10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2019

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from             to                     

Commission File Number 001-35098

Cornerstone OnDemand, Inc.

(Exact name of registrant as specified in its charter)

Delaware	13-4068197
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

1601 Cloverfield Blvd.

Suite 620 South

Santa Monica, CA 90404

(Address of principal executive offices, including zip code)

Registrant’s telephone number, including area code:

(310) 752-0200

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ý    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	x	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	¨
Emerging growth company	¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    Yes  ¨    No  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.0001 per share	CSOD	Nasdaq Stock Market LLC (Nasdaq Global Select Market)

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date

Class	Outstanding as of May 3, 2019
Common Stock, par value $0.0001 per share	59,652,871

CORNERSTONE ONDEMAND, INC.

QUARTERLY REPORT ON FORM 10-Q

INDEX

		Page No.
	PART I.—FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements (unaudited)	3
	Condensed Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018	3
	Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2019 and March 31, 2018	4
	Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2019 and March 31, 2018	5
	Condensed Consolidated Statements of Stockholder Equity for the Three Months Ended March 31, 2019 and March 31, 2018	6
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2019 and March 31, 2018	7
	Notes to Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33
Item 4.	Controls and Procedures	34
	PART II.—OTHER INFORMATION
Item 1.	Legal Proceedings	35
Item 1A.	Risk Factors	35
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	55
Item 3.	Defaults Upon Senior Securities	55
Item 4.	Mine Safety Disclosures	55
Item 5.	Other Information	55
Item 6.	Exhibits	56
SIGNATURE		57

TRADEMARKS

^© Copyright 2019 Cornerstone OnDemand, Inc. All rights reserved. “Cornerstone,” “Cornerstone OnDemand,” the Cornerstone OnDemand logo, “CyberU” and other trademarks or service marks of Cornerstone OnDemand, Inc. appearing in this Quarterly Report on Form 10-Q are the property of Cornerstone OnDemand, Inc. Trade names, trademarks and service marks of other companies appearing in this Quarterly Report on Form 10-Q are the property of their respective holders and should be treated as such.

PART I. FINANCIAL INFORMATION

ITEM 1. Condensed Consolidated Financial Statements

CORNERSTONE ONDEMAND, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par values)

(unaudited)

	March 31, 2019			December 31, 2018
Assets
Cash and cash equivalents	$	357,015		$	183,596
Short-term investments	34,950			204,732
Accounts receivable, net	92,645			125,300
Deferred commissions, current	16,013			24,467
Prepaid expenses and other current assets	33,802			34,940
Total current assets	534,425			573,035
Capitalized software development costs, net	45,766			45,416
Property and equipment, net	33,081			77,254
Operating right-of-use assets	82,984			—
Deferred commissions, non-current	58,755			45,444
Long-term investments	750			1,250
Intangible assets, net	12,581			13,867
Goodwill	47,453			47,453
Other assets, net	2,920			3,437
Total Assets	$	818,715		$	807,156
Liabilities and Stockholders’ Equity
Liabilities:
Accounts payable	$	9,156		$	11,921
Accrued expenses	46,353			68,331
Deferred revenue, current	290,993			312,526
Operating lease liabilities, current	9,274			—
Other liabilities	6,269			7,645
Total current liabilities	362,045			400,423
Convertible notes, net	289,994			288,967
Operating lease liabilities, non-current	78,930			—
Other liabilities, non-current	305			2,484
Deferred revenue, non-current	11,876			13,275
Facility financing obligation	—			46,100
Total liabilities	743,150			751,249
Commitments and contingencies (Note 12)
Stockholders’ Equity:
Common stock, $0.0001 par value; 1,000,000 shares authorized, 59,407 and 58,886 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively	6			6
Additional paid-in capital	608,168			585,387
Accumulated deficit	(533,426		)	(529,962		)
Accumulated other comprehensive income	817			476
Total stockholders’ equity	75,565			55,907
Total Liabilities and Stockholders’ Equity	$	818,715		$	807,156

See accompanying notes to unaudited condensed consolidated financial statements.

3

CORNERSTONE ONDEMAND, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

	Three Months Ended
	March 31,
	2019			2018
Revenue	$	140,117		$	133,113
Cost of revenue	33,695			37,020
Gross profit	106,422			96,093
Operating expenses:
Sales and marketing	54,505			59,245
Research and development	27,746			15,984
General and administrative	22,940			21,985
Restructuring	—			7,725
Total operating expenses	105,191			104,939
Income (loss) from operations	1,231			(8,846		)
Other income (expense):
Interest income	1,990			1,819
Interest expense	(5,366		)	(8,700		)
Other, net	(597		)	44
Other income (expense), net	(3,973		)	(6,837		)
Loss before income tax provision	(2,742		)	(15,683		)
Income tax provision	(722		)	(533		)
Net loss	$	(3,464	)	$	(16,216	)
Net loss per share, basic and diluted	$	(0.06	)	$	(0.28	)
Weighted average common shares outstanding, basic and diluted	59,141			57,425

See accompanying notes to unaudited condensed consolidated financial statements.

4

CORNERSTONE ONDEMAND, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

(unaudited)

	Three Months Ended
	March 31,
	2019			2018
Net loss	$	(3,464	)	$	(16,216	)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment	169			(2,111		)
Net change in unrealized gains (losses) on investments	172			(225		)
Other comprehensive income (loss), net of tax	341			(2,336		)
Total comprehensive loss	$	(3,123	)	$	(18,552	)

See accompanying notes to unaudited condensed consolidated financial statements.

5

CORNERSTONE ONDEMAND, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)

(unaudited)

	Common Stock				Additional Paid-In Capital (Deficit)			Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Total
	Shares		Par Value
Balance as of December 31, 2017	57,512		$	6	$	536,951		$	(515,054	)	$	217		$	22,120
Issuance of common stock upon the exercise of options	211		—		5,149			—			—			5,149
Vesting of restricted stock units	225		—		—			—			—			—
Repurchase of common stock	(423	)	—		(16,024		)	—			—			(16,024		)
Stock-based compensation					20,732			—			—			20,732
Cumulative effect of accounting change	—		—		—			18,935			—			18,935
Net loss	—		—		—			(16,216		)	—			(16,216		)
Other comprehensive loss, net of tax	—		—		—			—			(2,336		)	(2,336		)
Balance as of March 31, 2018	57,525		$	6	$	546,808		$	(512,335	)	$	(2,119	)	$	32,360
	Common Stock				Additional Paid-In Capital (Deficit)			Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Total
	Shares		Par Value
Balance as of December 31, 2018	58,886		$	6	$	585,387		$	(529,962	)	$	476		$	55,907
Issuance of common stock upon the exercise of options	129		—		4,984			—			—			4,984
Vesting of restricted stock units	392		—		—			—			—			—
Stock-based compensation	—		—		17,797			—			—			17,797
Net loss	—		—		—			(3,464		)	—			(3,464		)
Other comprehensive income, net of tax	—		—		—			—			341			341
Balance as of March 31, 2019	59,407		$	6	$	608,168		$	(533,426	)	$	817		$	75,565

See accompanying notes to unaudited condensed consolidated financial statements.

6

CORNERSTONE ONDEMAND, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Three Months Ended
	March 31,
	2019*			2018
Cash flows from operating activities:
Net loss	$	(3,464	)	$	(16,216	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	10,858			7,831
Accretion of debt discount and amortization of debt issuance costs	1,027			3,426
Purchased investment premium, net of amortization	(216		)	(81		)
Net foreign currency (gain) loss	294			(356		)
Stock-based compensation expense	17,045			19,479
Changes in operating assets and liabilities:
Accounts receivable	32,955			41,888
Deferred commissions	(4,274		)	(528		)
Prepaid expenses and other assets	3,641			(8,841		)
Accounts payable	(2,781		)	(7,605		)
Accrued expenses	(23,287		)	(15,059		)
Deferred revenue	(23,959		)	(23,751		)
Other liabilities	(545		)	(4,767		)
Net cash provided by (used in) operating activities	7,294			(4,580		)
Cash flows from investing activities:
Maturities of investments	170,679			40,677
Capital expenditures	(4,243		)	(2,559		)
Capitalized software costs	(7,399		)	(6,039		)
Net cash provided by investing activities	159,037			32,079
Cash flows from financing activities:
Payments of debt issuance costs	—			(152		)
Proceeds from employee stock plans	6,840			6,765
Repurchases of common stock	—			(14,700		)
Net cash provided by (used in) financing activities	6,840			(8,087		)
Effect of exchange rate changes on cash and cash equivalents	248			357
Net increase in cash and cash equivalents	173,419			19,769
Cash and cash equivalents at beginning of period	183,596			393,576
Cash and cash equivalents at end of period	$	357,015		$	413,345
Supplemental cash flow information:
Cash paid for interest	$	8,685		$	3,000
Cash paid for income taxes	390			452
Proceeds from employee stock plans received in advance of stock issuance	1,856			1,616
Cash paid for operating leases*	2,601			—
Right-of-use assets obtained in exchange for lease obligations*	86,120			—
Non-cash investing and financing activities:
Assets acquired under capital leases and other financing arrangements	$	485		$	—
Capitalized assets financed by accounts payable and accrued expenses	1,789			5,201
Capitalized stock-based compensation	752			1,253
Unsettled share repurchase in other liabilities	—			1,325

*See Note 1 for additional information.

