NASDAQ: CSOD
June 4, 2019
2019 Investor/ Analyst Day
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 di ffer 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 serv ice 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 solut ions, 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 effecti ve 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 fil ed 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
Agenda
• Welcome – Jason Gold, VP of Finance and Corporate Development
• Strategic Review – Adam Miller, Founder & CEO
• Exec Interviews – Heidi Spirgi, Mark Goldin and Jeff Lautenbach
• Partner Panel – Deloitte and Alight
• Content Panel – Whil, TED, and Service King
• Financial Overview – Brian Swartz, Chief Financial Officer
3
Adam MillerFounder & CEO
4
Looking Back: The Transformation
5
Focus on recurring revenue and exit enterprise
service delivery
Improve operating margins and cash flows
Create new recurring revenue streams and
aggressively enter the content market
Bolster the team
Improve governance
Transforming Cornerstone
1
2
3
4
5
6
Focus on recurring revenue and exit enterprise
service delivery
Improve operating margins and cash flows
Create new recurring revenue streams and
aggressively enter the content market
Bolster the team
Improve governance
Transforming Cornerstone
✓
✓
✓
✓
✓
7
Key Metrics: The Cornerstone Transformation
$439
$510
$578 - $590
2017 2018 2019E
Annual Recurring Revenue (ARR)
Not e: FY19 Guidance ranges as of M ay 7, 2019.
$482 $538 $562 - $570
2017 2018 2019E
Total Revenue
$397
$473
$537 - $545
2017 2018 2019E
Subscription Revenue
(in millions)
8Not e: A reconciliat ion of non-GAAP met rics used in this presentation to their nearest GAAP equivalent s is provided in t he appendix t o t his presentation.1 – Operat ing CF margin is calculat ed by dividing operat ing cash flow int o total revenue.
-10%
6%
12%14-15%
2017 2018 2019E
Operating Margin
GAAP OM Non-GAAP OM
-1%
14%17%
9%
12%
15-16%
2017 2018 2019E
Cashflow Margin
Operating CF Margin uFCF Margin1
Cornerstone Today
9
Global ReachCLIENTS
3,500+USERS
40M+COUNTRIES
190+LANGUAGES
43OFFICES
22
Sunnyvale
Santa Monica
Sao Paulo
Madrid
Paris
London
Stockholm
DusseldorfMunich
Tel Av iv
Bangalore
Mumbai
Hong 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 March 31, 2019
Salt Lake
City
New York
City San Francisco
Mexico City
10
Marquee Clients Around the WorldAPJUS & LATAM EMEA
11
COMPLETENESS OF VISION
AB
ILIT
Y T
O E
XEC
UTE
CHALLENGERS LEADERS
NICHE PLAYERS VISIONARIES
Cornerstone is the Market Leaderin Talent Management
SOURCE: Gartner 2018 Magic Quadrant for Talent Management Suites(September 2018)
2018 Magic Quadrant for Talent Management Suites
Cegid
Saba (TalentSpace)
Skillsoft (SumTotal Systems)
Saba (Saba Cloud)
Haufe
SAP (SuccessFactors)
Talentsoft
PageUp
12
The Macro Backdrop
13
The
Sk
ills Div
ide
is Re
al
Unskilled Labor
Unskilled JobsSkilled Jobs
Skilled Workers
Recruiters Are Overwhelmed
Average Number
Per Recruiter
40Submitted for the Average
Unskilled Job
250Requisitions Resumes
Many of the 6.5M Americans Looking for Work Today Do Not Possess the Skills Required to Do Most of the 7.6M Unfilled Jobs
Americans Looking for Work
Unfilled Jobs Requiring Skills
6.5M
7.6M
New jobs to be added
557,100
Average number of Computer and information technology graduates per year
40,000
Computer and Information Technology Occupation Projected Growth to 2026
Only 6% of all degrees earned each year are in computer and information technology
Skills Have Become
the New Digital Currency
18
How people consume video
How people consume audio
At the Same Time, Consumer Habits Have Changed
19
Expanding our Moat
20
Modern learning requires a holistic strategy
