Cornerstone Q1 2020 Earnings Presentation
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Cornerstone Q1 2020 Earnings Presentation
Safe Harbor
This presentation contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are any statements that look to
future events and consist of, among other things, statements regarding our future financial and operating performance, including our GAAP and non-GAAP guidance, the growth of the learning and human capital management market,
our business strategy, the integration of Saba into our business, and our plans and objectives for future operations. In light of the risks and uncertainties outlined below, the future events and circumstances discussed in this presentation may
not occur, and actual results could differ materially from those anticipated or implied in the forward-looking statements. Forward-looking statements should not be read as guarantees of future performance or results, and will not
necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking statements are based on information available at the date of this presentation and management’s good faith
belief as of such date with respect to future events, including management’s current expectations and projections about future events and financial trends affecting our business, and are subject to risks and uncertainties that could cause
actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that could cause such differences include, but are not limited to:
• Statements regarding the Company’s business strategies;
• The Company’s anticipated future operating results and operating expenses;
• The Company’s ability to attract new clients to enter into subscriptions for its solutions, to service those clients effectively and to induce them to renew and upgrade their deployments of the Company’s solutions;
• The Company’s ability to expand its sales organization to address effectively the new industries, geographies and types of organizations the company intends to target;
• The Company’s ability to accurately forecast revenue and appropriately plan its expenses; market acceptance of enhanced solutions, alternate ways of addressing people development needs or new technologies generally by the
Company and its competitors; continued acceptance of SaaS as an effective method for delivering people development solutions and other business management applications;
• The Company’s ability to protect and defend its intellectual property; costs associated with defending intellectual property infringement and other claims;
• The effects on the Company of global outbreaks of pandemics or contagious diseases or fear of such outbreaks, such as the recent COVID-19 pandemic;
• Events in the markets for the Company’s solutions and alternatives to the Company’s solutions, as well as in the United States and global markets generally; future regulatory, judicial and legislative changes in the Company’s industry;
changes in the competitive environment in the Company’s industry and the markets in which the Company operates;
• The failure to achieve expected synergies and efficiencies of operations between Cornerstone and Saba; the ability of Cornerstone and Saba to successfully integrate their respective market opportunities, technology, products,
personnel and operations;
• The other factors discussed under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s periodic reports filed with the Securities and Exchange Commission (the
“SEC”).
In addition, forward-looking statements also consist of statements involving trend analyses and statements including such words as “may,” “believe,” “could,” “anticipate,” “would,” “might,” “plan,” “expect,” and similar expressions or the
negative of such terms or other comparable terminology. Forward-looking statements speak only as of the date of this presentation. You should not put undue reliance on any forward-looking statement. The Company assumes no
obligation to update any forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting future performance or results, except to the extent required by applicable laws. If the Company
updates one or more forward-looking statements, no inference should be drawn that it will make additional updates with respect to those or other forward-looking statements.
In addition to U.S. GAAP financials, this presentation includes certain non-GAAP financial measures. These non-GAAP financial measures are in addition to, not a substitute for or superior to, measures of financial performance prepared in
accordance with U.S. GAAP. Please see the discussion of these non-GAAP financial measures and their reconciliations to the most directly comparable U.S. GAAP measures at the end of this presentation.
The financial information of Saba included in this presentation is preliminary, unaudited and subject to revision upon completion of closing and audit processes.
2
Welcome and COVID-19 Update
3
Business Resiliency
COVID-19 Response:
• Work from home beginning March 11
• Addressing client hardships
• Launch of Cornerstone Cares
• Launch of Remote Work Essentials
• Extensive scenario planning
• Liquidity stress testing
4
COVID has Brought Challenges
• New logo acquisition
• Cross-sells
5
Highly Diversified ARR….
