Form 10-Q
|
ý
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Cornerstone OnDemand, Inc.
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(Exact name of registrant as specified in its charter)
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Delaware
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13-4068197
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(State or other jurisdiction of
incorporation or organization)
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(IRS Employer
Identification No.)
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Registrant’s telephone number, including area code:
(310) 752-0200
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Large accelerated filer
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x
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Accelerated filer
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¨
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Non-accelerated filer
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¨
(Do not check if a smaller reporting company)
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Smaller reporting company
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¨
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Emerging growth company
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¨
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|
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Class
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Outstanding as of August 3, 2018
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Common Stock
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58,766,054
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|
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Page No.
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|
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||
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||
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||
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||
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||
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ITEM 1.
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Condensed Consolidated Financial Statements
|
|
June 30, 2018 *
|
|
December 31, 2017
|
||||
Assets
|
|
|
|
||||
Cash and cash equivalents
|
$
|
450,931
|
|
|
$
|
393,576
|
|
Short-term investments
|
191,301
|
|
|
169,551
|
|
||
Accounts receivable, net
|
110,432
|
|
|
154,428
|
|
||
Deferred commissions, current portion
|
20,755
|
|
|
42,806
|
|
||
Prepaid expenses and other current assets
|
38,606
|
|
|
21,754
|
|
||
Total current assets
|
812,025
|
|
|
782,115
|
|
||
Capitalized software development costs, net
|
41,504
|
|
|
37,431
|
|
||
Property and equipment, net
|
25,875
|
|
|
20,817
|
|
||
Deferred commissions, net of current portion
|
37,305
|
|
|
—
|
|
||
Long-term investments
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2,488
|
|
|
96,949
|
|
||
Goodwill
|
25,894
|
|
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25,894
|
|
||
Other assets, net
|
3,972
|
|
|
3,984
|
|
||
Total Assets
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$
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949,063
|
|
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$
|
967,190
|
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Liabilities and Stockholders’ Equity
|
|
|
|
||||
Liabilities:
|
|
|
|
||||
Accounts payable
|
$
|
9,660
|
|
|
$
|
17,637
|
|
Accrued expenses
|
58,340
|
|
|
57,528
|
|
||
Deferred revenue, current portion
|
277,664
|
|
|
311,997
|
|
||
Convertible notes, net
|
253,000
|
|
|
248,025
|
|
||
Other liabilities
|
5,467
|
|
|
9,051
|
|
||
Total current liabilities
|
604,131
|
|
|
644,238
|
|
||
Convertible notes, net
|
286,961
|
|
|
285,168
|
|
||
Other liabilities, non-current
|
1,642
|
|
|
1,498
|
|
||
Deferred revenue, net of current portion
|
12,157
|
|
|
14,166
|
|
||
Total liabilities
|
904,891
|
|
|
945,070
|
|
||
Commitments and contingencies (Note 10)
|
|
|
|
||||
Stockholders’ Equity:
|
|
|
|
||||
Common stock, $0.0001 par value; 1,000,000 shares authorized, 58,244 and 57,512 shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively
|
6
|
|
|
6
|
|
||
Additional paid-in capital
|
568,231
|
|
|
536,951
|
|
||
Accumulated deficit
|
(524,342
|
)
|
|
(515,054
|
)
|
||
Accumulated other comprehensive income
|
277
|
|
|
217
|
|
||
Total stockholders’ equity
|
44,172
|
|
|
22,120
|
|
||
Total Liabilities and Stockholders’ Equity
|
$
|
949,063
|
|
|
$
|
967,190
|
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||
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June 30,
|
|
June 30,
|
||||||||||||
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2018 *
|
|
2017
|
|
2018 *
|
|
2017
|
||||||||
Revenue
|
$
|
132,517
|
|
|
$
|
116,651
|
|
|
$
|
265,630
|
|
|
$
|
228,233
|
|
Cost of revenue
|
36,365
|
|
|
35,321
|
|
|
73,385
|
|
|
69,270
|
|
||||
Gross profit
|
96,152
|
|
|
81,330
|
|
|
192,245
|
|
|
158,963
|
|
||||
Operating expenses:
|
|
|
|
|
|
|
|
||||||||
Sales and marketing
|
59,821
|
|
|
62,073
|
|
|
119,066
|
|
|
118,967
|
|
||||
Research and development
|
16,325
|
|
|
14,684
|
|
|
32,309
|
|
|
28,095
|
|
||||
General and administrative
|
22,101
|
|
|
23,141
|
|
|
44,086
|
|
|
43,617
|
|
||||
Restructuring
|
1,000
|
|
|
—
|
|
|
8,725
|
|
|
—
|
|
||||
Total operating expenses
|
99,247
|
|
|
99,898
|
|
|
204,186
|
|
|
190,679
|
|
||||
Loss from operations
|
(3,095
|
)
|
|
(18,568
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)
|
|
(11,941
|
)
|
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(31,716
|
)
|
||||
Other income (expense):
|
|
|
|
|
|
|
|
||||||||
Interest income
|
2,665
|
|
|
659
|
|
|
4,484
|
|
|
1,272
|
|
||||
Interest expense
|
(8,791
|
)
|
|
(3,340
|
)
|
|
(17,491
|
)
|
|
(6,642
|
)
|
||||
Other, net
|
(2,250
|
)
|
|
348
|
|
|
(2,206
|
)
|
|
545
|
|
||||
Other income (expense), net
|
(8,376
|
)
|
|
(2,333
|
)
|
|
(15,213
|
)
|
|
(4,825
|
)
|
||||
Loss before income tax provision
|
(11,471
|
)
|
|
(20,901
|
)
|
|
(27,154
|
)
|
|
(36,541
|
)
|
||||
Income tax provision
|
(536
|
)
|
|
(364
|
)
|
|
(1,069
|
)
|
|
(935
|
)
|
||||
Net loss
|
$
|
(12,007
|
)
|
|
$
|
(21,265
|
)
|
|
$
|
(28,223
|
)
|
|
$
|
(37,476
|
)
|
Net loss per share, basic and diluted
|
$
|
(0.21
|
)
|
|
$
|
(0.37
|
)
|
|
$
|
(0.49
|
)
|
|
$
|
(0.66
|
)
|
Weighted average common shares outstanding, basic and diluted
|
57,844
|
|
|
56,935
|
|
|
57,635
|
|
|
56,789
|
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||
|
June 30,
|
|
June 30,
|
||||||||||||
|
2018 *
|
|
2017
|
|
2018 *
|
|
2017
|
||||||||
Net loss
|
$
|
(12,007
|
)
|
|
$
|
(21,265
|
)
|
|
$
|
(28,223
|
)
|
|
$
|
(37,476
|
)
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
||||||||
Foreign currency translation adjustment
|
2,113
|
|
|
(1,876
|
)
|
|
3
|
|
|
(2,050
|
)
|
||||
Net change in unrealized gains (losses) on investments
|
282
|
|
|
19
|
|
|
57
|
|
|
(68
|
)
|
||||
Other comprehensive income (loss), net of tax
|
2,395
|
|
|
(1,857
|
)
|
|
60
|
|
|
(2,118
|
)
|
||||
Total comprehensive loss
|
$
|
(9,612
|
)
|
|
$
|
(23,122
|
)
|
|
$
|
(28,163
|
)
|
|
$
|
(39,594
|
)
|
|
Six Months Ended
|
||||||
|
June 30,
|
||||||
|
2018 *
|
|
2017
|
||||
Cash flows from operating activities:
|
|
|
|
||||
Net loss
|
$
|
(28,223
|
)
|
|
$
|
(37,476
|
)
|
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
|
|
|
|
||||
Depreciation and amortization
|
16,219
|
|
|
17,978
|
|
||
Accretion of debt discount and amortization of debt issuance costs
