Cornerstone OnDemand Announces Fourth Quarter and Fiscal Year 2018 Financial Results

Human capital management software provider Cornerstone OnDemand, Inc. CSOD today announced results¹ for its fourth quarter and year ended December 31, 2018. The Company has provided a quarterly shareholder letter and supplemental financial information located on its Investor Relations website at http://investors.cornerstoneondemand.com.

"2018 was a transformational year for Cornerstone, and we are proud of our results," said Adam Miller, founder and CEO of Cornerstone. "The changes we made to our business in 2018 delivered innovative products, more recurring revenue, more profits and healthy, growing cash flow to benefit our clients, partners, employees and shareholders."

Adoption of the New Revenue Recognition Standard - ASC 606:

The Company adopted the new revenue recognition accounting standard Accounting Standards Codification ("ASC") 606 effective January 1, 2018 on a modified retrospective basis. Financial results for reporting periods during 2018 are presented in compliance with the new revenue recognition standard. Historical financial results for reporting periods prior to 2018 are presented in conformity with amounts previously disclosed under the prior revenue recognition standard ASC 605. This press release includes additional information to reconcile the impacts of the adoption of the new revenue recognition standard on the Company's financial results for the quarter ended December 31, 2018, which includes the presentation of financial results during 2018 under ASC 605 for comparison to the prior year.

Fourth Quarter 2018 Results - ASC 606 (standard adopted effective January 1, 2018):

• Revenue for the fourth quarter of 2018 was $138.2 million compared to a guided range of $128.0 million to $131.0 million.²
• Subscription revenue for the fourth quarter of 2018 was $126.3 million compared to a guided range of $119.0 million to $122.0 million.²
• Operating income for the fourth quarter of 2018 was $2.6 million, yielding a margin of 1.9%.
• Non-GAAP operating income for the fourth quarter of 2018 was $19.4 million, yielding a margin of 14.1%.²
• Net loss for the fourth quarter of 2018 was $(3.2) million, or a $(0.05) diluted net loss per share.
• Non-GAAP net income for the fourth quarter of 2018 was $15.4 million, or a $0.24 diluted net income per share.
• Unlevered free cash flow for the fourth quarter of 2018 was $33.7 million, yielding a margin of 24.4%, compared to $46.4 million, yielding a margin of 35.2%, in the prior year.

Fourth Quarter 2018 Results - ASC 605:

• Revenue for the fourth quarter of 2018 was $137.9 million, representing a 4.5% increase compared to the prior year. Revenue growth on a constant currency basis was 5.8%.
• Subscription revenue for the fourth quarter of 2018 was $127.5 million, representing a 20.0% increase compared to the prior year. Subscription revenue growth on a constant currency basis was 21.4%.
• Operating income for the fourth quarter of 2018 was $2.3 million, yielding a margin of 1.6%, compared to $(5.4) million, yielding a margin of (4.1)%, in the prior year.
• Non-GAAP operating income for the fourth quarter of 2018 was $19.1 million, yielding a margin of 13.9%, compared to $13.0 million, yielding a margin of 9.9%, in the prior year.
• Net loss for the fourth quarter of 2018 was $(3.5) million, or a $(0.06) diluted net loss per share, compared to a net loss of $(9.0) million, or a $(0.16) diluted net loss per share, in the prior year.
• Non-GAAP net income for the fourth quarter of 2018 was $15.1 million, or a $0.23 diluted net income per share, compared to $12.1 million, or a $0.19 diluted net income per share, in the prior year.

Fiscal Year 2018 Results - ASC 606 (standard adopted effective January 1, 2018):

• Revenue for the full year of 2018 was $537.9 million compared to a guided range of $528.0 million to $531.0 million.²
• Subscription revenue for the full year of 2018 was $473.1 million compared to a guided range of $466.0 million to $469.0 million.²
• Annual recurring revenue as of December 31, 2018 was $510.0 million, representing a 16.2% increase compared to the prior year. Annual recurring revenue growth on a constant currency basis was 17.9%.²
• Operating income for the full year of 2018 was $(7.8) million, yielding a margin of (1.4)%.
• Non-GAAP operating income for the full year of 2018 was $63.4 million, yielding a margin of 11.8% compared to guided range of $61.0 million and $64.0 million.²
• Net loss for the full year of 2018 was $(33.8) million, or a $(0.58) diluted net loss per share.
• Non-GAAP net income for the full year of 2018 was $47.0 million, or a $0.74 diluted net income per share.
• Unlevered free cash flow for the full year of 2018 was $63.5 million, yielding a margin of 11.8%, compared to guided range of $59.0 million and $63.0 million.

