Cornerstone OnDemand Announces First Quarter 2014 Financial Results

Talent management software provider Cornerstone OnDemand, Inc. (NASDAQ: CSOD) today announced results for its quarter ended March 31, 2014.

Revenue for the first quarter of 2014 was $57.4 million, representing a 52% increase compared to the same period in 2013.

Bookings, which the Company defines as revenue plus the change in deferred revenue for the period, were $49.7 million for the first quarter of 2014, representing a 38% increase compared to the same period in 2013. 1 Deferred revenue at March 31, 2014 was $131.1 million, which was 45% higher than the balance at March 31, 2013.

“The first quarter once again demonstrated that the Cornerstone solution is applicable to organizations of all sizes, in every region and in every vertical,” said Adam Miller, the company’s President and CEO. “We believe that the combination of our huge market opportunity and weakened competitive environment, coupled with growing worldwide distribution, a track-record of innovation, and a blue-chip client roster, positions Cornerstone to be the long-term technology leader in our space.”

Gross profit for the first quarter of 2014 was $40.0 million, representing a 52% increase compared to the same period in 2013. Gross margin for the first quarter of 2014 was 69.7% compared to 70.1% in the first quarter of 2013.

Non-GAAP gross profit for the first quarter of 2014 was $41.1 million, representing a 51% increase compared to the same period in 2013. 1 Non-GAAP gross margin for the first quarter of 2014 was 71.6% compared to 72.2% in the first quarter of 2013. 1

The Company’s net loss for the first quarter of 2014 was $15.8 million yielding a net loss margin of (27.5)%, or $0.30 net loss per share, compared to a net loss of $9.9 million yielding a net loss margin of (26.4)%, or $0.20 net loss per share, in the first quarter of 2013.

Non-GAAP net loss for the first quarter of 2014 was $5.1 million yielding a non-GAAP net loss margin of (8.8)%, or $0.10 net loss per share, compared to a non-GAAP net loss of $5.3 million yielding a non-GAAP net loss margin of (14.1)%, or $0.10 net loss per share, in the first quarter of 2013. 1 This represents a non-GAAP net loss margin improvement of 530 basis points. 1

For the first quarter of 2014, net cash provided by operating activities was $0.9 million as compared to $0.5 million for the same period in 2013.

At March 31, 2014, the Company’s total cash and cash equivalents were $108.7 million, investments were $200.5 million, and accounts receivable were $52.5 million, yielding a total of approximately $361.7 million.

The Company ended the quarter with over 1,700 clients and over 14.5 million users. 2
     

1
  Bookings, non-GAAP gross profit, non-GAAP gross margin, non-GAAP net loss, non-GAAP net loss margin and non-GAAP net loss per share are non-GAAP financial measures. Please see the discussion in the section “Non-GAAP Financial Measures” and the reconciliations at the end of this release.

2
Includes contracted clients and active users of our Enterprise and Mid-Market solution, excluding Cornerstone for Salesforce and Cornerstone Growth Edition, formerly known as Cornerstone for Small Business.

Quarterly Conference Call

Cornerstone OnDemand, Inc. will host a conference call to discuss its first quarter 2014 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 Web site at http://investors.cornerstoneondemand.com/events.cfm. The live call can be accessed by dialing (888) 357-3694 (U.S.) or (973) 890-8276 (outside the U.S.) and referencing passcode: 35146652. A replay of the call will also be available at http://investors.cornerstoneondemand.com/events.cfm or via telephone until 11:59 p.m. PT on May 4, 2014 by dialing (855) 859-2056 (U.S.) or (404) 537-3406 (outside the U.S.), and referencing passcode: 35146652.

About Cornerstone OnDemand

Cornerstone OnDemand, Inc. is a leader in cloud-based applications for talent management. Our solutions help organizations recruit, train, manage and engage their employees, empowering their people and increasing workforce productivity. Based in Santa Monica, California, our solutions are used by over 1,700 clients worldwide, spanning more than 14.5 million users across 191 countries and in 41 languages. For more information about Cornerstone OnDemand, Inc., visit www.csod.com.

