global leader in cloud-based learning and...
TRANSCRIPT
NASDAQ: CSOD
As of August 5, 2019
Global Leader in Cloud-Based Learning and HCM
This presentation includes forward-looking statements. These statements relate to, among other things, our future financial and operating performance, including our GAAP and non-GAAP guidance, the growth of the learning and human capital management market, our business strategy, and our plans and objectives for future operations. In light of the risks and uncertainties outlined below, the future events and circumstances discussed in this presentation may not occur, and actual results could differ materially from those anticipated or implied in the forward-looking statements. The Company has based these forward-looking statements largely on its current expectations and projections about future events and financial trends affecting its business. Forward-looking statements should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking statements are based on information available at the date of this presentation and management’s good faith belief as of such date with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that could cause such differences include, but are not limited to:
• Statements regarding the Company’s business strategies;
• The Company’s anticipated future operating results and operating expenses;
• The Company’s ability to attract new clients to enter into subscriptions for its solution;
• The Company’s ability to service those clients effectively and induce them to renew and upgrade their deployments of the Company’s solution;
• The Company’s ability to expand its sales organization to address effectively the new industries, geographies and types of organizations the company intends to target;
• The Company’s ability to accurately forecast revenue and appropriately plan its expenses; market acceptance of enhanced solutions, alternate ways of addressing learning and talent management needs or new technologies generally by the Company and its competitors; continued acceptance of SaaS as an effective method for delivering learning and talent management solutions and other business management applications; the attraction and retention of qualified employees and key personnel;
• The Company’s ability to protect and defend its intellectual property; costs associated with defending intellectual property infringement and other claims; events in the markets for the Company’s solution and alternatives to the Company’s solution, as well as in the United States and global markets generally; future regulatory, judicial and legislative changes in the Company’s industry; changes in the competitive environment in the Company’s industry and the markets in which the Company operates; and other factors discussed under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s periodic reports filed with the Securities and Exchange Commission (the “SEC”).
Forward-looking statements speak only as of the date of this presentation. You should not put undue reliance on any forward-looking statement. The Company assumes no obligation to update any forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting future performance or results, except to the extent required by applicable laws. If the Company updates one or more forward-looking statements, no inference should be drawn that it will make additional updates with respect to those or other forward-looking statements.
In addition to U.S. GAAP financials, this presentation includes certain non-GAAP financial measures. These non-GAAP financial measures are in addition to, not a substitute for or superior to, measures of financial performance prepared in accordance with U.S. GAAP. Please see the discussion of these non-GAAP financial measures and their reconciliations to the most directly comparable U.S. GAAP measures at the end of this presentation.
Safe Harbor
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The Transformation
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Second Quarter 2019 AchievementsFive-Point Strategic Transformation Plan Has Driven Significant Value
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2
3
4
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Strategic Plan Value Creation
Focus on recurring revenue and exit enterprise service delivery
Q2 Subscription revenue growth of 16% YoY (17% cc YoY) Subscription revenue 93% of total revenue, up from 87% in 2018
Improve operating margins and cash flow
Q2 Operating Margin improved to 12% from 10% in 2018 Unlevered FCF margin improved to 7% from 6% in 2018
Create new recurring revenue streams, including aggressively entering the content market
Strong growth in average deal sizes and uptick in large deals Signed first multi-million-dollar Content Anytime deal
Bolster the team New, tenured marketing leadership
Improve governance
Source: Q2 2019 results as of June 30, 2019
Successful Exit from Enterprise Services
Total Revenue($ in millions)
$20 $18 $9
$96 $115 $133
Q2 2017 Q2 2018 Q2 2019
Services Subscription
$116$133
$142
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Key Metrics: The Cornerstone Transformation
$439$510
$579.5 - $589.5
2017 2018 2019E
Annual Recurring Revenue (ARR)