See accompanying notes to unaudited condensed consolidated financial statements.

7

CORNERSTONE ONDEMAND, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Company Overview

Cornerstone OnDemand, Inc. (“Cornerstone” or the “Company”) was incorporated on May 24, 1999 in the state of Delaware and began its principal operations in November 1999.

The Company is a leading global provider of learning and human capital management software, delivered as Software-as-a-Service (“SaaS”). The Company helps organizations around the globe recruit, train and manage their employees. It is one of the world’s largest cloud computing companies. The Company’s human capital management platform combines the world’s leading unified talent management solutions with state-of-the-art analytics and HR administration solutions to enable organizations to manage the entire employee lifecycle. Its focus on continuous learning and development helps organizations to empower employees to realize their potential and drive success.

The Company works with clients across all geographies, verticals and market segments. Its Recruiting, Learning, Performance and HR Administration suites help with sourcing, recruiting and onboarding new hires; managing training and development requirements; nurturing knowledge sharing and collaboration among employees; goal setting, reviews, competency management and continuous feedback; linking compensation to performance; identifying development plans based on performance gaps; streamlining employee data management, self-service and compliance reporting; and then utilizing state-of-the-art analytics capabilities to make smarter, more-informed decisions using data from across the platform for talent mobility, engagement and development so that HR and leadership can focus on strategic initiatives to help their organization succeed.

The Company operates in one segment as it only reports financial information on an aggregate and consolidated basis to the Company’s chief executive officer, who is the Company’s chief operating decision maker.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared on the same basis as the Company's annual consolidated financial statements. These unaudited condensed financial statements are presented in accordance with (i) accounting standards generally accepted in the United States of America (“GAAP”) for interim financial information and (ii) the instructions to Form 10-Q and Article 10 of Regulation S-X. Certain information and note disclosures normally included in the annual consolidated financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the financial statements include all adjustments (consisting of normal recurring adjustments) necessary for the fair presentation of the interim periods presented.

Results of operations for the three months ended March 31, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019, for any other interim period or for any other future year.

Effective January 1, 2019, the Company adopted the requirements of Accounting Standards Update No. 2016-02, "Leases (Topic 842)" ("ASU 2016-02"), as discussed further in Note 1. All amounts and disclosures set forth in this Quarterly Report on Form 10-Q have been updated to comply with this new standard with results for reporting periods beginning after January 1, 2019 presented under ASU 2016-02, while prior period amounts and disclosures are not adjusted and continue to be reported under the accounting standards in effect for the prior period.

Recently Adopted Accounting Pronouncements

In February 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income" ("ASU 2018-02"), which provides entities the option to reclassify tax effects stranded in accumulated other comprehensive income as a result of the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) to retained earnings. The Company adopted this new standard effective January 1, 2019 with no impact to its consolidated condensed financial statements.

8

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, "Leases (Topic 842)" ("ASU 2016-02" and "ASU 2018-11"). The ASU requires lessees to record most leases on their balance sheets but recognize the expense on their statements of operations in a manner similar to accounting rules previously in effect. ASU 2016-02 states that a lessee would recognize a lease liability for the obligation to make lease payments and a right-to-use ("ROU") asset for the right to use the underlying asset for the lease term.

The Company has completed its implementation of ASU 2016-02 and applicable methods of transition. As permitted under the transition guidance, for leases in existence prior to adoption, the Company will carry forward the assessment of whether its arrangements are or contain leases, the classification of its leases, the impact of initial direct costs associated with its leases, and the remaining lease terms. The Company implemented internal controls and key system functionality to enable the preparation of financial information on adoption.

The Company adopted the requirements of ASU 2016-02 utilizing the modified retrospective method of transition to identified leases as of January 1, 2019 (the “effective date”). The adoption of the standard had a material impact to the Company’s condensed consolidated balance sheets. There was no impact upon adoption to the condensed consolidated statements of operations or cash flows. The impact of the adoption was due to:

• the recognition of additional operating lease liabilities of $82.5 million and corresponding operating ROU assets of $80.5 million. These represent the operating leases existing as of the effective date which have a lease term of greater than twelve months. The operating ROU assets were recorded net of a $2.0 million reclassification of other accrued liabilities and prepaid expenses representing previously deferred or prepaid rent and lease incentives.

• the de-recognition of previously recorded facility financing obligations of $46.1 million and related plant, property and equipment assets of $46.1 million from a build-to-suit lease arrangement for which construction is complete and the Company is leasing the constructed asset but previously did not qualify for sale accounting.

Accounting Pronouncements Pending Adoption

In August 2018, the FASB issued Accounting Standards Update No. 2018-15, "Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40) - Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract," ("ASU 2018-15"). ASU 2018-15 aligns the accounting for implementation costs incurred in a hosting arrangement that is a service contract with the accounting for implementation costs incurred to develop or obtain internal-use software under ASC 350-40, in order to determine which costs to capitalize and recognize as an asset and which costs to expense. ASU 2018-15 is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2019, and can be applied either prospectively to implementation costs incurred after the date of adoption or retrospectively to all arrangements. The Company is currently evaluating the impact of the adoption of ASU 2018-15 on its consolidated financial statements and expects to adopt the new standard in the first quarter of 2020.

Summary of Significant Accounting Policies

Except for changes to the Company's lease accounting policy, as included below, there have been no changes to the Company’s significant accounting policies described in the Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on February 26, 2019.

Leases

The Company has various non-cancelable arrangements to lease office and dedicated data center facility space. These arrangements include services and other incremental costs to maintain or operate the space and do not contain any material residual value guarantees, material variable payments, or restrictive covenants.

The Company determines at contract inception whether the arrangement 1) contains a lease based on its ability to control a physically distinct asset for more than 12 months, and 2) should be classified as an operating or finance lease. For both its office and data center facility leases, the Company combines all components of the lease including related services as a single component.

Operating leases are reflected as operating ROU assets and operating lease liabilities in the accompanying consolidated balance sheets. Operating ROU assets and operating lease liabilities represent the Company's obligation to make payments arising from the lease. The operating ROU asset also includes any lease payments made and excludes lease incentives. The liabilities are measured at the commencement date based on the present value of lease payments over the lease term utilizing our incremental borrowing rate. Lease payments are typically discounted at our incremental borrowing rate as the interest rate implicit in the lease cannot be readily determined in the absence of key inputs which are typically not reported by our lessors. Judgment was used to estimate the incremental borrowing rate associated with these leases based on relevant market data and Company inputs applied to accepted valuation methodologies.

9

The Company recognizes lease expense relating to its operating leases on a straight-line basis over the lease term, which commences when the Company controls the leased asset. The lease term includes optional periods to extend or terminate the leases when it is reasonably certain that the option will be exercised. Lease incentives are recognized as a reduction to lease expense on a straight-line basis over the underlying lease term.

In the normal course of operations, the Company enters into subleases for unoccupied leased office space. Any sublease payments received are recognized as a reduction to the related lease expense on a straight-line basis over the life of the sublease.

2. BUSINESS COMBINATIONS

The following business combinations have been accounted for as acquisitions in accordance with ASC 805, Business Combinations. The purchase consideration was allocated to the tangible and intangible assets acquired and liabilities assumed based on their fair values as of the acquisition date with the excess recorded as goodwill. Acquisition related transaction costs are not included as a component of consideration transferred but are accounted for as an expense in the period in which the costs are incurred and have been included in general and administrative expenses in the condensed consolidated statement of operations.

Workpop Inc.

On September 10, 2018, the Company completed the acquisition of Workpop Inc. (“Workpop”), a privately held company. Workpop is a robust web and mobile solution for candidates and hiring managers in service-based industries. The acquisition was completed pursuant to a merger whereby Workpop became a wholly-owned subsidiary of the Company. In connection with the merger, the Company paid cash consideration of $18.2 million. Acquisition-related transaction costs were $0.5 million.

The Company had a $0.5 million cost basis investment in Workpop prior to the acquisition. As part of the acquisition of Workpop, the Company received a return of our investment with an immaterial loss, which was included in general and administrative expenses in the consolidated statement of operations.

The Company’s allocation of the total purchase price consideration as of September 10, 2018 is summarized below (in thousands):

	Fair Value
Cash and cash equivalents	$	115
Other assets	68
Intangible assets - developed technology	7,500
Goodwill	10,525
Total purchase price	$	18,208

The intangible assets related to developed technology are amortized on a straight-line basis over 3 years.

 Pro forma results of operations have not been presented as the impact of the acquisition is not material to our financial results.

Grovo Learning, Inc.

