Cornerstone OnDemand, Inc.
Q1 2020 Earnings Call Transcript

Published: 12 May 2020

[Operator:]

Ladies and gentlemen, thank you for standing by, and welcome to the Cornerstone OnDemand First Quarter 2020 Earnings Conference Call. At this time, all participants’ lines are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. Please be advised that today’s conference is being recorded.

[Jason Gold:]

Thank you. Good afternoon, everyone, and welcome to Cornerstone OnDemand’s first quarter 2020 earnings call. With me today virtually are our Chief Executive Officer, Adam Miller; and our Chief Financial Officer, Brian Swartz; as well as Phil Saunders. In conjunction with today’s call, we published a presentation that’s located on the Investor Relations section of our website. During the call, Adam and Brian will be making reference to particular slides in their presentation. Today’s call will be a bit longer than normal as we’ll have a lot to discuss. Today’s press releases were furnished to the SEC in a Form 8-K. Today’s discussion will include forward-looking statements, including, but not limited to, statements regarding the expected performance of our business; our future financial and operating performance, including our GAAP and non-GAAP guidance; the integration of Saba into our business and achievement of related cost synergies and efficiencies; our strategy, our long-term growth and our overall future prospects. Forward-looking statements involve risks, uncertainties and assumptions. These risks, uncertainties and assumptions, as well as other factors that could cause actual results to differ materially from those contained in our forward-looking statements are included in our most recent 10-Q and 10-K, as well as subsequent periodic filings with the SEC. During the call, we will be referring to both GAAP and non-GAAP financial measures. All financial figures discussed today are non-GAAP unless we state the measure is a GAAP number. The reconciliation of our GAAP to non-GAAP information is provided in the earnings press release and also in the presentation. With that as a backdrop, I’d like to turn the call over to Adam.

[Adam Miller:]

Thanks, Jason. Before we get to the presentation for today’s earnings call, I wanted to address today’s announcement. It’s hard to believe that two decades ago on this month, Cornerstone was incorporated in my one-bedroom apartment in New York City. I started with a simple, but audacious mission, and we could leverage the power of the Internet to improve access to education on a global basis. From the outside, the 20-year journey may seem to be mostly up into the right. But it was filled with twist and turns, a bubble bursting, September 11, the financial crisis, a pandemic. For the first seven years, I had to practically beg for capital, mostly from friends and family. We almost ran out of money on multiple occasions. But we persevered, building the team one smart, cool, dependable and visionary person at a time, building the company one client at a time, manically focused on client success and the mission.

[Philip Seth Saunders:]

Thank you, Adam, for the warm introduction, and thanks, everyone, for giving me a moment to introduce myself. As Adam said, we’ve had the opportunity to get to know each other and our respective companies quite well over the past couple of years. I have come to witness firsthand why Adam is the respected visionary in both the HCM and talent management space and have also seen the impact of his contagious passion evidenced by such a winning company culture at Cornerstone. As in any competitive arena, you come to appreciate and respect the strengths and capabilities of others in the game, your competitors. It’s truly exciting to now be one combined in what I believe to be a very powerful force, both in financial prowess and market strength. This is a tremendous opportunity for me personally as Adam and I both navigate through our transitions, execute on the integration and drive success here at Cornerstone. I believe my past 12-plus years of transforming companies in a private equity setting and more notably my past five years in the evolution of Saba in the HCM space is a wonderful backdrop and a complement to Adam and the Cornerstone team. Having led many acquisitions, successful integrations and, of course, the related synergy activities, while building a winning company culture, makes for a really good fit for all of us.

[Adam Miller:]

Thanks, Phil. Now, on to our formal presentation. We will refer to slide numbers, so that you can follow along. Starting on slide 4, we want to recognize this unprecedented moment that we are living in with COVID-19. This is a historic public health crisis that none of us have ever experienced. And we are being impacted by this pandemic just like everyone else. About 1% of our workforce tested positive for the virus. And thankfully, they’ve all recovered. However, we all have friends, family members, customers and communities that are being impacted by the virus in very serious ways. And we know that we are not yet in the clear. We have offices in most of the big cities that have been adversely affected by the virus, and we have taken this virus extremely seriously. We believe we were one of the first companies in Southern California, home to our global headquarters, to implement a mandatory work-from-home policy. As the pandemic begins to dissipate and stay-at-home orders are relaxed and/or lifted, we will make changes to our policies in accordance with federal, state and local guidelines and recommendations. Until then, all of our employees worldwide remain in a work-from-home environment. On the business planning level, we’ve collaborated with the team around a few key areas. Our primary focus has been on the safety of our employees and empowering our customers through these difficult times. For our community and our clients, we recently launched Cornerstone Cares, a program that includes both a free online portal for the general public and a free content offering for our clients, both leveraging the Cornerstone platform. Cornerstone Care (sic) (00