(CSOD + Saba)
2019 ARR Breakdown by Segment
Others
Telecommunication
Utilities Healthcare
CSOD Saba
Food & Beverage
Industry Exposure Exposure
Media & Entertainment
Technology Hotels, restaurants &
Public Sector leisure 3% 3%
Pharmaceuticals & Life Sciences
Education Specialty retail 2% 2%
Consumer Services
Automobiles
Professional Services
Airlines 1% 1%
Oil, gas & consumable
Materials
fuels 1% 1%
Banks
Insurance
Retailing
Capital Goods
Transportation
Software & Services
Diversified Financials
Notes:
1 - Chart is drawn approximately to scale and not intended to be a precise measurement tool 6
2 – Cornerstone and Saba stand-alone exposures refer to their respective percentage of total ARR by segment
….that is also Primarily Up-market (ARR)
(CSOD + Saba)
2019 ARR Breakdown by Company Size
Less than 500 Employees
Customers with greater than 500
Employees
Chart is drawn approximately to scale and not intended to be a precise measurement tool 7
Dollars of ARR Up for Renewal in 2020
(CSOD + Saba)
Real Estate
Household & Personal Products Others
Healthcare
Energy
Consumer Goods
Media Professional Services
Materials
Food & Beverage
CSOD Saba
Non-Profit Industry Exposure Exposure
Telecommunication
Hotels, restaurants & leisure 2% 2%
Utilities
Consumer Services
Specialty retail 2% 3%
Technology
Airlines 1% 1%
Pharmaceuticals & Life Science
Capital Goods
Automobiles Oil, gas & consumable fuels 0% 0%
Insurance
(1)
Public Sector
Software & Services
Banks
Education Retail
Transportation Financials
Notes:
1 – Chart is drawn approximately to scale and not intended to be a precise measurement tool
2 – Cornerstone and Saba stand-alone exposures refer to their respective percentage of total ARR by segment 8
(1)Excludes United States Postal Services and US Census
Response: Stress-Testing our Liquidity
Q1:20 Q2:20 Q3:20 Q4:20 Q1:21 Q2:21 Q3:21 Q4:21
Total Liquidity
Even if we sell $0 in new ARR between Q2 2020 and Q4 2021,
we expect our pro forma liquidity to grow and exceed $225M at the end of 2021
(1) Q1 20 is pro-forma liquidity assuming the Saba acquisition closed
(2) Assumes flat renewal rates for CSOD and an increase in churn for Saba 9
(3) Chart is drawn approximately to scale and not intended to be a precise measurement tool
Financial Review
10Q1 Performance
Q1 2019 Q1 2020 Q1 2020 Difference
Q1 2019 GAAP Guidance
Non-GAAP GAAP Non-GAAP (from midpt)
Subscription Revenue $131.3M $131.3M $144.4M $144.4M $143.0 - $145.0 $0.4M
Total Revenue $140.1M $140.1M $150.1M $150.1M $147.0 - $150.0 $1.6M
Low Teens
Operating Margin 0.9% 14.0% (1.8%) 16.6% Operating ~4pts
Margin
Notes: 11
1 – Please see the appendix for a GAAP to Non-GAAP reconciliationSaba Transaction
12Summary of Transaction Terms
($ in millions)
$1,500
$1,395M
$1,400
$1,295M
$1,300 (1)
$1,200
$1,100
$1,000
$900
$800
$700
$600
$500
Price at Annoucement Final Purchase Price (2)
Cash Equity
(1) 1,110,352 shares of common stock were issued at $0.0001 par value. $29.62 on closing date (April 22, 2020) and $55.05 on the announcement date (February 24, 2020) 13
(2) Buyer also agreed to pay certain seller transaction fees, which are not included hereOur Industrial Logic of Deal
Together we are Bigger and Stronger
We believe the combination offers huge benefits
INNOVATION REACH CASH FLOW
14Strong History of Technological Innovation
Now Accelerated with Significantly More Resources Globally
+60% 2020
Lower-Cost Innovation Resources
Artificial Intelligence
2010
1999 Open Platforms
Big Data
Mobile
Secure
Global
Multitenant Cloud
15Combined 7000+ Clients
Combined ~7,000 Global Clients
including many of the world’s leading companies
Notes:
16
1 – Number of clients is approximate and as of 12/31/2019 for the combined Cornerstone + SabaGrowing Synergies
Updated
Guidance Synergy Drivers (1)
Go-To-Market Teams
At Non-Labor Synergies
Announcement
Facilities / Real Estate
$50M
Run-rate Infrastructure
achievement by
$35M 12.31.2020 (2)
Labor Synergies Overhead and Vendor Spend
24 months to
achieve
Back Office Support Functions
(1) Categories not drawn to scale 17
(2) Assumes that the synergies achieved in December 2020 multiplied by 12 = $50M. Excludes one-time costs to achieve these synergies.Transaction Cash Flow Economics
$136M
$15M
Incremental Synergies
Updated $50M target(2)
$35M
Synergies
The transaction drives ~$80M of
net incremental cash flow
$86M
2019 uFCF
~$55M (1)
Incremental Annual
Interest Expense
(1) Incremental annual interest expense is approximate until the actual interest rate is set post-syndication and only relates to the Term Loan B. Total transaction economics should also consider an additional 1,110,352 shares of
common stock that were issued as part of the transaction. 18
(2) Excludes one-time costs related to achieving synergiesDisaggregation of Saba’s Historical ARR
$136M