On November 9, 2018, the Company completed the acquisition of Grovo Learning, Inc. (“Grovo”), a privately held company. Grovo helps learning and development teams engage employees and drive their business forward by delivering an evolving library of customizable Microlearning® content. The acquisition was completed pursuant to a merger whereby Grovo became a wholly-owned subsidiary of the Company in exchange for cash consideration of $22.9 million. The Company acquired Grovo to expand its Cornerstone Content Anytime subscription offerings which are accessed through the Cornerstone Learning suite. Acquisition-related transaction costs were $0.6 million.

10

The Company’s allocation of the total purchase price consideration as of November 9, 2018 is summarized below (in thousands):

	Fair Value
Cash and cash equivalents	$	508
Accounts receivable	761
Property and equipment, net	51,967
Other current and non-current assets	1,001
Intangible assets - content library	4,700
Intangible assets - developed technology	2,500
Goodwill	11,034
Facility financing obligation	(46,100		)
Accounts payable, accrued expenses, and other liabilities, current and non-current	(3,465		)
Net assets acquired	$	22,906

The Company acquired a property lease and related leasehold improvements whereby it was deemed, for accounting purposes only, to be the owner of the entire project. In connection with the Company’s accounting for this transaction in 2018,the Company capitalized $51.1 million as a build-to-suit property within property and equipment, net, and recognized a corresponding facility financing obligation for $46.1 million. However, due to the adoption of the new lease standard ASU 2016-02 as of January 1, 2019, the build-to-suit property, exclusive of leasehold improvements of $5.0 million, and related facility financing obligation were de-recognized. Refer to Note 1 - Organization and Summary of Significant Accounting Policies above and Note 13 - Leases below for further information.

The fair value of the acquired assets are amortized on a straight-line basis over their expected useful lives.

	Useful Life
Property and equipment, net	25 years
Intangible assets - content library	6 years
Intangible assets - developed technology	3 years

Pro forma results of operations have not been presented as the impact of the acquisition is not material to the Company's financial results.

3. NET LOSS PER SHARE

The following table presents the Company’s basic and diluted net loss per share (in thousands, except per share amounts):

	Three Months Ended
	March 31,
	2019			2018
Net loss	$	(3,464	)	$	(16,216	)
Weighted-average shares of common stock outstanding	59,141			57,425
Net loss per share – basic and diluted	$	(0.06	)	$	(0.28	)

11

The potential shares of common stock that would have a dilutive impact are computed using the treasury stock method or the if-converted method, as applicable. At March 31, 2019 and 2018, the following potential shares were excluded from the computation of diluted net loss per share because their effect would have been anti-dilutive (in thousands):

	March 31,
	2019	2018
Options to purchase common stock, restricted stock units and performance-based restricted stock units	10,029	11,629
Shares issuable pursuant to employee stock purchase plan	96	114
Convertible notes	7,143	11,825
Common stock warrants	—	4,682
Total shares excluded from net loss per share	17,268	28,250

4. INVESTMENTS

Investments in Marketable Securities

The Company’s investments in available-for-sale marketable securities are made pursuant to its investment policy, which has established guidelines relative to the diversification of the Company’s investments and their maturities, with the principal objective of capital preservation and maintaining liquidity that is sufficient to meet cash flow requirements.

 The following is a summary of investments in marketable securities, including those that meet the definition of a cash equivalent, as of March 31, 2019 (in thousands):

	March 31, 2019
	Amortized Cost Basis		Unrealized Gains		Unrealized Losses			Fair Value		Cash Equivalent		Investments
Money market funds	$	279,317	$	—	$	—		$	279,317	$	279,317	$	—
Corporate bonds	15,973		—		—			15,973		—		15,973
U.S. treasury securities	18,987		—		(10		)	18,977		—		18,977
	$	314,277	$	—	$	(10	)	$	314,267	$	279,317	$	34,950

The following is a summary of investments in marketable securities, including those that meet the definition of a cash equivalent, as of December 31, 2018 (in thousands):

	December 31, 2018
	Amortized Cost Basis		Unrealized Gains		Unrealized Losses			Fair Value		Cash Equivalent		Investments
Money market funds	$	129,321	$	—	$	—		$	129,321	$	129,321	$	—
Corporate bonds	58,115		—		(82		)	58,033		—		58,033
U.S. treasury securities	138,826		—		(100		)	138,726		—		138,726
Commercial paper	7,973		—		—			7,973		—		7,973
	$	334,235	$	—	$	(182	)	$	334,053	$	129,321	$	204,732

As of March 31, 2019 and December 31, 2018, the Company’s investments in marketable securities had a weighted-average maturity date of approximately two months. No marketable securities held as of these periods have been in a continuous unrealized loss position for more than 12 months. The Company does not believe any unrealized losses as of March 31, 2019 and December 31, 2018 represent other-than-temporary impairments.

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5. INTANGIBLE ASSETS AND GOODWILL

Finite-lived Intangibles

The Company has finite-lived intangible assets which are amortized over their estimated useful lives on a straight-line basis. The following table presents the gross carrying amount and accumulated amortization of finite-lived intangible assets as of March 31, 2019 and December 31, 2018 (in thousands):

	March 31, 2019							December 31, 2018
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Developed technology	$	39,984	$	(31,769	)	$	8,215	$	39,984	$	(30,817	)	$	9,167
Content Library	4,700		(334		)	4,366		4,700		—			4,700
	$	44,684	$	(32,103	)	$	12,581	$	44,684	$	(30,817	)	$	13,867

During 2018, the Company recorded additional finite-lived intangible assets totaling $7.5 million and $7.2 million, related to developed technology from the acquisitions of Workpop Inc. and Grovo Learning, Inc., respectively.

Total amortization expense from finite-lived intangible assets was $1.3 million for the three months endedMarch 31, 2019 and zero for the three months endedMarch 31, 2018 and was recorded in cost of revenue in the accompanying condensed consolidated statements of operations.

The following table presents the Company's estimate of remaining amortization expense for finite-lived intangible assets that existed as of March 31, 2019 (in thousands):

	2019		2020		2021		2022		2023		2024 and thereafter
Estimated remaining amortization expense	$	3,141	$	4,188	$	3,236	$	855	$	855	$	306

The Company evaluates the recoverability of its long-lived assets with finite useful lives, including intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. Based on the assessment of various factors in connection with the preparation of the Company’s financial statements for the three months ended March 31, 2019, the Company does not believe there were any negative qualitative factors impacting the recoverability of the carrying values. There were no impairment charges related to identifiable intangible assets in the three months ended March 31, 2019 and March 31, 2018.

Goodwill

The carrying amount of goodwill was $47.5 million as of March 31, 2019 and December 31, 2018.

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6. OTHER BALANCE SHEET AMOUNTS

The balance of property and equipment, net is as follows (in thousands):

	Useful Life	March 31,			December 31,
		2019			2018
Computer equipment and software	3 – 5 years	$	55,230		$	52,055
Build to suit property	25 years	—			51,058
Furniture and fixtures	7 years	4,616			4,367
Leasehold improvements	2 – 6 years	14,975			9,987
Renovation in progress	n/a	3,345			1,984
		78,166			119,451
Less: accumulated depreciation and amortization		(45,085		)	(42,197		)
Total property and equipment, net		$	33,081		$	77,254

As described in Note 1 - Organization and Summary of Significant Accounting Policies and Note 2 - Business Combinations above, on January 1, 2019, the Company de-recognized the build to suit property, exclusive of $5.0 million in build-out costs which were re-classified as leasehold improvements in the current reporting period.

Depreciation expense for the three months ended March 31, 2019 and December 31, 2018 was $2.9 million and $2.2 million, respectively.

The balance of accrued expenses is as follows (in thousands):

	March 31,		December 31,
	2019		2018
Accrued compensation	$	22,045	$	31,799
Accrued commissions	6,261		13,856
Accrued interest	4,312		8,625
Other accrued expenses	13,735		14,051
Total accrued expenses	$	46,353	$	68,331

7. FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair value represents the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Observable inputs are based on market data obtained from independent sources. The fair value hierarchy is based on the following three levels of inputs, of which the first two are considered observable and the last one is considered unobservable:

• Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

• Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

• Level 3 – Unobservable inputs.

Assets and liabilities measured at fair value on a recurring basis included the following as of March 31, 2019 and December 31, 2018 (in thousands):

	March 31, 2019								December 31, 2018
	Fair Value		Level 1		Level 2		Level 3		Fair Value		Level 1		Level 2		Level 3
Cash equivalents	$	279,317	$	279,317	$	—	$	—	$	129,172	$	129,172	$	—	$	—
Corporate bonds	15,973		—		15,973		—		58,033		—		58,033		—
U.S. treasury securities	18,977		—		18,977		—		138,726		—		138,726		—
Commercial paper	—		—		—		—		7,973		—		7,973		—
	$	314,267	$	279,317	$	34,950	$	—	$	333,904	$	129,172	$	204,732	$	—

As of March 31, 2019 and December 31, 2018, cash equivalents of $279.3 million and $129.2 million, respectively, consisted of money market funds with original maturity dates of three months or less backed by the U.S. government.