[Brian L. Swartz:]

Thanks, Adam, and good afternoon, everyone. I’d like to spend a few minutes reviewing our quarterly financial results and then jump right into more detail about the Saba transaction and how we’re thinking about our cash flow generation framework going forward. As Adam already pointed out, we had a solid Q1 from a reported financials perspective, as you can see on slide 31. Our Q1 subscription revenue came in at $144 million or 10.7% year-over-year constant currency growth. And our Q1 total revenue came in at $150 million or 7.8% constant currency growth. Our gross margins were a little less than 75% and were adversely impacted on a year-over-year basis by higher content revenue, which carries a lower gross margin as well as higher allocated engineering and service delivery costs in 2020. These higher allocated costs created about a point-and-a-half of headwind to gross margins, of which about two-thirds comes out of R&D and one-third comes out of sales and marketing. Accordingly, R&D and sales and marketing as a percentage of revenue were favorably impacted on a year-over-year basis by the same amount. Overall, our operating margin improved by 3 percentage points from 14% in the prior year to 17% this year. Turning to slide 32, as Adam mentioned, we completed the acquisition of Saba on April 22 for a total purchase price of $1.295 billion. Given these unprecedented times, we naturally received a number of questions and comments from investors about the deal, following the COVID-19 outbreak and we appreciate all of your feedback. Setting aside the details of the purchase agreement, I want to clarify; we did not have a simple $75 million walk away breakup fee. However, we did obtain a purchase price reduction in light of general market condition. We believed at the time of the announcement, and we continue to believe today, that this transaction will be value-accretive to Cornerstone shareholders. Given current market conditions, we obtained a headline purchase price reduction of $100 million based on reduced equity value of $32 million and reduced cash consideration of $68 million. It’s worth pointing out that we agreed to pay certain seller expenses, which resulted in a net cash reduction of a bit more than $50 million. As I mentioned, we move forward with this transaction because we believe the acquisition is in the best interest of our shareholders. The next slide simply lays out our various debt instruments. On the left, you could see that we raised a little over $1 billion in a Term Loan B. The deal was fully underwritten and ultimately funded by a consortium of banks. The banks have not yet syndicated the Term Loan B, given market conditions. The debt is priced at LIBOR plus the spread, because the banks are not yet on the market with the deal, there is still some flexibility on the spread, although we do have a cap and we know within a reasonably tight range what the ultimate interest rate will be once the syndication is complete. To help you with your financial models, based on where the current LIBOR rate is trading, it is reasonable to assume a total cash interest expense of approximately 5%, plus or minus. We also have access to a revolving line of credit. And as we discussed on the last call, Silver Lake agreed to extend the maturity of their 5.75% convertible notes from July of 2021 to March of 2023. Moving on to slide 34, you can see our pro forma capitalization table. To calculate our leverage ratios, we are using non-GAAP operating income and adding back depreciation, amortization and certain other adjustments, including $50 million in synergies. Pro forma as of the close of Q1, our capitalization included $114 million in cash on hand, just over $1 billion of Term Loan B and $300 million in debt from our convertible notes. This drives a total net debt position of just under $1.2 billion for a net leverage of 4.3 times. Pro forma at the end of Q1, we had over $160 million of available liquidity composed of $114 million of cash on hand and access to $50 million of revolver capacity. As Adam mentioned earlier, I would like to reiterate that our capital allocation priority in the coming quarters is to pay down debt. Since we announced the transaction, we have