Revenue for the first quarter of 2020 was $150.1 million compared to a guided range of $147.0 million to $150.0 million. This represents a 7.2% increase compared to the same period of the prior year. Revenue growth on a constant currency basis was 7.8%.

Subscription revenue for the first quarter of 2020 was $144.4 million compared to a guided range of $143.0 million to $145.0 million. This represents a 10.0% increase compared to the same period of the prior year. Subscription revenue growth on a constant currency basis was 10.7%.

Operating loss for the first quarter of 2020 was $2.7 million, yielding a margin of (1.8)%, compared to operating income of $1.2 million and margin of 0.9% in the same period of the prior year.

Non-GAAP operating income for the first quarter of 2020 was $24.9 million, yielding a margin of 16.6%, compared to $19.6 million and margin of 14.0% in the same period of the prior year.

Net loss for the first quarter of 2020 was $13.8 million, or $(0.22) diluted net income per share, compared to $3.5 million and $(0.06) diluted net loss per share in the same period of the prior year.

Non-GAAP net income for the first quarter of 2020 was $15.0 million, or a $0.23 diluted net income per share, compared to $15.9 million and $0.25 diluted net income per share in the same period of the prior year.

Unlevered free cash flow for the first quarter of 2020 was $6.3 million, yielding a margin of 4.2%, compared to $4.3 million, yielding a margin of 3.1%, in the same period of the prior year.

In response to the Coronavirus pandemic, the Company created “Cornerstone Cares”, a free public learning portal with playlists for COVID-19 Health and Safety, Stress Management, and Work From Home.

On April 22, 2020, the Company finalized its acquisition of Saba Software, Inc., a global leader in talent experience solutions, for an aggregate purchase price of approximately $1.295 billion, consisting of $1.262 billion in cash and 1,110,352 shares of common stock of the Company.

Financial measures presented on a constant currency basis, non-GAAP operating income, non-GAAP operating income margin, non-GAAP net income, non-GAAP diluted net income per share, unlevered free cash flow, and unlevered free cash flow margin are non-GAAP financial measures. Please see the discussion in the section titled “Non-GAAP Financial Measures” and the reconciliations of each non-GAAP financial measure to its most comparable GAAP financial measure at the end of this press release.

non-GAAP cost of revenue, which is defined as cost of revenue less amortization of intangible assets and stock-based compensation;

annual recurring revenue, which is defined as the annualized recurring value of all active contracts at the end of a reporting period;

unlevered free cash flow, which is defined as net cash provided by operating activities minus capital expenditures and capitalized software costs plus cash paid for interest;

unlevered free cash flow margin, which is defined as unlevered free cash flow divided by revenue;

non-GAAP net income and non-GAAP diluted net income per share, which exclude, for the periods in which they are presented, stock-based compensation, amortization of intangible assets, accretion of debt discount and amortization of debt issuance costs, unrealized fair value adjustment on strategic investments, restructuring costs, acquisition-related costs, and excludes the impacts of unamortized stock-based compensation expense in applying the treasury method for determining the non-GAAP weighted average number of dilutive shares outstanding;

non-GAAP gross profit and non-GAAP gross margin, which exclude stock-based compensation and amortization of intangible assets reflected in cost of revenue;

non-GAAP operating income and non-GAAP operating income margin, which are defined as income or loss from operations excluding stock-based compensation, amortization of intangible assets, restructuring costs, and acquisition-related costs;

non-GAAP operating expenses, which exclude stock-based compensation, amortization of intangible assets, restructuring costs, and acquisition-related costs; and

non-GAAP sales and marketing expense, non-GAAP research and development expense, and non-GAAP general and administrative expense, each of which excludes stock-based compensation attributable to the corresponding GAAP financial measures.

Stock-based compensation. The Company excludes stock-based compensation expense because it is non-cash in nature, and management believes that its exclusion provides additional insight into the Company’s operational performance and also provides a useful comparison of the Company’s operating results to prior periods and its peer companies. Additionally, determining the fair value of certain stock-based awards involves a high degree of judgment and estimation and the expense recorded may bear little resemblance to the actual value realized upon the vesting or future exercise of such awards.

Amortization of intangible assets. The Company excludes amortization of acquired intangible assets because the expense is a non-cash item and management believes that its exclusion provides meaningful supplemental information regarding the Company’s operational performance and allows for a useful comparison of its operating results to prior periods and its peer companies.

Accretion of debt discount and amortization of debt issuance costs. The Company recognizes the effective interest expense on its senior convertible notes and amortizes the issuance costs over the term of the notes. The difference between the effective interest expense and the contractual interest expense and the amortization expense of issuance costs are excluded from management’s assessment of the Company’s operating performance because management believes that these non-cash expenses are not indicative of ongoing operating performance. In addition, the exclusion of these items provides a useful comparison of the Company’s operating results to prior periods and its peer companies.

Fair value adjustment on strategic investments. The Company views the increase or decrease in the fair value of its strategic investments as not indicative of operational performance during any particular period and believes that the exclusion of these gains or losses provides investors with a supplemental view of the Company’s operational performance.

Acquisition-related costs. The Company excludes costs related to acquisitions because the expenses are discrete to specific acquisitions and are not necessarily indicative of its continuing operations. The Company believes that the exclusion of these costs provides investors with a supplemental view of the Company’s operational performance.

