Q3 2020 Cornerstone OnDemand Inc Earnings Call

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Our strategy, our long term growth and our overall future prospects forward looking statements involve risks uncertainties and assumptions these risks uncertainties and assumptions as well as other factors that could cause actual results could differ materially from those contained in our forward. Looking statements are included in our most recent 10-Q and 10-K as well as subsequent periodic.

Filings with the SEC.

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

Areas, both affected and on affected by Kogut progress well and showed some improvement in the quarter. Again. This is just one quarter and I'm not yet ready to declare victory, but it's an encouraging trajectory and we'll track this together over the months stat.

The opportunity here and over the next few quarters, a former sabat sales rep should be fully arm to position this offering for success within their customers. The bottom line is we see a strong opportunity here in early validation of the strategy our customers are recognizing the specialized value proposition at cornerstone grades.

Combination of curated partner content, plus our own self develop content is addressing our customers needs and a highly differentiated way we begun to roll out the unique programs anchored by the enthusiasm we've started to see for our cornerstone originals micro and nano learning content.

Global acquisition is proving to serve as well.

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

Into tangible reality as part of this wider or design initiative.

Theaters across multiple verticals were dialed into law.

Lower churn and is one element of our virtuous flywheel to success.

Dangerous snapback in the market in order to successfully execute on our transformation.

To that and we are on track to realize the $65 million of synergies are previously shared with you and based on actions. We have taken we expect to have this completed as we enter the new year.

Communities, and making a positive and lasting impact.

Let me now turn the floor over to Trish.

Good afternoon, everyone.

Oh indicated or Tuesday, no came in about the high end of the range, we provided last corner.

<unk> high enough of pattern, the higher than anticipated burnt off the topic legacy backlog several meaningful outperformance on the service line I want it to our expectations.

In addition, or 237, you observe the 19 million dollar headwinds beautiful deferred revenue right down bleeding to file the acquisition.

The combination of stronger than got it subscription revenue and lower than find expensive and able to surpass are operating income guidance by approximately $14 million.

Are on my policy cash flow of $56 million with positively impacted in part due to the timing curtain restructuring integration expenses that we thought would happen in Q3, Oh two now it's back to occur in two four and early 2021.

You'll notice that our client account declined slightly quarter over quarter. The declining places entirely attributed to turn on our non-core sickness experienced sequential growth an encore.

We are adjusting our guidance for two four which given the two three outperformance drive to increase to our full your guidance for revenue and operating account.

Expect our queue for subscription revenue to be in the range of 188 million to 191 million.

From a range of $186 million to 189 million.

We expect our total revenue to be in the range of 194 million to 197 million.

From a range of 193 to 196 million.

But you for a a new guidance include a headwind approximately $13 million to the the deferred revenue in my account.

Makes crashed our queue for operating income to be between 35 and $38 million up from the $33 million applied by our prioritize.

It's unusual contract we would expect through in our ending they are about.

Although it remains early in our 2021 budgeting cycle. We are currently expecting low single digit growth in our total air arc of the full year of 2021, which broke generally ramping through and weighted towards the back half of the year.

We expect declines in our non core or to be more than offset the growth in our core areas of.

Of course, the pace of any macroeconomic or closing related recovery for the duration and magnitude of any continued are decent negative impact from the pandemic unknown and I'll use factors could impact our ending our numbers.

As it relates to our cost structure, we expect to have more precise guidance to share on our next earnings call, but some framework perspective, you should think about us being able to annualize the $65 million and cost savings that we believe that 2020 with offset by some increases due to the annual merit cycle in Q2, a resumption travel and entertainment spending and.

An increase in content royalty fees as we grow our content business.

This will put our cost of revenue plus operating expenses somewhere in the range of about $650 million for 2021.

From a cash flow perspective, we would expect 2020 ones unlevered free cash or to be at least $185 million, which includes approximately $50 million restructuring and integration costs were $235 million before consideration of these onetime costs.

And the stuff that we remain confident in our ability to achieve $1 billion in aerostar, and 30% Unlevered free cash flow margins over time.

With that we'll now take your questions.

Thanks, Phil and good afternoon.

Okay.

Yes.

Thank you, ladies and gentlemen at this time, we'd like to take your questions. If you have a question. Please press Star then one on your Touchtone telephone if.

If your question has been answered or you wish her book yourself from the queue. Please press the pound key.

Once again, if youd like to ask a question at this time. Please press Star then one on your Touchtone telephone.

And our first question is from Rishi Jaluria of D.A. Davidson Your question. Please.

Yes, Hi, guys. This is handed off on furlough issue today. Thanks for taking my question.

First question for you. So I was just wondering if you could talk about if theres been any unexpected points of fiction integration you've seen so far.

Hi, how are you so.

So no unexpected friction points I think it's the normal gravity of putting two companies together as.

As you can probably imagine it's not the easiest thing to do from a work from home code environment, but I would say overall the teams have worked very very well together our values and goals are aligned and I think we're doing quite well so to answer your question specifically no no unexpected friction points.

Great and could you talk about cornerstone can vary Jason how pipeline was coming out of that event.

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