gotten a ton of questions about our leverage ratio. I understand the confusion given the way we discussed it on our last call. So for the avoidance of doubt, as you can see on slide 35, pro forma at the end of March, our net leverage inclusive of our current view on synergies is 4.3 times. Again, we are committed to paying down debt and reducing our leverage over time. Now I’d like to spend a few minutes talking about our financial framework. While Adam showed you a version of the chart on slide 37 earlier in the presentation, I think it’s worth repeating here. The version shows our Q1 new ARR in the blue bar and then assumes we do not sell any new ARR for the next seven quarters. Although, we don’t expect this to happen and based on what we’ve seen so far in Q2, this is not going to happen, we wanted to run some dire scenarios to ensure we had adequate liquidity given the COVID-19 environment and our increased debt load. What you can see here is that our liquidity in the next few quarters is burdened by the fund unloading of our one-time costs. As these begin to fade and the synergies start to be realized, aided, of course, by the natural cash flow generation of our business, you can see that our liquidity position builds. The result is an increase of approximately $150 million of pro forma liquidity at the end of Q1 2020 to over $225 million at the end of 2021. Again, we don’t expect this extremely low level of new sales to occur, we simply wanted to make sure we are as prepared as possible for various challenging times. I’d also like to point out this assumes flat renewal rates for Cornerstone. Although, we feel good about this assumption, we also ran some further stress tests to see what happens if renewal rates decline, and the conclusion is the same. Ultimately, we feel very good about our position, even in these types of situations where we would face multiple headwinds. In planning for dire scenarios like this and the conclusions that we’re able to draw from them give us confidence in the Saba deal in our business overall. To summarize, even an extreme situation where we sell no new ARR for seven quarters, we believe we’re able to not only service the debt balance, but also reduce it by generating increased liquidity. As a result, we feel very good about what we’ll be able to do in a scenario that shows any resemblance of return to normalcy. As Adam and I mentioned earlier, our new ARR in January and February was good, but did fall off in March due to COVID-19. Those bookings were somewhat offset by stronger-than-expected performance on renewals during Q1. Given these trends, combined with the need to complete the integration of our financial records, including items like purchase accounting, which will certainly require a write-down of deferred revenue, we are not providing quantitative guidance at this time for 2020. However, as we bring the company together over the next few quarters, we will share more granular detail when possible. With all that said, while visibility is definitely limited and we expect uncertainty to persist, since the start of Q2, some signals have emerged in our latest sales forecast models to give us some cautious optimism. As a reminder, a large percentage of our new bookings are typically closed in the last few weeks of the quarter, so the onus is upon us to capitalize on these opportunities. More importantly, and as we discuss today and as you can see on our final slide number 38, we believe the available synergy value, when combining Cornerstone and Saba will enable us to continue expanding our unlevered free cash flow margins from 21% pro forma in 2019 into the 30s after all the one-time costs are incurred and we realize all the synergies. While we’d love to give you a timeframe, over which, we will hit $1 billion in revenue, the current environment makes this a bit tricky. And so we are not commenting on that at this time. Once the environment settles down, we’ll look to be more explicit on this target. I, like Adam, would like to thank all of our global team members for all their hard work each and every day as we strive to exceed our customer expectations, while at the same time enhancing shareholder value. Adam and I will now take your questions.

