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Cornerstone OnDemand (CSOD) recently released their 3rd quarter financial results that represented an outstanding quarter. It’s evident that Cornerstone is making progress on their transformation to become a better SaaS company by meeting certain financial goals.

Here are some of the essential revenue numbers and other important metrics:

                                                      9/30/2018                  9/30/2019                 Growth

Revenue                                     $134,014                   $144,952                    8.2%

Subscription Revenue              $118,844                   $137,446                    15.7%

Number of clients                      3,428                          3,645                          6.0%

Number of employees              1,892                          1,986                         (5.0%)

(amounts in thousands)

As I have mentioned in previous blog posts, Cornerstone is transforming their organization into a more SaaS-based business. This transformation has required certain changes including the elimination of certain professional service business lines. As a result, the top line traditional revenue for Cornerstone is becoming less important as professional services are eliminated.

The most important revenue number is now Subscription Revenue which will eventually dominate top-line revenue. As of now, Subscription Revenue is about 95% of total revenue and that is significantly up from 89% last year. The 15.7% growth in Subscription Revenue is the best indication of the progress Cornerstone achieved for the quarter. The transformation to a better SaaS model will likely result in higher margins and eventually higher profits for Cornerstone.

The number of clients has grown approximately 6% over the prior-year period (3Q 2018) which is very positive. Headcount is down approximately 5% which is an indication of financial discipline exhibited by Cornerstone. We note that headcount will likely vary as opportunities present themselves.

Cornerstone has set a goal of achieving “The Rule of 40” which they define as the “sum of constant currency subscription revenue growth and unlevered free cash flow margin in 2020”. We believe this financial goal will help redefine the company moving forward, and they’re confident they are on track to meet the goal in 2020.

Cornerstone had success in their Public Sector team during the 3rd quarter by closing a large deal with the U.S. Government. The U.S. Enterprise team had a soft quarter due in large part to several deals that closed just after the quarter close. The EMEA expansion is another important goal for the future and Cornerstone saw strong performance from their EMEA sales team. However, they are cautious as Brexit remains a potential cloud over the region.

Public companies will often share their guidance on financial metrics for the next quarter. Cornerstone sees full-year guidance for Subscription Revenue in a range of $542 to $544 million for 2019. Representing a year-over-year increase of 15% or a 16% increase on a constant currency basis.

CEO Adam Miller is very positive about Cornerstone Content Anytime (CCA) subscription offerings. Cornerstone is producing original content known as Cornerstone Originals that are produced in-house by Cornerstone Studios. This is in addition to the number of outside content contributors that Cornerstone presently works with around the globe. The continual expansion of content offerings for the installed base are key services and products that should serve Cornerstone clients well.

The 3rd quarter financial results were outstanding and show Cornerstone has achieved progress in their transformation to a more focused SasS company. Cornerstone is on track to realize their goal of The Rule of 40 in 2020 and they’re also returning money to the shareholders by utilizing a stock buyback program. We look forward to seeing their progress on their 2020 financial goals as organic growth, cost discipline and recurring revenue are positioned to produce a stronger company for the future.