in Learning + Recruiting ARR
2019 = ~22% YoY
Growth
$243M $63M
in Performance ARR
in ARR 2019 = (9%) YoY
Growth
2019 = +2% YoY
Growth
$44M
in Migration ARR
2019 = (23%) YoY
Growth
Notes: 19
1 - Growth figures are historical for 2019 and not meant to be indicative of future growth guidanceSynergized 2019 Pro Forma Unlevered Free Cash Flow
$50M
Synergies
$86M
2019 uFCF $226M
uFCF
+
$90M
2019 uFCF
20Sales Integration Plan
1 2 3
Create “all star team” Develop “best of both Develop “best of both
of the best direct and worlds” go-to-market worlds” compensation
client sales reps strategies plans
21Product Vision
22Business Unbound
A Vision and New Strategies for the New World of Work
23Learning is the Accelerator
Covid-19
Accelerant
24Learning Unbound
To Enable Personalized Learning Anytime, Anywhere
External Curated Content In The Flow Of Work In Context Of Skill Gaps
25AI-Based Personalized Coaching
To Empower Employees
Personalized Career Navigation Evolved Coaching Guidance Tailored Action Steps
26Holistic Employee Data
To Make Better People Decisions
Deep Employee Skill Profiles Skill-based Recommendations Skill Gap Analysis & Actions
27Points of Integration with Saba
Cornerstone Cornerstone Cornerstone Cornerstone Cornerstone Cornerstone Recruiting Cornerstone
Learning Development Content Anytime Performance Careers HR
+ + + +
Saba Saba Saba Saba
Meeting Cloud TalentLink CRM Org Planning
+
Saba
Classroom
28Immediate Cross-Sale Opportunities
Learning Performance Recruiting & HR
CCA for Saba Learning If client moves from TalentSpace to:
TalentLink
*Standalone Only
Saba Meeting for Cornerstone Performance
Cornerstone Learning
Cornerstone Careers
Saba Classroom for Saba Org Planning for
Cornerstone Learning Cornerstone HR
29Financial Review
30Q1 Performance
Q1 2019 Q1 2019 Non- Q1 2020 Q1 2020
Adjustments(1) Guidance Difference
GAAP GAAP GAAP Non-GAAP
Subscription Revenue $131.3M $131.3M $144.4M $-M $144.4M $143.0 - $145.0 $0.4M
Total Revenue $140.1M $140.1M $150.1M $-M $150.1M $147.0 - $150.0 $1.6M
Cost of Sales $33.7M $31.3M $41.9M $(3.8M) $38.1M
Gross Margin 76.0% 77.7% 72.1% 74.6%
S&M Expenses $54.5M $48.5M $55.3M $(7.8M) $47.6M
% of Revenue 38.9% 34.6% 36.9% 31.7%
R&D Expenses $27.7M $23.6M $24.1M $(3.4M) $20.7M
% of Revenue 19.8% 16.8% 16.0% 13.8%
G&A Expenses $22.9M $17.2M $24.7M $(5.9M) $18.8M
% of Revenue 16.4% 12.3% 16.5% 12.5%
Acquisition-related Costs $-M $-M $6.8M $(6.8M) $-M
Low Teens
Operating Margin 0.9% 14.0% (1.8%) 16.6% Operating Margin ~4pts
Notes: 31
(1) Please see the appendix for a GAAP to Non-GAAP reconciliationSummary of Transaction Terms
($ in millions)
$1,500
$1,395M
$1,400
$1,295M
$1,300 (1)
$1,200
$1,100
$1,000
$900
$800
$700
$600
$500
Price at Annoucement Final Purchase Price (2)
Cash Equity
(1) 1,110,352 shares of common stock were issued at $0.0001 par value. $29.62 on closing date (April 22, 2020) and $55.05 on the announcement date (February 24, 2020)
32
(2) Buyer also agreed to pay certain seller transaction fees, which are not included hereComponents of Debt
Term Loan B Revolving LOC 5.75% Convertible
• $1,005M • $150M, $50M initially available • $300M
• LIBOR + margin w/ cap (1) • LIBOR + margin w/ cap (1) • 5.75% cash coupon
• Maturity: 7 years, quarterly • Maturity: 5 years • Interest paid semi-annually in
interest payment January and July
• Maturity extended to March
• Mandatory principal payments: 2023
1% annually, paid quarterly
• Convertible @ $42/ share into
7.14M shares
Due to volatility in the debt markets, the deal was closed and funded prior
to marketing efforts being undertaken
(1) Final margin will be determined by market pricing 33Pro Forma Capitalization and Liquidity
Q1 2020 Adjustments Pro Forma Q1 2020
($MM) Amount Amount Leverage(1)
Cash & Cash Equivalents $456 ($342)2 $114 (0.4x)
Revolving Credit Facility ($150MM) - - - -
New Term Loan B - $1,005 1,005 3.7x
Total Secured Debt $0 $1,005 3.7x
Net Secured Debt ($456) $891 3.2x
5.75% Senior Convertible Notes 300 - 300 1.1x
Total Debt $300 $1,305 4.8x
Net Debt ($156) $1,191 4.3x
Market Capitalization @ $32/share 1,961 $36(2) 1,997
Total Capitalization $1,805 $3,188
Cash & Cash Equivalents $114
Available Revolving Credit Facility 50
Total Liquidity $164
(1) Denominator used for leverage is calculated as: LTM proforma non-GAAP Operating Income plus depreciation, amortization and $50 million of synergies, excluding one-time costs to achieve those synergies. 34
(2) Market value of shares issued to sellersNet Leverage = 4.3x
35Financial Framework
36Liquidity Grows Even Without New Sales
One-time fees and lack of full
synergy realization weigh on
cash flow in the early quarters
By 2H:2020, one-time costs
start to dissipate, and synergy
realization reaches full
potential, lifting cash flow,
Assume no new ARR despite the soft ARR.