[Operator:]

Thank you. And our first question comes from Scott Berg from Needham. Your line is open.

[Scott Berg:]

Hey, everyone. Thanks for taking my questions. Congrats on a good quarter. I guess a couple of different things here. First, Phil, welcome. I look forward to meeting you in person. Adam, congrats on a 20-year run. I think I’ve been chatting with you for about half of that. I look forward to hearing about your next endeavors whenever they materialize. I guess first question is Adam on the transition. Why is now the right time? And part of that is, was this kind of contingent on the acquisition? Or was this part of the negotiations either before or during your time chatting with Saba?

[Adam Miller:]

Yeah. I mean obviously, the logic of the acquisition stands on its own, the enormous innovation benefits, scale benefits and cash flow benefits. So we think it made financial sense. But Phil and I have gotten to know each other over the last couple of years and in particular, over the last several months, have been working very closely together and this became a natural move.

[Scott Berg:]

Got it. Helpful. And then as you ran through product and product synergies, it was striking me that you’re really pushing the product upsell opportunity, which I certainly get it given the amount of additional products that the new combined entity will have. But as we look out maybe 12 to 24 months down the line, hopefully when the current macro subsides a little bit, is this an organization that will sell more to new logos? Or do you think it’s really more about selling more to your existing installed base?

[Adam Miller:]

I mean, there’s always a balance, we want to always sell to both. I don’t think it’s ever one or the other. It’s not binary. We obviously have a very large client base now. And so you would just expect that there will be a significant amount of cross-sell and upsell to the installed base into the future, relative to what we had before. It’s just a much bigger base. And so, if you have roughly a similar-sized direct sales team on a much bigger client sales organization and client base, of course, you would expect a meaningful portion of the business to be cross-sell and upsell to that installed base?

[Brian Swartz:]

Scott, it’s Brian. One thing I would add to that, just as a reminder, I mean, the last several quarters, probably more than the last several quarters, call it, even the last four to six quarters, I believe, I have commented that a larger percentage of our new ARR, when it was Cornerstone standalone, pre-Saba transaction, was coming from existing clients. And that was actually part of the basis and the theory and one of the three reasons that Adam explained on why we thought the Saba deal made a lot of sense. So we have 7,000 plus clients. That’s a lot of clients. By the way there is still a lot of new logo opportunity and Greenfield opportunity certainly in emerging markets like APJ and LatAm and way down market in SMB. But that was one of the trends we were seeing in the Cornerstone business over the last several quarters.

[Scott Berg:]

Got it, quite helpful. I will jump back into the queue. Congrats again and good luck, Adam.

[Adam Miller:]

Thanks, Scott.

[Operator:]

Thank you. Our next question comes from Rishi Jaluria from D.A. Davidson. Your line is open.

[Rishi Jaluria:]

Hey guys, thanks so much for taking my questions. Adam, congrats on a great run and really looking forward to seeing the next chapter of Cornerstone evolve. Maybe two questions I wanted to drill down on. First, I wanted to maybe better understand – I know last time when the deal was first announced, there was talk about the integration plan from a technology perspective. And I believe kind of the line is it’s going to be pretty distinct for now, and the focus is going to be on joint go-to-market. Can you maybe expand it on that and thinking in terms of back-end integration or anything, what sort of work, do you expect from a product and tech perspective? And then I’ve got a follow-up.

[Adam Miller:]

Yes. So this is different than a lot of other acquisitions that you might see, because we’re not trying to deeply integrate the products together. We’re not going down to the code level and trying to create a single unified user experience across multiple disparate products. We already have that in the Cornerstone platform. And we have the opportunity now to take the best feature sets within Saba’s product portfolio and apply that to Cornerstone products like Saba Meeting, like the CRM capability or like the Org Planning capability. And then we have conversely the ability to upsell and cross-sell the Saba base with Content Anytime, with the new products that will be coming out, which will be built to work both with Cornerstone clients and Saba clients like our learning experience platform product that’s coming out of Cornerstone Development. And we have the ability to leverage connectors that both companies have made. So it’s not that – I’ll just use Saba Classroom as an example. We already have an API-based connector to enable virtual instructor-led training providers to hook into Cornerstone Learning and to leverage that exact API set for the integration of Saba Classroom. So there’s not a whole lot of work required. This is work that we had already done to open up our system. The same thing is true for Saba with regards to Content Anytime. They already were allowing third-party content to run through Saba Cloud. Content Anytime essentially is third-party content from Saba’s perspective, which will run through Saba Cloud. So the tools already exist. And the work required to do that integration is relatively minimal, which allows us to very quickly go-to-market and focus our integration efforts on back-office processes and go-to-market.

[Rishi Jaluria:]

Okay. Great. That’s really helpful. And then, Adam, in the prepared remarks, you talked a little bit about what you’re seeing in terms of deals kind of slipping with newer customers, wanted to get a sense for any changes in customer buying behavior from existing customers, maybe beyond that. Anything in terms of customers looking for restructuring of contracts, shortening duration any customers looking for changes in payment terms or expanding them any sort of color on that would be really helpful? Thank you.