LearningExperience
(LXP)
LearningManagement
(LMS)
Modern Content
Cornerstone Learning
21
22
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
State of the Art Learning Experience
Highly Curated Collections of Content
Wide Partner Ecosystem
with a variety of modalities,
topics, and titles
Intelligently Curated
Subscriptionsbuilt 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
SubscriptionsIntegrated
with LXP
Content
ConsultantsBest-of-breed
Partners
24
Our Holistic Solution will Distance us from the Competition
25
26
Cornerstone's Second Act:$40 Billion Market Opportunity
$3.6B$6B
$16
$25
Founding to IPO IPO to 2017 2018
Learning Systems Market Full Talent Management HCM Content
~$40B
2018 and Beyond:
Cornerstone Operates in Two Markets
20-Year Start up
Source: Training Industry Report (2017); Company estimates and WW HCM Apps Forecast, IDC WW Tracker, June 2018 Report
Global Corporate Training
$374b
External Training
$100b
Content
$77b
Our Content Topics
$50b
The Global Training Market is Huge
27Source: Training Industry EstimatesOnline Only
$25b
Our Opportunity is Enormous
Learning
520M+2018 Registrations
330M+2018Completions
Online Classes Only
28
With >4,500 Content Producers in North America Alone, the Content Market is Highly Fragmented
29
We Leverage our Massive Set of Aggregated and Anonymized Training Data to Curate
30
We Can See Which Countries Consume Content
31
And What Verticals Consume Content
32
And Which Providers are Popular
33
Data + Content + Scale = Cornerstone is Unique
Right Training
Right Person
Right Time
35
Everybody Wins
• Pre-curated content
• Holistic end-to-end
solution
Content Consumers
• Expanded distribution
• Incremental profit
Content Providers
• More at-bats
• Higher batting average
• More software revenue
Cornerstone
Jo Rossouw, Head of Digital Learning
36
Recruiting
37
Modern Recruiting Requires a Modern Solution
38
Recruiting GrowthThere is growing adoption of the Recruiting Suite
~ 300
~ 500
~ 600
~ 700
~ 800
2014 2015 2016 2017 2018
Recruiting Clients
39
Beyond Learning: Other Incremental Growth Drivers
40
Clear Opportunity to Further Penetrate the Installed Base
41
63%of clients with Learning
& Performancehave not
purchased Recruiting
3,567CSOD Clients
As of 3/31/2019
77%of clients
have not purchased Recruiting
22%of clients with CHR
have not purchased Recruiting
50% penetration in recruiting could drive an incremental $100M in ARR
Asia-Pacific & Japan
Focused on Fewer Markets
43
In mid-2018 we shifted to a more focused go-to-market approach across the APJ region, resulting in deeper levels of investment across fewer major markets
Australia & New Zealand Japan Asia
Singapore (ASEAN)
Hong Kong
South Korea
Increased Localization
44
Due to the differences across APJ markets, we also moved to a more localized approach in mid-2018, appointing leaders who have end-to-end responsibility for our growth in each individual APJ market
Managing Director
Sales Marketing Alliances Client Success
Immediate Results After Changes and Building Momentum
45
Growth in APJ had become stagnant, but after increasing our focus and taking a more localized approach in mid-2018 the results were immediate and momentum is building
40%
51%
0%
15%
30%
45%
60%
TTM June '18 2H '18 1H '19
0%
actual actual estimated
Key GTM Changes
Implemented
Increased
Investment
YoY ARR Growth
Highly Attractive Opportunity in Japan Remains Untapped
46
Large Market Size: Japan is the third-largest economy in the world behind the U.S. and China.
Attractive Market Profile: With more Fortune 2,000 companies than any nation except the U.S., a
significant portion of the Japan market falls in the Enterprise segment where our product has a strong
competitive advantage.
