Cornerstone OnDemand Announces Fourth Quarter and Fiscal Year 2019 Financial Results

Announces agreement to acquire Saba to enhance Cornerstone's reach and accelerate innovation around how people learn and grow at work

SANTA MONICA, Calif. – February 24, 2020 – People development solution provider Cornerstone OnDemand, Inc. (NASDAQ: CSOD) today announced results1 for its fourth quarter ended December 31, 2019. The Company has provided supplemental financial information located on its Investor Relations website at http://investors.cornerstoneondemand.com.

Acquisition of Saba:

Today, the Company has entered into a definitive agreement to acquire Saba, a global leader in talent experience solutions, and a portfolio company of Vector Capital. Saba has a global revenue footprint and a complementary product portfolio to Cornerstone with approximately 3,300 clients. The Company will acquire Saba in a cash and stock transaction valued at approximately $1.395 billion. It has been unanimously approved by the boards of directors of both companies and is expected to close in the second quarter of 2020.

With the addition of Saba, Cornerstone will have an expanded reach and ability to help a larger, diverse group of clients realize the potential of their people with the right learning and development opportunities. The combined company will have more than 75 million users and serve approximately 7,000 organizations, of all sizes, around the globe.

Given the combination of significant cost synergies available with the acquisition and Saba’s best-in-class margins, Cornerstone expects to substantially increase unlevered free cash flow. The company expects to utilize the higher cash flow generation to further invest in state-of-the-art solutions to optimize people development, rapidly de-lever its balance sheet, and drive shareholder returns.

Fourth Quarter 2019 Results:

• Revenue for the fourth quarter of 2019 was $149.6 million compared to a guided range of $145.0 million to $147.0 million.This represents an 8.2% increase compared to the prior year. Revenue growth on a constant currency basis was 8.4%.
• Subscription revenue for the fourth quarter of 2019 was $141.7 million compared to a guided range of $141.0 million to $143.0 million.This represents a 12.2% increase compared to the prior year. Subscription revenue growth on a constant currency basis was 12.4%.
• Operating income for the fourth quarter of 2019 was $10.6 million, yielding a margin of 7.1%, compared to $2.6 million and margin of 1.9% in the same period of the prior year.
• Non-GAAP operating income for the fourth quarter of 2019 was $28.3 million, yielding a margin of 18.9%, compared to $19.4 million and margin of 14.1% in the same period of the prior year.
• Net income for the fourth quarter of 2019 was $9.4 million, or a $0.15 diluted net income per share, compared to $(3.2) million and $(0.05) diluted net loss per share in the same period of the prior year.
• Non-GAAP net income for the fourth quarter of 2019 was $28.3 million, or a $0.43 diluted net income per share,compared to $15.4 million and $0.24 diluted net loss per share in the same period of the prior year.
• Unlevered free cash flow for the fourth quarter of 2019 was $54.7 million, yielding a margin of 36.6%, compared to $33.7 million, yielding a margin of 24.4%, in the prior year.

Fiscal Year 2019 Results:

• Revenue for the full year of 2019 was $576.5 million compared to a guided range of $572.0 million to $574.0 million. Revenue growth on a constant currency basis was 8.5%.
• Subscription revenue for the full year of 2019 was $543.0 million compared to a guided range of $542.0 million to $544.0 million. Subscription revenue growth on a constant currency basis was 16.2%.
• Annual recurring revenue as of December 31, 2019 was $575.0 million, compared to a guided range of $581.0 million to $590.0 million. This represents a 12.7% increase compared to the prior year. Annual recurring revenue growth on a constant currency basis was 13.0%.
• Operating income for the full year of 2019 was $11.9 million, yielding a margin of 2.1%, compared to $(7.8) million and margin of (1.4)% in the same period of the prior year.
• Non-GAAP operating income for the full year of 2019 was $88.8 million, yielding a margin of 15.4% compared to guided range of $85.5 million and $87.5 million.
• Net loss for the full year of 2019 was $(4.1) million, or a $(0.07) diluted net loss per share, compared to $(33.8) million and $(0.58) diluted net loss per share in the same period of the prior year.
• Non-GAAP net income for the full year of 2019 was $77.0 million, or a $1.17 diluted net income per share, compared to $47.0 million and $0.74 diluted net loss per share in the same period of the prior year.
• Unlevered free cash flow for the full year of 2019 was $90.2 million, yielding a margin of 15.6%, compared to a guided range of $86 million and $92 million.
• “We are proud of the company we have built over the last 20 years. And with today’s announcement regarding our acquisition of Saba, we are confident about our vision, capabilities and opportunity for the next 20 years. We believe the combined business will have the reach and resources to close the skills divide for millions of people around the world and yield substantial value for our clients and shareholders,” said Adam Miller, Founder and Chief Executive Officer.