[Adam Miller:]

Yeah. I mean like you hear from other companies, we’re obviously seeing a little bit of that. What’s different in this case, I believe, is maybe two or threefold. Number one, we’ve been through these types of situations before. We lived through the financial crisis. We had a much smaller client base, but we were heavily weighted to the financial services sector back then. And that was the second most impacted by the financial crisis. So it was significant. During that time, we were able to navigate that period, ended up keeping most of our clients and actually growing a lot of those accounts. So it’s something that our contracts are built for, it is something that we’ve learned how to navigate. The second thing is you have to remember that our products are perfectly applicable to the situation that we’re in right now. Most organizations are trying to deal with the fact that they have to work remotely. And keep in mind what I’ve said, we are operating at 100% even with the integration of a very large other business that we just acquired. How did we do that? We did that leveraging videoconferencing tools, leveraging collaboration tools and leveraging our own system. We have used Cornerstone to help us do the integration and onboarding of the Saba team into Cornerstone. So our tools are highly relevant in this environment. And the third piece is that we’re seeing different parts of the economy impacted in different ways. So the reason we gave the very specific detail of our ARR by industry is so that people really could put a box around these concerns. Obviously, the airlines are impacted. Obviously, the major hotel chains and restaurant chains are impacted by the quarantine and by the pandemic in a way that’s very different from e-commerce companies or technology companies or perhaps health care companies. And so we wanted people to understand that we are highly diversified, we do not have concentration risk and to the extent that we do have a larger set of clients in a particular area like public sector, those are the sectors that are navigating this economic uncertainty a little bit better than others. And so, we have relatively mitigated the risk, and we want to be very transparent about that. And we wanted the people to be able to see for themselves, what is the risk profile. We showed you the industries that we believe are most impacted. You might have different views of what industries might be impacted today or in the future. And so, all the data is now available. And hopefully, people will draw the conclusion that we have a very strong, sustainable business now. And having a larger client base helps us in this environment.

[Rishi Jaluria:]

All right. Great. That’s super helpful. Thank you so much.

[Operator:]

Thank you. Our next question comes from Raimo Lenschow from Barclays. Your line is open.

[Raimo Lenschow:]

Hey. Thank you. And I hope you guys are all staying safe. Adam, first of all, congratulations on the successful career for the last 20 years, and now that you’re handing over the leadership, like, what’s in place, like – so you’re now obviously a Co-Chairman as well, like, how this is going to work, because, obviously, it’s still your baby, and Phil running it? Can you just help us to be comfortable about that kind of that new situation that we have there? And then, Brian, just you talked about some early signs in April. Can you just talk us through, like, what are you looking for in terms of, like, signs there? Is that like number of conversation to clients, new logos engaged in the funnel or that you – at the top of the funnel, like, how do kind of quantify that or qualify that? Thank you.

[Adam Miller:]

Thanks, Raimo. So, on June 15, Phil becomes CEO and I become Co-Chair of the Board. The roles will be very clear. Phil is running the company day to day. I will support the team and I will support Phil in any way needed. And I will remain a major shareholder of the company, and obviously, on the board as Co-Chair. I will also stay very involved with the innovation that has got our company to where it is today and will take us to a very successful place in the future. And so, that’s where my passion is and that’s where I’ll stay involved. But Phil is taking command of the ship and is running all day-to-day activities and running all operations of the company.

[Raimo Lenschow:]

Thank you. Okay.

[Brian Swartz:]

Yeah, Raimo, it’s Brian. With respect to early April or kind of since Q2, I mean, the last several weeks, we’ve certainly seen some what I would characterize as just more confidence, more positive signals and our forecast and how we are feelings about Q2 bookings, the content business in particular, where we’ve been having deeper and more serious conversations with clients. Clients are more interested. And so that just feels like a little bit of reengagement by our client base and the opportunities that we had in the pipeline for Q2. So, again, I think it’s probably too early to call it a trend, but I think it’s an important data point for everyone to understand. We’re obviously sitting here in early – mid-May, we’re about halfway through the quarter. As I’ve told you many times, Raimo, and you know, most of that – and as I mentioned, most of our bookings happened in the last couple of weeks for the quarter or the last few weeks of the quarter. So there’s a lot to do, but I think the opportunity is there for us to gain some ground here. And if the signals we’ve seen in the last few weeks continue, that will be positive heading into the end of Q2.

[Operator:]

Thank you. Our next question comes from Pat Walravens from JMP Securities. Your line is open.

