Cornerstone OnDemand Announces Second Quarter 2019 Financial Results

Business Wire 5-Aug-2019 4:42 PM

Human capital management software provider Cornerstone OnDemand, Inc. (NASDAQ:CSOD) today announced results^{1, 2} for its second quarter ended June 30, 2019. The Company has provided a quarterly shareholder letter on its Investor Relations website at http://investors.cornerstoneondemand.com.

"During the second quarter, we continued the momentum we demonstrated in the first quarter of 2019 and throughout 2018," said Adam Miller, founder and CEO of Cornerstone. "The growing skills divide is forcing companies around the world to take action to continuously train and reskill their workers. We believe our leading market position puts us in a prime position to capitalize on this multi-year macro trend."

Second Quarter 2019 Results:

• Revenue for the second quarter of 2019 was $141.9 million compared to a guided range of $137.0 million to $140.0 million. This represents a 7.1% increase compared to the same period of the prior year. Revenue growth on a constant currency basis was 8.7%.
• Subscription revenue for the second quarter of 2019 was $132.6 million compared to a guided range of $131.0 million to $133.0 million. This represents a 15.5% increase compared to the same period of the prior year. Subscription revenue growth on a constant currency basis was 17.3%.
• Operating income for the second quarter of 2019 was $(3.6) million, yielding a margin of (2.5)%, compared to $(3.1) million and margin of (2.3)% in the same period of the prior year.
• Non-GAAP operating income for the second quarter of 2019 was $16.6 million, yielding a margin of 11.7%, compared to $13.2 million and margin of 10.0% in the same period of the prior year.
• Net loss for the second quarter of 2019 was $(8.8) million, or a $(0.15) diluted net loss per share, compared to $(12.0) million and $(0.21) diluted net loss per share in the same period of the prior year.
• Non-GAAP net income for the second quarter of 2019 was $12.4 million, or a $0.21 diluted net income per share, compared to $7.8 million and $0.12 diluted net loss per share in the same period of the prior year.
• Operating cash flow for the second quarter of 2019 was $21.2 million, yielding a margin of 14.9%, compared to $17.2 million, yielding a margin of 13.0%, in the same period of the prior year.
• Unlevered free cash flow for the second quarter of 2019 was $9.5 million, yielding a margin of 6.7%, compared to $7.9 million, yielding a margin of 6.0%, in the same period of the prior year.

"During Q2, we continued to focus on margin expansion while investing in our key priorities," said Brian Swartz, CFO of Cornerstone. "As we look out to the balance of 2019, we are encouraged by the opportunities we see ahead and are raising our financial guidance accordingly. Additionally, we expect to substantially improve our cash flow margins in 2020."

Recent Highlights:

• The Company's CEO, Adam Miller, was recognized as a 2019 Best CEO for Women by Comparably.
• The Company hired Heidi Spirgi as Chief Marketing and Strategy Officer. She brings more than 20 years of experience helping organizations unleash the power of their workforce by reimagining their approach to talent management.
• The Company announced new products including Cornerstone Create, Express Class, and Cornerstone for Salesforce learning integration to help organizations more effectively train and develop their teams by integrating learning directly into employees' flow of work.

Financial Outlook:

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

For the third quarter ending September 30, 2019, the Company provides the following outlook:

• Revenue between $141 million and $143 million, representing year-over-year growth at the mid-point of 6.0%³, or 7.6%⁴ on a constant currency basis.
• Subscription revenue between $135 million and $137 million, representing year-over-year growth at the mid-point of 14.4%³, or 16.2%⁴ on a constant currency basis.

For the year ending December 31, 2019, the Company provides the following outlook:

• Revenue between $566.5 million and $571 million, representing year-over-year growth at the mid-point of 5.7%^{5, 7}, or 7.3%⁶ on a constant currency basis.
• Subscription revenue between $539.5 million and $544 million, representing year-over-year growth at the mid-point of 14.5%^{5, 7}, or 16.2%⁶ on a constant currency basis.
• Annual recurring revenue as of December 31, 2019 between $579.5 million and $589.5 million, representing year-over-year growth at the mid-point of 14.6%,^{5, 7} or 15.2%^{5, 7} on a constant currency basis.
• Non-GAAP operating income between $79 million and $85 million. Assuming the midpoint of the revenue range, this represents a non-GAAP operating margin of 14.4%.
• Unlevered free cash flow between $85 million and $92 million. Assuming the midpoint of the revenue range, this represents an unlevered free cash flow margin of 15.6%.

The Company has not reconciled the guidance for non-GAAP operating income or non-GAAP operating income 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 the number of shares issued and the market price, both of which are uncertain. The actual amount of stock-based compensation expense in the third quarter ending September 30, 2019 and the year ending December 31, 2019 will have a significant impact on the Company's GAAP operating margin.

Quarterly Conference Call

Cornerstone will host a conference call to discuss its second quarter 2019 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: 5269638. 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 (2:59 p.m. ET) on August 9, 2019 by dialing (855) 859-2056 (U.S.) or (404) 537-3406 (outside the U.S.), and referencing passcode: 5269638.

About Cornerstone

Cornerstone was founded with a passion for empowering people through learning and a conviction that people should be your organization's greatest competitive advantage. Cornerstone is a global human capital management leader with a core belief that companies thrive when they help their employees to realize their potential. Putting this belief into practice, Cornerstone offers solutions to help companies strategically manage and continuously develop their talent throughout the entire employee lifecycle. Featuring comprehensive recruiting, personalized learning, development-driven performance management, and holistic HR planning, Cornerstone's human capital management platform is successfully used by more than 3,600 global clients of all sizes, spanning over 190 countries and over 40 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, our strategy, long-term growth and overall future prospects, the demand for our offerings, our competitive position, our expectations regarding certain financial measures, including subscription revenue, capital expenditures and unlevered free cash flow, 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; our shift to focusing on 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 Americas, Europe, and Asia Pacific; 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 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, 2018, and the Quarterly Report on Form 10-Q for the quarter ended March 31, 2019.

Non-GAAP Financial Measures and Other Key Metrics

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 non-GAAP financial measures and other key metrics. These non-GAAP financial measures and other key metrics include:

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 other 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. 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.
• 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.
• Acquisition costs. The Company excludes costs related to acquisitions 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.

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.

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