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

Forward-looking Statements

This release contains forward-looking statements, including statements regarding Cornerstone OnDemand’s future financial performance, market growth, the demand for and benefits from the use of Cornerstone OnDemand’s solutions, and general business conditions. Any forward-looking statements contained in this press release are based upon Cornerstone OnDemand’s historical performance and its current plans, estimates and expectations and are not a representation that such plans, estimates, or expectations will be achieved. These forward-looking statements represent Cornerstone OnDemand’s expectations as of the date of this press release. Subsequent events may cause these expectations to change, and Cornerstone OnDemand disclaims any obligation to update the forward-looking statements in the future. These forward-looking statements are subject to known and unknown risks and uncertainties that may cause actual results to differ materially from Cornerstone OnDemand’s 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 solution; our ability to compete as the talent 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; the timing and success of solutions offered by our competitors; unpredictable macro-economic conditions; reductions in information technology spending; the success of our new product and service introductions; a disruption in our hosting network infrastructure; costs and reputational harm that could result from defects in our solution; the success of our strategic relationships with third parties; the loss of any of our key employees; failure to protect our intellectual property; acts of terrorism or other vandalism, war or natural disasters; changes in current tax or accounting rules; unanticipated costs or liabilities related to businesses that we acquire; and other risks and uncertainties. Further information on factors that could cause actual results to differ materially from the results anticipated by our forward-looking statements is included in Cornerstone OnDemand’s reports filed with the SEC, including its Form 10-K filed with the SEC on February 26, 2014.

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, Cornerstone OnDemand has provided in this release certain measures that have not been prepared in accordance with GAAP. These non-GAAP financial measures include (i) non-GAAP revenue, which is defined as revenue plus revenue not recognized in the period due to the impact of purchase accounting rules on deferred revenue acquired through acquisitions, (ii) bookings, which are defined as revenue plus the change in deferred revenue for the period, (iii) non-GAAP net cash provided by operating activities, which excludes payment of premium on investments net of related amortization and employer-related taxes from stock-based compensation, (iv) non-GAAP net loss and non-GAAP net loss per share, which are based on non-GAAP revenue and exclude, for the periods in which they are present, stock-based compensation and employer-related payroll taxes, amortization of intangible assets, adjustments to taxes related to acquisition adjustments, accretion of debt discount and amortization of debt issuance costs, (v) non-GAAP net loss margin, which is defined as non-GAAP net loss divided by non-GAAP revenue, (vi) non-GAAP gross profit and non-GAAP gross margin, which are calculated based on non-GAAP revenue and exclude stock-based compensation and amortization of certain intangible assets reflected in cost of revenue, (vii) non-GAAP loss from operations and non-GAAP operating margin, which are calculated based on operating loss and exclude adjustments to revenue, stock-based compensation and employer-related taxes, and amortization of intangible assets, and (viii) non-GAAP operating expenses, which exclude stock-based compensation, employer-related taxes, and amortization of intangible assets, 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 employer-related taxes attributable to the corresponding GAAP financial measures.

Cornerstone OnDemand’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 Cornerstone OnDemand’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. However, it is important to note that the particular items Cornerstone excludes from, or includes in, its non-GAAP financial measures may differ from the items excluded from, or included in, similar non-GAAP financial measures used by other companies in the same industry.

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. A reconciliation of the non-GAAP financial measures to such GAAP measures has been provided in the tables included as part of this press release.

 
Cornerstone OnDemand, Inc.
CONSOLIDATED BALANCE SHEETS

(in thousands)

(unaudited)
 
March 31, 2014

December 31, 2013
Assets
Cash and cash equivalents $ 108,685 $ 109,583
Short-term investments 184,421 199,925
Accounts receivable, net 52,545 67,191
Deferred commissions 15,947 16,634
Prepaid expenses and other current assets 11,890   14,118  
Total current assets 373,488 407,451
 
Capitalized software development costs, net 11,732 10,665
Property and equipment, net 17,333 14,436
Long-term investments 16,029
Intangible assets, net 4,068 4,632
Goodwill 8,193 8,193
Other assets, net 5,675   5,978  
Total Assets $ 436,518   $ 451,355  
 
Liabilities and Stockholders’ Equity
Liabilities:
Accounts payable $ 12,293 $ 10,037
Accrued expenses 16,603 22,288
Deferred revenue, current portion 129,226 135,322
Capital lease obligations, current portion 683 905
Debt, current portion 503 519
Other liabilities 1,019   4,203  
Total current liabilities 160,327 173,274
 
Convertible notes, net 219,714 217,965
Other liabilities, non-current 3,427 3,111
Deferred revenue, net of current portion 1,846 3,500
Capital lease obligations, net of current portion 121 218
Debt, net of current portion 269   392  
Total liabilities 385,704 398,460
 