Note: FY19 Guidance ranges as of August 5, 2019. GAAP to Non-GAAP Reconciliation is located in the Appendix
$482
$538
$566.5 - $571.0
2017 2018 2019E
Total Revenue
$397 $473
$539.5 - $544.0
2017 2018 2019E
Subscription Revenue
6%
12%14-15%
2017 2018 2019E
Non-GAAP Operating Margin
9%12%
15-16%
2017 2018 2019E
Unlevered FCF Margin
($ in millions)
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Cornerstone Today
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Global ReachCLIENTS
3,600+USERS
40M+COUNTRIES
190+LANGUAGES
40+OFFICES
20+
Sunnyvale
Santa Monica
Sao Paulo
MadridParis
London
Stockholm
DusseldorfMunich
Tel Aviv
Bangalore
MumbaiHong Kong
Tokyo
Sydney
Auckland
Singapore
Amsterdam
Note: User and client count figures exclude PiiQ, Cornerstone for Salesforce, Workpop Inc. and Grovo Learning, Inc.As of June 30, 2019
Salt Lake City
New York City San Francisco
Mexico City
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Marquee Clients Around the WorldAPJUS & LATAM EMEA
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A Decade of Sustained Revenue Growth
IPO
$19.6 $29.3 $46.6 $75.5
$117.9
$185.1
$263.6
$339.7
$423.1
$482.0 $537.9
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
RevenueIn USD $ Millions
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Strong Growth in the Base
168 280
481
805
1,237
1,631
2,153
2,595
2,918
3,250
3,535
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Client Growth
2.13.3
4.9
7.5
10.6
14.0
18.1
23.8
29.9
35.3
40.2
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
User Growth(in Millions)
Note: User and client count figures exclude PiiQ, Cornerstone for Salesforce, Workpop Inc. and Grovo Learning, Inc.; Numbers updated as of 12/31/18 11
COMPLETENESS OF VISION
ABI
LITY
TO E
XEC
UTE
CHALLENGERS LEADERS
NICHE PLAYERS VISIONARIES
Cornerstone is the Market Leaderin Talent Management
SOURCE: Gartner (September 2018)
2018 Magic Quadrant for Talent Management Suites
Cegid
Saba (TalentSpace)
Skillsoft (SumTotal Systems)
Saba (Saba Cloud)
Haufe
SAP (SuccessFactors)
Talentsoft
PageUp
1212
The Solution
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Skilled Jobs Unskilled Jobs
Skilled Workers Unskilled Labor
The Skills Divide is Real
RECRUITING SUITE• APPLICANT TRACKING
• CAREER SITES
• INTERVIEW MANAGEMENT
• ENABLE FRONTLINE MANAGERS
• CANDIDATE SCREENING
• NEW HIRE ONBOARDING
PERFORMANCE SUITE• CONTINUOUS DEVELOPMENT
• PREDICTIVE SUCCESSION PLANNING
• INTERNAL TALENT MOBILITY
• SMART COMPENSATION PLANNING
• INTUITIVE DATA VISUALIZATIONS
• PULSE ENGAGEMENT SURVEYS
LEARNING SUITE• LEARNING MANAGEMENT
• CERTIFICATIONS
• CONNECT & COLLABORATE
• INSIGHTS
• LEARNING EXPERIENCE
• CONTENT
HR SUITE• CENTRALIZED VIEW OF GLOBAL WORKFORCE
• HEADCOUNT PLANNING
• ANALYTICS & REPORTING
• BENCHMARK TALENT METRICS
• FLEXIBLE DEPLOYMENT
• SIMPLE & INTUITIVE UI
Cornerstone’s HCM Product SuitesA Unified Platform for the Skills Economy
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Cornerstone Recruiting
• Understand your hiring pipeline
• Source and manage candidates
• Efficiency with automation
• Provide a positive candidates experience
• Promote talent mobility and development
Next-generation Recruiting to Hire Across the Skills Divide
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Cornerstone Learning
• Configurable, yet simple Learning Management
• The next generation of Learning Experience
• Content you can’t get anywhere else
The World’s Most Robust Learning Platform
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Cornerstone Performance
• Maintain alignment to drive business outcomes
• Foster a culture of talent mobility
• Reward and recognize high performers
Drive results with Continuous Performance Development
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Cornerstone HR
• View & manage all employee records in one place
• Empower employees to manage personal data
• Proactively seek out top performers
• Create headcount forecasts
• Get a global view of your organization
Centralizes HR Administration into a Single, Modern System
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Collections of Content You Can’t Get Anywhere Else
Wide Partner Ecosystem
with a variety of modalities, topics, and titles
Intelligently Curated Subscriptions
built to solve specific business needs
[Playlists included with each subscription]
Seamlessly Purchased & Loaded
for enhanced user experience
[We handle metadata, thumbnails, content upload]
Subject-matter Experts
to listen to your business needs and recommend
the right content
Client
Curated Subscriptions
Integrated with LXP
Content Consultants
Best-of-breedPartners
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Accelerating Growth:$40B Market Opportunity
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Expanding Market Opportunity
Source: Training Industry Report (2017); Company estimates and WW HCM Apps Forecast, IDC WW Tracker, June 2018 Report
HCM + Content: $40B
*Talent Management – $7B
*Learning – $1.5B
9-11%GROWTH
*Performance – $1.5B
5%GROWTH
*Recruiting – $4B
16%GROWTH
11% GROWTH
HCM – $16B 10%GROWTH
1. Installed Base
2. Content
3. Recruiting
4. Cornerstone HR
5. APJ
Growth Drivers
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Installed Base Opportunity
0
500
1,000
1,500
2,000
2,500
3,000
3,500
