Cornerstone OnDemand Q2 FY2015 was an interesting quarter, exceeding revenue expectations, missing on income but raising its outlook for the year, albeit conservatively. By the numbers [statement]:
Revenue for the second quarter of 2015 was $82.6 million, representing a 34% increase compared to the same period in 2014. Non-GAAP revenue for the second quarter of 2015 was $82.8 million, representing a 35% increase compared to the same period in 2014.
Bookings, which the Company defines as revenue plus the change in deferred revenue for the period, were $91.3 million for the second quarter of 2015, representing a 30% increase compared to the same period in 2014. Bookings for the first six months of 2015 were $154.8 million, representing a 29% increase compared to the same period in 2014. Deferred revenue at June 30, 2015 was $189.6 million, representing a 36% increase compared to the balance at June 30, 2014.
The company is now forecasting full year revenue in the range $340.5-343.5 million compared to previous guidance of $337.5-341.5 million. Cornerstone OnDemand ended the quarter with 2,363 customers representing 20.5 million users. During the quarter, the company recorded its first eight figure deal. The customer was not identified.
It will come as no surprise that Adam Miller, CEO was ebullient, focusing on the company's ability to sell into larger accounts:
We're seeing a particularly strong pipeline, we're feeling very good about our ability to compete at that [enterprise] level.
On the call, I was looking for indications of how the analytics business is performing. Why? When we met in May, I said this about the company as it relates to this topic:
Couple in the smart acquisition of Evolv for a straight jump to predictive analytics and the creation of a platform play and you have the ingredients for an important and differentiated play in the HR space.
That differentiation is important for large deals and for Cornerstone more generally because the aggregated data collected has value for improving outcomes. During the call, there were a few questions around analytics but nothing particularly penetrating. Miller did the best he could to push that agenda saying that the
...primary attraction is the high end of the market [where they have] the most to gain from predictive analytics.
Thinking more broadly, it was interesting to hear Miller characterize the suite of offerings as a series of portfolio investments rather than solely as software to be sold as a service. This is an important distinction for vendors that have multiple product lines that can be assembled as modular building blocks. That same distinction is important for buyers who can start where they wish and build out as they both gain experience and confidence in the offering.
The fact Cornerstone is winning large deals is important beyond the obvious impact on the top line numbers. This is a company that traditionally sold into what we regard as the mid-market but which has steadily grown as it sells as an adjacency to Workday and others. As those HR companies grow into larger accounts, it provides Cornerstone with opportunities to flex its development muscle. Everyone in the buyer community benefits when that happens.
Again on the call there was good referencing of vertical markets and geography expansion. These factors are all good indicators of a company that has solid potential. As always however, Cornerstone is somewhat constrained in its ability to make the kind of market noise that grabs widespread attention. That is an outcome of it being the last independent talent management company of any substantial scale. Cornerstone is taking action to address that problem but from what I have seen, those steps are small, tactical plays. As I have said before, the lack of a strong marketing playbook and the reliance on an admittedly savvy CEO is not enough.
If Cornerstone can sustain current growth without massively expanding losses then 2016 will likely see it as a $500 million business. Assuming that is achieved then things will change again because that number represents another inflection point.
Disclosure: Workday is a premier partner at time of writing.