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Csod investor deck q1 2018 final

This presentation discusses Cornerstone, a global leader in cloud-based learning and human capital management software. It highlights Cornerstone's growth strategy, large total addressable market, and progress in gaining market share. Cornerstone aims to capitalize on the growing demand for talent management solutions and the opportunity to cross-sell additional products to its existing customer base.

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As of May 8, 2018 Global Leader in Cloud-Based Learning and HCM NASDAQ: CSOD
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 2
3 Who We Are
4 Global Leader in Cloud-Based Learning and HCM Background • Founded in 1999 • IPO on March 17, 2011 • NASDAQ: CSOD • 1,800+ Employees • 3,250+ Clients • FY17 Revenue: $482 Million Performance • World’s #1 Talent Management Suite • 36 Million Users • Named by Gartner as the Magic Quadrant Leader in Talent Management Suites for Four Consecutive Years • Advanced Position to Core Challenger in the Fosway 9-Grid for Cloud Human Capital Management (HCM) Marquee Clients Around The Globe Source: Gartner, Inc., “Magic Quadrant for Talent Management Suites” as of February 28, 2017.
5 A Decade of Sustained Revenue Growth $19.6 $29.3 $46.6 $75.5 $117.9 $185.1 $263.6 $339.7 $423.1 $482.0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Revenue Growth (in millions) IPO
6 CLIENTS 3,250+ USERS 36M COUNTRIES 192 LANGUAGES 43 OFFICES 17 Cornerstone Has Global Scale Santa Monica Sunnyvale Sao Paulo Madrid Paris London Amsterdam Stockholm Dusseldorf Munich Tel Aviv Bangalore Mumbai Tokyo Sydney Auckland Note: User and client count figures exclude PiiQ and Cornerstone for Salesforce.As of March 31, 2018 Hong Kong
7 Marquee Clients Around the World APJUS & LATAM EMEA 7
Magic Quadrant for Talent Management Suites Source: Gartner (February 2017) NICHE PLAYERS VISIONARIES CHALLENGERS LEADERS COMPLETENESS OF VISION ABILITYTOEXECUTE Technomedia Haufe SumTotal Halogen Software Saba Oracle (Talent Management Cloud) SAP (SuccessFactors) Talentsoft Cornerstone is the Market Leader in Talent Management 8
9 Our Market Opportunity
The Market Need is Real 10 Nuha Masri | 11. 7. 2017 4 Ways Technology Will Shape the Future of Work by 2020 Alexandra Gibbs | 10. 27. 2017 Why Taking Care of the ‘Human-Capital’ of Your Employees is Vital Denise Lee Yohn| 1. 2. 2018 2018 Will Be the Year of Employee Experience Melissa Lamson| 3. 13. 2018 8 Ways to Create a Corporate Learning Culture Tony Schwartz | 3. 7. 2018 Create a Growth Culture, Not a Performance- Obsessed One
11 BlackRock views each company’s approach to HCM as an investment issue and a factor in business continuity and success. In light of evolving market trends like shortages of skilled labor, uneven wage growth, and technology that is transforming the labor market, many companies and investors consider robust HCM a competitive advantage. -Larry Fink, BlackRock “ ” Human Capital Management has a Positive Correlation to Total Shareholder Return Source: Logos and names are property of the respective company.
12 Talent is the Competitive Advantage That Will Define the Winners & Losers of the 21st Century Success in business is all about people, people, people. Whatever industry a company is in, its employees are its biggest competitive advantage. -Richard Branson “ ” Source: Logos and names are property of the respective company.
400M ADDRESSABLE SEATS Source: Cornerstone estimates, adapted from IDC, US Census Bureau 36M CSOD SEATS BY MARKET SEGMENT BY GEOGRAPHY ADDRESSABLE MARKET 150M ENTERPRISE 150M MID MARKET 100M SMB 155M NORTH AMERICA 32M LATIN AMERICA 139M EUROPE, MIDDLE EAST & AFRICA 74M ASIA PACIFIC The Market is HUGE 13
Cornerstone 7.6% SAP 7.1% Oracle 4.5% IBM 3.5% Workday 3.3% ADP 3.2% Saba Halogen 3.2% iCIMS 2.4% SumTotal; People Fluent 2.2% Ultimate 0.9% Other 59.9% Talent Management Market Remains Highly Fragmented 14 Talent Management Market Share (2017) Source: IDC Corporation, company estimates 14
7.1% 4.5% 3.2% 2.2% 3.2% 2013 2014 2015 2016 2017 Cornerstone Continues to Gain Market Share 15Source: Industry analysts, market research, Cornerstone estimates. Talent management includes learning, recruiting, and performance management software Talent Management Market Share 2013-2017 5.5% 7.6%
16 Installed Base Opportunity Four Key Pillars, each a suite, and half of it GREENFIELD 0 500 1,000 1,500 2,000 2,500 3,000 3,500 Learning Performance Recruiting Cornerstone HR Existing Client Penetration Client Opportunity NumberofClients 60% penetration among other suites results in incremental $600M+ ARR opportunity Calculated based on 3,280 clients with approximately 11,000 users on average