|
6,922
|
|
|
4,736
|
|
||
Purchased investment premium, net of amortization
|
(187
|
)
|
|
407
|
|
||
Net foreign currency gain
|
(1,685
|
)
|
|
(1,145
|
)
|
||
Stock-based compensation expense
|
35,511
|
|
|
33,447
|
|
||
Changes in operating assets and liabilities:
|
|
|
|
||||
Accounts receivable
|
43,095
|
|
|
19,371
|
|
||
Deferred commissions
|
(2,740
|
)
|
|
2,009
|
|
||
Prepaid expenses and other assets
|
(16,823
|
)
|
|
(4,220
|
)
|
||
Accounts payable
|
(7,855
|
)
|
|
(10,687
|
)
|
||
Accrued expenses
|
(1,366
|
)
|
|
(7,430
|
)
|
||
Deferred revenue
|
(27,883
|
)
|
|
(24,033
|
)
|
||
Other liabilities
|
(2,337
|
)
|
|
1,432
|
|
||
Net cash provided by (used in) operating activities
|
12,648
|
|
|
(5,611
|
)
|
||
Cash flows from investing activities:
|
|
|
|
||||
Purchases of investments
|
484
|
|
|
(86,481
|
)
|
||
Maturities of investments
|
72,689
|
|
|
123,322
|
|
||
Capital expenditures
|
(7,627
|
)
|
|
(3,740
|
)
|
||
Capitalized software costs
|
(12,302
|
)
|
|
(11,362
|
)
|
||
Net cash provided by investing activities
|
53,244
|
|
|
21,739
|
|
||
Cash flows from financing activities:
|
|
|
|
||||
Payments of debt issuance costs
|
(152
|
)
|
|
—
|
|
||
Proceeds from employee stock plans
|
30,047
|
|
|
6,311
|
|
||
Repurchases of common stock
|
(38,608
|
)
|
|
—
|
|
||
Net cash (used in) provided by financing activities
|
(8,713
|
)
|
|
6,311
|
|
||
Effect of exchange rate changes on cash and cash equivalents
|
176
|
|
|
1,263
|
|
||
Net increase in cash and cash equivalents
|
57,355
|
|
|
23,702
|
|
||
Cash and cash equivalents at beginning of period
|
393,576
|
|
|
83,300
|
|
||
Cash and cash equivalents at end of period
|
$
|
450,931
|
|
|
$
|
107,002
|
|
Supplemental cash flow information:
|
|
|
|
||||
Cash paid for interest
|
$
|
5,003
|
|
|
$
|
1,898
|
|
Cash paid for income taxes
|
874
|
|
|
988
|
|
||
Proceeds from employee stock plans received in advance of stock issuance
|
499
|
|
|
508
|
|
||
Non-cash investing and financing activities:
|
|
|
|
||||
Assets acquired under capital leases and other financing arrangements
|
$
|
—
|
|
|
$
|
1,824
|
|
Capitalized assets financed by accounts payable and accrued expenses
|
3,577
|
|
|
2,631
|
|
||
Capitalized stock-based compensation
|
2,450
|
|
|
2,471
|
|
•
|
$15.5 million
increase in deferred commissions. Such costs are considered to be costs to acquire a contract under Topic 606, and primarily relate to the execution of software subscription contracts. In addition, upon adoption, these incremental commission costs to obtain a contract are now amortized over a period of benefit, which is generally six years.
|
•
|
$2.7 million
of additional liability offsets the impact to retained earnings from the increase of the deferred commission above. The liability is to accrue commission costs earned but not yet paid.
|
•
|
$6.1 million
reduction in deferred revenue related to additional contract value being allocated to professional services delivered prior to adoption. Previously such amounts were not recognized based on contractual payment limitations. Upon adoption, revenue for professional services is based on the relative standalone selling price without any such limitation.
|
1)
|
Identification of the contract, or contracts, with a customer
|
2)
|
Identification of all performance obligations in the contract
|
3)
|
Determination of the transaction price
|
4)
|
Allocation of the transaction price to the performance obligations in the contract
|
5)
|
Recognition of revenue as we satisfy a performance obligation
|
|
June 30, 2018
|
||||||||||
Condensed Consolidated Balance Sheet
|
As Reported
(ASC 606) |
|
Impacts of Adoption
|
|
Without Adoption
(ASC 605) |
||||||
Assets
|
|
|
|
|
|
||||||
Deferred commissions, current portion
|
$
|
20,755
|
|
|
$
|
20,239
|
|
|
$
|
40,994
|
|
Deferred commissions, non-current
|
37,305
|
|
|
(37,305
|
)
|
|
—
|
|
|||
Liabilities
|
|
|
|
|
|
||||||
Accrued expenses
|
58,340
|
|
|
(2,280
|
)
|
|
56,060
|
|
|||
Deferred revenue, current portion
|
277,664
|
|
|
6,025
|
|
|
283,689
|
|
|||
Stockholders’ Equity
|
|
|
|
|
|
||||||
Accumulated deficit
|
(524,342
|
)
|
|
(20,811
|
)
|
|
(545,153
|
)
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||||||||||
|
June 30, 2018
|
|
June 30, 2018
|
||||||||||||||||||||
Condensed Consolidated Statement of Operations
|
As Reported
(ASC 606) |
|
Impacts of Adoption
|
|
Without Adoption
(ASC 605) |
|
As Reported
(ASC 606) |
|
Impacts of Adoption
|
|
Without Adoption
(ASC 605) |
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Revenue
|
$
|
132,517
|
|
|
$
|
476
|
|
|
$
|
132,993
|
|
|
$
|
265,630
|
|
|
$
|
35
|
|
|
$
|
265,665
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Sales and marketing
|
59,821
|
|
|
(200
|
)
|
|
59,621
|
|
|
119,066
|
|
|
100
|
|
|
119,166
|
|
||||||
Net loss
|
(12,007
|
)
|
|
676
|
|
|
(11,331
|
)
|
|
(28,223
|
)
|
|
(65
|
)
|
|
(28,288
|
)
|
||||||
Net loss per share, basic and diluted
|
(0.21
|
)
|
|
|
|
(0.20
|
)
|
|
(0.49
|
)
|
|
|
|
(0.49
|
)
|
||||||||
Weighted average common shares outstanding, basic and diluted
|
57,844
|
|
|
|
|
57,844
|
|
|
57,635
|
|
|
|
|
57,635
|
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||
|
June 30,
|
|
June 30,
|
||||||||||||
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Net loss
|
$
|
(12,007
|
)
|
|
$
|
(21,265
|
)
|
|
$
|
(28,223
|
)
|
|
$
|
(37,476
|
)
|
Weighted-average shares of common stock outstanding
|
57,844
|
|
|
56,935
|
|
|
57,635
|
|
|
56,789
|
|
||||
Net loss per share – basic and diluted
|
$
|
(0.21
|
)
|
|
$
|
(0.37
|
)
|
|
$
|
(0.49
|
)
|
|
$
|
(0.66
|
)
|
|
June 30,
|
||||
|
2018
|
|
2017
|
||
Options to purchase common stock, restricted stock units and performance-based restricted stock units
|
11,222
|
|
|
11,274
|
|
Shares issuable pursuant to employee stock purchase plan
|
93
|
|
|
101
|
|
Convertible notes
|
11,825
|
|
|
4,682
|
|
Common stock warrants
|
4,682
|
|
|
4,682
|
|
Total shares excluded from net loss per share
|
27,822
|
|
|
20,739
|
|
|
June 30, 2018
|
||||||||||||||||||||||
|
Amortized Cost Basis
|
|
Unrealized Gains
|
|
Unrealized Losses
|
|
Fair Value
|
|
Cash Equivalent
|
|
Investments
|
||||||||||||
Money market funds
|
$
|
415,849
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
415,849
|
|
|
$
|
415,849
|
|
|
$
|
—
|
|
Certificate of deposit
|
10,000
|
|
|
—
|
|
|
—
|
|
|
10,000
|
|
|
10,000
|
|
|
—
|
|
||||||
Corporate bonds
|
57,219
|
|
|
—
|
|
|
(226
|
)
|
|
56,993
|
|
|
—
|
|
|
56,993
|
|
||||||
U.S. treasury securities
|
134,676
|
|
|
—
|
|
|
(368
|
)
|
|
134,308
|
|
|
—
|
|
|
134,308
|
|
||||||
|
$
|
617,744
|
|
|
$
|
—
|
|
|
$
|
(594
|
)
|
|
$
|
617,150
|
|
|
$
|
425,849
|
|
|
$
|
191,301
|
|
|
December 31, 2017
|
||||||||||||||||||||||
|
Amortized Cost Basis
|
|
Unrealized Gains
|
|
Unrealized Losses
|
|
Fair Value
|
|
Cash Equivalent
|
|
Investments
|
||||||||||||
Money market funds
|
$
|
358,859
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
358,859
|
|
|
$
|
358,859
|
|
|
$
|
—
|
|
Certificate of deposit
|
10,000
|
|
|
—
|
|
|
—
|
|
|
10,000
|
|
|
10,000
|
|
|
—
|
|
||||||
Corporate bonds
|
74,868
|
|
|
—
|
|
|
(220
|
)
|
|
74,648
|
|
|
—
|
|
|
74,648
|
|
||||||
U.S. treasury securities
|
189,310
|
|
|
—
|
|
|
(430
|
)
|
|
188,880
|
|
|
—
|
|
|
188,880
|
|
||||||
|
$
|
633,037
|
|
|
$
|
—
|
|
|
$
|
(650
|
)
|
|
$
|
632,387
|
|
|
$
|
368,859
|
|
|
$
|
263,528
|
|
•
|
Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
|
•
|
Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
|
•
|
Level 3 – Unobservable inputs.