Stockholders’ Equity:
Common stock 5 5
Additional paid-in capital 303,125 289,307
Accumulated deficit (252,257 ) (236,467 )
Accumulated other comprehensive (loss) income (59 ) 50  
Total stockholders’ equity 50,814   52,895  
Total Liabilities and Stockholders’ Equity $ 436,518   $ 451,355  
 
         

Cornerstone OnDemand, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
 
Three Months Ended

March 31,
 

2014
    2013  
 
Revenue $ 57,409 $ 37,657
Cost of revenue 1, 2   17,404     11,252  
Gross profit 40,005 26,405
 
Operating expenses:
Sales and marketing 1 35,139 23,010
Research and development 1 6,883 4,419
General and administrative 1 10,454 8,566
Amortization of certain acquired intangible assets   251     251  
Total operating expenses   52,727     36,246  
Loss from operations (12,722 ) (9,841 )
Other income (expense):
Interest income 223 -
Interest expense (3,010 ) (79 )
Other, net   (128 )   (13 )
Other income (expense), net   (2,915 )   (92 )
Loss before income tax provision (15,637 ) (9,933 )
Income tax provision   (153 )   (1 )
Net loss $ (15,790 ) $ (9,934 )
Net loss per share, basic and diluted $ (0.30 ) $ (0.20 )
Weighted-average common shares outstanding, basic and diluted   52,726     50,798  
 

1
Includes stock-based compensation and employer-related taxes as follows:
 
Three Months Ended

March 31,
  2014     2013  
 
Cost of revenue $ 802 $ 440
Sales and marketing 3,714 1,686
Research and development 803 344
General and administrative   2,821     1,570  
Total $ 8,140   $ 4,040  
 

2
Cost of revenue includes amortization of intangible assets as follows:
 
Three Months Ended

March 31,
  2014     2013  
 
Cost of revenue $ 312 $ 313
 

 
 
Cornerstone OnDemand, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 
 
Three Months Ended
March 31,
  2014     2013  
 
Cash flows from operating activities:
Net loss $ (15,790 ) $ (9,934 )
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 3,072 2,124
Accretion of debt discount and amortization of debt issuance costs 2,031 -
Purchased investment premium, net of amortization 926 -
Unrealized foreign exchange (gain) loss (129 ) 286
Stock-based compensation expense 7,892 3,999
Deferred income taxes - (129 )
Changes in operating assets and liabilities:
Accounts receivable 14,897 9,552
Deferred commissions 741 (1,841 )
Prepaid expenses and other assets 2,504 (1,075 )
Accounts payable 1,088 1,248
Accrued expenses (5,401 ) (3,277 )
Deferred revenue (8,080 ) (271 )
Other liabilities   (2,872 )   (204 )
Net cash provided by operating activities   879     478  
Cash flows from investing activities:
Purchases of investment securities (17,504 ) -
Maturities of investment securities 16,012 -
Purchases of property and equipment (3,196 ) (1,467 )
Capitalized software costs   (2,349 )   (1,935 )
Net cash used in investing activities   (7,037 )   (3,402 )
Cash flows from financing activities:
Proceeds from the issuance of debt - 1,914
Repayment of debt (139 ) (361 )
Principal payments under capital lease obligations (318 ) (459 )
Proceeds from stock option and warrant exercises   5,609     1,726  
Net cash provided by financing activities   5,152     2,820  
Effect of exchange rate changes on cash and cash equivalents   108     (168 )
Net decrease in cash and cash equivalents (898 ) (272 )
Cash and cash equivalents at beginning of period   109,583     76,442  
Cash and cash equivalents at end of period $ 108,685   $ 76,170  
 
       

Cornerstone OnDemand, Inc.

RECONCILIATIONS OF REVENUE TO NON-GAAP REVENUE, GROSS PROFIT AND GROSS MARGIN TO NON-

GAAP GROSS PROFIT AND NON-GAAP GROSS MARGIN, LOSS FROM OPERATIONS TO NON-GAAP LOSS

FROM OPERATIONS AND OPERATING MARGIN TO NON-GAAP OPERATING MARGIN
(in thousands)
(unaudited)
 
Three Months Ended

March 31,
  2014     2013  
 
 
Revenue $ 57,409 $ 37,657
Cost of revenue   17,404     11,252  
Gross profit $ 40,005   $ 26,405  
Gross margin 69.7 % 70.1 %
 
Revenue $ 57,409 $ 37,657
Adjustments to revenue 1   -     133  
Non-GAAP revenue $ 57,409   $ 37,790  
 