Fiscal Year 2018 Results - ASC 605:

• Revenue for the full year of 2018 was $537.2 million, representing a 11.5% increase compared to the prior year. Revenue growth on a constant currency basis was 10.4%.
• Subscription revenue for the full year of 2018 was $479.4 million, representing a 20.8% increase compared to the prior year. Subscription revenue growth on a constant currency basis was 19.8%.
• Operating income for the full year of 2018 was $(7.5) million, yielding a margin of (1.4)%, compared to $(49.3) million, yielding a margin of (10.2)%, in the prior year.
• Non-GAAP operating income for the full year of 2018 was $63.7 million, yielding a margin of 11.9%, compared to $26.9 million, yielding a margin of 5.6%, in the prior year.
• Net loss for the full year of 2018 was $(33.5) million, or a $(0.58) diluted net loss per share, compared to a net loss of $(61.3) million, or a $(1.07) diluted net loss per share, in the prior year.
• Non-GAAP net income for the full year of 2018 was $47.3 million, or a $0.75 diluted net income per share, compared to $25.2 million, or a $0.41 diluted net income per share, in the prior year.

"Last year we saw significant improvement in our profitability, unlevered free cash flow and a near doubling of our non-GAAP earnings per share," said Brian Swartz, CFO, Cornerstone. "Looking ahead to 2019, we believe there are more opportunities to drive further improvements in our operating model while investing for sustainable growth."

Recent Highlights:

• The Company acquired Grovo Learning, Inc., the global leader in Microlearning® content, and expanded its Content Anytime subscription offerings.²
• The Company was recognized as a Leader in the 2018 Nucleus Research Talent Management Technology Value Matrix following the evaluation of its product usability and functionality, and the overall value it brings to its clients.
• The Company announced that the EMEA region gained a near record-breaking number of new clients during the third quarter of 2018.
• The Company is helping train the next generation of leaders at ArcBest, a leading logistics company for supply chain solutions.
• European CEO magazine named Adam Miller the Best CEO in the HR Technology Industry.
• The Company ended the fourth quarter of 2018 with 3,535 clients and 40.2 million users.³

Stock Repurchase Program:

The following is a summary of the Company's stock repurchases under its $100.0 million share repurchase program, which has been completed as of December 31, 2018 (in thousands, except per share information):

Financial Outlook:

The following outlook is based on information available as of the date of this press release and is subject to change in the future.

For the first quarter ending March 31, 2019, the Company provides the following outlook:

• Revenue between $134.5 million and $136.5 million, representing year-over-year growth at the mid-point of 1.8%⁴, or 4.2%⁵ on a constant currency basis.
• Subscription revenue between $127.5 million and $129.5 million, representing year-over-year growth at the mid-point of 13.6%⁴, or 16.0%⁵ on a constant currency basis.

For the year ending December 31, 2019, the Company provides the following outlook:

• Revenue between $558 million and $568 million, representing year-over-year growth at the mid-point of 4.7%⁶, or 5.7%⁷ on a constant currency basis.
• Subscription revenue between $533 million and $543 million, representing year-over-year growth at the mid-point of 13.7%⁶, or 14.7%⁷ on a constant currency basis.
• Annual recurring revenue as of December 31, 2019 between $575 million and $590 million.^{6, 8}
• Non-GAAP operating income between $74 million and $84 million. Assuming the midpoint of the revenue range, this represents an operating margin of 14%.
• Unlevered free cash flow between $82 million and $92 million. Assuming the midpoint of the revenue range, this represents an unlevered free cash flow margin of 15.5%.

