staff across six campuses and institutes, as well as certification programs for external stakeholders.
• The Company announced that it partnered with Palo Alto-based think tank Institute for the Future to identify the urgent skills people must master today to distinguish themselves and survive the workplace of tomorrow.
• The Company ended the first quarter of 2018 with 3,280 clients and 36 million users.2
Stock Repurchase Program:
The following is a summary of the Company's stock repurchases as of May 4, 2018 (in thousands, except per share information):
|Period||# of Shares Repurchased||Average Price per Share||Total Expenditures|
|November 8, 2017 - December 31, 2017||635||$||35.55||$||22,599|
|January 1, 2018 - March 31, 2018||423||$||37.84||16,024|
|April 1, 2018 - May 4, 2018||100||$||39.44||3,988|
The following outlook is based on information available as of the date of this press release and is subject to change in the future. The Company has provided a supplemental financial presentation summarizing the adoption of ASC 606 (and on an ASC 605 basis) located on its Investor Relations website at http://investors.cornerstoneondemand.com. All numbers below are presented on an ASC 606 basis unless otherwise stated. Note that the United States dollar (USD) strengthened against the British pound (GBP) and Euro (EUR) since the Company’s previous full year 2018 guidance was issued on February 13, 2018. For the second quarter ending June 30, 2018, the Company provides the following outlook:
• Revenue between $127.0 million and $129.0 million, representing year-over-year growth at the mid-point of 10%3, or 8%4 on a constant currency basis.
◦ Revenue growth at the mid-point on an ASC 605 basis was 10%3, or 8%4 on a constant currency basis.
• Subscription revenue between $111.0 million and $113.0 million, representing year-over-year growth at the mid-point of 16%3, or 14%4 on a constant currency basis.
◦ Subscription revenue growth at the mid-point on an ASC 605 basis was 17%3, or 15%4 on a constant currency basis.
For the year ending December 31, 2018, the Company provides the following outlook:
• Revenue between $503.0 million and $511.0 million, representing year-over-year growth at the mid-point of 5%5, or 3%6 on a constant currency basis.
◦ Revenue growth at the mid-point on an ASC 605 basis was 5%5, or 3%6 on a constant currency basis.
• Subscription revenue between $453.0 million and $461.0 million, representing year-over-year growth at the mid-point of 15%5, or 13%6 on a constant currency basis.
◦ Subscription revenue growth at the mid-point on an ASC 605 basis was 17%5, or 15%6 on a constant currency basis.
• Annual recurring revenue as of December 31, 2018 between $477.0 million and $495.0 million.5, 7
• Non-GAAP operating income between $54.0 million and $62.0 million. Assuming the midpoint of the revenue range, this represents an operating margin of 11%.
• Unlevered free cash flow between $52.0 million and $60.0 million. Assuming the midpoint of the revenue range, this represents an unlevered free cash flow margin of 11%.
The Company has not reconciled the guidance for non-GAAP operating income or non-GAAP operating margin to the corresponding GAAP measures because it does not provide guidance for such GAAP measures and would not be able to present the reconciling items between such GAAP and non-GAAP measures without unreasonable efforts. For non-GAAP operating income and non-GAAP operating margin, the Company excludes stock-based compensation expense, which is impacted by factors that are outside of the Company’s control and can be difficult to predict. The actual amount of stock-based compensation expense in the second quarter ending June 30, 2018 and the year ending December 31, 2018 will have a significant impact on the Company’s GAAP operating margin.
|1||Financial measures presented on a constant currency basis, non-GAAP operating income, non-GAAP operating income margin, non-GAAP net income, non-GAAP diluted net income per share, unlevered free cash flow and unlevered free cash flow margin are non-GAAP financial measures. Please see the discussion in the section titled “Non-GAAP Financial Measures” and the reconciliations at the end of this press release.|
|2||Includes contracted clients and active users of our enterprise human capital management platform and excludes clients and users of our Cornerstone for Salesforce and PiiQ, formerly known as Cornerstone Growth Edition, products.|
|In order to translate the financial outlook for entities reporting in British pounds (GBP) to United States dollars (USD) and Euro (EUR) to United States dollars (USD), the following exchange rates have been applied:|
|3||Exchange rate applied to revenue for the second quarter of 2018||$1.36 USD per GBP|
|4||Exchange rate from the second quarter of 2017 applied to calculate revenue growth for the second quarter of 2018 on a constant currency basis||$1.28 USD per GBP|
|5||Exchange rate applied to revenue and annual recurring revenue for fiscal 2018||$1.36 USD per GBP|
|6||Exchange rate applied to calculate revenue growth for fiscal 2018 on a constant currency basis||$1.36 USD per GBP|
|7||Exchange rate applied to annual recurring revenue for fiscal 2018||$1.20 USD per EUR|
Quarterly Conference Call
Cornerstone OnDemand, Inc. will host a conference call to discuss its first quarter 2018 results at 2:00 p.m. PT (5:00 p.m. ET) today. A live audio webcast of the conference call, together with detailed financial information, can be accessed through the Company’s Investor Relations website at http://investors.cornerstoneondemand.com. The live call can be accessed by dialing (877) 445-4619 (U.S.) or (484) 653-6763 (outside the U.S.) and referencing passcode: 2789279. A replay of the call will also be available at http://investors.cornerstoneondemand.com/investors/news-and-events/events/default.aspx or via telephone until 11:59 p.m. PT on May 11, 2018 by dialing (855) 859-2056 (U.S.) or (404) 537-3406 (outside the U.S.), and referencing passcode: 2789279.