As of March 31, 2019 and December 31, 2018, corporate bonds, U.S. treasury securities, and commercial paper were classified within Level 2 of the fair value hierarchy. These instruments were valued using information obtained from pricing services, which obtained quoted market prices from a variety of industry data providers.

Convertible Notes

The Company’s 2021 Notes described in Note 8 - Debt are shown in the accompanying condensed consolidated balance sheets at their original issuance value, net of unamortized discount and debt issuance costs, and are not remeasured to fair value each period. The approximate fair value of the Company’s 2021 Notes as of March 31, 2019 was $435.6 million. The fair value of the 2021 Notes was estimated on the basis of quoted market prices of similar instruments, which, due to the lack of trading activity, are considered Level 2 in the fair value hierarchy.

8. DEBT

2021 Senior Convertible Notes

In December 2017, the Company issued $300.0 million principal amount of 5.75% senior convertible notes (the “2021 Notes”) for a purchase price equal to 98% of the principal amount, raising net proceeds of $294.0 million before issuance costs.

The 2021 Notes are governed by an Indenture, dated December 8, 2017 between the Company and U.S. Bank National Association, as trustee (the “2017 Indenture”). The 2021 Notes mature on July 1, 2021, unless earlier repurchased or converted, and bear interest at a rate of 5.75% per year payable semi-annually in arrears on January 1 and July 1 of each year, commencing January 1, 2018.

The 2021 Notes are convertible at an initial conversion rate of 23.8095 shares of the Company’s common stock per $1,000 principal amount of the 2021 Notes, which represents an initial conversion price of $42.00 per share, subject to adjustment for anti-dilutive issuances, voluntary increases in the conversion rate and make-whole adjustments upon a fundamental change. A fundamental change includes a change in control, delisting of the Company’s common stock and a liquidation of the Company. Upon conversion, the Company will deliver the applicable number of the Company’s common stock and cash in lieu of any fractional shares. Holders of the 2021 Notes may convert their 2021 Notes at any time prior to the close of business on the scheduled trading day immediately preceding the maturity date.

The holders of the 2021 Notes may require the Company to repurchase all or a portion of their 2021 Notes at a cash repurchase price equal to 100% of the principal amount of the Notes being repurchased, plus the remaining scheduled interest through and including the maturity date, upon a fundamental change and events of default, including non-payment of interest or principal and other obligations under the 2017 Indenture.

The 2021 Notes were issued at a two percent discount and accounted for as debt upon issuance. The Company recorded $300.0 million of debt and $6.0 million for the debt discount. The debt discount is accreted to interest expense over the term of the 2021 Notes using the interest method.

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The Company incurred debt issuance costs of $9.2 million that were deferred and amortized to interest expense over the term of the 2021 Notes.

The Company agreed to register the resale of the 2021 Notes and the shares of common stock issuable upon conversion of the 2021 Notes. A registration statement on Form S-3 relating to such securities was filed with the U.S. Securities and Exchange Commission by the Company on August 7, 2018.

The net carrying amounts of the liability components of the 2021 Notes as of March 31, 2019 and December 31, 2018 consists of the following (in thousands):

	March 31, 2019			December 31, 2018
Principal amount	$	300,000		$	300,000
Unamortized debt discount	(3,943		)	(4,348		)
Net carrying amount before unamortized debt issuance costs	296,057			295,652
Unamortized debt issuance costs	(6,062		)	(6,685		)
Net carrying value	$	289,994		$	288,967

The effective interest rate of the liability component is 6.4% for the 2021 Notes.

2018 Notes

In 2013, the Company issued convertible notes (the “2018 Notes”) raising gross proceeds of $253.0 million. The 2018 Notes bore interest at a rate of 1.50% per year payable semi-annually in arrears on January 1 and July 1 of each year, commencing January 1, 2014. On July 1, 2018, the 2018 Notes matured and the $253.0 million principal amount due was repaid. The 2018 Notes are no longer outstanding.

The following table presents the interest expense recognized related to the 2021 Notes and 2018 Notes for the three months endedMarch 31, 2019 and 2018 (in thousands):

	Three Months Ended
	March 31,
	2019		2018
Contractual interest expense at 1.5% and 5.75% per annum	$	4,313	$	5,261
Amortization of debt issuance costs	623		916
Accretion of debt discount	404		2,510
Total	$	5,340	$	8,687

9. STOCKHOLDERS’ EQUITY

Share Repurchase Program

In November 2017, the Company’s board of directors authorized a $100.0 million share repurchase program of its common stock. The share repurchase program was completed as of December 31, 2018. The total number of shares repurchased was 2.3 million at an average share price of $43.71.

10. STOCK-BASED AWARDS

Stock Options

The following table summarizes the Company’s stock option activity for the three months endedMarch 31, 2019 (in thousands, except per share and term information):

	Shares		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value (1)
Outstanding, December 31, 2018	3,828		$	32.41	4.1	$	70,436
Granted	—		—
Exercised	(129	)	38.74
Forfeited	(22	)	45.40
Outstanding, March 31, 2019	3,677		$	32.12	3.8	$	83,504

	Shares	Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value (1)
Exercisable at March 31, 2019	3,647	$	32.09	3.8	$	82,901
Vested and expected to vest at March 31, 2019	3,676	32.11		3.8	83,480

(1) Based on the Company’s closing stock price of $54.78 on March 31, 2019 and $50.43 on December 31, 2018.

Unrecognized compensation expense relating to stock options was $0.3 million at March 31, 2019, which is expected to be recognized over a weighted-average period of 0.7 years.

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Restricted Stock Units

The Company granted restricted stock units covering 0.5 million shares of its common stock during the three months ended March 31, 2019. At March 31, 2019, there were 4.1 million shares of the Company’s common stock issuable upon the vesting of outstanding restricted stock units. Unrecognized compensation expense related to unissued shares of the Company’s common stock subject to unvested restricted stock units was $136.7 million at March 31, 2019, which is expected to be recognized as expense over the weighted-average period of 2.9 years.

Performance-Based Restricted Stock Units

The Compensation Committee designed an annual equity compensation structure to further align the compensation levels of certain executives to the performance of the Company through the issuance of performance-based restricted stock units. The number of shares of the Company’s common stock issuable upon the vesting of these performance-based restricted stock unit awards is based upon the Company meeting a combination of revenue and cash flow growth targets determined at the time of their grants. The total amount of compensation expense recognized is based on the number of shares that the Company determines are probable of vesting. The estimate will be made each reporting period and determined by the Company’s actual and projected revenue and cash flow performance and the compensation expense will be recognized over the vesting term of the awards.

The following table summarizes the Company’s issuances of awards under the new compensation award structure:

Grant Date	Performance Measures	Vesting Term	Performance Period	# of Shares at Target	# of Shares at Maximum	Grant Date Fair Value per share		# of Shares Outstanding at Target (2)	# of Shares Outstanding at Maximum (2)
March 2017	(a) the Company meeting certain revenue and cash flow targets through December 31, 2019 and (b) the recipient continuing to provide services to the Company through the end of March 2020	Three years	Fiscal years 2017, 2018 and 2019	185,270	555,810	$	41.73	141,540	424,620
February 2018	(a) the Company meeting certain combined subscription revenue growth and unlevered cash flow margin targets for the year ending December 31, 2020 and (b) the recipient continuing to provide services to the Company through the end of February 2021	Three years	Fiscal year 2020	121,764	304,410	$	40.64	121,764	304,410
February 2018	(a) the Company meeting certain combined subscription revenue growth and unlevered cash flow margin targets for each of the years ending December 31, 2020, December 31, 2021, and December 31, 2022 and (b) the recipient continuing to provide services to the Company through each respective vest date at the end of February 2020, 2021 and 2022	Five years	Fiscal years 2020, 2021 and 2022 (1)	411,412	1,028,530	$	40.64	411,412	1,028,530
April 2018	(a) the Company meeting certain combined subscription revenue growth and unlevered cash flow margin targets for the year ending December 31, 2020 and (b) the recipient continuing to provide services to the Company through the beginning of April 2021	Three years	Fiscal year 2020	3,572	8,930	$	39.54	—	—

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April 2018	(a) the Company meeting certain combined subscription revenue growth and unlevered cash flow margin targets for each of the years ending December 31, 2020, December 31, 2021, and December 31, 2022 and (b) the recipient continuing to provide services to the Company through each respective vest date at the beginning of April 2020, 2021 and 2022	Five years	Fiscal years 2020, 2021 and 2022 (1)	53,572	133,930	$	39.54	53,572	133,930
February 2019	(a) the Company meeting certain combined subscription revenue growth and unlevered cash flow margin targets for the year ending December 31, 2021 and (b) the recipient continuing to provide services to the Company through the beginning of February 2022	Three years	Fiscal year 2021	13,178	32,945	$	58.23	13,178	32,945
February 2019	(a) the Company meeting certain combined subscription revenue growth and unlevered cash flow margin targets for the year ending December 31, 2021 and (b) the recipient continuing to provide services to the Company through the beginning of February 2022	Three years	Fiscal year 2021	80,559	201,398	$	57.27	80,559	201,398
March 2019	(a) the Company meeting certain combined subscription revenue growth and unlevered cash flow margin targets for the year ending December 31, 2021 and (b) the recipient continuing to provide services to the Company through the beginning of February 2022	Three years	Fiscal year 2021	43,136	107,835	$	56.15	43,136	107,835

(1)	One-third of the total eligible shares shall vest on each of the third, fourth and fifth anniversaries of the grant date. This award is a one-time equity award intended to cover expected grant levels over a three-year period. In exchange, the Compensation Committee does not plan to grant any additional equity awards to recipients of this award until 2021.
(2)	Excludes shares that were forfeited due to termination of employment.

