Cornerstone OnDemand's billings growth ramps, earnings lumpy

Cornerstone's first quarter wasn't perfect, but analysts are gaga over 50 percent billings growth and the company's ability to grow wallet share in its customer base.

Cornerstone OnDemand's first quarter had a few potholes, but the company's growth and ability to sell more than one product is standing out in a sluggish enterprise software market.

The human capital and talent management company on Wednesday reported a first quarter net loss of $9.9 million, or 20 cents a share, on revenue of $37.7 million, up 57 percent from a year ago. The non-GAAP loss was 10 cents a share. Wall Street was expecting a non-GAAP loss of 8 cents a share on revenue of $37.77 million.

For 2013, Cornerstone said its revenue will be $181 million to $183 million, up from a previous target of $179 million to $182 million. The company expects a non-GAAP loss of 18 cents a share for the year, a penny worse than expectations. For the second quarter, Cornerstone sees sales between $41.5 million and $42.5 million compared to Wall Street estimates of $41.8 million.



Analysts on Thursday mostly focused on Cornerstone's 50 percent bookings growth. CEO Adam Miller said customers are buying more than one of its cloud and often going with the entire suite.

Also:  People first: Cloud HRM and talent management  |  Cornerstone OnDemand: Staying independent has its perks

Miller said on an earnings conference call:

I'll tell you that out of the gate we're seeing many more full suite deals than we expected, meaning recruiting, learning, and performance all at once up front. And we're seeing that both in the enterprise and in the middle market. With regard to recruiting on a standalone basis we've been pretty consistent about this. We believe starting in the second half of this year we will be competitive on a standalone basis in recruiting. We are waiting for our June release, our spring release, which will get us to the level of competitiveness that we need, and then the releases beyond that take us further and further away from the competition.

How did Cornerstone get here? The reality is that software as a service doesn't have the lock in of on-premise applications and that puts a dent in the acquisition playbook popularized by Oracle. As a result, Oracle's purchase of Taleo and SAP's acquisition of SuccessFactors means that customers are more able to go shopping. Cornerstone has stuck out as a talent management play as a standalone company. Cornerstone also benefits because it's publicly held. SumTotal is another HR software player targeting Oracle and SAP .

Miller said the company has a 95 percent retention rate and is landing large accounts like BP, Barclays and Tata Motors. Cornerstone is also up selling its existing accounts within 12 to 18 months of an initial sale.

Talent management is maturing as an industry and increasingly becoming a strategic business initiative. What this means is that organizations today understand better than ever why they need a talent management solution, and how it can drive business impact, therefore justifying higher price points. For Cornerstone specifically, our focus on innovation and delivering a unified best-of-breed solution is allowing us to consistently charge a premium for our product, vis-a-vis the competition.

Analysts were generally upbeat about Cornerstone despite its earnings miss. JMP Securities analyst Patrick Walravens said:

The tone of business appears very strong at Cornerstone and we think the company remains very well situated in the human capital management space due to its position as the leading independent vendor, its organically developed suite of products, and its increasingly successful expansion into new verticals, such as the public sector.


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