About Cornerstone OnDemand
Cornerstone OnDemand, Inc. (NASDAQ: CSOD) is a global leader in cloud-based learning and human capital management software. The Company is pioneering solutions to help organizations realize the potential of the modern workforce. From recruitment, onboarding, training and collaboration, to performance management, compensation, succession planning, people administration and analytics, Cornerstone is designed to enable a lifetime of learning and development that is fundamental to the growth of employees and organizations.
Based in Santa Monica, California, the Company’s solutions are used by 3,280 clients worldwide, spanning 36 million users across 192 countries and 43 languages. To learn more about Cornerstone, visit us on Twitter, Facebook and our blog. www.cornerstoneondemand.com
Note: Cornerstone® and Cornerstone OnDemand® are registered trademarks of Cornerstone OnDemand, Inc.
This press release and the quarterly conference call referenced above contain forward-looking statements, including, but not limited to, statements regarding our future financial and operating performance, including our GAAP and non-GAAP guidance, the growth of the learning and human capital management market, our business strategy, plans and objectives for future operations, the demand for and benefits from the use of our current and future solutions both domestically and internationally, the opportunity to upsell to our existing clients, the timing and release of new solutions and the success of such solutions, changes to our corporate governance structure, the use of proceeds from the sale of our convertible notes, the share repurchase program and the factors that will impact the amount and timing of purchases, if any, thereunder, our ability to realize potential benefits from our recent and ongoing operational excellence and strategic transformation plans, our expectations regarding recurring revenue growth and operating margins, and general business conditions. Any forward-looking statements contained in this press release or the quarterly conference call are based upon our historical performance and our current plans, estimates and expectations and are not a representation that such plans, estimates, or expectations will be achieved. These forward-looking statements represent our expectations as of the date of this press release. Subsequent events may cause these expectations to change, and we disclaim any obligation to update the forward-looking statements in the future, except as required by law. These forward-looking statements are subject to known and unknown risks and uncertainties that may cause actual results to differ materially from our current expectations. Important factors that could cause actual results to differ materially from those anticipated in our forward-looking statements include, but are not limited to, our ability to attract new clients; the extent to which clients renew their subscriptions for our solutions; the timing of when consulting services are delivered to new and existing clients by our services organization and implementation subcontractors; the complexity of deployments and product implementations, which can impact the timing of when revenue is recognized from new and existing clients; allowing our implementation subcontractors to contract directly with clients for implementation services; shifted focus to recurring revenue streams; our ability to compete as the learning and human capital management provider for organizations of all sizes; changes in the proportion of our client base that is comprised of enterprise or mid-sized organizations; our ability to manage our growth, including additional headcount and entry into new geographies; our ability to expand our enterprise and mid-market sales opportunities; our ability to maintain stable and consistent quota attainment rates; continued strong demand for learning and human capital management in the U.S., Europe, Asia Pacific and Latin America; the timing and success of efforts to increase operational efficiency and cost containment; the possibility that the share repurchase program may be suspended or discontinued; the timing and success of solutions offered by our competitors; unpredictable macro-economic conditions; the impact of foreign exchange rates; reductions in information technology spending; the success of our new product and service introductions; a disruption in our hosting network infrastructure; problems caused by security breaches; costs and reputational harm that could result from defects in our solutions; the success of our strategic relationships with third parties; the loss of any of our key employees and our ability to locate qualified replacements; failure to protect our intellectual property; acts of terrorism or other vandalism, war or natural disasters; changes in current tax or accounting rules; legal or political changes in local or foreign jurisdictions that decrease demand for, or restrict our ability to sell or provide, our products; and unanticipated costs or liabilities related to businesses that we acquire. Further information on factors that could cause actual results to differ materially from the results anticipated by our forward-looking statements is included in the reports we have filed with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the fiscal year ended December 31, 2017.