Learning Performance Recruiting Cornerstone HR
Existing Client Penetration Client Opportunity
Num
ber
of C
lient
s
50% penetrationamong other suites results in incremental
$500MARR opportunity
Calculated based on 3,535 clients with approximately 11,400 users on average
Four Key Pillars, each a suite, and half of it GREENFIELD
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Content at ScaleSizing the Content Opportunity for Cornerstone
3x+Content AnytimeRPU of Learning
~$250MARR Opportunity Today
What We’ve Seen
Today’s ARR Opportunity
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Recruiting GrowthGrowing adoption of the Recruiting Suite
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Opportunity Exists to Capitalize on the Managing Director Model
We have shifted to a country-specific GTM approach
Australia & New Zealand Japan Asia
Singapore (ASEAN)
Hong Kong
South Korea
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Cornerstone HR’s Impact on Deals in EMEA
*EMEA deals in 2018Average deal values converted from local currency to USD
Average Suites Purchased
Average RPU
• EMEA clients that purchased Cornerstone HR on average buy ~2x more product suites
• Cornerstone HR increases ARPU by ~2x
1.7
3.6
Without Cornerstone HR With Cornerstone HR
~$30
~$65
Without Cornerstone HR With Cornerstone HR
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14% 12% 15% 13%5%
14% 19% 13% 13% 18%
22%19% 19%
16%
16%13%
13%10% 9%
7%
64% 69% 66% 71%79% 73% 68%
77% 78% 75%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
TCPU Public Admin FinancialServices
Retail Higher Ed Other Services Healthcare Manufacturing High-Tech AMC
Replace Upgrade Do Nothing
Source: Sierra Cedar 2015–2016 HR Systems Survey 18th Annual Edition
Finding the Blue Ocean in Core HRCornerstone HR is addressing the “do nothing” segment vs. upgrade (primarily PeopleSoft) & replace (primarily Workday & SAP)
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FY2019 Guidance Summary
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$119
$136.0
$15
$6
-
$20M
$40M
$60M
$80M
$100M
$120M
$140M
Q3 2018 Q3 2019 Guidance
Subscription Services
$473
$541.8
$65
$27
-
$100M
$200M
$300M
$400M
$500M
$600M
FY18 FY19 Guidance
Subscription Services
2019 Revenue Guidance
$135.0 – $137.0 $539.5 – $544.0.
$134M
$568.8M$142.0M
$538M
Third Quarter Full Year
~(58%)
$566.5 – $571.0$141.0 – $143.0
(Dollar in millions)
Note: Reflects guidance issued as of August 5, 2019. 31
2019 Guidance
OTHER:1. GBP to USD 1.22
EUR to USD 1.12
2. 5% FX Δ in GBP = $1 ARR / $2 Revenue5% FX Δ in EUR = $4 ARR / $1 Revenue
3. Net Interest Expense(4):• GAAP $14• Non-GAAP $10
4. Cash Interest Paid $17
5. Shares outstanding increases from 60M to 66M when Net Income is positive
6. Income tax expense $3
7. SBC as % of revenue ~13%, versus prior year of 11%
8. Capex ~3% of revenue
(Dollar in millions)
Notes: 1. Reflects guidance issued as of May 6, 2019.2. Reflects guidance issued as of August 5, 2019.3. Denotes a non-GAAP metric4. Net Interest Expense is Gross Interest Expense less Interest Income
2018 Actual Prior 2019 Guidance(1)
Current 2019 Guidance(2)
ARR(3)Growth
$510 $575 - $59013-16% / 14-16% CC
$579.5 - $589.514-16% / 14-16% CC
Total RevenueGrowth
$538 $562 - $5704-6% / 5-7% CC
$566.5 - $571.05-6% / 7-8% CC
Subscription RevenueGrowth
$473 $537 - $54514-15% / 14-16% CC
$539.5 - $544.014-15% / 16-17% CC
Professional Consulting Services
Revenue$65 Down ~60% Down ~58%
Operating Profit(3)Margin
$6312%
$78 - $8514-15%
$79.0 - $85.014-15%
Unlevered Free Cash Flow(3)
Margin
$6412%
$84 - $9215-16%
$85.0 - $92.015-16%
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Q3 2018 Actual Q3 2019 Guidance(1)
Total RevenueGrowth
$134 $141.0 - $143.05-7% / 7-8% CC
Subscription RevenueGrowth
$119 $135.0 - $137.014-15% / 15-17% CC
Professional Consulting Services Revenue $15 Down ~60%
Operating Profit(2)Margin
$1813%
Operating Margin in mid-teens
Unlevered Free Cash Flow(2)
Margin
$3224%
uFCF Margin in high single-digits
Q3 2019 Guidance
OTHER:1. GBP to USD 1.22
EUR to USD 1.12
2. Net Interest Expense(3):• GAAP $4• Non-GAAP $3
3. Shares outstanding increases from 60M to 66M when Net Income is positive
4. Capex is expected to comprise ~4% of revenue
(Dollar in millions)
Note:1. Reflects guidance issued as o August 5, 20192. Denotes a non-GAAP metric3. Net Interest Expense is Gross Interest Expense less Interest Income 33
Creating Long-Term Shareholder Value
Note: FY19 guidance updated as of August 5, 2019.
FY18Actual
FY19Guidance
2020 Balanced Growth/Profitability
Scenarios
Subscription Revenue Growth(in Constant Currency) 19% 16-17% 10 - 20%
Non-GAAP Operating Margin 12% 14-15% 18 - 28%
Unlevered Free Cash Flow Margin 12% 15-16% 20 - 30%
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GAAP to Non-GAAP Reconciliation
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Investment Summary
Organically-developed, best-of-breed SaaS platform
Huge, untapped market opportunity
Industry-leading customer retention
Highly scalable business
Top line growth with significant profitability improvement
A leader in cloud-based learning and human capital management
Transformation into a high-margin growth company
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Thank You!