Assets

Current assets:

Cash and cash equivalents

Short-term investments

Accounts receivable, net

Deferred commissions, current portion

Prepaid expenses and other current assets

Total current assets

Capitalized software development costs, net

Property and equipment, net

Operating right-of-use assets

Deferred commissions, net of current portion

Long-term investments

Intangible assets, net

Goodwill

Other assets

Total assets

Liabilities and stockholders’ equity

Current liabilities:

Accounts payable

Accrued expenses

Deferred revenue, current portion

Operating lease liabilities, current portion

Other liabilities

Total current liabilities

Convertible notes, net

Deferred revenue, net of current portion

Operating lease liabilities, net of current portion

Other liabilities, non-current

Total liabilities

Stockholders’ equity:

Common stock

Additional paid-in capital

Accumulated deficit

Accumulated other comprehensive income

Total stockholders’ equity

Total liabilities and stockholders’ equity

Revenue

Cost of revenue ^{1, 2}

Gross profit

Operating expenses:

Sales and marketing ^1,2

Research and development ¹

General and administrative ¹

Acquisition-related costs

Total operating expenses

(Loss) income from operations

Other income (expense):

Interest income

Interest expense

Other, net

Other expense, net

Loss before income tax provision

Income tax provision

Net loss

Net loss per share, basic and diluted

Weighted average common shares outstanding, basic and diluted

Includes stock-based compensation as follows:

Cost of revenue

Sales and marketing

Research and development

General and administrative

Total

Includes amortization of intangible assets as follows:

Cost of revenue

Sales and marketing

Total

Cash flows from operating activities

Net loss

Adjustments to reconcile net loss to net cash provided by operating activities:

Depreciation and amortization

Accretion of debt discount and amortization of debt issuance costs

Amortization (accretion) of purchased investment premium or discount, net

Net foreign currency and other loss

Stock-based compensation expense

Changes in operating assets and liabilities:

Accounts receivable

Deferred commissions

Prepaid expenses and other assets

Accounts payable

Accrued expenses

Deferred revenue

Other liabilities

Net cash provided by operating activities

Cash flows from investing activities

Purchases of marketable investments

Maturities and sales of investments

Capital expenditures

Capitalized software costs

Cash paid for acquisition, net of cash acquired

Net cash provided by investing activities

Cash flows from financing activities

Proceeds from employee stock plans

Net cash provided by financing activities

Effect of exchange rate changes on cash and cash equivalents

Net increase in cash and cash equivalents

Cash and cash equivalents at beginning of period

Cash and cash equivalents at end of period

Supplemental cash flow data

Cash paid for interest

Cash paid for income taxes

Non-cash investing and financing activities:

Assets acquired under capital leases and other financing arrangements

Capitalized assets financed by accounts payable and accrued expenses

Capitalized stock-based compensation

Reconciliation of cost of revenue, gross profit, and gross margin:

Revenue

Cost of revenue

Gross profit

Gross margin

Cost of revenue

Adjustments to cost of revenue:

Stock-based compensation

Amortization of intangible assets

Total adjustments to cost of revenue

Non-GAAP cost of revenue

Non-GAAP gross profit

Non-GAAP gross margin

Reconciliation of (loss) income from operations and operating margin:

(Loss) income from operations

Operating margin

Adjustments to loss from operations:

Stock-based compensation¹

Amortization of intangible assets

Acquisition-related costs²

Total adjustments to (loss) income from operations

Non-GAAP operating income

Non-GAAP operating income margin

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.

Cost of revenue

Sales and marketing

Research and development

General and administrative

Total

Costs related to the acquisitions of Clustree SAS and Saba Software, Inc.

Net loss

Adjustments to net loss

Stock-based compensation¹

Amortization of intangible assets

Acquisition-related costs²

Accretion of debt discount and amortization of debt issuance costs³

Total adjustments to net loss

Non-GAAP net income

Non-GAAP basic net income per share

Non-GAAP diluted net income per share

Weighted-average common shares outstanding, basic

Non-GAAP weighted-average common shares outstanding, diluted

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.

Costs related to the acquisitions of Clustree SAS and Saba Software, Inc.

Debt discount accretion and debt issuance cost amortization has been recorded in connection with our issuance of $300.0 million in convertible notes on December 8, 2017. These expenses represent non-cash charges that have been recorded in accordance with the authoritative accounting literature for such transactions.

Reconciliation of unlevered free cash flow:

Net cash provided by operating activities

Capital expenditures

Capitalized software costs

Cash paid for interest

Unlevered free cash flow

Unlevered free cash flow margin

SELECTED METRICS:

Number of customers¹

% y/y

% q/q

Number of employees

% y/y

% q/q

Annual dollar retention rate

Annual recurring revenue (in thousands)

Net cash provided by operating activities (in thousands)

Unlevered free cash flow (in thousands)

Unlevered free cash flow margin

FINANCIAL DATA (in thousands, except percentages):

Revenue

Subscription revenue

% y/y growth

% y/y growth constant currency

Subscription revenue % of total revenue

Income (loss) from operations

MARGIN DATA:

Gross margin

Sales and marketing % of revenue

Research and development % of revenue

General and administrative % of revenue

Acquisition-related costs % of revenue

Restructuring % of revenue

Operating margin

NON-GAAP MARGIN DATA:

Non-GAAP gross margin

Non-GAAP sales and marketing % of revenue

Non-GAAP research and development % of revenue

Non-GAAP general and administrative % of revenue

Non-GAAP operating margin

Non-GAAP research and development plus capitalized software % of revenue

FOREIGN EXCHANGE RATES:

GBP to USD average period rate

GBP to USD end of period spot rate

EUR to USD average period rate

EUR to USD end of period spot rate

Includes contracted customers of our enterprise people development platform and excludes customers and users of Cornerstone for Salesforce, PiiQ, Workpop Inc. and Grovo Learning, Inc.