Non-GAAP Financial Measures
To supplement its consolidated financial statements, which are prepared and presented in accordance with U.S. generally accepted accounting principles, or GAAP, the Company has provided in this press release and the quarterly conference call held on the date hereof certain measures that have not been prepared in accordance with GAAP. These non-GAAP financial measures include (i) non-GAAP cost of revenue, which is defined as cost of revenue less amortization of intangible assets and stock-based compensation, (ii) annual recurring revenue, which is defined as the annualized recurring value of all active contracts at the end of a reporting period, (iii) free cash flow, which is defined as net cash provided by operating activities minus capital expenditures and capitalized software costs, (iv) free cash flow margin, which is defined as free cash flow divided by revenue, (v) unlevered free cash flow, which is defined as net cash provided by operating activities minus capital expenditures and capitalized software costs plus cash paid for interest, (vi) unlevered free cash flow margin, which is defined as unlevered free cash flow divided by revenue, (vii) non-GAAP net income and non-GAAP diluted net income per share, which exclude, for the periods in which they are presented, stock-based compensation, amortization of intangible assets, accretion of debt discount and amortization of debt issuance costs, unrealized fair value adjustment on strategic investment, and excludes the impacts of unamortized stock-based compensation expense in applying the treasury method for determining the non-GAAP weighted average number of dilutive shares outstanding, (viii) non-GAAP gross profit and non-GAAP gross margin, which exclude stock-based compensation and amortization of intangible assets reflected in cost of revenue, (ix) non-GAAP operating income and non-GAAP operating income margin, which are defined as loss from operations excluding stock-based compensation and amortization of intangible assets, (x) non-GAAP operating expenses, which exclude stock-based compensation and amortization of intangible assets, and (xi) non-GAAP sales and marketing expense, non-GAAP research and development expense, and non-GAAP general and administrative expense, each of which excludes stock-based compensation attributable to the corresponding GAAP financial measures. In addition, the Company provides investors with non-GAAP financial measures under ASC 605 to compare against the Company’s GAAP financial measures under ASC 606 and discloses revenue on a constant currency basis. To present amounts on a constant currency basis, current period results for entities reporting in functional currencies other than the United States dollar are translated into the United States dollar at the prior period exchange rates as opposed to the actual exchange rates in effect for the current period. The Company presents constant currency information to provide a framework for assessing how its underlying business performed excluding the effect of foreign currency fluctuations.
The Company’s management uses these non-GAAP financial measures internally in analyzing its financial results and believes they are useful to investors, as a supplement to the corresponding GAAP measures, in evaluating the Company’s ongoing operational performance and trends and in comparing its financial measures with other companies in the same industry, many of which present similar non-GAAP financial measures to help investors understand the operational performance of their businesses. In addition, the Company believes that the following non-GAAP adjustments are useful to management and investors for the following reasons:
• Stock-based compensation. The Company excludes stock-based compensation expense because it is non-cash in nature, and management believes that its exclusion provides additional insight into the Company’s operational performance and also provides a useful comparison of the Company’s operating results to prior periods and its peer companies. Additionally, determining the fair value of certain stock-based awards involves a high degree of judgment and estimation and the expense recorded may bear little resemblance to the actual value realized upon the vesting or future exercise of such awards.
• Amortization of intangible assets. The Company excludes amortization of acquired intangible assets because the expense is a non-cash item and management believes that its exclusion provides meaningful supplemental information regarding the Company’s operational performance and allows for a useful comparison of its operating results to prior periods and its peer companies.
• Accretion of debt discount and amortization of debt issuance costs. Under GAAP, the Company is required to separately account for liability and equity components of the senior convertible notes that were issued in June 2013. Accordingly, for GAAP purposes, the Company is required to recognize the effective interest expense on its senior convertible notes and amortize the issuance costs over the term of the notes. The difference between the effective interest expense and the contractual interest expense, and the amortization expense of issuance costs are excluded from management’s assessment of the Company’s operating performance because management believes that these non-cash expenses are not indicative of ongoing operating performance. In addition, the exclusion of these items provides a useful comparison of the Company’s operating results to prior periods and its peer companies.
• Fair value adjustment on strategic investments. The Company views the increase or decrease in fair value of its strategic investments as not indicative of operational performance during any particular period and believes that the exclusion of these gains or losses provides investors with a supplemental view of the Company’s operational performance.
• Restructuring. The Company excludes costs related to restructuring because the expense is not indicative of its continuing operations and believes that the exclusion of these costs provides investors with a supplemental view of the Company’s operational performance.
• Write-off of capitalized software. The Company views the write-off of capitalized software as not indicative of operational performance during any particular period and believes that the exclusion of this expense provides investors with a supplemental view of the Company’s operational performance.
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 measures. These non-GAAP financial measures are not based on any standardized methodology prescribed by GAAP and are not necessarily comparable to similarly-titled measures presented by other companies. For prior periods, reconciliations of the non-GAAP financial measures to their most directly comparable GAAP measures have been provided in the tables included as part of this press release.