[Q – Unidentified Speaker:]

Hi. This is actually Joe on for Pat. Thanks so much for taking our questions. So we know Saba’s revenue performance in 2019, but just directionally in the combined entity, how should we think about that, how should we kind of think about revenue growth going forward?

[A – Brian Swartz:]

Yeah. Hi, Joe, it’s Brian. I mean, listen, there’s obviously there’s two factors really impacting this that I want everyone to understand. I think everyone knows I try to provide the best transparency that we can on guidance, at least that’s our goal. I mean, we have two – as I said, two things impacting this. One, there’s obviously the environmental and marketplace issues going on in particular with COVID. That clearly impacts and creates some volatility that we don’t normally experience. The second one is, as we bring Saba into our financial numbers, this will happen on a reported basis from April 22 forward, there will be things like, the purchase accounting has to be done, we have to adjust their deferred revenue to fair value, that will have a meaningful impact on growth rates really for the next four quarters for the most part, a little bit longer than that . We’ll provide as much transparency so that everyone can adjust for that kind of pro forma in their models. Obviously, none of that impacts cash flow. And what we’re mostly focused on, in fact, what we’re exclusively focused on is capturing the synergies on target, including the one-time cost that we have to incur to capture those synergies and make sure that comes in or below budget to make sure we can and hopefully exceed the synergy target that we’ve outlined today, and that’s what’s most important for us. So that’s what we’re focused on. And when we have confidence in our ability to forecast to that, whether it’s one quarter out, two, three, four quarters out, coupled with all the marketplace and environmental factors, we’ll talk more about it. But as of right now, we’re just trying to give you a perspective of what cash flow generation can look like one, two, three years from now, given these synergies, given where we’re at last year and focusing less on the very near-term results here.

[Q – Unidentified Speaker:]

Got it. Thank you.

[Operator:]

Thank you. Our next question comes from Brad Sills from Bank of America Securities. Your line is open.

[Q – Brad Sills:]

Hey, guys. I wanted to ask about the comments made on the combined R&D organization and focus on accelerating the content road map. Could you elaborate on that? And kind of what is the focus for Content Anytime development?

[A – Adam Miller:]

Yes. So we continue to build out the Content Anytime offering. There are both technical aspects of it, which we’ve been working on, and there are product aspects of it. The product itself keeps getting more and more mature. We have dozens of content providers that are working with us now. It’s available in multiple ranges, and we continue to expand offering. All of the content is mobile-ready, and it’s covering our full taxonomy of subjects that we gleaned from the aggregate of our client base. In terms of other development, we are going to leverage the power of the combined team to really accelerate our launch of Cornerstone Development, which is our own learning experience platform, and the launch and build-out of Cornerstone Careers, which allows for that personalized navigation by the employees of their career, working with both the employee and the managers. So, lot of development coming, and it allows us to accelerate the road map across the board.

[Q – Brad Sills:]

Got it. Thank you. And then – thanks, Adam. And then I wanted to ask about comments you made on renewal rates improving from last quarter. Can you just provide some color on where the changes were made and what impact that’s had on renewal rates? Thank you.

[A – Adam Miller:]

Yes. So we’ve been hard at work at – and I’ll let Brian comment on the actual change of renewal rates, but generally speaking, as you know, we’ve been working hard on our support operations and our client success operations. We had a misstep in 2018, beginning of 2019, with our support operations based on the transformation we made out of the services business. We will be doing something very similar with Saba, but we will not make the same mistake twice. And so we are paying very close attention to support the required support levels and how we ensure that the clients have the access they need and the response times they need and get the help they need if they need it. Brian?

[A – Brian Swartz:]

Yeah. Hi, Brad. Yes, just to put it in perspective, Brad, I mean, obviously, every quarter, every month, we’re forecasting new bookings, new ARR as well as renewal rates. And the point of the comments were although new ARR did trail off in March post-COVID, which had an impact on total bookings for Q1 relative to internal expectations, helping offset some of that were favorability in our forecasted renewal rate. So, listen, is that going to be a trend for the full year? It’s way too early to tell. And obviously Q1 is a seasonally soft quarter for both renewals and new bookings. But in general, it’s one of those green shoots and not all that unexpected, given what’s happening in the world and the fact that more and more clients, incumbents are staying with their existing providers like us or in the case of clients, but obviously making it a bit harder at least right now to acquire new logos. So that was the nature of the comment. Hopefully that will continue. Hopefully the renewal rate improvements relative to expectations will continue regardless of what happens with COVID. That’s what we’re focused on and what we obviously spent a lot of time talking about last year with respect to the support issue that Adam mentioned.

