CSOD - Earnings call transcript Q3 2020 | Cornerstone OnDemand Inc

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Operator

Good day ladies and gentlemen, and welcome to the Cornerstone Q3 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] I would now like to turn the conference over to your host, Mr. Jason Gold, Senior Vice President of Finance. Sir, you may begin.

Jason Gold

and XXXX everyone earnings much Cornerstone’s welcome very quarter third call. you good and afternoon, to Thank With me Coughlin. today Saunders; and are our Chief Interim Financial Executive Chief Officer, Trish our Officer, Phil a In today’s Investor section our conjunction of located call, published Relations with website. on presentation we’ve the that’s press furnished SEC to Today’s in X-K. Form release was the a guidance; financial regarding performance our of non-GAAP our discussion forward-looking including, integration statements, GAAP expected Today’s the performance, but not our our efficiencies; prospects. growth into the and future and strategy, Saba will include limited operating including and to, cost our long-term future our statements of achievement of business, our synergies and overall business and related

future materially assumptions. included results involve with uncertainties and and the SEC. factors risks, from statements subsequent could other risks, well These to most filings in our cause XX-K, are those actual statements and as our forward-looking as assumptions, contained differ uncertainties XX-Q Forward-looking recent that in as as well periodic

of During provided All financial be the measures. we today reconciliation non-GAAP are a number. non-GAAP discussed state The referring GAAP unless earnings and release With GAAP call, to Phil. measure in figures financial also is information non-GAAP press to both presentation. our backdrop, that in call the we the I’d a over the to to and as like GAAP the is turn will

Phil Saunders

and Jason today. everyone for you, thanks us Thank joining

positive significant Over experienced the recent Cornerstone months, change. has

operate well to continues bizarre normal COVID-XX. company this Our new of during

actively culture. of clear, our alignment unlevered exciting continued long-term operational to a the by strategic and of better of of on taking operating million. the In revenue cash million, and right $X.XX is while our with fundamentals, total This pay aim to enabled of third our focus quarter million plan, strong driving Saba. quarter, acquisition executing $XX we share early improvement organization company. on To synergy cogent To We $XXX the Term our people is all getting more focus an critical on for our of continue is a and to instrument million, flow which $XX approach, have free in of integrating be us per and and income near quarter. business cash time B our our our execution eye integration operational company’s continued the improve delivered the the the and down path by position, business our a on our that we $XX in debt of our earnings and fourth generated strategy, Loan

from new from their U.S. business enterprise in large improvement people a accrue to as results. and a this our and commitment We of modest to demand digital see allow some should importance You massive opportunities using active wins, and pleased sign for value EMEA and pipeline. pent-up delever with well in-period development to context the of We generation executed In experienced of we’re of stakeholders. both initiatives. critical some our these was transformation wider COVID transformation, rapidly cash for on

there. these renewals proof activities largest, were and points our to bake-offs, have and in is this comes including but reception believe customer our and and we I’m in and customers one motivating we in small to some progressed yet exciting strategic strategic directly the improvement transformational trajectory COVID customers’ track that areas, increased showed to strategic not evidence by unaffected The have over for both customers which directly for well our competitive from ready chairs. quite renewals, together both just innovation an is The is quarter quarter. our we to Our us, personal the this tied in that declare transpired ERP team. and our adjustments specific is attention this we’ll in and encouraging victory, Again, some months affected it’s one recent

business, outstanding also annual EMEA year, particular, government, well overall due our with of the bodes customer U.S. our customers. various for quarter, the remained enterprise we future volume win We SMB When during remained think which an at at soft. discussions adoption Japan constrained event well. active convergence our business attendees our at with and Yet respectable to businesses pandemic. had In performance did Similarly, were of virtual event this the the consistent joining nearly quarter us our opportunities in with duties XX,XXX and looking balance, APJ in our wins the rates.

should We growth the these by our these expectations. markets. others right no like is been area partnerships IBM, there COVID kept region firms check with built strategic our and below and focus a to this serve But remain markets in were confident are denying consequently, we sales hasn’t here have and Hitachi

to Saba see opportunity and validation very over We of Saba the strong within of continued are the customers. including specifically armed and be bottom opportunity and should within world. few position of success fully strategy. a prove early our we continued and next motions reps Cornerstone wins here early to The to the the and integrate offering their customer this sales innings forma, here around offering line is early quarters content it content for our the of our in we all theaters fruitful, anytime believe the more We base,

is Cornerstone micro action in to the proposition and anchored content The addressing Our Cornerstone customers self-developed being we We are brings. is that we’re a start. A unique where begun owned proving combination and recognizing for us enthusiasm and well. Cornerstone, focus, as to content the we’re highly the plus differentiated needs acquisition off good see we out while of wouldn’t process, learning that partner nano customers’ our mind A way. specialized global roll our originals, serve inside to a programs started curated transformation content. that by to value early the our

expanded clearly. through a there’s our internally and is value our creating on profitability. win to focus for stakeholders. new fueling defined card and score both externally We creation We of our This value path customers, as driving ultimate by is advance we legitimate and the drive forward. our market Cornerstone enthusiasm relentless efficient about growth want Our impact all