Recent Highlights:

• The Company joined forces with Facebook to enhance the value of virtual reality training at work through Oculus integration in its learning management solution.
• The Company acquired Clustree in order to accelerate the development of a skills engine to help organizations identify, develop, and deploy their talent for the roles needed today and in the future.
• The Company joined Velocity Network Foundation to accelerate the development of a universal blockchain-powered network that will put people in control of their career credentials and provide organizations with transparent insights into their workforce potential.
• “We are confident that the operational changes we are making to the business combined with the expanded reach, engineering expertise, and the cost synergies we expect from the anticipated acquisition of Saba will position us for ongoing success,” noted Brian Swartz, Chief Financial Officer.

Stock Repurchase Program:

The Company has an authorization to repurchase up to $150 million of its common stock.

The following is a summary of the Company’s stock repurchases as of December 31, 2019:

Please refer to pdf link to view table

At December 31, 2019, $127.6 million remained available under the share repurchase program.

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. Please note, this guidance is for Cornerstone's business today, and does not reflect the anticipated acquisition of Saba.

For the first quarter ending March 31, 2020, the Company provides the following outlook:

• Revenue between $147.0 million and $150.0 million, representing year-over-year growth at the mid-point of 6.0%2, or 6.7%3,4 on a constant currency basis.
• Subscription revenue between $143.0 million and $145.0 million, representing year-over-year growth at the mid-point of 9.7%2, or 10.5%3,4 on a constant currency basis.

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.

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:

2 Exchange rate applied to revenue for the first quarter of 2020. $1.30 USD per GBP

3 Exchange rate from the first quarter of 2019 applied to calculate revenue growth for the first quarter of 2020 on a constant currency basis. $1.30 USD per GBP

4 Exchange rate from the first quarter of 2019 applied to calculate revenue growth for the first quarter of 2020 on a constant currency basis. $1.14 USD per EUR

Quarterly Conference Call

Cornerstone will host a conference call to discuss its fourth 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 (US) or (484) 653-6763 (outside the US) and referencing passcode: 3825969. 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 5:00 p.m. PT (8:00 p.m. ET) on March 2, 2020 by dialing (855) 859-2056 (US) or (404) 537-3406 (outside the US), and referencing passcode: 3825969 and Web PIN: 1726.

About Cornerstone

Cornerstone is a 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 their people potential. Featuring comprehensive recruiting, personalized learning, modern content delivered in the flow of work, development-driven performance management and holistic workforce data management and insights, Cornerstone’s people development solutions are successfully used by more than 3,600 global clients of all sizes, spanning more than 40 million users across 187 countries and 43 languages. Learn more at www.csod.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 anticipated 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 coronavirus outbreak; 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; the failure to satisfy any of the conditions to the consummation of the anticipated acquisition of Saba, including regulatory approval; 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 Quarterly Reports on Form 10-Q for the quarters ended March 31, June 30, and September 30, 2019. Additional information will also be set forth in our Annual Report on Form 10-K for the year ended December 31, 2019.

Please see the pdf file for the full press release