Multiple Precedent SaaS Success Stories: Enterprise cloud adoption is becoming more common in Japan, resulting in numerous SaaS success stories including the following:
$1B+ in ARR and1,300 Employees
$60M+ in ARR In 5 Years
$35M+ in ARR in 3 Years
1 Source: Company estimates
111
Small & Medium Business
Key GTM Changes Made in Mid-2017
48
A number of key go-to-market changes were made in mid-2017 to help us better address the SMB opportunity, resulting in sales productivity improving by more than four times versus the prior year
1.8x
4.3x
0.0x
1.0x
2.0x
3.0x
4.0x
5.0x
1H '17 2H '17
Key GTM Changes
Implemented
YoY Average Sales Productivity Improvement Per Rep
Accelerating Growth in 2019
49
57%
79%
0%
20%
40%
60%
80%
100%
'18 1H '19
After a full year of continued success in 2018 we elected to significantly increase our SMB investment heading into 2019, and as a result, year-over-year growth is accelerating
actual estimated
YoY ARR Growth
Highly Efficient Sales Approach
50
As we continue to grow aggressively down market, we are doing so more cost effectively with inside sales
BUSINESS DEVELOPMENT
RESOURCES
SOLUTION CONSULTANTS
RFP SUPPORT TRAVEL
Questions?
51
Panel Discussions
52
Executive Interviews
53
Jeff Lautenbach
President,
Global Field Operations
Heidi Spirgi
Chief Marketing
& Strategy Officer
Mark Goldin
Chief Technology Officer
Partner Panel
54
President of Global Field Operations
Jeff Lautenbach
MODERATOR
Senior Manager
Jason Magill
Vice President
Ernie Cambareri
Content Panel
55
Director, Learning & Development
Rachel Blackman
Vice President, Content Services
Josh Schwede
Founder & CEO
Joe Burton
Director, Global Distribut ion & Licensing
Alex Hofman
Vice President, Finance & Corporate Development
Jason Gold
MODERATOR
Brian SwartzChief Financial Officer
56
57
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
12% GROWTH
HCM – $16B 10%GROWTH
58
Content Economics
Content Subscription Margins
Content
Gross Revenue
50%
50% CSOD
Content
Providers
25%+OPERATING
MARGIN
59
Revenue Growth - Subscription vs. Services
$83 $85 $65 $25
$340
$397
$473
$0
$100
$200
$300
$400
$500
$600
2016 2017 2018 2019E
Subscription Revenue Growth vs. Total Revenue Growth
Subscription Revenue
$562-$570
$537-$545
(in millions)
$423
$482
$538
ServicesReflects guidance giv en May 7, 2019
60
Quarterly Services Revenue Trend (on purpose)
(in millions)
$18.7 $20.2 $20.7
$25.7
$20.0 $17.7
$15.2
$11.9
$8.9
$-
$5.0
$10.0
$15.0
$20.0
$25.0
$30.0
Q1 '17 Q2 '17 Q3 '17 Q4 '17 Q1 '18 Q2 '18 Q3 '18 Q4 '18 Q1 '19
61
Quarterly Subscription Revenue Growth(in millions)
$92.9 $96.4
$101.1 $106.3
$113.1 $114.8 $118.8
$126.3 $131.3
0%
5%
10%
15%
20%
25%
$-
$20
$40
$60
$80
$100
$120
$140
Q1 '17 Q2 '17 Q3 '17 Q4 '17 Q1 '18 Q2 '18 Q3 '18 Q4 '18 Q1 '19
Subscription Revenue YOY Growth - Subscription YOY Growth - Subscription CC
Note: Bar sizes are representative only and should not be used to estimate actual values
Starting ARR Currency ARR Churn New ARR fromExisting Customers
New ARR from NewCustomers
Ending ARR
How ARR MovesIllustrative Year-over-Year Bridge
62
63
How ARR Impacts Subscription Revenue
EXAMPLE: $1M DEAL
Jan 1 July 1 Dec 30
ARR = $1M
Full Yr Rev = $1M
ARR = $1M
Full Yr Rev = $0.5M
ARR = $1M
Full Yr Rev = $5K
64
Improving Operating Leverage
-14%
-5% -4% -4%
2%
6%
12%
14% - 15%
2012 2013 2014 2015 2016 2017 2018 2019E
Non-GAAP Operating Margin
$78M - $85M
1 Reflects guidance giv en May 7, 2019. A reconciliation of non-GAAP metrics used in this presentation to their nearest GAAP equivalents is prov ided in the appendix to this presentation