Cornerstone is Gaining Traction in HCM Fosway 9-Grid for Cloud HCM Source: Fosway (October 2017) Advanced into the CORE CHALLENGER position in the October 2017 Fosway 9-Grid, progressing from last year’s position as a POTENTIAL CHALLENGER PERFORMANCE POTENTIAL Potential Leader Potential Challenger Potential Performer Strategic Challenger Core Challenger Solid Performer Strategic Leader Core Leader Poor Performer ‘Oct. 2017 ‘Oct. 2016 17
Cornerstone HR’s Impact on Deals in EMEA 18*EMEA deals from 2016-2017 Average deal values converted from local currency to USD Average Suites Purchased Average RPU 1.7 3.5 Without Cornerstone HR With Cornerstone HR ~$20 ~$60 Without Cornerstone HR With Cornerstone HR • In the past two years, EMEA has seen that clients purchasing Cornerstone HR buy ~2x more product suites on average • Inclusion of Cornerstone HR also significantly increased RPUs by ~3x on average
19 Cornerstone 2.0: Our Strategic Plan
Focus on recurring revenue and exit enterprise service delivery Improve operating margins and cash flows Create new recurring revenue streams, including aggressively entering the content market Bolster the team Improve governance Cornerstone 2.0 20 1 2 3 4 5 2.0
21 Activating Our Partner Ecosystem 2.0 1
3% 2% 6% 5% 4% 9% 2012 2013 2014 2015 2016 2017 22 Improving Operating Leverage Unlevered Free Cash Flow -13% -5% -4% -4% 2% 6% 2012 2013 2014 2015 2016 2017 Non-GAAP Operating Margin 2.0 2
23 3-10x Content Anytime RPU of Learning 100% Size of Content Opportunity Overall Relative to Learning ~$225M ARR Opportunity Today* What We’ve Seen Relative Opportunity Today’s ARR Opportunity Content at Scale Sizing the Content Opportunity for Cornerstone *Based on Learning ARR as of 12/31/2017 2.0 3
Half of the Executive Leadership Team is New in 2018 New Additions • Hired Jeff Lautenbach as President of Global Field Operations • Hired Adrianna Burrows as Chief Marketing Officer • Hired Chris Wheaton as VP of Field Operations • Hired Jennifer Gianola as VP of Investor Relations Exits • Kirsten Helvey, COO • Dave Carter, Chief Sales Officer • Frank Ricciardi, GM of Asia Pacific • Matt Gahr, VP Sales Bolstering the Team 24 2.0 4
• Added three new directors in 2017 • Nominated three new directors for election at the 2018 Annual Meeting (Elisa Steele, Richard Haddrill, Marcus Ryu) • If the new directors are elected, the majority of the board will have joined in the last two years • Appointing a new, independent chair in 2018 (Elisa Steele) • June 2018 shareholder vote to declassify the board, beginning in 2019 Improving Governance 25 2.0 5
26 Financial & Operating Results
27 1. Billings 2. Revenue 3. Operating Profit 4. Free Cash Flow How Best to Measure Our Progress as we Execute on Our Strategic Plan… Our historical key financial measures have been: Going forward we believe the key metrics will be: 1. ARR 2. Subscription Revenue 3. Operating Profit 4. Unlevered Free Cash Flow
28 A Decade of Strong Growth Across All Metrics 168 280 481 805 1,237 1,631 2,153 2,595 2,918 3,250 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Client Growth $19.6 $29.3 $46.6 $75.5 $117.9 $185.1 $263.6 $339.7 $423.1 $482.0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Revenue Growth (in millions) 2.1 3.3 4.9 7.5 10.6 14.0 18.1 23.8 29.9 35.3 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 User Growth (in millions) Note: User and client count figures exclude PiiQ and Cornerstone for Salesforce.
29 2017 – 2018 Revenue Transition Expected revenue impact of sun-setting services $397 $453 - $461 $85 $50 $0 $100 $200 $300 $400 $500 $600 2017 2018E Subscription Revenue Services Revenue Total Revenue Note: 2018 estimates are on an ASC 606 basis. (in millions)
A Clear Path to Operating Margin Expansion Cost-cuts already made will drive operating margin expansion 2017 Adjustments 2018E Revenue $482M $503 - $511M 2017 Expenses $455M - Expense cuts announced 12/2017 -$25M + Incremental Expenses $19M = 2018 Expenses $449M Operating Profit $27M $54 - $62M Operating Margin 6% 11 -12% Note: 2018 estimates are on an ASC 606 basis. Under ASC 605, operating income is $53 - $61M and margin is 11-12%. 30
31 Continued Improvement in Operating Leverage 4% 9% 10% - 12% 2016 2017 2018E $52M - $60M Unlevered Free Cash Flow 2% 6% 11% - 12% 2016 2017 2018E Non-GAAP Operating Margin $54M - $62M Nearly DOUBLES expected profitability from 2017 Note: 2018 estimates are on an ASC 606 basis. Under ASC 605, operating income is $53 - $61M and margin is 11-12%.