|
|
June 30, 2018
|
|
December 31, 2017
|
||||||||||||||||||||||||||||
|
Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
||||||||||||||||
Cash equivalents
|
$
|
425,849
|
|
|
$
|
415,849
|
|
|
$
|
10,000
|
|
|
$
|
—
|
|
|
$
|
368,859
|
|
|
$
|
358,859
|
|
|
$
|
10,000
|
|
|
$
|
—
|
|
Corporate bonds
|
56,993
|
|
|
—
|
|
|
56,993
|
|
|
—
|
|
|
74,648
|
|
|
—
|
|
|
74,648
|
|
|
—
|
|
||||||||
U.S. treasury securities
|
134,308
|
|
|
—
|
|
|
134,308
|
|
|
—
|
|
|
188,880
|
|
|
—
|
|
|
188,880
|
|
|
—
|
|
||||||||
|
$
|
617,150
|
|
|
$
|
415,849
|
|
|
$
|
201,301
|
|
|
$
|
—
|
|
|
$
|
632,387
|
|
|
$
|
358,859
|
|
|
$
|
273,528
|
|
|
$
|
—
|
|
•
|
during any calendar quarter after September 30, 2013, if the last reported sale price of common stock for at least
20
trading days (whether or not consecutive) during a period of
30
consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to
130%
of the conversion price on each applicable trading day;
|
•
|
during the
five
business day period after any
five
consecutive trading day period in which the trading price per $1,000 principal amount of the 2018 Notes for each trading day of that
five
consecutive trading day period was less than
98%
of the product of the last reported sale price of common stock and the conversion rate on each such trading day; or
|
•
|
upon the occurrence of specified corporate events as defined in the 2013 Indenture.
|
|
June 30, 2018
|
|
December 31, 2017
|
||||
Principal amount
|
$
|
553,000
|
|
|
$
|
553,000
|
|
Unamortized debt discount
|
(5,138
|
)
|
|
(10,190
|
)
|
||
Net carrying amount before unamortized debt issuance costs
|
547,862
|
|
|
542,810
|
|
||
Unamortized debt issuance costs
|
(7,901
|
)
|
|
(9,617
|
)
|
||
Net carrying value
|
$
|
539,961
|
|
|
$
|
533,193
|
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||
|
June 30,
|
|
June 30,
|
||||||||||||
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Contractual interest expense at 1.5% and 5.75% per annum
|
$
|
5,261
|
|
|
$
|
949
|
|
|
$
|
10,522
|
|
|
$
|
1,898
|
|
Amortization of debt issuance costs
|
954
|
|
|
330
|
|
|
1,870
|
|
|
656
|
|
||||
Accretion of debt discount
|
2,542
|
|
|
2,053
|
|
|
5,052
|
|
|
4,081
|
|
||||
Total
|
$
|
8,757
|
|
|
$
|
3,332
|
|
|
$
|
17,444
|
|
|
$
|
6,635
|
|
6.
|
STOCKHOLDERS
’
EQUITY
|
Period
|
|
# of Shares Repurchased
|
|
Average Price per Share
|
|
Total Expenditures
|
|
Amount Remaining Under Program
|
|||||||
November 8, 2017 - December 31, 2017
|
|
635
|
|
|
$
|
35.55
|
|
|
$
|
22,599
|
|
|
|
|
|
January 1, 2018 - March 31, 2018
|
|
423
|
|
|
$
|
37.84
|
|
|
16,024
|
|
|
|
|
||
April 1, 2018 - June 30, 2018
|
|
444
|
|
|
$
|
46.66
|
|
|
20,718
|
|
|
|
|||
Subtotal
|
|
1,502
|
|
|
$
|
39.48
|
|
|
$
|
59,341
|
|
|
$
|
40,659
|
|
|
|
|
|
|
|
|
|
|
|||||||
July 1, 2018 - August 3, 2018
|
|
43
|
|
|
$
|
47.15
|
|
|
2,010
|
|
|
|
|||
Total
|
|
1,545
|
|
|
$
|
39.69
|
|
|
$
|
61,351
|
|
|
$
|
38,649
|
|
|
Shares
|
|
Weighted-
Average
Exercise
Price
|
|
Weighted-
Average
Remaining
Contractual
Term
|
|
Aggregate
Intrinsic
Value (1)
|
|||||
Outstanding, December 31, 2017
|
5,432
|
|
|
$
|
32.73
|
|
|
5.3
|
|
$
|
42,282
|
|
Granted
|
—
|
|
|
—
|
|
|
|
|
|
|||
Exercised
|
(833
|
)
|
|
32.40
|
|
|
|
|
|
|||
Forfeited
|
(96
|
)
|
|
43.04
|
|
|
|
|
|
|||
Outstanding, June 30, 2018
|
4,503
|
|
|
$
|
32.57
|
|
|
4.6
|
|
$
|
70,860
|
|
|
Shares
|
|
Weighted-
Average
Exercise
Price
|
|
Weighted-
Average
Remaining
Contractual
Term
|
|
Aggregate
Intrinsic
Value (1)
|
|||||
Exercisable at June 30, 2018
|
4,369
|
|
|
$
|
32.47
|
|
|
4.5
|
|
$
|
69,294
|
|
Vested and expected to vest at June 30, 2018
|
4,498
|
|
|
32.56
|
|
|
4.6
|
|
70,792
|
|
(1)
|
Based on the Company’s closing stock price of $47.43 on June 30, 2018 and $35.33 on December 31, 2017.
|
Grant Date
|
|
Performance Measures
|
|
Vesting Term
|
|
Performance Period
|
|
# of Shares at Target
|
|
# of Shares at Maximum
|
|
Grant Date Fair Value per share
|
||||
July 2016
|
|
(a) the Company meeting certain revenue and cash flow targets through December 31, 2018 and (b) the recipient continuing to provide services to the Company through the end of June 2019
|
|
Three years
|
|
Fiscal years 2016, 2017 and 2018
|
|
166,600
|
|
|
499,800
|
|
|
$
|
38.67
|
|
March 2017
|
|
(a) the Company meeting certain revenue and cash flow targets through December 31, 2019 and (b) the recipient continuing to provide services to the Company through the end of March 2020
|
|
Three years
|
|
Fiscal years 2017, 2018 and 2019
|
|
185,270
|
|
|
555,810
|
|
|
$
|
41.73
|
|
February 2018
|
|
(a) the Company meeting certain combined subscription revenue and unlevered cash flow margin targets for the year ending December 31, 2020 and (b) the recipient continuing to provide services to the Company through the end of February 2021
|
|
Three years
|
|
Fiscal year 2020
|
|
121,764
|
|
|
304,410
|
|
|
$
|
40.64
|
|
February 2018
|
|
(a) the Company meeting certain combined subscription revenue and unlevered cash flow margin targets for each of the years ending December 31, 2020, December 31, 2021, and December 31, 2022 and (b) the recipient continuing to provide services to the Company through the end of February 2023
|
|
Five years
|
(1)
|
Fiscal years 2020, 2021 and 2022
|
|
411,412
|
|
|
1,028,530
|
|
|
$
|
40.64
|
|
April 2018
|
|
(a) the Company meeting certain combined subscription revenue and unlevered cash flow margin targets for the year ending December 31, 2020 and (b) the recipient continuing to provide services to the Company through the end of February 2021
|
|
Three years
|
|
Fiscal year 2020
|
|
3,572
|
|
|
8,930
|
|
|
$
|
39.54
|
|
April 2018
|
|
(a) the Company meeting certain combined subscription revenue and unlevered cash flow margin targets for each of the years ending December 31, 2020, December 31, 2021, and December 31, 2022 and (b) the recipient continuing to provide services to the Company through the end of February 2023
|
|
Five years
|
(1)
|
Fiscal years 2020, 2021 and 2022
|
|
53,572
|
|
|
133,930
|
|
|
$
|
39.54
|
|
(1)
|
One-third of the total eligible shares shall vest on each of the third, fourth and fifth anniversaries of the grant date. This award is a one-time equity award intended to cover expected grant levels over a three-year period. In exchange, the Compensation Committee does not plan to grant any additional equity awards to recipients of this award until 2021.
