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Cornerstone OnDemand Announces First Quarter 2020 Financial Results

SANTA MONICA, Calif. – May 11, 2020 – People development solution provider Cornerstone OnDemand, Inc. (NASDAQ: CSOD) today announced results1 for its first quarter ended March 31, 2020. The Company has provided supplemental financial information located on its Investor Relations website, including an accompanying featured presentation, at http://investors.cornerstoneondemand.com.

First Quarter 2020 Results:

  • Revenue for the first quarter of 2020 was $150.1 million compared to a guided range of $147.0 million to $150.0 million.This represents a 7.2% increase compared to the same period of the prior year. Revenue growth on a constant currency basis was 7.8%.
  • Subscription revenue for the first quarter of 2020 was $144.4 million compared to a guided range of $143.0 million to $145.0 million.This represents a 10.0% increase compared to the same period of the prior year. Subscription revenue growth on a constant currency basis was 10.7%.
  • Operating loss for the first quarter of 2020 was $2.7 million, yielding a margin of (1.8)%, compared to operating income of $1.2 million and margin of 0.9% in the same period of the prior year.
  • Non-GAAP operating income for the first quarter of 2020 was $24.9 million, yielding a margin of 16.6%, compared to $19.6 million and margin of 14.0% in the same period of the prior year.
  • Net loss for the first quarter of 2020 was $13.8 million, or $(0.22) diluted net income per share, compared to $3.5 million and $(0.06) diluted net loss per share in the same period of the prior year.
  • Non-GAAP net income for the first quarter of 2020 was $15.0 million, or a $0.23 diluted net income per share, compared to $15.9 million and $0.25 diluted net income per share in the same period of the prior year.
  • Unlevered free cash flow for the first quarter of 2020 was $6.3 million, yielding a margin of 4.2%, compared to $4.3 million, yielding a margin of 3.1%, in the same period of the prior year.

"Our combination with Saba is a significant milestone for Cornerstone and, more importantly, for our expanded community of clients around the world. With our shared passion for people development and our combined depth of expertise, we expect to accelerate product innovation and help tens of millions of people develop new skills to navigate the future,” said Adam Miller, founder and Chief Executive Officer of Cornerstone. "Although we are definitely not immune to the impact of COVID-19, we believe that our combined scale with approximately 7,000 customers and over 75 million users, along with the significant cash flow generation capabilities that our synergistic model provides, will enable us to drive meaningful shareholder value over time."

Recent Highlights:

  • In response to the Coronavirus pandemic, the Company created "Cornerstone Cares", a free public learning portal with playlists for COVID-19 Health and Safety, Stress Management, and Work From Home.
  • On April 22, 2020, the Company finalized its acquisition of Saba Software, Inc., a global leader in talent experience solutions, for an aggregate purchase price of approximately $1.295 billion, consisting of $1.262 billion in cash and 1,110,352 shares of common stock of the Company.

“Our first quarter was progressing well until the COVD-19 pandemic headwinds began to slow new sales at the end of March. To offset the impact of these headwinds, we have been able to augment and accelerate the synergies from the Saba acquisition as our integration progresses ahead of plan. We now expect to realize $50 million in run-rate synergies as we exit 2020, as compared to our prior guidance of $35 million over twenty-four months,” said Brian Swartz, Cornerstone’s Chief Financial Officer. “We have also spent considerable time analyzing our liquidity position under various scenarios given the current state of global economic uncertainty, and even under extreme scenarios, such as assuming no new sales through the end of 2021, we still expect to increase our cash balances through the end of 2021. This gives us a high level of confidence in our ability to weather this storm.”

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 of each non-GAAP financial measure to its most comparable GAAP financial measure at the end of this press release.

Quarterly Conference Call

Cornerstone will host a conference call to discuss its first quarter 2020 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 (US) or (484) 653-6763 (outside the US) and referencing passcode: 4879143. 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 6:00 p.m. PT (9:00 p.m. ET) on May 14, 2020 by dialing (855) 859-2056 (US) or (404) 537-3406 (outside the US), and referencing passcode: 4879143.

Featured Presentation

An accompanying featured presentation will be available at https://investors.cornerstoneondemand.com/investors/overview/default.aspx.

About Cornerstone

Cornerstone is a premier global people development company. We believe people can achieve anything when they have the right development and growth opportunities. We offer organizations the technology, content, expertise, and specialized focus to help them realize the potential of their people. Featuring comprehensive recruiting, personalized learning, modern training content, development-driven performance management, and holistic employee data management and insights, Cornerstone’s people development solutions are used by approximately 7,000 customers of all sizes, spanning more than 75 million users across over 180 countries and more than 50 languages. Learn more at www.cornerstoneondemand.com.

Note: Cornerstone® and Cornerstone OnDemand® are registered trademarks of Cornerstone OnDemand, Inc.

Forward-looking Statements

This press release and the quarterly conference call referenced above contain forward-looking statements, including, but not limited to, statements regarding the expected performance of our business, our future financial and operating performance, including our GAAP and non-GAAP guidance, strategy, long-term growth and overall future prospects, the demand for our offerings, our competitive position, general business conditions, the integration of Saba into our business, anticipated synergies from our acquisition of Saba, and our expectations regarding certain financial measures including subscription revenue, capital expenditures, unlevered free cash flow, recurring revenue growth and operating margins. 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 customers; the extent to which customers renew their subscriptions for our solutions; the timing of when consulting services are delivered to new and existing customers 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 customers; allowing our implementation subcontractors to contract directly with customers for implementation services; our shift to focusing on recurring revenue streams; our ability to compete as the learning and people development provider for organizations of all sizes; changes in the proportion of our customer 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 people development in Europe, the Middle East, Africa, Asia-Pacific, and Japan; the timing and success of efforts to increase operational efficiency and cost containment; 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, natural disasters, or the ongoing COVID-19 pandemic; 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; the failure to achieve expected synergies and efficiencies of operations between the Company and Saba; the ability of the Company and Saba to successfully integrate their respective market opportunities, technology, products, personnel and operations; 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, 2019.