2020 Growth/Profitability Framework 32 2020 Framework FY17 Actual FY18 Guidance Low Growth Moderate Growth High Growth Subscription Revenue Growth 16.8% 14-16% < 10% 10 - 20% 20 - 30% Non-GAAP Operating Margin 5.6% 11-12% 30%+ 18 - 28% 12 - 22% Unlevered Free Cash Flow Margin 9.1% 10-12% 30%+ 20 - 30% 15 - 25% 2020 ‘Moderate Growth’ Target Assumes ~$150M in uFCF and ~$2.00 Per Share Note: 2018 estimates are on an ASC 606 basis. FY18 guidance updated as of May 8, 2018
33 Investment Summary Organically-developed, best-of-breed SaaS platform • Huge, untapped market opportunity • Industry-leading customer retention • Highly scalable business • Strong client economics • Top line growth with significant profitability improvement A leader in human capital management
Dominate the Learning Market Cornerstone’s Path to Success 34 1 34 Re-establish our Leadership in Talent Management Emerge as a Global Human Capital Management Player Only holistic “learning platform” in the market Deepest functionality in the market Transformation without the cost Note: Learning platform includes Learning Management System Plus Learning Experience Platform Lea rning Experience (LEP) Lea rning Ma na gement (LMS) Modern Content 2 3
35 Appendix
Prior 2018 Guidance (606) Current 2018 Guidance (606) Net Change at the Midpoint FX Impact Operational Impact ARR* Growth $475 - $495 8-13% $477 - $495 9-13% +$1 N/A** +$1 Total Revenue Growth $497 - $507 3-5% / 1-3% CC $503 - $511 4-6% / 3-4% CC +$5 ($3) +$8 Subscription Revenue Growth $453 - $463 14-17% / 12-14% CC $453 - $461 14-16% / 12-14% CC ($1) ($3) +$2 Professional Consulting Services Revenue Down ~50% Down ~40% N/A N/A N/A Operating Profit* Margin $52 - $62 10-12% $54 - $62 11-12% +$1 N/A +$1 Unlevered Free Cash Flow* Margin $50 - $60 10-12% $52 - $60 10-12% +$1 N/A +$1 Summary of Changes to Full Year Guidance Note: Reflects guidance issued as of May 8, 2018. Please refer to the earnings press release for Q2 2018 and FY 2018 guidance. *Denotes a non-GAAP metric. **Assumes GBP to USD of 1.36, down from 1.40 and EUR to USD of 1.20, down from 1.24 for all metrics other than ARR. For ARR, current guidance reflects the current FX rates, which were similar to the 12/31/17 rates. 36 Net Change at the Midpoint = FX Impact + Operational Impact (Dollars in millions)
2017 Actual (605) 2018 Guidance (605) 2018 Guidance (606) ARR* Growth $439 N/A $477 - $495 9-13% Total Revenue Growth $482 $503 - $511 4-6% / 3-4% CC $503 - $511 4-6% / 3-4% CC Subscription Revenue Growth $397 $459 - $467 16 – 18% / 14 – 16% CC $453 - $461 14-16% / 12-14% CC Professional Consulting Services Revenue $85 Down ~45% Down ~40% Operating Profit* Margin $27 6% $53 - $61 11-12% $54 - $62 11-12% Unlevered Free Cash Flow* Margin $44 9% N/A $52 - $60 10-12% 2018 Guidance (605 and 606) Note: Reflects guidance issued as of May 8, 2018. Please refer to the earnings press release for Q2 2018 and FY 2018 guidance. *Denotes a non-GAAP metric. ** Net Interest Expense is Gross Interest Expense less Interest Income 37 OTHER: 1. GBP to USD of 1.36 EUR to USD to 1.20 2. 5% FX Δ = $7 ARR / $3 Revenue 3. Total Non-GAAP S&M dollars down YOY 4. Net Interest Expense**: 1. GAAP $25 2. Non-GAAP $16 5. Cash Interest Paid $14 6. Shares outstanding to increase from 58M to 64M when EPS is positive. 7. Operating margin and uFCF margin percentages could vary depending on the pace of services roll-off 8. Income tax expense ~$3 9. Capex 3-4% of revenue (Dollars in millions)
Q2 2017 Actual (605) Q2 2018 Guidance (605) Q2 2018 Guidance (606) Total Revenue Growth $117 $127 - $129 9-11% / 7-9% CC $127 - $129 9-11% / 7 - 9% CC Subscription Revenue Growth $97 $112 - $114 16 - 18% / 14 – 16% CC $111 - $113 15-17% / 13 - 15% CC Professional Consulting Services Revenue $20 Down ~25% Down ~20% Operating Profit* Margin $1 Low single digit decline from Q1 2018 of $12 Low single digit decline from Q1 2018 of $13 Unlevered Free Cash Flow* Margin ($5) N/A Down slightly from Q1 2018 of ($10) Q2 2018 Guidance (605 and 606) 38 OTHER: 1. GBP to USD of 1.36 EUR to USD to 1.20 2. Q2 gross margin similar to Q1 and will significantly improve on a YOY basis in 2H18 3. Q2 operating margin expected to be the low point for the year given our annual Convergence conference results in a seasonal increase to marketing expenses 4. Net Interest Expense**: 1. GAAP $8 2. Non-GAAP $5 5. No Cash Interest Paid Note: Reflects guidance issued as of May 8, 2018. Please refer to the earnings press release for Q2 2018 and FY 2018 guidance. *Denotes a non-GAAP metric. ** Net Interest Expense is Gross Interest Expense less Interest Income (Dollars in millions)