sold after Q1: 2020
Q1:20 Q2:20 Q3:20 Q4:20 Q1:21 Q2:21 Q3:21 Q4:21
Total Liquidity New ARR
Even if we sell $0 in new ARR between Q2 2020 and Q4 2021,
we expect our pro forma liquidity to grow and exceed $225M at the end of 2021
(1) Q1 20 is pro-forma liquidity assuming the Saba acquisition closed
(2) Assumes flat renewal rates for CSOD and an increase in churn for Saba 37
(3) Chart is drawn approximately to scale and not intended to be a precise measurement toolFinancial Targets
2019 2019 Targets
(Excl. Cost Synergies) (Incl. Cost Synergies)
ARR $818M $818M $1Bn+
Revenue $838M $838M $1Bn+
$50MM
Core Subscription in Annualized
11% Cost Synergies(1)
11%
Revenue Growth
Non-GAAP Op Inc
$211M $261M ~$350M+
plus D&A
uFCF Margin 21% 27% 30%+(2)
General Note: Figures are based on management’s current expectations and beliefs, and subject to a number of factors and uncertainties that could cause actual results to differ materially from those described here. There is no assurance that
the actual results anticipated by us will be realized or that, even if substantially realized, will have the expected consequences to, or effects on, our business or operations
(1) Annualized cost synergies excludes any one-time costs to achieve those synergies. 38
(2) uFCF Margin does not assume a normalization of cash taxes. Assumes current level of cash taxes.Q&A
39Appendix: Modeling Considerations
Value
One-time advisory & financing costs ~$70M (100% in 2020; 0% in 2021)
One-time restructuring and integration costs (1) ~$65M (~85% in 2020; ~15% in 2021)
Cash interest paid per year (estimate) ~$70M
2020 cash taxes paid ~$8M
2020 estimated fully diluted shares outstanding (2) 69M
2020 capex ~$6M
(1) Includes severance, integration costs, systems and other costs that are not expected to continuingly repeat and are directly related to the Saba acquisition.
(2) Includes the additional shares issued to the sellers as part of the Saba acquisition 40Appendix: GAAP to Non-GAAP Reconciliations
$ in thousands
Reconciliation of operating income (loss) and operating margin: Q1 2020 Q1 2019
Income (loss) from operations $(2,739) $1,231
Operating margin (1.8%) 0.9%
Adjustments to loss from operations
Less: Stock-based compensation (1) 19,109 17,045
Less: Amortization of intangible assets 1,746 1,286
(2)
Acquisition costs 6,811 -
Non-GAAP operating income $24,927 $19,562
Non-GAAP operating income margin 16.6% 14.0%
(1)Thedifference between stock-based compensation presented above and stock-based compensation as reported in the consolidated statement of operations for the three months ended
March 31, 2020, represents an amount accrued for cash bonuses as of December 31, 2019, which was settled in equity during the first quarter of 2020.
(2)Costs related to the acquisitions of Clustree SAS and Saba Software, Inc.
41Appendix: GAAP to Non-GAAP Reconciliations
$ in thousands
Q1 2020 Q1 2019
Stock Based Amortization of Stock Based Amortization of
GAAP NON-GAAP GAAP NON-GAAP
Compensation Intangible Assets
(1) Compensation Intangible Assets
Cost of Revenue $41,924 $(2,138) $(1,663) $38,123 $33,695 $(1,136) $(1,286) $31,273
Sales & Marketing 55,330 (7,674) (83) 47,573 54,505 (6,047) - 48,458
Research & Development 24,085 (3,386) - 20,699 27,746 (4,196) - 23,550
General & Administrative 24,725 (5,911) - 18,814 22,940 (5,666) - 17,274
Total Adjustments $(19,109) $(1,746) $(17,045) $(1,286)
(1)The
difference between stock-based compensation presented above and stock-based compensation as reported in the consolidated statement of operations for the three months ended
March 31, 2020, represents an amount accrued for cash bonuses as of December 31, 2019, which was settled in equity during the first quarter of 2020.
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