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||
|
June 30,
|
|
June 30,
|
||||||||||||
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Cost of revenue
|
$
|
1,021
|
|
|
$
|
1,203
|
|
|
$
|
2,023
|
|
|
$
|
2,413
|
|
Sales and marketing
|
6,545
|
|
|
6,792
|
|
|
12,791
|
|
|
13,546
|
|
||||
Research and development
|
2,417
|
|
|
2,397
|
|
|
4,725
|
|
|
4,499
|
|
||||
General and administrative
|
5,300
|
|
|
7,206
|
|
|
9,787
|
|
|
12,989
|
|
||||
Restructuring
|
749
|
|
|
—
|
|
|
6,185
|
|
|
—
|
|
||||
Total
|
$
|
16,032
|
|
|
$
|
17,598
|
|
|
$
|
35,511
|
|
|
$
|
33,447
|
|
ITEM 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
•
|
Our Recruiting suite helps organizations to source and attract candidates, assess and select applicants, onboard new hires and manage the entire recruiting process;
|
•
|
Our Learning suite enables clients to manage training and development programs, knowledge sharing and collaboration among employees, track compliance requirements and support career development for employees. Our content offering delivers fresh, modern content, fueling employee curiosity and inspiring growth;
|
•
|
Our Performance suite provides tools to manage goal setting, performance reviews, competency assessments, development plans, continuous feedback, compensation management and succession planning; and
|
•
|
Our HR Administration suite supports employee records administration, organizational management, employee and manager self-service, workforce planning and compliance reporting.
|
•
|
Revenue.
We generally recognize subscription revenue over the contract period, and as a result of our revenue recognition policy and the seasonality of when we enter into new client agreements, revenue from client agreements signed in the current period may not be fully reflected in the current period.
|
•
|
Subscription revenue.
Revenue as defined above on a recurring basis.
|
•
|
Unlevered Free cash flow.
We define unlevered free cash flow, a non-GAAP financial measure, as cash provided by operating activities minus capital expenditures and capitalized software costs plus cash paid for interest. We present this metric because it is a liquidity measure that provides useful information to management and investors about the amount of cash generated by our business that can be used for strategic opportunities, including investing in our business and strengthening our balance sheet.
|
•
|
Constant currency results
. We present constant currency information, a non-GAAP financial measure, to provide a framework for assessing how our underlying business performed excluding the effect of foreign currency fluctuations. Due to our legal and operating structure, our international revenues are favorably impacted as the U.S. Dollar weakens relative to the British pound and Euro, and unfavorably impacted as the U.S. Dollar strengthens relative to the British pound and Euro. We believe the presentation of results on a constant currency basis in addition to reported results helps improve the ability to understand our performance because they exclude the effects of foreign currency volatility that are not indicative of our core operating results. To present this information, current period results for entities reporting in British pounds and Euros are translated into U.S. Dollars at the prior period exchange rates as opposed to the actual exchange rates in effect for the current period. These results should be considered in addition to, not as a substitute for, results reported in accordance with GAAP. Results on a constant currency basis, as we present them, may not be comparable to similarly titled measures used by other companies and are not a measure of performance presented in accordance with GAAP.
|
•
|
Number of clients
. We believe that our ability to expand our client base is an indicator of our market penetration and the growth of our business as we continue to invest in our direct sales teams and distributors. Our client count includes contracted clients for our enterprise human capital management platform as of the end of the period and excludes clients of our Cornerstone for Salesforce and Cornerstone PiiQ products.
|
•
|
Number of users.
Since our clients generally pay fees based on the number of users of our products within their organizations, we believe the total number of users is an indicator of the growth of our business. Our user count includes active users for our enterprise human capital management platform and excludes users of our Cornerstone for Salesforce and Cornerstone PiiQ products.
|
•
|
Subscriptions to Our Products and Other Offerings on a Recurring Basis.
Clients pay subscription fees for access to our enterprise human capital management platform, other products and support on a recurring basis. Fees are based on a number of factors, including the number of products purchased, which may include e-learning content, and the number of users having access to a product. We generally recognize revenue from subscriptions ratably over the term of the agreements beginning on the date the subscription service is made available to the client. Subscription agreements are typically three years, billed annually in advance, and non-cancelable.
|
•
|
Professional Services and Other.
We offer our clients and implementation partners assistance in implementing our products and optimizing their use. Professional services include application configuration, system integration, business process re-engineering, change management and training services. Services are generally billed upfront on a fixed fee basis and to a lesser degree on a time-and-material basis. These services are generally purchased as part of a subscription arrangement and are typically performed within the first several months of the arrangement. Clients may also purchase professional services at any other time. We generally recognize revenue from fixed fee professional services contracts as services are performed based on the proportion performed to date relative to the total expected services to be performed. Revenue associated with time-and-material contracts are recorded as such time-and-materials are incurred.
|
•
|
Sales and Marketing.
Sales and marketing expenses consist primarily of personnel and related expenses for our sales and marketing staff, including salaries, benefits, bonuses, stock-based compensation and commissions; costs of marketing and promotional events, corporate communications, online marketing, product marketing and other brand-building activities; and allocated overhead.
|
•
|
Research and Development.
Research and development expenses consist primarily of personnel and related expenses for our research and development staff, including salaries, benefits, bonuses and stock-based compensation; the cost of certain third-party service providers; and allocated overhead. Research and development costs, other than software development costs qualifying for capitalization, are expensed as incurred.
|
•
|
General and Administrative.
General and administrative expenses consist primarily of personnel and related expenses for administrative, legal, finance and human resource staff, including salaries, benefits, bonuses and stock-based compensation; professional fees; insurance premiums; other corporate expenses; and allocated overhead. We expect our general and administrative expenses to increase in absolute dollars but decrease as a percentage of revenue.
|
•
|
Restructuring.
Restructuring consists of stock-based compensation, payroll-related costs, such as severance, outplacement costs and continuing healthcare coverage, associated with employee terminations.
|
•
|
Amortization of Certain Acquired Intangible Assets.
Amortization of certain acquired intangible assets consists of amortization of acquisition-related intangibles for customer relationships.
|
•
|
Interest Income.
Interest income consists primarily of interest income from investment securities partially offset by amortization of investment premiums. We expect interest income to vary depending on the level of our investments in marketable securities, which include corporate bonds, agency bonds, U.S. treasury securities and commercial paper.
|
•
|
Interest Expense.
Interest expense consists primarily of interest expense from our convertible notes, accretion of debt discount and amortization of debt issuance costs.
|
•
|
Other, Net.
Other, net consists of income and expense associated with fluctuations in foreign currency exchange rates, fair value adjustments to strategic investments and other non-operating expenses. We expect other income (expense) to vary depending on the movement in foreign currency exchange rates and the related impact on our foreign exchange gain (loss).