GAAP to Non-GAAP Reconciliation 39 Q1'17 Q2'17 Q3'17 Q4'17 Q1'18 FY16 FY17 Loss from operations (13,148) (18,568) (12,104) (5,436) (8,846) (56,342) (49,256) Less: Stock-based compensation 15,849 17,598 17,582 14,801 14,043 54,699 65,830 Less: Amortization of intangible assets 2,217 2,217 2,206 781 - 9,290 7,421 Less: Write-off of capitalized software - - - 1,339 - - 1,339 Less: Restructuring - - - 1,539 7,725 - 1,539 Non-GAAP operating (loss) income 4,918 1,247 7,684 13,024 12,922 7,647 26,873 Operating margin (11.8%) (15.9%) (9.9%) (4.1%) (6.6%) (13.3%) (10.2%) Non-GAAP operating (loss) income margin 4.4% 1.1% 6.3% 9.9% 9.7% 1.8% 5.6% Net cash (used in) provided by operating activities (7,235) 1,624 21,538 51,583 (4,580) 35,252 67,510 Capital expenditures (2,698) (1,042) (2,942) (418) (2,559) (6,228) (7,100) Capitalized software costs (5,756) (5,606) (4,464) (4,745) (6,039) (16,409) (20,571) Cash paid for interest 1,898 - 1,943 - 3,000 3,796 3,841 Unlevered free cash flow (13,791) (5,024) 16,075 46,420 (10,178) 16,411 43,680 Unlevered free cash flow margin (12.4%) (4.3%) 13.2% 35.2% (7.6%) 3.9% 9.1% FY 2017 FY 2018 Full Year RECONCILIATION OF OPERATING LOSS AND OPERATING MARGIN TO NON-GAAP OPERATING (LOSS) INCOME AND NON-GAAP OPERATING MARGIN: RECONCILIATION OF NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES TO UNLEVERED FREE CASH FLOW AND UNLEVERED FREE CASH FLOW MARGIN
Human Capital Management 40

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Csod investor deck q1 2018 final

  • 1.
    As of May8, 2018 Global Leader in Cloud-Based Learning and HCM NASDAQ: CSOD
  • 2.
    This presentation includesforward-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 2
  • 3.
  • 4.
    4 Global Leader inCloud-Based Learning and HCM Background • Founded in 1999 • IPO on March 17, 2011 • NASDAQ: CSOD • 1,800+ Employees • 3,250+ Clients • FY17 Revenue: $482 Million Performance • World’s #1 Talent Management Suite • 36 Million Users • Named by Gartner as the Magic Quadrant Leader in Talent Management Suites for Four Consecutive Years • Advanced Position to Core Challenger in the Fosway 9-Grid for Cloud Human Capital Management (HCM) Marquee Clients Around The Globe Source: Gartner, Inc., “Magic Quadrant for Talent Management Suites” as of February 28, 2017.
  • 5.
    5 A Decade ofSustained Revenue Growth $19.6 $29.3 $46.6 $75.5 $117.9 $185.1 $263.6 $339.7 $423.1 $482.0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Revenue Growth (in millions) IPO
  • 6.
    6 CLIENTS 3,250+ USERS 36M COUNTRIES 192 LANGUAGES 43 OFFICES 17 Cornerstone Has GlobalScale Santa Monica Sunnyvale Sao Paulo Madrid Paris London Amsterdam Stockholm Dusseldorf Munich Tel Aviv Bangalore Mumbai Tokyo Sydney Auckland Note: User and client count figures exclude PiiQ and Cornerstone for Salesforce.As of March 31, 2018 Hong Kong
  • 7.
    7 Marquee Clients Aroundthe World APJUS & LATAM EMEA 7
  • 8.
    Magic Quadrant forTalent Management Suites Source: Gartner (February 2017) NICHE PLAYERS VISIONARIES CHALLENGERS LEADERS COMPLETENESS OF VISION ABILITYTOEXECUTE Technomedia Haufe SumTotal Halogen Software Saba Oracle (Talent Management Cloud) SAP (SuccessFactors) Talentsoft Cornerstone is the Market Leader in Talent Management 8
  • 9.
  • 10.
    The Market Needis Real 10 Nuha Masri | 11. 7. 2017 4 Ways Technology Will Shape the Future of Work by 2020 Alexandra Gibbs | 10. 27. 2017 Why Taking Care of the ‘Human-Capital’ of Your Employees is Vital Denise Lee Yohn| 1. 2. 2018 2018 Will Be the Year of Employee Experience Melissa Lamson| 3. 13. 2018 8 Ways to Create a Corporate Learning Culture Tony Schwartz | 3. 7. 2018 Create a Growth Culture, Not a Performance- Obsessed One
  • 11.
    11 BlackRock views eachcompany’s approach to HCM as an investment issue and a factor in business continuity and success. In light of evolving market trends like shortages of skilled labor, uneven wage growth, and technology that is transforming the labor market, many companies and investors consider robust HCM a competitive advantage. -Larry Fink, BlackRock “ ” Human Capital Management has a Positive Correlation to Total Shareholder Return Source: Logos and names are property of the respective company.