[Q – Brad Sills:]

Got it. Thanks, guys.

[Operator:]

Thank you. Our next question comes from Siti Panigrahi from Mizuho. Your line is open.

[Q – Siti Panigrahi:]

Thanks for taking my question and hope you all are doing well. So question on Saba, so what percentage of those Saba contract is up for renewal this year and what’s the renewal rate? And then, are you going to end of life Saba products or continue to maintain without much innovation on Saba? A – Adam Miller Yeah. So the Saba products, with respect to the renewal rate question, the Saba Cloud clients, which are the primary product that Saba went to market with contractually and renewal rates are very similar to Cornerstone’s core product with three-year contracts, build in advance annually and then renewals of three-year terms. Some of the other products, namely TalentSpace and some of the TalentLink products were on slightly different renewable bases. Some of them had initial three-year terms with annual auto-renewals. Some of them have more periodic billings such as quarterly billings, those types of things. But the core product is very similar, the Saba Cloud product is very similar to Cornerstone. And I’m sorry, what was the second question? You asked about renewal rate data?

[Q – Siti Panigrahi:]

And are you going to end of life Saba or are you going to maintain without much innovation on the Saba side?

[A – Adam Miller:]

Yeah. Brian, I’ll take that. So, on the – Saba has a broad range of products. Some of them were already in maintenance mode and will continue in maintenance mode. These are older products that came from prior acquisitions. We are going to continue developing the core products, most notably Saba Cloud and TalentLink. Those will still be produced, they will still be sold, they’ll still be activated in the market. And we are actually going to be bringing life into some of the products that didn’t have a good home at Saba, but have a very good home with Cornerstone, namely the whole planning and transition management products, which fit very well with Cornerstone HR and the opportunity to take Saba Meeting and Saba Classroom to a much larger base. Those will actually get more development than they’ve had in the past. So, overall, the products are going to be maintained or even more development than they had before.

[Q – Siti Panigrahi:]

Thank you for that. And I understand the immediate cross-sell opportunity like CCA into Saba and a few other products you talked about. But have you guys talked about when you’re going to start migrating Saba customer? And also, do you expect a price uplift or downshift when you migrate Saba to Cornerstone?

[A – Adam Miller:]

Yeah. So, nothing in our industrial logic or in the business case for this deal included the requirement that we migrate clients. In fact, it’s a little bit of contrary. We are very, very focused on client retention. And so, if a client likes the products that they’re on, they can stay on their product. If they want something different or more notably, if they want to move to a more unified talent management solution, we would enable them to easily move over to the Cornerstone platform. So, our goal is to make this a win-win for the Saba client base, so that they get sustained on what they have or move to something different if they so choose. Either way, it’s a good option for them; either way, they’ll be supported.

[Operator:]

Thank you. Our next question comes from Mark Murphy from JPMorgan. Your line is open.

[Q – Mark Murphy:]

Yes. Thank you. Adam, was there any pause in spending that you can associate with the actual announcement of the merger? Maybe some customers or prospects were waiting to see the combined road map – I’m curious looking back on it, how do you discern and separate out the pandemic impact versus anything that was kind merger related pausing?

[A – Adam Miller:]

Yeah. Mark, that’s a great question and I think those things get conflated together. And I think it’s hard even in the clients’ mind to disaggregate those two things. Having said that, there are certain deals where both Saba and Cornerstone were finalists. And we know at least some of those deals have been dispositioned. So in some cases, Saba won, in other cases, Cornerstone won, but they did pause all of them to see what would happen, to hear from either me or Phil or Jeff to get a sense of what the go-forward plan was. We’ve been very transparent with the clients on both sides, both the Cornerstone clients and the Saba clients and with the employees. So, the company – our clients and our prospects have a good understanding of what the road map is, what the plan is and where they fit. And that’s allowed us, so relatively quickly progress on those deals. That doesn’t mean all of them have been finalized, there are still deals that have set (01

[Q – Mark Murphy:]

Okay. And as a follow-up, Brian, how do you see the combined company head count trending, say, between today and end of year?