The Company recognized compensation expense related to all performance-based awards in the aggregate amount of $1.8 million for the three months ended March 31, 2019. There was no unrecognized compensation expense related to unvested 2016 and 2017 performance-based restricted stock unit awards at March 31, 2019. Unrecognized compensation expense related to unvested 2018 and 2019 performance-based restricted stock units was $24.3 million at March 31, 2019, based on the probable performance target at that date, which is expected to be recognized as expense over the weighted average period of 2.8 years.

Employee Stock Purchase Plan

Under the Company’s 2010 Employee Stock Purchase Plan (“ESPP”), eligible employees are granted the right to purchase shares at the lower of 85% of the fair market value of the stock at the time of grant or 85% of the fair market value at the time of exercise. The right to purchase shares is granted twice yearly for six month offering periods in June and December and exercisable on or about the succeeding December and June, respectively, on each year.

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Stock-Based Compensation

Stock-based compensation expense related to stock options, restricted stock units, the ESPP and performance-based restricted stock units is included in the following line items in the accompanying Condensed Consolidated Statements of Operations for the three months endedMarch 31, 2019 and 2018 (in thousands):

	Three Months Ended
	March 31,
	2019		2018
Cost of revenue	$	1,136	$	1,002
Sales and marketing	6,047		6,246
Research and development	4,196		2,308
General and administrative	5,666		4,487
Restructuring	—		5,436
Total	$	17,045	$	19,479

11. INCOME TAXES

The Company’s income tax provision was approximately $0.7 million with an effective income tax rate of (26.3)% for the three months endedMarch 31, 2019. The Company’s income tax provision was approximately $0.5 million with an effective income tax rate of (3.4)% for the three months endedMarch 31, 2018. The Company’s effective tax rate differs from the statutory rate primarily due to the change in the valuation allowance on the Company’s deferred tax assets and foreign income taxes.

The income tax provision is related to domestic income, certain foreign income and withholding taxes. The Company does not have a material tax provision in the significant jurisdictions it operates in, such as the United States and United Kingdom, as it has historically generated losses. The Company has recorded a full valuation allowance against the net deferred tax assets and the Company does not currently anticipate recording an income tax benefit related to these deferred tax assets or current year losses.

The Company is subject to United States federal income tax as well as to income tax in multiple state and foreign jurisdictions, including the United Kingdom. Federal income tax returns of the Company are subject to IRS examination for the 2015 through 2018 tax years. State income tax returns are subject to examination for the 2014 through 2018 tax years. Foreign income tax returns are subject to examination for the 2007 through 2018 tax years. The Company believes it is reasonably possible that within the next twelve months it may resolve certain matters related to the years under examination, which may result in reductions of its unrecognized tax benefits and income tax expense of up to $1.2 million.

12. COMMITMENTS AND CONTINGENCIES

Lease Commitments

During the three months ended March 31, 2019, the Company entered into operating lease agreements with remaining obligations of approximately $0.1 million in 2019, $0.6 million in 2020 , $0.8 million in 2021, $0.8 million in 2022, $0.8 million in 2023, and $5.4 million thereafter. Refer to Note 13 below for additional details about the Company's leases.

Letters of Credit

The Company maintains standby letters of credit in association with other contractual arrangements. Total letters of credit outstanding at March 31, 2019 and December 31, 2018 was $7.8 million and $7.7 million, respectively.

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Guarantees and Indemnifications

The Company has made guarantees and indemnities under which it may be required to make payments to a guaranteed or indemnified party, in relation to certain transactions, including revenue transactions in the ordinary course of business. The Company is obligated to indemnify its directors and officers to the maximum extent permitted under the laws of the State of Delaware. However, the Company has a directors and officers insurance policy that may reduce its exposure in certain circumstances and may enable it to recover a portion of future amounts that may be payable, if any. The duration of the guarantees and indemnities varies and, in many cases, is indefinite but subject to statutes of limitations. To date, the Company has made no payments related to these guarantees and indemnities. The Company estimates the fair value of its indemnification obligations as insignificant based on this history and the Company’s insurance coverage and therefore has not recorded any liability for these guarantees and indemnities in the accompanying condensed consolidated balance sheets.

Litigation

The Company is subject to various legal proceedings and claims that arise in the ordinary course of business. If the Company determines that it is probable that a loss has been incurred and the amount is reasonably estimable, the Company will record a liability. The Company has determined that it does not have a potential liability related to any legal proceedings or claims that would individually or in the aggregate materially adversely affect its financial condition or operating results.

13. LEASES

The Company has various non-cancelable operating leases for its offices and its data centers. These arrangements have remaining lease terms ranging from 1 to 12 years. Certain lease agreements contain renewal options, termination rights, rent abatement, and/or escalation clauses with renewal terms that can extend the lease term from one to 5 years or more.

The components of lease cost related to the Company's operating leases were as follows (in thousands):

	Three months ended
	March 31, 2019
Operating lease cost(1)	$	3,821
Sublease income	(810		)
Net lease cost	$	3,011
(1) Excludes cost from short-term leases and variable lease payments, which were immaterial.

Supplemental balance sheet information related to the Company's operating leases was as follows (in thousands, except lease term and discount rate):

	March 31,			January 1,
	2019			2019
Operating lease right-of-use assets	$	82,984		$	80,544
Operating lease liabilities (current and non-current)	88,204			82,544
Weighted-average remaining lease term	5 years			5 years
Weighted-average incremental borrowing rate	3.3		%	3.3		%

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Maturities of the Company's operating lease liabilities at March 31, 2019 were as follows (in thousands):

2019	$	3,931
2020	16,151
2021	16,110
2022	16,514
2023	16,389
Thereafter	26,128
Total lease payments	$	95,223
Less: Imputed interest(1)	(7,019		)
Present value of operating lease liabilities	$	88,204
(1) Calculated using the incremental borrowing rate for each lease.

As previously disclosed in the Company’s 2018 Annual Report on Form 10-K and under the previous lease accounting standard, future minimum lease payments for the Company's operating leases at December 31, 2018, on an undiscounted basis, were as follows (in thousands):

	Operating Leases
2019	$	11,576
2020	14,162
2021	14,277
2022	14,823
2023	14,710
Thereafter	17,961
Total minimum lease payments	$	87,509

14. DEFERRED REVENUE AND REMAINING PERFORMANCE OBLIGATIONS

The Company recognized $123.7 million and $119.4 million of revenues during the three months endedMarch 31, 2019 and 2018, respectively, that was included in the deferred revenue balances as of December 31, 2018 and January 1, 2018, respectively.

Transaction Price Allocated to Remaining Performance Obligations

As of March 31, 2019, approximately $858.6 million of revenue is expected to be recognized from remaining performance obligations. This amount mainly comprises subscription revenue, with less than 5% attributable to professional services and other revenue. The Company expects to recognize revenue on approximately two thirds of these remaining performance obligations over the next 18 months, with the balance recognized thereafter.

The estimated revenues from the remaining performance obligations do not include uncommitted contract amounts such as (i) amounts which are cancelable by the client without any significant penalty, (ii) future billings for time and material contracts, and (iii) amounts associated with optional renewal periods.

15. DEFERRED COMMISSIONS

The Company defers commissions paid to its sales force and related payroll taxes as these amounts are incremental costs of obtaining a contract with a customer and are recoverable from future revenue due to the non-cancelable client agreements that gave rise to the commissions. For the three months ended March 31, 2019 and March 31, 2018, the amount of amortization expense was $8.7 million and $10.3 million respectively and there was no impairment loss in relation to the costs capitalized.

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16. RELATED PARTY TRANSACTIONS

The Cornerstone OnDemand Foundation (the “Foundation”) empowers communities in the United States and internationally by increasing the impact of the non-profit sector through the utilization of human capital management technology including the Company’s products. The Company’s chief executive officer is on the board of directors of the Foundation. The Company does not direct the Foundation’s activities, and accordingly, the Company does not consolidate the Foundation’s statement of activities with its financial results. During the three months ended March 31, 2019 and 2018, the Company provided at no charge certain resources to the Foundation, with approximate values of $1.2 million and $0.8 million, respectively.