  • 12.
    12 Talent is theCompetitive Advantage That Will Define the Winners & Losers of the 21st Century Success in business is all about people, people, people. Whatever industry a company is in, its employees are its biggest competitive advantage. -Richard Branson “ ” Source: Logos and names are property of the respective company.
  • 13.
    400M ADDRESSABLE SEATS Source: Cornerstone estimates,adapted from IDC, US Census Bureau 36M CSOD SEATS BY MARKET SEGMENT BY GEOGRAPHY ADDRESSABLE MARKET 150M ENTERPRISE 150M MID MARKET 100M SMB 155M NORTH AMERICA 32M LATIN AMERICA 139M EUROPE, MIDDLE EAST & AFRICA 74M ASIA PACIFIC The Market is HUGE 13
  • 14.
    Cornerstone 7.6% SAP 7.1% Oracle 4.5% IBM 3.5% Workday 3.3% ADP 3.2% Saba Halogen 3.2% iCIMS 2.4% SumTotal; People Fluent 2.2% Ultimate 0.9% Other 59.9% TalentManagement Market Remains Highly Fragmented 14 Talent Management Market Share (2017) Source: IDC Corporation, company estimates 14
  • 15.
    7.1% 4.5% 3.2% 2.2% 3.2% 2013 2014 20152016 2017 Cornerstone Continues to Gain Market Share 15Source: Industry analysts, market research, Cornerstone estimates. Talent management includes learning, recruiting, and performance management software Talent Management Market Share 2013-2017 5.5% 7.6%
  • 16.
    16 Installed Base Opportunity FourKey Pillars, each a suite, and half of it GREENFIELD 0 500 1,000 1,500 2,000 2,500 3,000 3,500 Learning Performance Recruiting Cornerstone HR Existing Client Penetration Client Opportunity NumberofClients 60% penetration among other suites results in incremental $600M+ ARR opportunity Calculated based on 3,280 clients with approximately 11,000 users on average
  • 17.
    Cornerstone is GainingTraction in HCM Fosway 9-Grid for Cloud HCM Source: Fosway (October 2017) Advanced into the CORE CHALLENGER position in the October 2017 Fosway 9-Grid, progressing from last year’s position as a POTENTIAL CHALLENGER PERFORMANCE POTENTIAL Potential Leader Potential Challenger Potential Performer Strategic Challenger Core Challenger Solid Performer Strategic Leader Core Leader Poor Performer ‘Oct. 2017 ‘Oct. 2016 17
  • 18.
    Cornerstone HR’s Impacton Deals in EMEA 18*EMEA deals from 2016-2017 Average deal values converted from local currency to USD Average Suites Purchased Average RPU 1.7 3.5 Without Cornerstone HR With Cornerstone HR ~$20 ~$60 Without Cornerstone HR With Cornerstone HR • In the past two years, EMEA has seen that clients purchasing Cornerstone HR buy ~2x more product suites on average • Inclusion of Cornerstone HR also significantly increased RPUs by ~3x on average
  • 19.
  • 20.
    Focus on recurringrevenue and exit enterprise service delivery Improve operating margins and cash flows Create new recurring revenue streams, including aggressively entering the content market Bolster the team Improve governance Cornerstone 2.0 20 1 2 3 4 5 2.0
  • 21.
  • 22.
    3% 2% 6% 5% 4% 9% 2012 20132014 2015 2016 2017 22 Improving Operating Leverage Unlevered Free Cash Flow -13% -5% -4% -4% 2% 6% 2012 2013 2014 2015 2016 2017 Non-GAAP Operating Margin 2.0 2
  • 23.
    23 3-10x Content Anytime RPU ofLearning 100% Size of Content Opportunity Overall Relative to Learning ~$225M ARR Opportunity Today* What We’ve Seen Relative Opportunity Today’s ARR Opportunity Content at Scale Sizing the Content Opportunity for Cornerstone *Based on Learning ARR as of 12/31/2017 2.0 3
  • 24.
    Half of theExecutive Leadership Team is New in 2018 New Additions • Hired Jeff Lautenbach as President of Global Field Operations • Hired Adrianna Burrows as Chief Marketing Officer • Hired Chris Wheaton as VP of Field Operations • Hired Jennifer Gianola as VP of Investor Relations Exits • Kirsten Helvey, COO • Dave Carter, Chief Sales Officer • Frank Ricciardi, GM of Asia Pacific • Matt Gahr, VP Sales Bolstering the Team 24 2.0 4
  • 25.
    • Added threenew directors in 2017 • Nominated three new directors for election at the 2018 Annual Meeting (Elisa Steele, Richard Haddrill, Marcus Ryu) • If the new directors are elected, the majority of the board will have joined in the last two years • Appointing a new, independent chair in 2018 (Elisa Steele) • June 2018 shareholder vote to declassify the board, beginning in 2019 Improving Governance 25 2.0 5
  • 26.
  • 27.