The Company has not reconciled the guidance for non-GAAP operating income or non-GAAP operating margin to the corresponding GAAP measures because it does not provide guidance for such GAAP measures and would not be able to present the reconciling items between such GAAP and non-GAAP measures without unreasonable efforts. For non-GAAP operating income and non-GAAP operating margin, the Company excludes stock-based compensation expense, which is impacted by factors that are outside of the Company's control and can be difficult to predict. The actual amount of stock-based compensation expense in the first quarter ending March 31, 2019 and the year ending December 31, 2019 will have a significant impact on the Company's GAAP operating margin.

Quarterly Conference Call

Cornerstone will host a conference call to discuss its fourth quarter and fiscal year 2018 results at 2:00 p.m. PT (5:00 p.m. ET) today. A live audio webcast of the conference call, together with detailed financial information, can be accessed through the Company's Investor Relations website at http://investors.cornerstoneondemand.com. The live call can be accessed by dialing (877) 445-4619 (U.S.) or (484) 653-6763 (outside the U.S.) and referencing passcode: 6486058. A replay of the call will also be available at http://investors.cornerstoneondemand.com/investors/news-and-events/events/default.aspx or via telephone until 11:59 p.m. PT (2:59 p.m. ET) on February 15, 2019 by dialing (855) 859-2056 (U.S.) or (404) 537-3406 (outside the U.S.), and referencing passcode: 6486058.

About Cornerstone

Cornerstone was founded with a passion for empowering people through learning and a conviction that people should be your organization's greatest competitive advantage. Cornerstone is a global human capital management leader with a core belief that companies thrive when they help their employees to realize their potential. Putting this belief into practice, Cornerstone offers solutions to help companies strategically manage and continuously develop their talent throughout the entire employee lifecycle. Featuring comprehensive recruiting, personalized learning, development-driven performance management, and holistic HR planning, Cornerstone's human capital management platform is successfully used by more than 3,500 global clients of all sizes, spanning over 40.2 million users across 192 countries and 43 languages.

Learn more at www.cornerstoneondemand.com.

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

Forward-looking Statements

This press release and the quarterly conference call referenced above contain forward-looking statements, including, but not limited to, statements regarding the expected performance of our business, our future financial and operating performance, including our GAAP and non-GAAP guidance, strategy, long-term growth and overall future prospects, our expectations regarding recurring revenue growth and operating margins, and general business conditions. Any forward-looking statements contained in this press release or the quarterly conference call are based upon our historical performance and our current plans, estimates and expectations and are not a representation that such plans, estimates, or expectations will be achieved. These forward-looking statements represent our expectations as of the date of this press release. Subsequent events may cause these expectations to change, and we disclaim any obligation to update the forward-looking statements in the future, except as required by law. These forward-looking statements are subject to known and unknown risks and uncertainties that may cause actual results to differ materially from our current expectations. Important factors that could cause actual results to differ materially from those anticipated in our forward-looking statements include, but are not limited to, our ability to attract new clients; the extent to which clients renew their subscriptions for our solutions; the timing of when consulting services are delivered to new and existing clients by our services organization and implementation subcontractors; the complexity of deployments and product implementations, which can impact the timing of when revenue is recognized from new and existing clients; allowing our implementation subcontractors to contract directly with clients for implementation services; our shift to focusing on recurring revenue streams; our ability to compete as the learning and human capital management provider for organizations of all sizes; changes in the proportion of our client base that is comprised of enterprise or mid-sized organizations; our ability to manage our growth, including additional headcount and entry into new geographies; our ability to expand our enterprise and mid-market sales opportunities; our ability to maintain stable and consistent quota attainment rates; continued strong demand for learning and human capital management in the U.S., Europe, Asia Pacific and Latin America; the timing and success of efforts to increase operational efficiency and cost containment; the timing and success of solutions offered by our competitors; unpredictable macro-economic conditions; the impact of foreign exchange rates; reductions in information technology spending; the success of our new product and service introductions; a disruption in our hosting network infrastructure; problems caused by security breaches; costs and reputational harm that could result from defects in our solutions; the success of our strategic relationships with third parties; the loss of any of our key employees and our ability to locate qualified replacements; failure to protect our intellectual property; acts of terrorism or other vandalism, war or natural disasters; changes in current tax or accounting rules; legal or political changes in local or foreign jurisdictions that decrease demand for, or restrict our ability to sell or provide, our products; and unanticipated costs or liabilities related to businesses that we acquire. Further information on factors that could cause actual results to differ materially from the results anticipated by our forward-looking statements is included in the reports we have filed with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the fiscal year ended December 31, 2017 and Quarterly Report on Form 10-Q for the quarter ended September 30, 2018.