17. SUBSEQUENT EVENTS

The Company analyzed its operations subsequent to March 31, 2019, through the date the financial statements were available to be issued and has determined that there are no material subsequent events to disclose in these condensed consolidated financial statements.

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are any statements that look to future events and consist of, among other things, statements regarding our business strategies; anticipated future operating results and operating expenses; our ability to attract new clients to enter into subscriptions for our solutions; our ability to service those clients effectively and induce them to renew and upgrade their deployments of our solutions; our ability to expand our sales organization to address effectively the new industries, our ability to optimize the efficiency of our operations and scalability of our business; geographies and types of organizations we intend to target; our ability to accurately forecast revenue and appropriately plan our expenses; market acceptance of enhancements to our solutions; alternate ways of addressing human capital management needs or new technologies generally by us and our competitors; continued acceptance of SaaS as an effective method for delivering human capital management solutions and other business management applications; the attraction and retention of qualified employees and key personnel; our ability to protect and defend our intellectual property; costs associated with defending intellectual property infringement and other claims; events in the markets for our solutions and alternatives to our solutions, as well as in the United States and global markets generally; future regulatory, judicial and legislative changes in our industry; the timing and amount of capital expenditures and share repurchases; and changes in the competitive environment in our industry and the markets in which we operate. In addition, forward-looking statements also consist of statements involving trend analyses and statements including such words as “may,” “believe,” “could,” “anticipate,” “would,” “might,” “plan,” “expect,” and similar expressions or the negative of such terms or other comparable terminology. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are subject to business and economic risks. As such, our actual results could differ materially from those set forth in the forward-looking statements as a result of the factors set forth below in Part II, Item 1A, “Risk Factors,” and in our other reports filed with the Securities and Exchange Commission. We assume no obligation to update the forward-looking statements to reflect events that occur or circumstances that exist after the date on which they were made.

The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q.

Overview

Cornerstone is a leading global provider of learning and human capital management software, delivered as Software-as-a-Service (“SaaS”). We were founded with a passion for empowering people through learning and a conviction that people should be an organization's greatest competitive advantage. We believe that companies thrive when they help their employees to realize their potential. Putting this belief into practice, we offer solutions to help companies strategically manage and continuously develop their talent throughout the entire employee lifecycle. Featuring comprehensive recruiting, personalized learning, development-driven performance management, and holistic HR planning, our human capital management platform is successfully used by more than 3,500 global clients of all sizes, spanning more than 190 countries in 43 different languages. We help organizations around the globe recruit, train and manage their employees.

We work with clients across all geographies, verticals and market segments. Our clients include multi-national corporations, large domestic and foreign-based enterprises, mid-market companies, public sector organizations, healthcare providers, higher education institutions, non-profit organizations and small businesses. We sell our platform through both direct and indirect channels, including direct sales teams throughout North and South America, Europe and Asia-Pacific and distributor relationships with payroll companies, human resource consultancies and global system integrators.

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Our enterprise human capital management platform is composed of four product suites:

• Our Recruiting suite helps organizations to source and attract candidates, assess and select applicants, onboard new hires and manage the entire recruiting process;

• Our Learning suite enables clients to manage training and development programs, knowledge sharing and collaboration among employees, track compliance requirements and support career development for employees. Our content offering delivers fresh, modern content, fueling employee curiosity and inspiring growth;

• Our Performance suite provides tools to manage goal setting, performance reviews, competency assessments, development plans, continuous feedback, compensation management and succession planning; and

• Our HR Administration suite supports employee records administration, organizational management, employee and manager self-service, workforce planning and compliance reporting.

Our goal is to empower people, organizations and communities to realize their potential with a comprehensive human capital management platform that is built to last. Our growth strategy since inception has been deliberate and focused on long-term success. This has allowed us to weather periods of economic turmoil and significant changes in the markets we serve without experiencing business contraction. We plan to continue with the same systematic approach in the future. Key elements of our strategy include:

Continue to Innovate and Extend Our Technological Leadership. We believe we have developed over the last twenty years a deep understanding of the human capital management challenges our clients face. We continually collaborate with our clients to build extensive functionality that addresses their specific needs and requests. We plan to continue to leverage our expertise in human capital management and client relationships to develop new products, features and functionality that will enhance our platform and expand our addressable market. We plan to continue our policy of implementing best practices across our organization, expanding our technical operations and investing in our network infrastructure and service capabilities in order to support continued future growth.

Retain and Expand Business with Existing Clients. We believe our existing installed base of clients offers a substantial opportunity for growth.

• Focus on Client Success, Retention and Growth. We believe focusing on our clients’ success will lead to our own success. We have developed a Client Success Framework that governs our operating model. We strive to maintain our strong retention rates by continuing to provide our clients with high levels of service, support and increasing functionality.

• Sell Additional Products to Existing Clients. We believe there is a significant growth opportunity in selling additional functionality to our existing clients. Many clients have added functionality subsequent to their initial deployments as they recognize the benefits of our unified platform. As a result, approximately 71% of our clients today utilize two or more products and approximately 41% utilize three or more products. With our expanding product portfolio functionality, we believe significant upsell opportunity remains within our existing client base.

Focus on Growing Subscription Revenue. Beginning in 2018, we focused our go-to-market capabilities on driving subscription revenue growth. We believe our primary growth drivers are as follows:

• Invest in Direct Sales in North America. We believe that the market for human capital management is large and remains significantly underpenetrated. In particular, Recruiting and Content provides an opportunity to increase our sales to both new and existing clients. Additionally, the Small and Medium-sized Business (SMB) market represent a very large and underpenetrated opportunity.

• Significantly Grow Our International Operation. We believe a substantial opportunity exists to continue to grow sales of our platform internationally. We intend to grow our Europe, Middle-East and Africa ("EMEA") and Asia-Pacific and Japan ("APJ") operations.

• Grow Our Cornerstone Content Anytime Sales. We believe there is a significant market opportunity for developing employees throughout their careers with modern, fresh e-learning content. Our Content Anytime subscription offering provides access to industry leading content which we believe will increase user engagement on our platform. Our content partners for Content Anytime include industry leaders as well as regional, functional and vertically-focused online training providers. In addition, we have agreements with providers of specific competency models for use by our clients directly in our human capital management platform. We intend to enter into additional license agreements to continue providing the best content available for our clients.

• Expand the Ecosystem. During 2018, we migrated a sizable portion of our implementation services to our partners. We have also expanded in recent years our relationships with various third-party consulting firms to deliver the successful implementation of our platform and to optimize our clients’ use of our platform during the terms of their engagements. Our partner strategy and experience includes certifications and curricula developed to ensure successful delivery by

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our partners and continued high client satisfaction. We believe we have a significant opportunity to leverage these third-parties interested in building or expanding their businesses to increase our market penetration.

Increase Operating Income and Free Cash Flow. In November 2017, we announced a strategic plan designed to better position us for long-term growth and increase shareholder value. We believe managing our operating costs while making smart investments in scaling our middle and back-office operations to support revenue growth is critical to our long-term success. We intend to focus on operational excellence initiatives that drive increases in operating income and free cash flow.

Acquisitions. We may acquire or invest in additional businesses, products or technologies that we believe will complement or expand our platform, enhance our technical capabilities or otherwise offer growth opportunities. Most recently, in November 2018, we acquired Grovo Learning, Inc., a leading provider of Microlearning® content, and in September 2018, we acquired Workpop Inc., a web and mobile solution for candidates and hiring managers in service-based industries. We completed these transactions to support our strategic initiatives to enhance the Recruiting and Content areas of our platform.

We generate most of our revenue from the sale of our products pursuant to multi-year client agreements. Client agreements for our human capital management platform generally have terms of three years. Our sales processes are typically competitive, and sales cycles generally vary in duration from two to nine months depending on the size of the potential client. We generally price our human capital management platform based on the number of products purchased and the permitted number of users with access to each product.

We generally recognize revenue from subscriptions ratably over the term of the client agreement and revenue from professional services as the services are performed. In certain instances, our clients request enhancements to the underlying features and functionality of our human capital management platform, and in these instances, revenue from subscriptions is recognized over the remaining term of the agreement once access to the enhanced features is made available to the client. We generally invoice our clients upfront for annual subscription fees for multi-year subscriptions and upfront for professional services. We record amounts invoiced for annual subscription periods that have not occurred or services that have not been performed as deferred revenue on our balance sheet.