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customers of the also perseverance environment. We see our in this

employee engaging in improve thrive journey a to those critical and in we and their to digital than talent, discussed to the companies, now who and mobility a we we transformation to a few dynamics physical on we people can as move during the turn the them, strategies tailwind believe virtual and just reviewing are this into believe head Companies development of for QX. some we quarter experiences their their into XXXX programs, are with and sampling better re-skill areas, provide hand classroom that our to transformation formats, the beyond. the for certain industry requirement competitors. minutes I’d how insight as desire We from activities last performed we and are have are like working spend need accelerated workforce, our need the hand to where with simply to rethinking up-skill

new for; I’ve related from our you that leadership leaders three, As These transformation; tied one, functional are areas know to three compelling Cornerstone. responsible leadership. our drive made inextricably driving added our substantial leaders press We’ve into and are releases, stronger actively customer tangible changes and these reality. focus concepts two, service for additional product

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us Another and experience. the changes Folks, this our customer XX our users catchphrase for million their customers of relates transformational is for than a made significant platform. us. more power properly serve area We’ve leveraging to to

contested awarded due you as I’m some take strategy. success our of QX be we at they’ll of focus. due to those win accelerate in ahead give design. to also each heavily executive To encouragement approach Chief Ajay we also in we had the and full to support I assets at specifically impact, at thrilled This sure, as environments we and to earnings the since charge. multiple we’ve quarter, that that for isolate QX on tremendous I’m the organizational Officer. where with to we’ve to introduced large and significant were table, a drive achieve winning purpose right. to of know will new points last the our several talked shift, there’s in know, you ownership while and in forward. across that we that elevated are but concept that environments, early about win strategic where made As with enable and change we vision, the and cases opportunities journey. path. theaters, This And time leadership Last and use the during we that differentiated rationale advancements we proof experienced These miserably, get support customer Product experienced for this team are rate their enhanced the into. the who where call. knowing that higher Cornerstone. a verticals, in here We everything changes we’re and perform in work visibility geographic a vendors zones plan to support we’ve a have Awatramani increased ERP role We’ve concept investment We’ve making the us industry systems win, experience is on of our to our and practices customer align know-how, right efforts, dialed those means company more improve our believe impatient best processes altered we product us of that’s help and that added our

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believe drive time of churn one our to users, is element over our increased aim Our which and virtuous engagement can is flywheel success. to we of lower

we’ve we COVID talk for path impact this solutions, here and XXXX, contend market Yes. our our our take headwinds. is that strategies, changes random, the our and us. that Cornerstone, does the about areas And providing responsibility people our let��s growth thus actions to that actions growth. we committed we’re our execute the are advance not a is for believe reality aligned see with Now, purpose. isn’t continue the to regards to mission, our to strengths we’ll with to efficient fundamental development under leverage lead development all invigorating this steps, but transformational and moment to everything experiences into as are growth There We the with customers. our far control in at to my well people discussed relinquish sense

It drives maniacal increased we leverage with on a tack new in and sound and renew new Retention, motion, us. in we’ll they a if blocks this on a expand engage focus ARR, retention, focus their go-to-market growth. we’re win with building So which customer in the And with more customers. of contracts in And will thriving capabilities. is doing of growth. our combination customers hand, with word business starts our to upsell, job,

have our product critical advancing name advancing is new of win So, design not that when area discussed believe for of million and drive earnings to margins. ARR. We how We experience, focusing the And and have in in and the this, remain $X ARR in expansion. novel confident core we we growth our This it’s business unlevered call to analyzing this all collective investing on cash you we’re flow least me hear free the heavily organizational in our $XXX is us and we and opine on towards the million core billion in last we driving elements to our through of long-term our know customer $XXX growth. roughly at or zones, do will. experiences innovation, XX% is in

them and ability the non-core content and our customers integrated developing were provide to allocate innovation, we when I’d anecdotal an our we’re resources tuned actively our capabilities you the over while plans offerings, business. solution. multiple it’s programs, using ask seen instances, valuable the to sensible that evidence solutions where create we to on continue official our non-core working stay to are We migration accelerate seamless early our still for our transition core able of we’ve flagship here, although some simultaneously and to of to new offerings