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
||||||||||||
|
2018 *
|
|
2017
|
|
2018 *
|
|
2017
|
||||||||
Revenue
|
$
|
132,517
|
|
|
$
|
116,651
|
|
|
$
|
265,630
|
|
|
$
|
228,233
|
|
Cost of revenue
|
36,365
|
|
|
35,321
|
|
|
73,385
|
|
|
69,270
|
|
||||
Gross profit
|
96,152
|
|
|
81,330
|
|
|
192,245
|
|
|
158,963
|
|
||||
Operating expenses:
|
|
|
|
|
|
|
|
||||||||
Sales and marketing
|
59,821
|
|
|
62,073
|
|
|
119,066
|
|
|
118,967
|
|
||||
Research and development
|
16,325
|
|
|
14,684
|
|
|
32,309
|
|
|
28,095
|
|
||||
General and administrative
|
22,101
|
|
|
23,141
|
|
|
44,086
|
|
|
43,617
|
|
||||
Restructuring
|
1,000
|
|
|
—
|
|
|
8,725
|
|
|
—
|
|
||||
Total operating expenses
|
99,247
|
|
|
99,898
|
|
|
204,186
|
|
|
190,679
|
|
||||
Loss from operations
|
(3,095
|
)
|
|
(18,568
|
)
|
|
(11,941
|
)
|
|
(31,716
|
)
|
||||
Other income (expense):
|
|
|
|
|
|
|
|
||||||||
Interest income
|
2,665
|
|
|
659
|
|
|
4,484
|
|
|
1,272
|
|
||||
Interest expense
|
(8,791
|
)
|
|
(3,340
|
)
|
|
(17,491
|
)
|
|
(6,642
|
)
|
||||
Other, net
|
(2,250
|
)
|
|
348
|
|
|
(2,206
|
)
|
|
545
|
|
||||
Other income (expense), net
|
(8,376
|
)
|
|
(2,333
|
)
|
|
(15,213
|
)
|
|
(4,825
|
)
|
||||
Loss before income tax provision
|
(11,471
|
)
|
|
(20,901
|
)
|
|
(27,154
|
)
|
|
(36,541
|
)
|
||||
Income tax provision
|
(536
|
)
|
|
(364
|
)
|
|
(1,069
|
)
|
|
(935
|
)
|
||||
Net loss
|
$
|
(12,007
|
)
|
|
$
|
(21,265
|
)
|
|
$
|
(28,223
|
)
|
|
$
|
(37,476
|
)
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
||||||||
|
2018 *
|
|
2017
|
|
2018 *
|
|
2017
|
||||
Revenue
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
Cost of revenue
|
27.4
|
%
|
|
30.3
|
%
|
|
27.6
|
%
|
|
30.4
|
%
|
Gross profit
|
72.6
|
%
|
|
69.7
|
%
|
|
72.4
|
%
|
|
69.6
|
%
|
Operating expenses:
|
|
|
|
|
|
|
|
||||
Sales and marketing
|
45.1
|
%
|
|
53.2
|
%
|
|
44.8
|
%
|
|
52.1
|
%
|
Research and development
|
12.3
|
%
|
|
12.6
|
%
|
|
12.2
|
%
|
|
12.3
|
%
|
General and administrative
|
16.7
|
%
|
|
19.8
|
%
|
|
16.6
|
%
|
|
19.1
|
%
|
Restructuring
|
0.8
|
%
|
|
—
|
%
|
|
3.3
|
%
|
|
—
|
%
|
Total operating expenses
|
74.9
|
%
|
|
85.6
|
%
|
|
76.9
|
%
|
|
83.5
|
%
|
Loss from operations
|
(2.3
|
)%
|
|
(15.9
|
)%
|
|
(4.5
|
)%
|
|
(13.9
|
)%
|
Other income (expense):
|
|
|
|
|
|
|
|
||||
Interest income
|
2.0
|
%
|
|
0.6
|
%
|
|
1.7
|
%
|
|
0.6
|
%
|
Interest expense
|
(6.6
|
)%
|
|
(2.9
|
)%
|
|
(6.6
|
)%
|
|
(2.9
|
)%
|
Other, net
|
(1.7
|
)%
|
|
0.3
|
%
|
|
(0.8
|
)%
|
|
0.2
|
%
|
Loss before income tax provision
|
(8.7
|
)%
|
|
(17.9
|
)%
|
|
(10.2
|
)%
|
|
(16.0
|
)%
|
Income tax provision
|
(0.4
|
)%
|
|
(0.3
|
)%
|
|
(0.4
|
)%
|
|
(0.4
|
)%
|
Net loss
|
(9.1
|
)%
|
|
(18.2
|
)%
|
|
(10.6
|
)%
|
|
(16.4
|
)%
|
|
At or For Three Months Ended
June 30,
|
|
At or For Six Months Ended
June 30,
|
||||||||||||
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Revenue (in thousands)
|
$
|
132,517
|
|
|
$
|
116,651
|
|
|
$
|
265,630
|
|
|
$
|
228,233
|
|
Subscription revenue (in thousands)
|
$
|
114,771
|
|
|
$
|
96,416
|
|
|
$
|
227,905
|
|
|
$
|
189,348
|
|
Unlevered free cash flow (in thousands)
|
$
|
7,900
|
|
|
$
|
(5,024
|
)
|
|
(2,278
|
)
|
|
(18,815
|
)
|
||
Number of clients
|
3,363
|
|
|
3,076
|
|
|
3,363
|
|
|
3,076
|
|
||||
Number of users (in millions)
|
36.7
|
|
|
32.1
|
|
|
36.7
|
|
|
32.1
|
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Subscription revenue
|
$
|
114,771
|
|
|
$
|
96,416
|
|
|
$
|
227,905
|
|
|
$
|
189,348
|
|
Percentage of subscription revenue to total revenue
|
86.6
|
%
|
|
82.7
|
%
|
|
85.8
|
%
|
|
83.0
|
%
|
||||
Professional services revenue
|
$
|
17,746
|
|
|
$
|
20,235
|
|
|
$
|
37,725
|
|
|
$
|
38,885
|
|
Percentage of professional services revenue to total revenue
|
13.4
|
%
|
|
17.3
|
%
|
|
14.2
|
%
|
|
17.0
|
%
|
||||
|
$
|
132,517
|
|
|
$
|
116,651
|
|
|
$
|
265,630
|
|
|
$
|
228,233
|
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Revenue for United States
|
$
|
84,520
|
|
|
$
|
76,287
|
|
|
$
|
167,267
|
|
|
$
|
151,087
|
|
Percentage of total revenue for United States
|
63.8
|
%
|
|
65.4
|
%
|
|
63.0
|
%
|
|
66.2
|
%
|
||||
Revenue for all other countries
|
$
|
47,997
|
|
|
$
|
40,364
|
|
|
$
|
98,363
|
|
|
$
|
77,146
|
|
Percentage of total revenue for all other countries
|
36.2
|
%
|
|
34.6
|
%
|
|
37.0
|
%
|
|
33.8
|
%
|
||||
|
$
|
132,517
|
|
|
$
|
116,651
|
|
|
$
|
265,630
|
|
|
$
|
228,233
|
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
|
(dollars in thousands)
|
||||||||||||||
Cost of revenue
|
$
|
36,365
|
|
|
$
|
35,321
|
|
|
$
|
73,385
|
|
|
$
|
69,270
|
|
Gross profit
|
$
|
96,152
|
|
|
$
|
81,330
|
|
|
$
|
192,245
|
|
|
$
|
158,963
|
|
Gross margin
|
72.6
|
%
|
|
69.7
|
%
|
|
72.4
|
%
|
|
69.6
|
%
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
|
(dollars in thousands)
|
||||||||||||||
Sales and marketing
|
$
|
59,821
|
|
|
$
|
62,073
|
|
|
$
|
119,066
|
|
|
$
|
118,967
|
|
Percent of revenue
|
45.1
|
%
|
|
53.2
|
%
|
|
44.8
|
%
|
|
52.1
|
%
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
|
(dollars in thousands)
|
||||||||||||||
Research and development
|
$
|
16,325
|
|
|
$
|
14,684
|
|
|
$
|
32,309
|
|
|
$
|
28,095
|
|
Percent of revenue
|
12.3
|
%
|
|
12.6
|
%
|
|
12.2
|
%
|
|
12.3
|
%
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
|
(dollars in thousands)
|
||||||||||||||
General and administrative
|
$
|
22,101
|
|
|
$
|
23,141
|
|
|
$
|
44,086
|
|
|
$
|
43,617
|
|
Percent of revenue
|
16.7
|
%
|
|
19.8
|
%
|
|
16.6
|
%
|
|
19.1
|
%
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
|
(in thousands)
|
||||||||||||||
Restructuring
|
$
|
1,000
|
|
|
$
|
—
|
|
|
$
|
8,725
|
|
|
$
|
—
|
|
Percent of revenue
|
0.8
|
%
|
|
—
|
%
|
|
3.3
|
%
|
|
—
|
%
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
|
(in thousands)
|
||||||||||||||
Interest income
|
$
|
2,665
|
|
|
$
|
659
|
|
|
$
|
4,484
|
|
|
$
|
1,272
|
|
Interest expense
|
(8,791
|
)
|
|
(3,340
|
)
|
|
(17,491
|
)
|
|
(6,642
|
)
|
||||
Other, net
|
(2,250
|
)
|
|
348
|
|
|
(2,206
|
)
|
|
545
|
|
||||
Total
|
$
|
(8,376
|
)
|
|
$
|
(2,333
|
)
|
|
$
|
(15,213
|
)
|
|
$
|
(4,825
|
)
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
|
(in thousands)
|
||||||||||||||
Income tax provision
|
$
|
(536
|
)
|
|
$
|
(364
|
)
|
|
$
|
(1,069
|
)
|
|
$
|
(935
|
)
|
|
Six Months Ended
June 30,
|
||||||
|
2018
|
|
2017
|
||||
Net cash provided by (used in) operating activities
|
$
|
12,648
|
|
|
$
|
(5,611
|
)
|
Net cash provided by investing activities
|
53,244
|
|
|
21,739
|
|
||
Net cash (used in) provided by financing activities
|
(8,713
|
)
|
|
6,311
|
|
Period
|
|
# of Shares Repurchased
|
|
Average Price per Share
|
|
Total Expenditures
|
|
Amount Remaining Under Program
|
|||||||
November 8, 2017 - December 31, 2017
|
|
635
|
|
|
$
|
35.55
|
|
|
$
|
22,599
|
|
|
|
||
January 1, 2018 - March 31, 2018
|
|
423
|
|
|
$
|
37.84
|
|
|
16,024
|
|
|
|
|||
April 1, 2018 - June 30, 2018
|
|
444
|
|
|
$
|
46.66
|
|
|
20,718
|
|
|
|
|||
Subtotal
|
|
1,502
|
|
|
$
|
39.48
|
|
|
$
|
59,341
|
|
|
$
|
40,659
|
|
|
|
|
|
|
|
|
|
|
|||||||
July 1, 2018 - August 3, 2018
|
|
43
|
|
|
$
|
47.15
|
|
|
2,010
|
|
|
|
|||
Total
|
|
1,545
|
|
|
$
|
39.69
|
|
|
$
|
61,351
|
|
|
$
|
38,649
|
|
ITEM 3.