We have historically experienced seasonality in terms of when we enter into client agreements. We usually sign a significantly higher percentage of agreements with new clients, as well as renewal agreements with existing clients, in the fourth quarter of each year. This seasonality is driven by client purchasing patterns. As the terms of most of our client agreements are full year increments, agreements initially entered into the fourth quarter or last month of any quarter will generally come up for renewal at that same time in subsequent years. This seasonality is reflected to a much lesser extent, and sometimes is not immediately apparent, in our revenue, due to the fact that we generally recognize subscription revenue ratably over the term of the client agreement, which is generally three years. In addition, this seasonality is reflected in changes in our deferred revenue balance, which generally is impacted by the timing of when we enter into agreements with new clients, invoice clients, and recognize revenue. We expect this seasonality to continue, which may cause fluctuations in certain of our operating results and financial metrics, and thus limit our ability to predict future results.

Our quarterly operating results have fluctuated in the past and may continue to fluctuate in the future based on a number of factors, many of which are beyond our control, including those described in the “Risk Factors” section of this Quarterly Report on Form 10-Q. One or more of these factors may cause our operating results to vary widely. As such, we believe that our quarterly results of operations may vary significantly in the future and that period-to-period comparisons of our operating results may not be meaningful and should not be relied upon as an indication of future performance.

Metrics

We regularly review a number of metrics, including the following key metrics, to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make strategic decisions.

• Revenue. Our revenues primarily comprise of subscriptions to our human capital management platform and related support and accompanying one-time professional services. Our revenues can be impacted by the timing of new client agreements signed as well as the mix between subscriptions and one-time professional services.

• Subscription revenue. Subscription revenue includes revenue from subscriptions to our human capital management platform and related support. We generally recognize subscription revenue ratably over the contract period, and as a result of timing of when we enter into new client agreements, revenue from subscriptions signed in the current period are typically reflected in future periods.

• Annual recurring revenue. In order to assess our business performance with a metric that reflects a subscription-based business model, we track annual recurring revenue, which is another financial metric we define as the annualized recurring value of all active subscriptions at the end of a reporting period.

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• Unlevered free cash flow. We define unlevered free cash flow, a non-GAAP financial measure, as cash provided by operating activities minus capital expenditures and capitalized software costs plus cash paid for interest. We present this metric because it is a liquidity measure that provides useful information to management and investors about the amount of cash generated by our business that can be used for strategic opportunities, including investing in our business and strengthening our balance sheet.

• Annual dollar retention rate. We define annual dollar retention rate as the percentage of annual recurring revenue from all clients on the first day of a fiscal year that is retained from those same clients on the last day of that same fiscal year.  Accordingly, this percentage excludes all annual recurring revenue from new clients added during the fiscal year.  Furthermore, incremental sales during the fiscal year to clients included in the calculation are only counted to the extent those sales offset any decreases in annual recurring revenue from the original amount on the first day of our fiscal year. Therefore, the annual dollar retention rate can never exceed 100%. This ratio excludes the annual recurring revenue from clients of our Cornerstone for Salesforce, Cornerstone PiiQ, Grovo, and Workpop products. We believe that our annual dollar retention rate is an important metric to measure the long-term value of client agreements and our ability to retain our clients.

• Constant currency results. We present constant currency information, a non-GAAP financial measure, to assess how our underlying business performed excluding the effect of foreign currency fluctuations. Due to our legal and operating structure, our international revenues are favorably impacted as the U.S. dollar weakens relative to the British pound and euro, and unfavorably impacted as the U.S. dollar strengthens relative to the British pound and euro. We believe the presentation of results on a constant currency basis in addition to reported results helps improve the ability to understand our performance as it excludes the effects of foreign currency volatility that are not indicative of our core operating results. To present this information, current period results for entities reporting in British pounds and euros are translated into U.S. dollars at the prior period exchange rates instead of the actual exchange rates in effect for the current period. These results should be considered in addition to, not as a substitute for, results reported in accordance with GAAP. Results on a constant currency basis, as we present them, may not be comparable to similarly titled measures used by other companies and are not a measure of performance presented in accordance with GAAP.

• Number of clients. We believe that our ability to expand our client base is an indicator of our market penetration and the growth of our business as we continue to invest in our direct sales teams and distributors. Our client count includes contracted clients for our enterprise human capital management platform as of the end of the period and excludes clients of our Cornerstone for Salesforce, PiiQ, Grovo, and Workpop products. In the three months ended March 31, 2019, our number of clients grew 9% when compared to the same period in the prior year.

Key Components of Our Results of Operations

Sources of Revenue and Revenue Recognition

Our platform is designed to enable organizations to meet the challenges they face in maximizing the productivity of their human capital. We generate revenue from the following sources:

• Subscriptions to Our Products. Clients pay subscription fees for access to our enterprise human capital management platform, which may include third-party e-learning content, and support. Fees are based on a number of factors, including the number of products purchased and the number of users with access to a product. We generally recognize revenue from subscriptions ratably over the term of the agreements beginning on the date the subscription service is made available to the client. Subscription agreements are typically three years, billed annually in advance, and non-cancelable.

• Professional Services and Other. We offer our clients assistance in implementing our products and optimizing their use. Professional services include application configuration, system integration, business process re-engineering, change management and training services. Services are generally billed upfront on a fixed fee basis and to a lesser degree on a time-and-material basis. These services are generally purchased along with a subscription arrangement and are typically performed within the first several months of the arrangement. Clients may also purchase professional services at any other time. We generally recognize revenue from fixed fee professional services contracts as services are performed based on the proportion performed to date relative to the total expected services to be performed. Revenue associated with time-and-material contracts are recorded as such time-and-materials are incurred.

Our agreements generally do not contain any cancellation or refund provisions other than in the event of our default.

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Cost of Revenue

Cost of revenue consists primarily of costs related to hosting our products and delivery of professional services, and includes the following:

•personnel and related expenses, including stock-based compensation;

•expenses for network-related infrastructure and IT support;

•delivery of contracted professional services and on-going client support;

•payments to external service providers contracted to perform implementation services;

•depreciation of data centers and amortization of capitalized software costs and developed technology software license rights; and

•content and licensing fees and referral fees.

In addition, we allocate a portion of overhead, such as rent, IT costs, depreciation and amortization and employee benefits costs, to cost of revenue based on headcount. The costs associated with providing professional services are significantly higher, as a percentage of revenue, than the costs associated with providing access to our products due to the labor costs to provide the consulting services. We expect gross margin to increase over time as we optimize the efficiency of our operations, continue to scale our business and deemphasize the sale of professional services.

Operating Expenses

Our operating expenses are as follows:

• Sales and Marketing. Sales and marketing expenses consist primarily of personnel and related expenses for our sales and marketing staff, including salaries, benefits, bonuses, stock-based compensation and commissions; costs of marketing and promotional events, corporate communications, online marketing, product marketing and other brand-building activities; and allocated overhead.

During the third quarter of 2018, we completed certain aspects of our strategic transformation plan to position us for long-term growth. The completion of this transformation phase resulted in the reallocation of certain sales and marketing headcount to research and development activities. On a go-forward basis, this will have the impact of reducing sales and marketing and increasing research and development, as a percentage of revenue, by approximately 3%. The same impact would be approximately 2% excluding stock-based compensation expense.

We intend to continue to invest in sales and marketing strategically to expand our business both domestically and internationally. We expect sales and marketing expenses, as a percentage of revenue, to decrease in part due to the reallocation of resources discussed above.

• Research and Development. Research and development expenses consist primarily of personnel and related expenses for our research and development staff, including salaries, benefits, bonuses and stock-based compensation; the cost of certain third-party service providers; and allocated overhead. Research and development costs, other than software development costs qualifying for capitalization, are expensed as incurred.

As described above, during the third quarter of 2018, we reallocated headcount from sales and marketing to research and development. We have focused our research and development efforts on continuously improving our products. We believe that our research and development activities are scalable because we maintain a single software code base for each of our products. However, in order to remain competitive, we expect research and development expenses to increase in 2019 as a percentage of revenue, in part due to the reallocation described above.

• General and Administrative. General and administrative expenses consist primarily of personnel and related expenses for administrative, legal, finance and human resource staff, including salaries, benefits, bonuses and stock-based compensation; professional fees; insurance premiums; other corporate expenses; and allocated overhead. We expect over time general and administrative expense to decrease as a percentage of revenue as we continue to scale our business by optimizing the efficiency of our operations.

• Restructuring. Restructuring consists of stock-based compensation, payroll-related costs, such as severance, outplacement costs and continuing healthcare coverage, associated with employee terminations.

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Other Income (Expense)

• Interest Income. Interest income consists primarily of interest income from investment securities partially offset by amortization of investment premiums. We expect interest income to vary depending on the level of our investments in marketable securities, which include corporate bonds, agency bonds, U.S. treasury securities and commercial paper.

• Interest Expense. Interest expense consists primarily of interest expense from our convertible notes, accretion of debt discount and amortization of debt issuance costs.

• Other, Net. Other, net consists of income and expense associated with fluctuations in foreign currency exchange rates, fair value adjustments to strategic investments and other non-operating expenses. We expect other income (expense) to vary depending on the movement in foreign currency exchange rates and the related impact on our foreign exchange gain (loss).