sorry, we’re will through momentum As walk at we’re full-year XXXX. I continue and of fourth but look to QX our I’m the through QX in you expecting the in quarter we – Trish, had driving our QX. some details, our

more million We we business quarters’ prudent actions to are $XXX about for guidance, in the Year. we ARR and we planning compared major on we to with do expect of be order track million us as a are and for is not consistent the this and in it successfully $XX spend time. last for driving I completed To you did Saba, consider transformation. on growth, Cornerstone to tracking snapback The saying we at previously are directly, the shared when while synergies have our to taken, guidance forma end, execute course, enter and we market the COVID combined to remains XXXX. the that with in have of New to we with will our full-year realize flat notion based pro around us on some require our

[Technical call Before lacking timely Cares companies with current unconscious a of timely mentoring from management. our Difficulty] from company’s Cornerstone our free in of I pass interviewing to to relevant Brothers offering ranging our number efforts customer continued unconscious out our individuals active Trish, offerings a incentive. offerings to our and in number with foundation, many XXX,XXX over wanted to relevant development I topics our funding world of with advantage take across and partner where the bias Big front by also across and Cornerstone We’ve and Big stress topics to is advanced bias skills activities of ranging the Sisters, concept

delivering youth grant technology Big with primarily began onboard their abruptly in-person platform, Big but entire as forced COVID-XX not Brothers team to our across a and and provided us colleagues foundation can to convert volunteer and Sisters and Our program with at These Big training Sisters, training their to of communities training, social LGBTQ social here their continue social the experience to XXXX our Brothers virtually, mental to we more Big efforts personal impact. as a or by now the one. provide such our with only working country topics, online. of justice, resources and timely they in digital a mentors lasting a quite making Cornerstone, new isolation. from will spring are our positive do try on and part share ideas and health

floor Let over me Trish. the turn to now

Trish Coughlin

good everyone. and Phil Thanks, afternoon,

on high meaningful anticipated range office of the the end legacy exceeded line an to guidance provided deliver above in quarter. the we service Subscription expectations. outperformance our than last revenue came results QX relative Saba’s service our higher end indicated, for Phil As of backlog to our the high

The revenue our due combination In lower guided and income to deferred to the revenue the by Saba stronger million. million of surpass expenses subscription relating addition, $XX us than $XX headwinds than approximately observed write-down enables QX revenue our planned acquisition. the guidance operating

but now was early Our QX due positively unlevered expenses and in in timing XXXX. to certain free happen thought cash in what flow occur million we QX, restructuring and of of you would $XX will part integration that expect impacted the

experienced in entirely growth declined that decline The sequential return client our in quarter-over-quarter. You’ll notice non-core. segment. count attributed non-core claims We our on slightly to is

guidance full-year operating increase which are revenue We our drives for income. guidance QX adjusting and given outperformance an our to the for QX,

revenue range range We to be million. up the to million, expect $XXX $XXX of from a of our QX million to $XXX in $XXX subscription million

range to $XXX We in expect our total million million. the revenue from of be $XXX $XXX million million up to to range of $XXX a

Our revenue write-down. QX revenue guidance approximately of includes the deferred $XX due to million the headwind

the and no It’s be $XX that We nearly our prior million, expect carried to our million up the income it. revenue QX million from between goods sold with side. of noting on QX outperformance $XX operating implied of services worth $X million $XX cost by line

So, internally. QX updated enjoyed service it sold program million income. Saba’s in Saba’s $X increasing partner having noting services consideration operating to we to transitioning had QX, of $X million implementation through platform recently into rates. incremental to It’s also some the operating the we we an addressing our company-wide implemented model. takes goods we tied transitioned of our services as In performed the work way guidance much for will to expenses talks the anticipate of worth operating in as that towards Cornerstone bonus majority benefit of straight of renewal cost backlog we remaining This that through income effect

being amortized we in instituted be course but will talked of this now QX. over in $XXX $XXX million, to the full impact Continuing year, accrual flow our from and million. range $XXX expect of full-year on between flow. our cash previous $XXX million up We free cash unlevered million to full the to be is bonus based any program forward, XXXX, Going the of since it

conditions that down, the million down B. Term million by each in market As principal $XX our $XX to we pay under Loan sensible should in expense $X on Phil outstanding pay mentioned, our early interest annualized we reduce QX current about million. opportunity took

our ARR compared declines XXXX the are of XXXX expect $XXX year-over-year be forma reiterating to low when show our million core drive in ARR for offset growth to in range. pro Cornerstone a to $XXX We million. would guidance flat by subscription do This that, revenue basis we in combined our figure Within the on about non-core. established therefore