|
Quantitative and Qualitative Disclosures About Market Risk
|
ITEM 4.
|
Controls and Procedures
|
ITEM 1.
|
Legal Proceedings
|
ITEM 1A.
|
Risk Factors
|
•
|
the need to educate potential clients about the uses and benefits of our products;
|
•
|
the relatively long duration of the commitment clients make in their agreements with us;
|
•
|
the discretionary nature of potential clients’ purchasing and budget cycles and decisions;
|
•
|
the competitive nature of potential clients’ evaluation and purchasing processes;
|
•
|
the lengthy purchasing approval processes of potential clients;
|
•
|
the evolving functionality demands of potential clients;
|
•
|
fluctuations in the human capital management needs of potential clients; and
|
•
|
announcements or planned introductions of new products by us or our competitors.
|
•
|
changes in billing cycles and the size of advance payments relative to overall contract value in client agreements;
|
•
|
the extent to which new clients are attracted to our products to satisfy their human capital management needs;
|
•
|
the timing and rate at which we sign agreements with new clients;
|
•
|
our access to service providers and partners when we outsource client service projects and our ability to manage the quality and completion of the related client implementations;
|
•
|
the timing and duration of our client implementations, which is often outside of our direct control;
|
•
|
our ability to provide, or partner with effective partners to provide, resources for client implementations and consulting projects;
|
•
|
the extent to which we retain existing clients and satisfy their requirements;
|
•
|
the extent to which existing clients renew their subscriptions to our products and the timing of those renewals;
|
•
|
the extent to which existing clients purchase or discontinue the use of additional products and add or decrease the number of users;
|
•
|
the extent to which our clients request enhancements to underlying features and functionality of our products and the timing of our delivery of these enhancements to our clients;
|
•
|
the addition or loss of large clients, including through acquisitions or consolidations;
|
•
|
the number and size of new clients, as well as the number and size of renewal clients in a particular period;
|
•
|
the mix of clients among small, mid-sized and large organizations;
|
•
|
changes in our pricing policies or those of our competitors;
|
•
|
seasonal factors affecting demand for our products or potential clients’ purchasing decisions;
|
•
|
the financial condition and creditworthiness of our clients;
|
•
|
the amount and timing of our operating expenses, including those related to the maintenance, expansion and restructuring of our business, operations and infrastructure;
|
•
|
changes in the operational efficiency of our business;
|
•
|
the timing and success of our new product and service introductions;
|
•
|
the timing of expenses of the development of new products and technologies, including enhancements to our products;
|
•
|
our ability to exploit Big Data to drive increased demand for our products;
|
•
|
continued strong demand for human capital management in the U.S. and globally;
|
•
|
our ability to successfully integrate our operations with those of acquired privately-held companies;
|
•
|
the success of current and new competitive products and services by our competitors;
|
•
|
other changes in the competitive dynamics of our industry, including consolidation among competitors, clients or strategic partners;
|
•
|
our ability to manage our existing business and future growth, including in terms of additional headcount, additional clients, incremental users and new geographic regions;
|
•
|
expenses related to our network and data centers and the expansion of such networks and data centers;
|
•
|
the effects of, and expenses associated with, acquisitions of third-party technologies or businesses and any potential future charges for impairment of goodwill resulting from those acquisitions;
|
•
|
equity issuances, including as consideration in acquisitions or due to the conversion of our outstanding convertible notes due 2021;
|
•
|
business disruptions, costs and future events related to shareholder activism;
|
•
|
legal or political changes in local or foreign jurisdictions that decrease demand for, or restrict our ability to sell or provide, our products;
|
•
|
fluctuations in foreign currency exchange rates, including any fluctuation caused by uncertainties relating to Brexit;
|
•
|
general economic, industry and market conditions; and
|
•
|
various factors related to disruptions in our SaaS hosting network infrastructure, defects in our products, privacy and data security and exchange rate fluctuations, each of which is described elsewhere in these risk factors.
|
•
|
unanticipated costs or liabilities associated with the acquisition;
|
•
|
incurrence of acquisition-related costs;
|
•
|
diversion of management’s attention from other business concerns;
|
•
|
harm to our existing relationships with distributors and clients as a result of the acquisition;
|
•
|
the potential loss of key employees;
|
•
|
exposure to claims and disputes by third parties, including intellectual property claims and disputes;
|
•
|
the use of resources that are needed in other parts of our business; and
|
•
|
the use of substantial portions of our available cash to consummate the acquisition.
|
•
|
human error;
|
•
|
security breaches;
|
•
|
telecommunications outages from third-party providers;
|
•
|
computer viruses;
|
•
|
acts of terrorism, sabotage or other intentional acts of vandalism, including cyber attacks;
|
•
|
unforeseen interruption or damages experienced in moving hardware to a new location;
|
•
|
fire, earthquake, flood and other natural disasters; and
|
•
|
power loss.
|
•
|
lost or delayed market acceptance and sales of our products;
|
•
|
early termination of client agreements or loss of clients;
|
•
|
credits or refunds to clients;
|
•
|
product liability suits against us;
|
•
|
diversion of development resources;
|
•
|
injury to our reputation; and
|
•
|
increased maintenance and warranty costs.
|
•
|
unexpected changes in regulatory requirements, taxes, trade laws, tariffs, export quotas, custom duties or other trade restrictions;
|
•
|
differing labor regulations;
|
•
|
regulations relating to data security and the unauthorized use of, or access to, commercial and personal information;
|
•
|
potential penalties or other adverse consequences for violations of anti-corruption, anti-bribery and other similar laws and regulations, including the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act;
|
•
|
greater difficulty in supporting and localizing our products;
|
•
|
unrest and/or changes in a specific country’s or region’s social, political, legal or economic conditions;
|
•
|
challenges inherent in efficiently managing an increased number of employees over large geographic distances, including the need to implement appropriate systems, controls, policies, benefits and compliance programs;
|
•
|
currency exchange rate fluctuations, including any fluctuations caused by uncertainties relating to Brexit;
|
•
|
limited or unfavorable intellectual property protection; and
|
•
|
restrictions on repatriation of earnings.