Cost of revenue $ 17,404 $ 11,252
Adjustments to costs of revenue
Amortization of intangible assets (312 ) (313 )
Stock based compensation and employer-related taxes   (802 )   (440 )
Total adjustments to cost of revenue   (1,114 )   (753 )
Non-GAAP costs of revenue   16,290     10,499  
Non-GAAP gross profit $ 41,119   $ 27,291  
Non-GAAP gross margin 71.6 % 72.2 %
 
Loss from operations $ (12,722 ) $ (9,841 )
Operating margin (22.2 %) (26.1 %)
Adjustments to loss from operations
Adjustments to revenue 1 - 133
Stock-based compensation and employer-related taxes 8,140 4,040
Amortization of intangible assets   563     564  
Total adjustments to loss from operations   8,703     4,737  
Non-GAAP loss from operations $ (4,019 ) $ (5,104 )
Non-GAAP operating margin (7.0 %) (13.5 %)
 

1
Due to purchase accounting rules, upon acquisition, Cornerstone recorded an adjustment of $1.6 million to reduce the balance of deferred revenue related to the assumed client contracts acquired from Sonar Limited. As a result of this adjustment, $0.1 million of revenue was not recognized during the three months ended March 31, 2013. Therefore, revenue is adjusted by an increase of $0.1 million to arrive at non-GAAP revenue for the three months ended March 31, 2013.
 
       

Cornerstone OnDemand, Inc.

RECONCILIATIONS OF NET LOSS TO NON-GAAP NET LOSS, NON-GAAP NET LOSS MARGIN AND NON-GAAP NET

LOSS PER SHARE
(in thousands, except per share amounts)
(unaudited)
 
Three Months Ended

March 31,
  2014     2013  
 
 
Net loss $ (15,790 ) $ (9,934 )
Net loss margin (27.5 %) (26.4 %)
Adjustments to net loss
Stock-based compensation and employer-related payroll taxes 8,140 4,040
Acquisition related:
Adjustments to revenue 1 - 133
Amortization of intangible assets 492 492
Adjustments for income tax benefit 2 - (129 )
Accretion of debt discount and amortization of debt issuance costs 3 2,031 -
Other amortization costs and other expenses   71     72  
Total adjustments to net loss   10,734     4,608  
Non-GAAP net loss $ (5,056 ) $ (5,326 )
Non-GAAP net loss margin (8.8 %) (14.1 %)
Weighted-average common shares outstanding, basic and diluted   52,726     50,798  
Non-GAAP net loss per share $ (0.10 ) $ (0.10 )
 
 

1
As of March 31, 2013, approximately $0.1 million in estimated revenues were not recognized during the three months ended March 31, 2013, due to purchase accounting rules.
 
 

2
Income tax effects related to acquisition related adjustments.
 

3
Debt discount accretion and debt issuance cost amortization has been recorded in connection with our issuance of $253.0 million in convertible notes on June 17, 2013. These expenses represent non-cash charges that have been recorded in accordance with the authoritative accounting literature for such transactions.
 
 
Cornerstone OnDemand, Inc.
CALCULATIONS OF BOOKINGS
(dollars in thousands)
(unaudited)
     
Deferred Revenue Balance Three Months Ended March 31, 2014
 
 
Revenue $ 57,409
 
Deferred revenue at December 31, 2013 $ 138,822
Deferred revenue at March 31, 2014   131,072  
Change in deferred revenue (7,750 )   (7,750 )
 
Bookings $ 49,659  
 
 
Deferred Revenue Balance Three Months Ended March 31, 2013
 
 
Revenue $ 37,657
 
Deferred revenue at December 31, 2012 $ 92,252
Deferred revenue at March 31, 2013   90,534  
Change in deferred revenue (1,718 )   (1,718 )
 
Bookings $ 35,939  
 

 

Percentage period-over-period increase in bookings for the three months ended March 31, 2014
38 %
 
     

Cornerstone OnDemand, Inc.

RECONCILIATION OF NET CASH PROVIDED BY OPERATING ACTIVITIES TO NON-GAAP NET CASH

PROVIDED BY OPERATING ACTIVITIES
(in thousands)
(unaudited)
 
Three Months Ended

March 31,
  2014     2013
 
Net cash provided by operating activities $ 879 $ 478
Payment of employer related taxes from stock-based compensation 248 58
Purchased investment premium, net of amortization   (926 )   -
Non-GAAP net cash provided by operating activities $ 201   $ 536

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