[A – Brian Swartz:]

Yeah. So, just high level, there is roughly 2,000 employees on the Cornerstone side, there is roughly 1,200 or so on the Saba side. It’s reasonable to expect that come down, but we’re not guiding to a specific number as we work on synergies.

[Q – Mark Murphy:]

Okay. One final one, Brian, going back to an earlier question, I just wanted to double click on what you’ve seen since the start of Q2, would you say you are back to the original bookings plan either for the month of April or the original Q2 bookings forecast? Or are you kind of more just pointing to qualitatively more people are answering the phone, and you’re sort of off the kind of bookings levels that you were seeing in late March?

[A – Brian Swartz:]

Yeah. So, we’re not back to our original plan for Q2, if that’s your question. But we are relative to the late March, early April drop that we saw for obvious reasons, given what’s happening. We have seen the momentum come back now, but we are not back to our original plan for April or May or even our forecast for Q2.

[Q – Mark Murphy:]

Okay. Thank you. And Adam, congrats on 20 years of great success and best wishes in your new role.

[A – Adam Miller:]

Thanks, Mark.

[Operator:]

Thank you. Our next question comes from Alex Zukin from RBC Capital Markets. Your line is open.

[Q – Unidentified Speaker:]

Yeah. Hi. Thanks, guys. This is Scott (01

[A – Adam Miller:]

Yeah. Thanks for that question. So, I would say, first of all, one of the reasons it’s a good time for me with the transition is we have now gotten to where we inched for day one, which is we are the clear leader in the space. We are number one without a doubt. And the combination gives us, I think, two real advantages. So, number one is it is now truly for prospects a decision between ERP suite or best-of-breed. If they want the ERP suite, then they’re going to go with whoever the incumbent vendor is, whether that’s SAP or Workday. If they want best-of-breed, there is really only one choice now which is Cornerstone. They used to have two choices. They can go with Cornerstone or Saba. Now, it’s a very clear binary decision, and I think that will work to our advantage. The other is our scale does matter. I had talked about this in the past when we first talked about the deal. Having bigger scale means better support from system integrators and software partners all over the world and that evens the playing field for us and makes it easier for us to win deals against the ERP vendors. And so, Saba gives us both advantages, which I think will result in higher win rates and a better opportunity for our sales team going forward.

[Q – Unidentified Speaker:]

Got it. And then just kind of – I think a couple of people have asked about these positive signals that you’re seeing in early 2Q here. I’d be curious, have you seen any kind of shift in what customers are looking at from a product perspective? I guess, in the current environment, are any products kind of resonating louder or less loudly? I’d be curious if you’re seeing any kind of mix in what customers are looking for today.

[A – Adam Miller:]

Yeah. I mean, obviously, there is less focus on recruiting right now. Nobody is hiring. But there is absolutely massive focus on learning, and in particular online training. We saw in March the highest number of hours of training consumed ever in our history of online training, consumed over 27 million hours of training consumed just in the month of March, which is an all-time high for us. And that speaks to the fact that both companies are required to do all their training online and they can’t do classroom training right now, and the fact that employees, in many cases, have more time in this work-from-home environment depending on what’s happening with the company. And so, companies have seen this as an opportunity to take some of that excess time and use it to better upskill and reskill their employees. So, we’re seeing more training happening and we are clearly the leader in that space. So, for us, that’s potentially a tailwind into the future.

[Operator:]

Thank you. And that does conclude the question-and-answer session for today’s conference. And I’d like to turn the call back over to Adam Miller for any closing remarks.

[Adam Miller:]

So, I want to thank everyone for joining the call today and enabling us to walk through the presentation. I also want to today especially thank our amazing global team for being part of this journey with me as we have gone from really an idea to be the largest learning company in the world with over 75 million people using our products across 180 countries, and most importantly, enabling tens of millions of people around the world to realize their potential. Thank you all for being part of it. Stay safe.

[Operator:]

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program. You may all disconnect. Everyone, have a wonderful day.