    27 1. Billings 2. Revenue 3.Operating Profit 4. Free Cash Flow How Best to Measure Our Progress as we Execute on Our Strategic Plan… Our historical key financial measures have been: Going forward we believe the key metrics will be: 1. ARR 2. Subscription Revenue 3. Operating Profit 4. Unlevered Free Cash Flow
  • 28.
    28 A Decade ofStrong Growth Across All Metrics 168 280 481 805 1,237 1,631 2,153 2,595 2,918 3,250 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Client Growth $19.6 $29.3 $46.6 $75.5 $117.9 $185.1 $263.6 $339.7 $423.1 $482.0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Revenue Growth (in millions) 2.1 3.3 4.9 7.5 10.6 14.0 18.1 23.8 29.9 35.3 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 User Growth (in millions) Note: User and client count figures exclude PiiQ and Cornerstone for Salesforce.
  • 29.
    29 2017 – 2018Revenue Transition Expected revenue impact of sun-setting services $397 $453 - $461 $85 $50 $0 $100 $200 $300 $400 $500 $600 2017 2018E Subscription Revenue Services Revenue Total Revenue Note: 2018 estimates are on an ASC 606 basis. (in millions)
  • 30.
    A Clear Pathto Operating Margin Expansion Cost-cuts already made will drive operating margin expansion 2017 Adjustments 2018E Revenue $482M $503 - $511M 2017 Expenses $455M - Expense cuts announced 12/2017 -$25M + Incremental Expenses $19M = 2018 Expenses $449M Operating Profit $27M $54 - $62M Operating Margin 6% 11 -12% Note: 2018 estimates are on an ASC 606 basis. Under ASC 605, operating income is $53 - $61M and margin is 11-12%. 30
  • 31.
    31 Continued Improvement inOperating Leverage 4% 9% 10% - 12% 2016 2017 2018E $52M - $60M Unlevered Free Cash Flow 2% 6% 11% - 12% 2016 2017 2018E Non-GAAP Operating Margin $54M - $62M Nearly DOUBLES expected profitability from 2017 Note: 2018 estimates are on an ASC 606 basis. Under ASC 605, operating income is $53 - $61M and margin is 11-12%.
  • 32.
    2020 Growth/Profitability Framework 32 2020Framework FY17 Actual FY18 Guidance Low Growth Moderate Growth High Growth Subscription Revenue Growth 16.8% 14-16% < 10% 10 - 20% 20 - 30% Non-GAAP Operating Margin 5.6% 11-12% 30%+ 18 - 28% 12 - 22% Unlevered Free Cash Flow Margin 9.1% 10-12% 30%+ 20 - 30% 15 - 25% 2020 ‘Moderate Growth’ Target Assumes ~$150M in uFCF and ~$2.00 Per Share Note: 2018 estimates are on an ASC 606 basis. FY18 guidance updated as of May 8, 2018
  • 33.
    33 Investment Summary Organically-developed, best-of-breedSaaS platform • Huge, untapped market opportunity • Industry-leading customer retention • Highly scalable business • Strong client economics • Top line growth with significant profitability improvement A leader in human capital management
  • 34.
    Dominate the Learning Market Cornerstone’sPath to Success 34 1 34 Re-establish our Leadership in Talent Management Emerge as a Global Human Capital Management Player Only holistic “learning platform” in the market Deepest functionality in the market Transformation without the cost Note: Learning platform includes Learning Management System Plus Learning Experience Platform Lea rning Experience (LEP) Lea rning Ma na gement (LMS) Modern Content 2 3
  • 35.
  • 36.
    Prior 2018 Guidance (606) Current 2018 Guidance (606) NetChange at the Midpoint FX Impact Operational Impact ARR* Growth $475 - $495 8-13% $477 - $495 9-13% +$1 N/A** +$1 Total Revenue Growth $497 - $507 3-5% / 1-3% CC $503 - $511 4-6% / 3-4% CC +$5 ($3) +$8 Subscription Revenue Growth $453 - $463 14-17% / 12-14% CC $453 - $461 14-16% / 12-14% CC ($1) ($3) +$2 Professional Consulting Services Revenue Down ~50% Down ~40% N/A N/A N/A Operating Profit* Margin $52 - $62 10-12% $54 - $62 11-12% +$1 N/A +$1 Unlevered Free Cash Flow* Margin $50 - $60 10-12% $52 - $60 10-12% +$1 N/A +$1 Summary of Changes to Full Year Guidance Note: Reflects guidance issued as of May 8, 2018. Please refer to the earnings press release for Q2 2018 and FY 2018 guidance. *Denotes a non-GAAP metric. **Assumes GBP to USD of 1.36, down from 1.40 and EUR to USD of 1.20, down from 1.24 for all metrics other than ARR. For ARR, current guidance reflects the current FX rates, which were similar to the 12/31/17 rates. 36 Net Change at the Midpoint = FX Impact + Operational Impact (Dollars in millions)
  • 37.