Non-GAAP Financial Measures and Other Key Metrics

To supplement its consolidated financial statements, which are prepared and presented in accordance with US 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 non-GAAP financial measures and other key metrics. 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) 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;

(iv) unlevered free cash flow margin, which is defined as unlevered free cash flow divided by revenue;

(v) 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 investments, restructuring costs, acquisition-related costs, 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;

(vi) non-GAAP gross profit and non-GAAP gross margin, which exclude stock-based compensation and amortization of intangible assets reflected in cost of revenue;

(vii) non-GAAP operating income and non-GAAP operating income margin, which are defined as income or loss from operations excluding stock-based compensation, amortization of intangible assets, restructuring costs, and acquisition-related costs;

(viii) non-GAAP operating expenses, which exclude stock-based compensation, amortization of intangible assets, restructuring costs, and acquisition-related costs; and

(ix) 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.

The Company’s management uses these non-GAAP financial measures and other key metrics 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 and key metrics 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. The Company recognizes 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 the 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.
  • Acquisition-related costs. The Company excludes costs related to acquisitions because the expenses are discrete to specific acquisitions and are not necessarily indicative of its continuing operations. The Company believes that the exclusion of these costs 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 the periods presented, 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.

Cornerstone OnDemand, Inc.

CONSOLIDATED BALANCE SHEETS

(in thousands)

(unaudited)

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Cornerstone OnDemand, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

image

1 Includes stock-based compensation as follows:

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2 Includes amortization of intangible assets as follows:

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Cornerstone OnDemand, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

image

Cornerstone OnDemand, Inc.

RECONCILIATIONS OF COST OF REVENUE TO NON-GAAP COST OF REVENUE, GROSS PROFIT AND GROSS MARGIN TO NON-GAAP GROSS PROFIT AND NON-GAAP GROSS MARGIN, (LOSS) INCOME FROM OPERATIONS TO NON-GAAP OPERATING INCOME, AND OPERATING MARGIN TO NON-GAAP OPERATING INCOME MARGIN

(in thousands)

(unaudited)

image

1 The difference between stock-based compensation presented above and stock-based compensation as reported in the consolidated statement of operations for the three months ended March 31, 2020, represents an amount accrued for cash bonuses as of December 31, 2019, which was settled in equity during the first quarter of 2020.

image

2 Costs related to the acquisitions of Clustree SAS and Saba Software, Inc.

Cornerstone OnDemand, Inc.

RECONCILIATIONS OF NET LOSS TO NON-GAAP NET INCOME AND NON-GAAP NET INCOME PER SHARE

(in thousands, except per share amounts)

(unaudited)

image

1 The difference between stock-based compensation presented above and stock-based compensation as reported in the consolidated statement of operations for the three months ended March 31, 2020, represents an amount accrued for cash bonuses as of December 31, 2019, which was settled in equity during the first quarter of 2020.

2 Costs related to the acquisitions of Clustree SAS and Saba Software, Inc.

3 Debt discount accretion and debt issuance cost amortization has been recorded in connection with our issuance of $300.0 million in convertible notes on December 8, 2017. These expenses represent non-cash charges that have been recorded in accordance with the authoritative accounting literature for such transactions.

Cornerstone OnDemand, Inc.

RECONCILIATION OF NET CASH PROVIDED BY OPERATING ACTIVITIES TO UNLEVERED FREE CASH FLOW AND UNLEVERED FREE CASH FLOW MARGIN

(A Non-GAAP Financial Measure)

(in thousands)

(unaudited)

image

Cornerstone OnDemand, Inc.

TRENDED OPERATIONAL & FINANCIAL HIGHLIGHTS

(unaudited)

The following metrics are intended as a supplement to the financial statements found in this press release and other information furnished or filed with the SEC. In the event of discrepancies between amounts in these tables and the Company’s historical disclosures or financial statements, readers should rely on the Company’s filings with the SEC and financial statements in the Company’s most recent earnings press release.

The Company intends to periodically review and refine the definition, methodology and appropriateness of each of these supplemental metrics. As a result, metrics are subject to removal and/or change, and such changes could be material.

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1 Includes contracted customers of our enterprise people development platform and excludes customers and users of Cornerstone for Salesforce, PiiQ, Workpop Inc. and Grovo Learning, Inc.

About Cornerstone

Cornerstone is a premier people development company. We believe people can achieve anything when they have the right development and growth opportunities. We offer organizations the technology, content, expertise and specialized focus to help them realize the potential of their people. Featuring comprehensive recruiting, personalized learning, modern training content, development-driven performance management and holistic employee data management and insights, Cornerstone’s people development solutions are used by approximately 6,300 clients of all sizes, spanning more than 75 million users across over 180 countries and nearly 50 languages. Learn more at www.cornerstoneondemand.com.

Investor Relations Contact

Jason Gold

jgold@csod.com

+1 (310) 526-2531

Media Contact

Deaira Irons

dirons@csod.com

+1 (310) 752-0164
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