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Cornerstone OnDemand Announces Third Quarter 2020 Financial Results

LONDON – November 5, 2020 – People development solution provider Cornerstone OnDemand, Inc.(NASDAQ: CSOD) today announced results(1) for its third quarter ended September 30, 2020. The Company has provided supplemental financial information located on its Investor Relations website. On April 22, 2020, the Company acquired Saba Software, Inc. ("Saba"); the below discussion includes Saba's results for the post-acquisition period.

Third Quarter 2020 Results:

  • Revenue for the third quarter of 2020 was $199.5 million. This represents a 37.6% increase compared to the same period of the prior year.
  • Subscription revenue for the third quarter of 2020 was $185.6 million. This represents a 35.1% increase compared to the same period of the prior year.
  • (Loss) income from operations for the third quarter of 2020 was $(1.6) million, yielding a margin of (0.8)%, compared to (loss) income from operations of $3.7 million and margin of 2.6% in the same period of the prior year.
  • Non-GAAP operating income for the third quarter of 2020 was $46.6 million, yielding a margin of 23.4%, compared to non-GAAP operating income of $24.3 million and margin of 16.7% in the same period of the prior year.
  • Net loss for the third quarter of 2020 was $15.8 million, or $(0.25) diluted net loss per share, compared to net loss of $1.2 million and $(0.02) diluted net loss per share in the same period of the prior year.
  • Non-GAAP net income for the third quarter of 2020 was $35.3 million, or $0.51 diluted net income per share, compared to non-GAAP net income of $20.4 million and $0.31 diluted net income per share in the same period of the prior year.
  • Unlevered free cash flow for the third quarter of 2020 was $55.9 million, yielding a margin of 28.0%, compared to unlevered free cash flow of $21.7 million and a margin of 15.0%, in the same period of the prior year. Unlevered free cash flow for the third quarter of 2020 includes approximately $16.9 million of restructuring and acquisition-related cash outflows.

"I'm pleased with our strong third quarter results which show positive momentum against our goals," said Phil Saunders, chief executive officer. "I'm very proud of our team for successfully managing the initial stages of the integration and for transitioning into operating as one team. We believe our results today show positive proof points that our transformation is off to a good start."

Recent Highlights:

  • The Company was recognised as a Core Leader in the 2020 Fosway 9-Grid™ for Cloud HR.
  • To help combat COVID-19 globally, the Company's Foundation and Project HOPE collaborated to provide free online training for healthcare workers in remote areas.
  • The Company welcomed Ajay Awatramani as Chief Product Officer to lead product strategy, management, and design.
  • The Company announced the availability of the Cornerstone Skills Graph, which helps organisations and their people instantly map skills and effectively respond to rapid change.

"The third quarter financial results show health across the business, which we see as early validation of our new strategy," said Trish Coughlin, interim chief financial officer. "While we have a long journey ahead to execute the plan, we have made significant progress and are excited about the future trajectory of this company."

Financial Outlook:

The following outlook (2) is based on information available as of the date of this press release and is subject to change in the future.

For the fourth quarter ending December 31, 2020, the Company provides the following outlook:

  • Revenue between $194.0 million and $197.0 million.
  • Subscription revenue between $188.0 million and $191.0 million.
  • Non-GAAP operating income between $35.0 million and $38.0 million.
  • Unlevered free cash flow4 between $32.0 million and $37.0 million. Included in this is approximately $12.0 million of restructuring and acquisition-related cash outflows.

For the year ending December 31, 2020, the Company provides the following outlook:

  • Revenue between $728.0 million and $731.0 million.
  • Subscription revenue between $695.0 million and $698.0 million.
  • Non-GAAP operating income between $146.0 million and $149.0 million.
  • Unlevered free cash flow4 between $110.0 million and $115.0 million. Included in this is approximately $50.0 million of restructuring and acquisition-related cash outflows.

The revenue, subscription revenue, and non-GAAP operating income numbers above are impacted by a deferred revenue write-down related to purchase accounting. For more information, refer to the Company's investor relations presentation.

The Company has not reconciled the guidance for non-GAAP operating income or unlevered free cash flow 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, the Company excludes stock-based compensation expense, which is impacted by the number of shares issued and the market price, both of which are uncertain. The actual amount of stock-based compensation expense in the fourth quarter and year ending December 31, 2020 will have a significant impact on the Company's GAAP operating margin.

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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.

2. In order to translate the financial outlook for entities reporting in GBP to USD and EUR to USD, the following exchange rates have been applied to revenue for the fourth quarter and year ending December 31, 2020:

$1.31 USD per GBP
$1.18 USD per EUR

Quarterly Conference Call

Cornerstone will host a conference call to discuss its third 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. The live call can be accessed by dialling (877)445-4619 (US) or (484)653-6763 (outside the US) and referencing passcode: 4175806. A replay of the call will also be available here or via telephone until 5:00 p.m. PT (8:00 p.m. ET) on November 12, 2020 by dialling (855)859-2056 (US) or (404)537-3406 (outside the US), and referencing passcode: 4175806 and Web PIN: 1726.