|
•
|
Selling to governmental entities can be more competitive, expensive and time-consuming than selling to private entities, often requiring significant upfront time and expense without any assurance that these efforts will generate a sale;
|
•
|
Government certification requirements may change, or we may lose one or more government certifications, such as FedRAMP, and in doing so restrict our ability to sell into the government sector until we have attained revised certificates;
|
•
|
Governmental entities may have significant leverage in negotiations, thereby enabling such entities to demand contract terms that differ from what we generally agree to in our standard agreements, including, for example, most favored nation clauses and terms allowing contract termination for convenience;
|
•
|
Government demand and payment for our products may be influenced by public sector budgetary cycles and funding authorizations, with funding reductions or delays having an adverse impact on public sector demand for our products; and
|
•
|
Government contracts are generally subject to audits and investigations, which we have limited experience with, potentially resulting in termination of contracts, refund of a portion of fees received, forfeiture of profits, suspension of payments, fines and suspensions or debarment from future government business.
|
•
|
our operating performance and the performance of other similar companies;
|
•
|
the financial or non-financial metric projections we provide to the public, including the failure of the projections to meet the expectations of securities analysts or investors, and any changes in these projections or our failure to meet or exceed these projections;
|
•
|
the overall performance of the equity markets;
|
•
|
developments with respect to intellectual property rights;
|
•
|
publication of unfavorable research reports about us or our industry or withdrawal of research coverage by securities analysts;
|
•
|
speculation in the press or investment community;
|
•
|
the size of our public float;
|
•
|
natural disasters or terrorist acts;
|
•
|
actual or perceived data security incidents that we or our service providers may suffer;
|
•
|
announcements by us or our competitors of significant contracts, new technologies, acquisitions, commercial relationships, joint ventures or capital commitments; and
|
•
|
global economic, legal and regulatory factors unrelated to our performance.
|
•
|
authorize “blank check” preferred stock, which could be issued by the board without stockholder approval and may contain voting, liquidation, dividend and other rights superior to our common stock;
|
•
|
create a classified board of directors (that is being phased out over the next two years) whose members serve staggered three-year terms;
|
•
|
specify that special meetings of our stockholders can be called only by our board of directors, the chairperson of the board, the chief executive officer or the president;
|
•
|
establish an advance notice procedure for stockholder approvals to be brought before an annual meeting of our stockholders, including proposed nominations of persons for election to our board of directors;
|
•
|
provide that our directors may be removed only for cause until the 2021 annual meeting of stockholders when our directors may be removed either with or without cause;
|
•
|
provide that vacancies on our board of directors may be filled only by a majority of directors then in office, even though less than a quorum;
|
•
|
specify that no stockholder is permitted to cumulate votes at any election of directors; and
|
•
|
require supermajority votes of the holders of our common stock to amend specified provisions of our charter documents.
|
ITEM 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds
|
Period
|
|
# of Shares Repurchased
|
|
Average Price per Share
|
|
Total Number of Shares Purchased as Part of Publicly Announced Program (1)
|
|
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program (1)
|
||||||
April 1, 2018 - April 30, 2018
|
|
101
|
|
|
$
|
39.67
|
|
|
101
|
|
|
|
||
May 1, 2018 - May 31, 2018
|
|
212
|
|
|
$
|
48.46
|
|
|
212
|
|
|
|
||
June 1, 2018 - June 30, 2018
|
|
131
|
|
|
$
|
49.11
|
|
|
131
|
|
|
|
||
Total
|
|
444
|
|
|
$
|
46.66
|
|
|
444
|
|
|
$
|
40,659
|
|
(1)
|
In November 2017, our board of directors authorized a $100.0 million share repurchase program of our common stock. We may repurchase our common stock for cash in the open market in accordance with applicable securities laws. The timing and amount of any stock repurchase will depend on share price, corporate and regulatory requirements, economic and market conditions, and other factors. The stock repurchase authorization will expire in November 2019 and shares repurchased will be immediately retired
.
|
ITEM 3.
|
Defaults Upon Senior Securities
|
ITEM 4.
|
Mine Safety Disclosures
|
ITEM 5.
|
Other Information
|
ITEM 6.
|
Exhibits
|
*
|
Indicates a management contract or compensatory plan or arrangement
|
†
|
The certifications attached as Exhibit 32.1 and 32.2 that accompany this Quarterly Report on Form 10-Q are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of Cornerstone OnDemand, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing.
|
††
|
The financial information contained in these XBRL documents is unaudited.
|
Cornerstone OnDemand, Inc.
|
(Registrant)
|
|
/s/ Brian L. Swartz
|
Brian L. Swartz
|
Chief Financial Officer
|
(Duly Authorized Officer and Principal Financial and Accounting Officer)
|
By:
|
Commingled Pension Trust Fund (Strategic Property) of JPMorgan Chase Bank, N.A., a Member
|
By:
|
JPMorgan Chase Bank, N.A., as Trustee
|
Name:
Lauren B. Graham
|
|
Period Following Expansion Space A
Commencement Date
|
Annual Expansion Space A
Base Rent
|
Monthly Installment of Expansion Space A
Base Rent
|
Monthly Rental Rate per Rentable Square Foot
(Rounded)
|
||||||
January 1, 2016 - December 31, 2016
|
$
|
1,125,480.00
|
|
$
|
93,790.00
|
|
$
|
5.000
|
|
January 1, 2017 - December 31, 2017
|
$
|
1,164,871.80
|
|
$
|
97,072.65
|
|
$
|
5.175
|
|
January 1, 2018 - December 31, 2018
|
$
|
1,205,614.20
|
|
$
|
100,467.85
|
|
$
|
5.356
|
|
January 1, 2019 - January 31, 2019
|
NA
|
$
|
103,975.59
|
|
$
|
5.543
|
|
Period Following Expansion Space B
Commencement Date
|
Annual Expansion Space B
Base Rent
|
Monthly Installment of Expansion Space B
Base Rent
|
Monthly Rental Rate per Rentable Square Foot
(Rounded)
|
||||||
September 1, 2017 - December 31, 2017
|
NA
|
$
|
43,356.15
|
|
$
|
5.175
|
|
||
January 1, 2018 - December 31, 2018
|
$
|
538,470.84
|
|
$
|
44,872.57
|
|
$
|
5.356
|
|
January 1, 2019 - January 31, 2019
|
NA
|
$
|
46,439.25
|
|
$
|
5.543
|
|
Reduction Date
|
New Original LC Stated Amount
|
||
November 30, 2015
|
$
|
571,608.66
|
|
November 30, 2016
|
$
|
428,706.49
|
|
November 30, 2017
|
$
|
285,804.32
|
|
November 30, 2018
|
$
|
142,902.15
|
|
Reduction Date
|
New Additional LC Stated Amount
|
||
August 31, 2016
|
$
|
434,250
|
|
August 31, 2017
|
$
|
289,500
|
|
August 31, 2018
|
$
|
144,750
|
|
By:
|
Commingled Pension Trust Fund (Strategic Property) of JPMorgan Chase Bank, N.A., a Member
|
By:
|
JPMorgan Chase Bank, N.A., as Trustee
|
Period Following Extension Commencement Date
|
Annual Base Rent
|
Monthly Installment of Base Rent
|
Monthly Rental Rate per Rentable Square Foot (rounded)
|
||||||
February 1, 2019 – January 31, 2020
|
$
|
6,595,430.40
|
|
$
|
549,619.20
|
|
$
|
5.850
|
|
February 1, 2020 – January 31, 2021
|
$
|
6,826,552.32
|
|
$
|
568,879.36
|
|
$
|
6.055
|
|
February 1, 2021 – January 31, 2022
|
$
|
7,065,566.16
|
|
$
|
588,797.18
|
|
$
|
6.267
|
|
February 1, 2022 – January 31, 2023
|
$
|
7,312,472.04
|
|
$
|
609,372.67
|
|
$
|
6.486
|
|
February 1, 2023 – January 31, 2024
|
$
|
7,568,397.36
|
|
$
|
630,699.78
|
|
$
|
6.713
|
|
Reduction Date
|
New LC Stated Amount
|
||
January 31, 2020
|
$
|
1,435,350
|
|
January 31, 2021
|
$
|
1,076,512
|
|
January 31, 2022
|
$
|
717,674
|
|
January 31, 2023
|
$
|
358,836
|
|
EMPLOYEE NAME:
|
Vincent Belliveau
|
TYPE:
|
Team
|
EMPLOYEE TITLE:
|
Executive Vice President & General Manager EMEA
|
DIVISION:
|
EMEA
|
EFFECTIVE DATE:
|
1/1/2018
|
TERM:
|
Effective Date through 31 Dec 2018
|
1)
|
Definitions.