    2017 Actual (605) 2018 Guidance(605) 2018 Guidance (606) ARR* Growth $439 N/A $477 - $495 9-13% Total Revenue Growth $482 $503 - $511 4-6% / 3-4% CC $503 - $511 4-6% / 3-4% CC Subscription Revenue Growth $397 $459 - $467 16 – 18% / 14 – 16% CC $453 - $461 14-16% / 12-14% CC Professional Consulting Services Revenue $85 Down ~45% Down ~40% Operating Profit* Margin $27 6% $53 - $61 11-12% $54 - $62 11-12% Unlevered Free Cash Flow* Margin $44 9% N/A $52 - $60 10-12% 2018 Guidance (605 and 606) Note: Reflects guidance issued as of May 8, 2018. Please refer to the earnings press release for Q2 2018 and FY 2018 guidance. *Denotes a non-GAAP metric. ** Net Interest Expense is Gross Interest Expense less Interest Income 37 OTHER: 1. GBP to USD of 1.36 EUR to USD to 1.20 2. 5% FX Δ = $7 ARR / $3 Revenue 3. Total Non-GAAP S&M dollars down YOY 4. Net Interest Expense**: 1. GAAP $25 2. Non-GAAP $16 5. Cash Interest Paid $14 6. Shares outstanding to increase from 58M to 64M when EPS is positive. 7. Operating margin and uFCF margin percentages could vary depending on the pace of services roll-off 8. Income tax expense ~$3 9. Capex 3-4% of revenue (Dollars in millions)
  • 38.
    Q2 2017 Actual (605) Q22018 Guidance (605) Q2 2018 Guidance (606) Total Revenue Growth $117 $127 - $129 9-11% / 7-9% CC $127 - $129 9-11% / 7 - 9% CC Subscription Revenue Growth $97 $112 - $114 16 - 18% / 14 – 16% CC $111 - $113 15-17% / 13 - 15% CC Professional Consulting Services Revenue $20 Down ~25% Down ~20% Operating Profit* Margin $1 Low single digit decline from Q1 2018 of $12 Low single digit decline from Q1 2018 of $13 Unlevered Free Cash Flow* Margin ($5) N/A Down slightly from Q1 2018 of ($10) Q2 2018 Guidance (605 and 606) 38 OTHER: 1. GBP to USD of 1.36 EUR to USD to 1.20 2. Q2 gross margin similar to Q1 and will significantly improve on a YOY basis in 2H18 3. Q2 operating margin expected to be the low point for the year given our annual Convergence conference results in a seasonal increase to marketing expenses 4. Net Interest Expense**: 1. GAAP $8 2. Non-GAAP $5 5. No Cash Interest Paid Note: Reflects guidance issued as of May 8, 2018. Please refer to the earnings press release for Q2 2018 and FY 2018 guidance. *Denotes a non-GAAP metric. ** Net Interest Expense is Gross Interest Expense less Interest Income (Dollars in millions)
  • 39.
    GAAP to Non-GAAPReconciliation 39 Q1'17 Q2'17 Q3'17 Q4'17 Q1'18 FY16 FY17 Loss from operations (13,148) (18,568) (12,104) (5,436) (8,846) (56,342) (49,256) Less: Stock-based compensation 15,849 17,598 17,582 14,801 14,043 54,699 65,830 Less: Amortization of intangible assets 2,217 2,217 2,206 781 - 9,290 7,421 Less: Write-off of capitalized software - - - 1,339 - - 1,339 Less: Restructuring - - - 1,539 7,725 - 1,539 Non-GAAP operating (loss) income 4,918 1,247 7,684 13,024 12,922 7,647 26,873 Operating margin (11.8%) (15.9%) (9.9%) (4.1%) (6.6%) (13.3%) (10.2%) Non-GAAP operating (loss) income margin 4.4% 1.1% 6.3% 9.9% 9.7% 1.8% 5.6% Net cash (used in) provided by operating activities (7,235) 1,624 21,538 51,583 (4,580) 35,252 67,510 Capital expenditures (2,698) (1,042) (2,942) (418) (2,559) (6,228) (7,100) Capitalized software costs (5,756) (5,606) (4,464) (4,745) (6,039) (16,409) (20,571) Cash paid for interest 1,898 - 1,943 - 3,000 3,796 3,841 Unlevered free cash flow (13,791) (5,024) 16,075 46,420 (10,178) 16,411 43,680 Unlevered free cash flow margin (12.4%) (4.3%) 13.2% 35.2% (7.6%) 3.9% 9.1% FY 2017 FY 2018 Full Year RECONCILIATION OF OPERATING LOSS AND OPERATING MARGIN TO NON-GAAP OPERATING (LOSS) INCOME AND NON-GAAP OPERATING MARGIN: RECONCILIATION OF NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES TO UNLEVERED FREE CASH FLOW AND UNLEVERED FREE CASH FLOW MARGIN
  • 40.

Editor's Notes

  • #9  Cornerstone configurability benefits include (Localization, Assessment Integrations, PreScreening Questions, etc.) The Leadership positioning is validated by all the major analysts…This is liquid selling gold. This same positioning applies to learning…
  • #12 It’s an well-accepted principal that Employees are the source of a Company’s competitive advantage. As a Business, takes on new strategies, objectives, and goals, it’s people must adapt to learn something new or to do what they’ve been doing better in order to achieve the Goal.
  • #13 It’s an well-accepted principal that Employees are the source of a Company’s competitive advantage. As a Business, takes on new strategies, objectives, and goals, it’s people must adapt to learn something new or to do what they’ve been doing better in order to achieve the Goal.