1
65
Improving Operating Leverage
3%2%
6%5%
4%
9%
12%
15% - 16%
2012 2013 2014 2015 2016 2017 2018 2019E
Unlevered Free Cash Flow $84M - $92M
1 Reflects guidance giv en May 7, 2019. A reconciliation of non-GAAP metrics used in this presentation to their nearest GAAP equivalents is prov ided in the appendix to this presentation
1
UNLEVERED FCF
Operating Cash flow
Capitalized Software
and Capex
Cash Interest
Unlevered Free
Cash Flow
-
+
Normalized 2019 uFCF
66
15-16%Margin
17-18%Margin
~1%
~1%
(in millions)
67
Operational Excellence Initiatives
1. Optimize S&M to improve productivity
2. Allocate new hires to lower-cost offices
3. Increase back-office automation
4. Optimize partner management
5. Migrate to the public cloud
6. Continue shift to recurring revenue
2018 Actual 2019 Guidance(1)
ARR(1)
Growth$510 $578 - $590
13-16% / 14-16% CC
Total RevenueGrowth
$538 $562 - $5704-6% / 5-7% CC
Subscription RevenueGrowth
$473 $537 - $54514-15% / 14-16% CC
Professional Services
Revenue$65 Down ~60%
Non-GAAP Operating
Profit(2)
Margin
$6312%
$78 - $8514-15%
Unlevered
Free Cash Flow(2)
Margin
$6412%
$84 - $9215-16%
2019 Guidance
OTHER:1. GBP to USD 1.32
EUR to USD 1.12
2. 5% FX Δ = $5 ARR / $6 Revenue
3. Net Interest Expense(3):• GAAP $15• Non-GAAP $11
4. Cash Interest Paid $17
5. Shares outstanding increases from 60M to 66M when Net Income is
posit ive
6. Income tax expense $3M
7. SBC as % of revenue ~13%, versus
prior year of 11%
8. Capex ~4% of revenue
(Dollars in millions)
Notes:
1. Reflects guidance issued as of May 7, 2019.2. Denotes a non-GAAP metric3. Net Interest Expense is Gross Interest Expense less Interest Income 68
A reconciliation of non-GAAP metrics used in this presentation to their nearest GAAP equiv alents is prov ided in the appendix to this presentation
Q2 2018 Actual Q2 2019 Guidance(1)
Total RevenueGrowth
$133 $137 - $1403-6% / 5-7% CC
Subscription RevenueGrowth
$115 $131 - $13314-16% / 15-17% CC
Professional Consulting
Services Revenue$18 Down ~60%
Non- GAAP Operating
Profit(2)
Margin
$1310%
Operating Margin in low
double-digits
Unlevered Free Cash Flow(2)
Margin
$86%
uFCF Margin in mid
single-digits
Q2 2019 Guidance
OTHER:1. GBP to USD 1.32
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 posit ive
4. Capex primarily in 1H for tenant improvement build-
outs
(Dollars in millions)
Note:
1. Reflects guidance issued as of May 7, 20192. Denotes a non-GAAP metric3. Net Interest Expense is Gross Interest Expense less Interest Income
69
A reconciliation of non-GAAP metrics used in this presentation to their nearest GAAP equiv alents is prov ided in the appendix to this presentation
2020 Growth vs Profitability Framework
Note: FY19 guidance updated as of May 7, 2019. A reconciliation of non-GAAP metrics used in this presentation to their nearest GAAP equivalents is provided in the appendix to this presentation 70
2020 Framework
FY18Actual
FY19Guidance
LowGrowth
Moderate Growth
HighGrowth
Subscription Revenue
Growth19% 14-15% < 10% 10 - 20% 21 - 30%
Non-GAAP Operating
Margin 12% 14-15% 30%+ 18 - 28% 12 - 22%
Unlevered Free Cash
Flow Margin12% 15-16% 30%+ 20 - 30% 15 - 25%
2020 ‘Moderate Growth’ Target Assumes ~$150M in uFCF and ~$2.00 Per Share
71
2020 and Beyond
Targeting rule of 40 in 2020
…but it’s not our final
destination. We see a path to
the mid-40s in the coming years.
Questions?
72
Thank You!
Appendix
74
75
76
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