|
a)
|
Portfolio
” means the territory and/or accounts assigned to you by your manager.
|
b)
|
“
SKU
” means an approved product or service offered for sale by Cornerstone.
|
c)
|
“
Sale
” means a written agreement, amendment, addendum, and/or statement of work with approved pricing between Cornerstone and a customer/distributor in your Portfolio for a SKU, duly executed on behalf of Cornerstone by its CEO or an authorized designee. For clarity, each SKU sale shall be deemed a separate Sale.
|
d)
|
“
Approved Sale
” means a Sale that occurs during the Term.
|
e)
|
“
Prior Sale
” means a Sale that occurred prior to the Term and is being renewed by an Approved Sale.
|
f)
|
“
Costs
” means amounts owed by Cornerstone to third parties directly resulting from the sale of software and/or services (i.e., referral fees, content fees, etc.).
|
g)
|
“
Revenue
” means the total fee(s) contractually committed in a Sale (i.e., across all years) at the time of its execution, less Costs (except in cases where Cornerstone at its discretion has waived the discount for Costs).
|
h)
|
“
Content Revenue
” means, for a given Approved Sale, fifty percent (50%) of total eLearning course and/or related content fee(s) contractually committed in the Approved Sale at the time of its execution. Notwithstanding the foregoing, if the duration of the Approved Sale is one (1) year or longer, Content Revenue will be calculated as fifty percent (50%) of total eLearning course and/or related content fee(s) contractually committed in the Approved Sale at the time of its execution, divided by the number of days in the Approved Sale, multiplied by three hundred sixty-five (365).
|
i)
|
“
Recurring
” means Revenue, excluding Content Revenue, invoiced on a recurring basis during the applicable Sale, whether or not the exact same amount is invoiced for each period (i.e., a “ramping” deal).
|
j)
|
“
One-Time
” means Revenue, excluding Content Revenue, invoiced on a non-recurring basis that Cornerstone determines is eligible for Commissions. Refer to Sales Wiki for a list of all SKUs eligible for One-Time Revenue Commissions.
|
k)
|
“
Annual Recurring Revenue
” or “
ARR
” means, for a Sale with a duration of: (A) one (1) year or longer, total Recurring Revenue, divided by the number of days in the Sale, multiplied by three hundred sixty-five (365); (B) shorter than one (1) year, total Recurring Revenue.
|
l)
|
“
Year
” means each 12-month period of an Approved Sale, with Year 1 beginning on the Approved Sale start date.
|
m)
|
“
Co-Terminous
” means an Approved Sale set to co-terminate with another Sale.
|
n)
|
“
Equivalent Full-Year Value
” means, for an Approved Sale of less than one (1) year, the annualized value of Recurring Revenue.
|
o)
|
“
Baseline
” means, for a Prior Sale, the greater of its: (i) ARR; or (ii) total Recurring Revenue in the last full Year of the Prior Sale.
|
p)
|
“
Incremental
” means incremental ARR of an Approved Sale in excess of the aggregate Baseline of all Prior Sales, if any.
|
q)
|
“
Quota
” means the combined Incremental ARR and Content Revenue value set forth in Section 3.
|
r)
|
“
Commission
” means incentive compensation relating to procurement of an Approved Sale, calculated as a percentage of applicable Revenue.
|
2)
|
Earned Commissions
|
a)
|
There is a valid Approved Sale in place including the Revenue upon which the Commission/bonus is based.
|
b)
|
The Year to which the underlying Revenue is attributable has begun.
|
c)
|
There are no terms or conditions in the Approved Sale which might adversely affect Cornerstone’s ability to recognize revenue (this condition may be waived by Cornerstone in writing on a case-by-case basis).
|
d)
|
You (or, in the case of a manager, your team) were/was primarily responsible for procuring the Approved Sale.
|
e)
|
You are employed by Cornerstone on the applicable Payment Date (defined below).
|
3)
|
Quota:
|
4)
|
Commission Rates
.
|
a)
|
Regular Commission Rates
. Regular Commissions for the following Revenue types are as follows:
|
i)
|
Incremental Recurring, Baseline, Content:
|
If the initial term of the Approved Contract is:
|
Your Commission for:
|
|||||||
Year 1
|
Year 2
|
Year 3
|
||||||
Incremental
|
Baseline
|
Content
|
Incremental
|
Baseline
|
Content
|
Incremental
|
Baseline
|
|
2 + years
|
1.25%
|
0.31%
|
1.25%
|
0.62%
|
0.19%
|
0.25%
|
0.37%
|
0.06%
|
1-2 years
|
1.25%
|
0.19%
|
0.31%
|
0.51%
|
0.06%
|
|
|
|
1 year or less
|
1.25%
|
0.06%
|
0.31%
|
|
|
|
|
|
b)
|
Accelerated Commission Rates
.
|
When Quota achievement reaches:
|
Commissions on Incremental
Revenue exceeding the applicable Quota threshold shall be paid according to the following, mutually exclusive accelerated rates (applies only to Year 1 Commissions):
|
100%
|
1.87%
|
125%
|
2.18%
|
If you achieve the following Quota milestone by the following date:
|
You will be eligible for a bonus of:
|
$4,044,000 by March 31, 2018
|
€ 5,000.00
|
$9,800,000 by June 30, 2018
|
€ 5,000.00
|
$16,826,000 by September 30, 2018
|
€ 5,000.00
|
$27,000,000 by December 31, 2018
|
€ 5,000.00
|
6)
|
Payment of Commissions and Bonus
.
|
7)
|
Termination of Your Employment.
|
a)
|
If you are an at-will employee, nothing contained in this document in any way changes or limits the “at-will” nature of the employment relationship between Cornerstone and you.
|
b)
|
In the event that your employment with Cornerstone terminates, you will only be paid for Earned Commissions/Bonuses earned on or prior to the date of your termination or transfer.
|
8)
|
Miscellaneous.
|
a)
|
Nothing in this document obligates Cornerstone to enter into any Approved Contracts or other agreements with any customer or otherwise.
|
b)
|
You are expected to follow the official Cornerstone pricing guidelines, which are subject to change from time to time at Cornerstone's sole discretion.
|
c)
|
The Plan supersedes and replaces any all prior commission and bonus plans, as well as any prior written or verbal discussions, agreements or understandings with respect to the bonuses, commissions and similar items of compensation for sales made during the Term.
|
d)
|
In the event that any provision or any portion of any provision hereof becomes or is declared by a court or administrative agency of competent jurisdiction to be illegal, unenforceable, or void, this Plan shall continue in full force and effect without said provision or portion of provision.
|
e)
|
The law governing the Plan, as well as venue for any action, shall be the state where the employee is employed.
|
f)
|
Notwithstanding anything to the contrary herein, all calculations regarding Quota, Revenue and Commissions are subject at all times to applicable conflict, teaming, and referral rules, which shall be made available to you online (link to be provided).
|
1.
|
|
I have reviewed this Quarterly Report on Form 10-Q of Cornerstone OnDemand, Inc.;
|
2.
|
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
(b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
(c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
(d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
|
(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
|
(b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
/s/ Adam L. Miller
|
Adam L. Miller
|
President and Chief Executive Officer
|
1.
|
|
I have reviewed this Quarterly Report on Form 10-Q of Cornerstone OnDemand, Inc.;
|
2.
|
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
(b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
(c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
(d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
|
(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
|
(b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
/s/ Brian L. Swartz
|
Brian L. Swartz
|
Chief Financial Officer
|
/s/ Adam L. Miller
|
Adam L. Miller
|
President and Chief Executive Officer
|
/s/ Brian L. Swartz
|
Brian L. Swartz
|
Chief Financial Officer
|