Our ARR ARR new wins both the balance and is return. year the determined during by

backdrop, With we out seeing that points our up trends eight rates this are you churn as ending XXXX our trending Bureau. it’s that and Recall the the ending within end of optimistic guidance, U.S. So, out as ARR about contract term. here. an to in we wanted unusual to growth of year of would at cautiously that we that remind churn the the that contained figure our end renewal are are from I we last pointed Census this majority this expected census contract of points value. is result down, Absent as a expect expected the ARR contract, our the the

it XXXX Although currently weighted of ramping the cycle, growth, total in half year. single-digit generally ARR it’s through towards remains and the we of expecting growth early budgeting XXXX are this our for back our full-year low in

non-core We ARR be our in expect to areas. declines that our in more core than offset serves

any Of the impact and or or the or unknown recovery COVID-related course, magnitude our number. continued ARR or deepened factors of impacts these negative pace could ending any all or from the of macroeconomic duration pandemic

entertainment cash of royalty some and restructuring travel we able time. plus QX, But integration perspective, framework spending, a $XXX flow be to content As share operating about million that million XX% with, range cycle in should for and $XXX on merit about by said, or business. in is we annual $XX $X revenue to in us have in as due offset Phil $XXX of costs your expenses it $XX million these includes questions. remain cost to least million, flow we increase call. take will the our With to precise ARR cash our approximately unlevered and margins in our over free flow annualize to you And the content earnings an to from expect somewhere relates perspective, million at more before next as that, and the costs. you we’ll our cost fees our in ability would cash a XXXX. in consideration a cost of one-time on legacy which This billion guidance being savings From expect exit XXXX now structure, to confident resumption think grow XXXX we increases achieve

Operator

from [Operator our is Instructions] And Jalaria Rishi question of first Davidson. D.A.

question please. Your

Hannah Rudoff

my for Hi, guys. Rudoff is this Rishi taking Hannah for questions. on today. Thanks

you so First of been question you, I about you’ve if and points talk far? was wondering friction Phil, integration there’s any for if seen unexpected just could

Phil Saunders

Hi, think you? together. I no friction So, are companies it’s the putting how gravity of points, unexpected normal two

worked COVID easiest very probably overall, can I the imagine, very, would a work-from-home the from you well it’s thing to As do teams not but environment, say together. have

aligned Our I we’re values quite and doing goals well. are and think

to answer No your unexpected no. points. question specifically, friction So,

Hannah Rudoff

and was Great. out coming And you Convergence pipeline then talk could about how Cornerstone that event? of

Phil Saunders

debating mean, virtual Convergence call reasons. have whether were was I which were it I the a the was of should that of could Sure. on suspect or volume platform knows because We all for this we our and at not, thoughtful frankly withstand people. we virtual everyone event, obvious it

we had various over rooms. mentioned, and I active attendees breakouts XX,XXX in As

it folks exact I was in to thousands of be candid, the know have chunk, don’t that We but a the not low customers. number good were

by, we’re as and marketing was well encouraged for it customers’ time which good about as doing, feel leads, and our new our opportunities, that really obviously MQL spend. them engagement to of good into prospects, efficient use things opportunities we’re which our so between and existing I So new feed to obviously, a talk

Hannah Rudoff

much Great. question. just last from How And environment? COVID potential upside is an then there improving

Phil Saunders

was the knew really question going come. that’s and feel like I tricky Yes. to a I question,

related our what for our see integrated see is I What an up of COVID. going learning. increased and do needs mobile not meetings, whether integrated think the ARR, our in necessarily platforms, because amount COVID is virtual we of uptick environment on I content usage. the see be I what actually platforms, our of I

for amount well things potential seats up, for and usage bodes adopted. different is be sheer the retention like customer and the of which capabilities going to more So,

“over-pressing be the of will to say we’re want platform usage on seeing increased this the that but the definitely I in benefits” I of environment. So, our cautious COVID environment,

Hannah Rudoff

you. Thank Great.

Phil Saunders

You’re welcome.

Operator

like Saunders Instructions] for this further remarks. queue. no [Operator questions I’m back to the the showing closing turn At in call Phil time, to I’d

Phil Saunders

for and I much with travels Thanks call. and doing – everyone a the and our tell excited very thanks we’re about could wish look everyone if joining traveling very Thanks things here, safe everyone. and the careful you we are quarter. again, as much and you we’re pretty you business chatting forward to next

Operator

Ladies This today’s and the thank disconnect. gentlemen, participating day. you program. you in for conference. now concludes Good may

Cornerstone OnDemand (CSOD) 6 Nov 202020 Q3 Earnings call transcript