Featured Presentation

An accompanying featured presentation will be available here.

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 organisations the technology, content, expertise, and specialised focus to help them realise the potential of their people. Featuring comprehensive recruiting, personalised learning, modern training content, development-driven performance management, and holistic employee data management and insights, Cornerstone's people development solutions are used by over 6,000 customers of all sizes, spanning more than 75 million users across over 180 countries and nearly 50 languages. Learn more at Cornerstone OnDemand.

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, our ability to execute, the integration of Saba into our business, anticipated synergies from our acquisition of Saba, the recent departure of our chief financial officer and service of our chief accounting officer as interim chief financial officer, 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 organisation and implementation subcontractors; the complexity of deployments and product implementations, which can impact the timing of when revenue is recognised 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 organisations of all sizes; changes in the proportion of our customer base that is composed 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. Additional information will also be set forth in our Quarterly Report on Form 10-Q for the quarter ended September 30, 2020.

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 amortisation of intangible assets and stock-based compensation;

(ii) annual recurring revenue, which is defined as the annualised 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 capitalised 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, amortisation of intangible assets, accretion of debt discount and amortisation of debt issuance costs, unrealised fair value adjustment on strategic investments, restructuring costs, acquisition-related costs, discrete tax items, and excludes the impacts of unamortised 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 amortisation 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, amortisation of intangible assets, restructuring costs, and acquisition-related costs;

(viii) non-GAAP operating expenses, which exclude stock-based compensation, amortisation 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 and amortisation of intangible assets attributable to the corresponding GAAP financial measures.

The Company's management uses these non-GAAP financial measures and other key metrics internally in analysing 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 realised upon the vesting or future exercise of such awards.
  • Amortisation of intangible assets. The Company excludes amortisation 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 amortisation of debt issuance costs. The Company recognises the effective interest expense on its debt and amortises the issuance costs over the applicable term of such debt. The difference between the effective interest expense and the contractual interest expense and the amortisation 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.
  • Restructuring. The Company excludes costs related to restructuring because the expense is not 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.
  • Discrete tax items. The Company excludes discrete income tax charges or benefits that are not expected to recur because the items are not indicative of continuing operations. The Company believes that the exclusion of these items 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 standardised 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 amortisation of intangible assets as follows:

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3 Includes a discrete income tax benefit of approximately $26.7 million during the nine months ended September 30, 2020 related to release of valuation allowance against previously reserved deferred tax assets.

Cornerstone OnDemand, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)
(unaudited)

image

1 Below is a reconciliation of cash, cash equivalents, and restricted cash.

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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 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 nine months ended September 30, 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 Saba Software, Inc. and Clustree SAS primarily consisting of external professional services directly associated with the acquisitions, such as advisory fees, accounting and legal costs, filing fees, due diligence, and integration costs.

3 Stock-based compensation related to restructuring is presented in the restructuring line item.

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 nine months ended September 30, 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 Saba Software, Inc. and Clustree SAS primarily consisting of external professional services directly associated with the acquisitions, such as advisory fees, accounting and legal costs, filing fees, due diligence, and integration costs.

3 Stock-based compensation related to restructuring is presented in the restructuring line item.

4 Debt discount accretion and debt issuance cost amortisation has been recorded in connection with our issuance of (i) $1.0047 billion of term loan debt on April 22, 2020; and (ii) $300.0 million in convertible notes on December 8, 2017 as well as the modification of these convertible notes on April 20, 2020 to extend the maturity date from July 1, 2021 to March 17, 2023. These expenses represent non-cash charges that have been recorded in accordance with the authoritative accounting literature for such transactions.

5 A discrete income tax benefit of approximately $26.7 million was recognised during the nine months ended September 30, 2020 related to a release of valuation allowance against previously reserved deferred tax assets.

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 to 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 During the second quarter of 2020, we adjusted our method of determining customer count to exclude customers that are sold through resellers that share one tenant or instance of our product. The numbers included here reflect this change. We continue to exclude customers from our Cornerstone for Salesforce, PiiQ, Grovo, Workpop, and Clustree products from our customer count metrics.

2 We have historically presented constant currency information, a non-GAAP financial measure, to provide a framework for assessing how our underlying business performed excluding the effect of foreign currency fluctuations. However, due to the acquisition of Saba in the second quarter of 2020, constant currency results on a combined company basis were not presented for the second and third quarter in 2020 as the historical comparative periods did not include the combined company results for a full quarter.

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Media Contact:

Charlotte Stoel
Firefly Communications
Phone: +44 (0)203 861 3603
cornerstoneteam@fireflycomms.com

Susan Hilliar
Cornerstone OnDemand
Phone: +44(0)7767884556
shilliar@csod.com

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