Non-GAAP Financial Measures and Other Key Metrics

To supplement its consolidated financial statements, which are prepared and presented in accordance with U.S. generally accepted accounting principles, or GAAP, the Company has provided in this press release and the quarterly conference call held on the date hereof certain non-GAAP financial measures and other key metrics. These non-GAAP financial measures include:

In addition, the Company provides investors with non-GAAP financial measures under ASC 605 to compare against the Company's GAAP financial measures under ASC 606 and discloses revenue and subscription revenue on a constant currency basis. To present amounts on a constant currency basis, current period results for entities reporting in functional currencies other than USD are translated into USD at the prior period exchange rates as opposed to the actual exchange rates in effect for the current period. The Company presents constant currency information to provide a framework for assessing how its underlying business performed excluding the effect of foreign currency fluctuations.

The Company's management uses these non-GAAP financial measures and other key metrics internally in analyzing its financial results and believes they are useful to investors, as a supplement to the corresponding GAAP measures, in evaluating the Company's ongoing operational performance and trends and in comparing its financial measures with other companies in the same industry, many of which present similar non-GAAP financial measures and key metrics to help investors understand the operational performance of their businesses. In addition, the Company believes that the following non-GAAP adjustments are useful to management and investors for the following reasons:

• Stock-based compensation. The Company excludes stock-based compensation expense because it is non-cash in nature, and management believes that its exclusion provides additional insight into the Company's operational performance and also provides a useful comparison of the Company's operating results to prior periods and its peer companies. Additionally, determining the fair value of certain stock-based awards involves a high degree of judgment and estimation and the expense recorded may bear little resemblance to the actual value realized upon the vesting or future exercise of such awards.
• Amortization of intangible assets. The Company excludes amortization of acquired intangible assets because the expense is a non-cash item and management believes that its exclusion provides meaningful supplemental information regarding the Company's operational performance and allows for a useful comparison of its operating results to prior periods and its peer companies.
• Accretion of debt discount and amortization of debt issuance costs. For GAAP purposes, the Company is required to recognize the effective interest expense on its senior convertible notes and amortize the issuance costs over the term of the notes. The difference between the effective interest expense and the contractual interest expense and the amortization expense of issuance costs are excluded from management's assessment of the Company's operating performance because management believes that these non-cash expenses are not indicative of ongoing operating performance. In addition, the exclusion of these items provides a useful comparison of the Company's operating results to prior periods and its peer companies.
• Fair value adjustment on strategic investments. The Company views the increase or decrease in the fair value of its strategic investments as not indicative of operational performance during any particular period and believes that the exclusion of these gains or losses provides investors with a supplemental view of the Company's operational performance.
• Write-off of capitalized software. The Company views the write-off of capitalized software as not indicative of operational performance during any particular period and believes that the exclusion of this expense provides investors with a supplemental view of the Company's operational performance.
• Restructuring. The Company excludes costs related to restructuring because the expense is not indicative of its continuing operations and believes that the exclusion of these costs provides investors with a supplemental view of the Company's operational performance.
• Acquisition costs. The Company excludes costs related to acquisitions because the expense is not indicative of its continuing operations and believes that the exclusion of these costs provides investors with a supplemental view of the Company's operational performance.

Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. Investors are encouraged to review the reconciliation of these non-GAAP measures to their most directly comparable GAAP financial measures. These non-GAAP financial measures are not based on any standardized methodology prescribed by GAAP and are not necessarily comparable to similarly-titled measures presented by other companies. For prior periods, reconciliations of the non-GAAP financial measures to their most directly comparable GAAP measures have been provided in the tables included as part of this press release.

Note: As discussed on the Company's fourth quarter 2017 earnings call, the Company reported that total billings is no longer relevant in the assessment of its performance and beginning in the first quarter 2018, the Company no longer reports or guides to total billings.

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