  • #14 Makret opportunity applies to all segmetns and geo’s we have an emerging SMB opportunity, a dedicated mm team, and a revamped enterprise team We are taking share in EMEA, have established a presence in LATAM, Go after JAPAN in a big way and continued focus on NA dedicated on with strategic accounts, enterprise, client cales, mm, and smb dedicated teams
  • #15 As you may know, the talent management market is huge ($6.4 billion according to IDC in 2017) and continues to grow 14% CAGR from 2016-2020. But, it is still highly fragmented. This presents us with a great opportunity to generate meaningful ARR,
  • #16 Cornerstone is the market share leader in Talent Management, recently surpassing SAP SAP’s market share has continued to decline as they have put greater emphasis on selling SuccessFactors Employee Central and competing against Workday Oracle has continued to lose market share due to 1) reducing focus on Taleo applications, 2) focusing on bringing to market new Oracle Cloud HCM applications, 3) a heavy focus on compete against Workday within existing Oracle and Peoplesoft customers Workday has leveraged their strong “anchor” position in Core HR to win non-competitive deals in Talent Management, particularly Recruiting, and grow market share
  • #23 Operating margin and Unlevered Free Cash Flow have become focal points in our story. You can see that we’ve made strong progress towards our stated goals and while 2016 had a cash flow anomaly due to [x], you can see that things are moving in the right direction for the company. * Emphasize Cash Interest for 2018 expected to be $14M. So FCF is $36-46M.
  • #24 We have seen 3-10x RPU for content anytime deals versus learning – realize this is a large range, but this still a new product We think Content could become as large as the learning business, which today is $225M ARR Over time the learning business is growing, so the content business should grow with it At scale, content could be as big as 1/3rd of our overall business
  • #28  Emphasize this is a transition and the new metrics (ARR etc) could revert back to more traditional metrics 9e.g. Billings) after we’re beyond the transition
  • #30 Illustrative example of total revenue in 2018 Expect services to be down 50% YOY, although there is quite a bit of margin of error based on the transition timing Expect Subscription/recurring revenue to be up 14-17% and Total revenue up 3-5% Although large margin of error in services, MOST IMPORTANTLY do not expect any significant impact on Operating Income or FCF
  • #31 Some people have asked us how we plan to achieve such a steep margin ramp from 2017 into 2018. This chart shows that by simply layering in the cost cuts that we announced in December 2017 onto the midpoint of our 2018 revenue target, the 6% operating margin number from 2017 becomes 11% in 2018. Discussion of the difference between operating MARGIN and operating PROFIT Further Expense optimization opportunities: Strategic sourcing Scaling the fixed cost base Cost benchmarking (with Silver Lake) Summary of cuts already made are as follows: $15m: Headcount Reduction $4m: Health Insurance Cost Savings $3m: Marketing Reduction $2m: T&E Savings $500k: Brazil GM moving back to US
  • #35 When I spoke to Adam about CSOD in November he talked to me about CSOD’s path to 500m in rev, 3k plus customers and 30m users We talked about CSOD’s Leadership position and its large tam in a highly fragemented and growing space…I spoke to a number of industry analysts and former colleagues and they validated both of these points. What we didn’t talk about was the team and as I wind down my first quarter here I can tell you we have a talented Sales and sales leadership team complimented by a stron customer success and pre sales technical team I can tell you this fit both what I wanted to do in terms of leading GTM for a category leader as well as an opportunity that fits my skillset perfectly ie…opportunity that needs a combination of growth, optimization and efficiency leadership
  • #37 Same guidance we discussed a month ago on our earnings call Few items I’d like to highlight based on follow-up discussion with many investors ARR growth factors in the items (we discussed earlier) S&M $ down in 2018 vs 2017 Interest expense, the components and the differences--- BLS describe all 3 Margin rates could vary depending on services reduction %’s but overall profit/cash flows $ should not be impacted
  • #38 Same guidance we discussed a month ago on our earnings call Few items I’d like to highlight based on follow-up discussion with many investors ARR growth factors in the items (we discussed earlier) S&M $ down in 2018 vs 2017 Interest expense, the components and the differences--- BLS describe all 3 Margin rates could vary depending on services reduction %’s but overall profit/cash flows $ should not be impacted
  • #39 Similar to the full year guidance, our Q1 guidance is unchanged from our earnings call a month ago Few things I’d be emphasize: Expect GM in Q1 will down YOY due to the heavier outsourcing. Given the announced services transition, we are relying more heavily on our partners to deliver our backlog. Similar to GM, our Operating in Q1 is expected to be only slightly better than the 4.4% in Q1’17 In Q2-Q4 2018 we expect significant sequential expansion of the margin rates as our YOY services revenue declines much more significantly As I mentioned earlier, MOST IMPORTANTLY, we do not expect this to impact Operating Income or FCF dollars
  • #41 We need to stop managing our human capital and start managing our human potential. Cornerstone does this by design and has been successful in transforming organizations into powerful cultures of continuous improvement for over 18 years Animate (Click) ----(more detail for reference)------ To survive the blizzard of change you need A CHOICE, we are walking in new territory, and creating new paths. This is where Cornerstone lives, different by design.