Income Tax (Provision) Benefit

Income tax provision is primarily related to foreign income, state income and withholding taxes. Given our historical losses, we have not recorded a provision, except for state minimum taxes and withholding taxes. Foreign subsidiaries and branches provide intercompany services and are compensated on a cost-plus basis, and therefore, have incurred liabilities for foreign income taxes in their respective jurisdictions.

Critical Accounting Policies and Estimates

Information with respect to our critical accounting policies that we believe have the most significant effect on our reported results and require subjective or complex judgments of management are contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K filed with the Securities and Exchange Commission, or SEC, on February 26, 2019.

For information regarding recent changes to our critical accounting policies, refer to Note 1 of Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

Recent Accounting Pronouncements

For information regarding recent accounting pronouncements, refer to Note 1 of Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

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Results of Operations

The following table sets forth our results of operations for each of the periods indicated (in thousands). The period-to-period comparison of financial results is not necessarily indicative of future results.

	Three Months Ended March 31,
	2019			2018
Revenue	$	140,117		$	133,113
Cost of revenue	33,695			37,020
Gross profit	106,422			96,093
Operating expenses:
Sales and marketing	54,505			59,245
Research and development	27,746			15,984
General and administrative	22,940			21,985
Restructuring	—			7,725
Total operating expenses	105,191			104,939
Income (loss) from operations	1,231			(8,846		)
Other income (expense):
Interest income	1,990			1,819
Interest expense	(5,366		)	(8,700		)
Other, net	(597		)	44
Other income (expense), net	(3,973		)	(6,837		)
Loss before income tax provision	(2,742		)	(15,683		)
Income tax provision	(722		)	(533		)
Net loss	$	(3,464	)	$	(16,216	)

The following table sets forth our results of operations as a percentage of total revenue for each of the periods indicated.

	Three Months Ended March 31,
	2019		2018
Revenue	100.0	%	100.0	%
Cost of revenue	24.0	%	27.8	%
Gross profit	76.0	%	72.2	%
Operating expenses:
Sales and marketing	38.9	%	44.5	%
Research and development	19.8	%	12.0	%
General and administrative	16.4	%	16.5	%
Restructuring	—	%	5.8	%
Total operating expenses	75.1	%	78.8	%
Income (loss) from operations	0.9	%	(6.6	)%
Other income (expense):
Interest income	1.4	%	1.4	%
Interest expense	(3.8	)%	(6.5	)%
Other, net	(0.4	)%	—	%
Loss before income tax provision	(2.0	)%	(11.8	)%
Income tax provision	(0.5	)%	(0.4	)%
Net loss	(2.5	)%	(12.2	)%

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The following table sets forth our revenue and key metrics that we use to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make strategic decisions:

Metrics

	At or For Three Months Ended March 31,
	2019		2018
Revenue (in thousands)	$	140,117	$	133,113
Subscription revenue (in thousands)	131,256		113,134
Unlevered free cash flow (in thousands)	4,337		(10,178		)
Number of clients	3,567		3,280

Revenue increased by $7.0 million, or 5%, for the three months ended March 31, 2019 as compared to the same period in 2018. Revenue growth on a constant currency basis was 7% for the three months ended March 31, 2019 as compared to the same period in 2018. The rate of our revenue increase can be impacted by the mix and timing of new client agreements signed, the success of our focus on subscription revenue and reducing our professional services business, fluctuations in foreign exchange rates, as well as the growth rate of our emerging markets.

The following table sets forth our sources of revenue for each of the periods indicated (dollars in thousands):

	Three Months Ended March 31,
	2019			2018
Subscription revenue	$	131,256		$	113,134
Percentage of subscription revenue to total revenue	93.7		%	85.0		%
Professional services revenue	$	8,861		$	19,979
Percentage of professional services revenue to total revenue	6.3		%	15.0		%
	$	140,117		$	133,113

Subscription revenue increased by $18.1 million, or 16%, for the three months ended March 31, 2019 as compared to the same period in 2018. Subscription revenue growth on a constant currency basis was 18% for the three months ended March 31, 2019 as compared to the same period in 2018. The increase was attributable to new business, which includes new clients, upsells, cross-sells and renewals from existing clients.

Professional services revenue decreased by $11.1 million, or 56%, for the three months ended March 31, 2019 as compared to the same period in 2018. The decrease of professional services revenue is attributed to the continued execution of the strategic initiative announced in the fourth quarter of 2017, which is to sharpen our focus on subscription revenue growth and migrate most of our implementation services to our global partners.

Revenue by geography is generally based on the address of the customer as defined in our master subscription agreement with each customer. The following table sets forth our revenue by geographic area for each of the periods indicated (dollars in thousands):

	Three Months Ended March 31,
	2019			2018
Revenue for United States	$	90,596		$	82,747
Percentage of total revenue for United States	64.7		%	62.2		%
Revenue for all other countries	$	49,521		$	50,366
Percentage of total revenue for all other countries	35.3		%	37.8		%
	$	140,117		$	133,113

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Net Cash Provided By (Used In) Operating Activities and Unlevered Free Cash Flows

	Three Months Ended
	March 31,
	2019			2018
Reconciliation of unlevered free cash flow:
Net cash provided by (used in) operating activities	$	7,294		$	(4,580	)
Capital expenditures	(4,243		)	(2,559		)
Capitalized software costs	(7,399		)	(6,039		)
Cash paid for interest	8,685			3,000
Unlevered free cash flow	$	4,337		$	(10,178	)
Unlevered free cash flow margin	3.1		%	(7.6		)%

Net cash provided by operating activities for the three months endedMarch 31, 2019 was $7.3 million as compared to $(4.6) million during the same period in 2018. The increase was primarily due to improved profitability, improved collections and other working capital changes in 2019 when compared to the same period in 2018.

Unlevered free cash flow for the three months endedMarch 31, 2019 was $4.3 million, resulting in an unlevered cash flow margin of 3.1%, as compared to an unlevered free cash flow of $(10.2) million and an unlevered cash flow margin of (7.6)% for the same period in 2018. The increase was primarily due to improved profitability, improved collections, and additional cash paid for interest on our convertible notes. Refer to the section titled “Liquidity and Capital Resources” below for additional information on the convertible notes.

Cost of Revenue, Gross Profit and Gross Margin

	Three Months Ended March 31,
	2019			2018
	(dollars in thousands)
Cost of revenue	$	33,695		$	37,020
Gross profit	106,422			96,093
Gross margin	76.0		%	72.2		%

Cost of revenue decreased $3.3 million, or 9%, for the three months ended March 31, 2019 as compared to the same period in 2018. The decrease in cost of revenue was primarily due to reduced costs of our professional services business which we began exiting in the first quarter of 2018. The improvement in gross margin was primarily due to a higher mix of subscription revenue, which carries a higher gross margin.

Sales and Marketing

	Three Months Ended March 31,
	2019			2018
	(dollars in thousands)
Sales and marketing	$	54,505		$	59,245
Percent of revenue	38.9		%	44.5		%

Sales and marketing expenses decreased $4.7 million, or 8% for the three months ended March 31, 2019 as compared to the same period in 2018. As a percentage of revenue, sales and marketing expense decreased by approximately 6 percentage points, primarily resulting from the reallocation of headcount from sales and marketing to research and development during the third quarter of 2018, as described above, as well as increased productivity and scale from our sales teams.

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Research and Development

	Three Months Ended March 31,
	2019			2018
	(dollars in thousands)
Research and development	$	27,746		$	15,984
Percent of revenue	19.8		%	12.0		%

Research and development expenses increased by $11.8 million, or 74%, for the three months ended March 31, 2019 as compared to the same period in 2018. As a percentage of revenue, approximately three percentage points of the increase was due to the reallocation of headcount from sales and marketing to research and development during the third quarter of 2018, as described above. We also continued our investment in additional research and development headcount to enable the development and release of new products and features to our client base.

We capitalize a portion of our software development costs related to the development and enhancements of our products, which are then amortized to cost of revenue. The timing of our capitalizable development and enhancement projects may affect the amount of development costs expensed in any given period. We capitalized $7.0 million and $7.2 million of software development costs and amortized $6.9 million and $5.3 million in the three months ended March 31, 2019 and 2018, respectively.

General and Administrative

	Three Months Ended March 31,
	2019			2018
	(dollars in thousands)
General and administrative	$	22,940		$	21,985
Percent of revenue	16.4		%	16.5		%

General and administrative expenses increased by $1.0 million, or 4%, for the three months ended March 31, 2019 as compared to the same period in 2018. The increase was primarily due to increased costs to support our growing business and incremental spend to support our operational excellence initiatives, which we expect to result in margin improvements over time.

Restructuring

	Three Months Ended March 31,
	2019			2018
	(in thousands)
Restructuring	$	—		$	7,725
Percent of revenue	—		%	5.8		%

There were no restructuring expenses recorded in the three months endedMarch 31, 2019. As of March 31, 2019, we incurred an aggregate total of $10.5 million of restructuring expense since December 2017, which consisted primarily of stock-based compensation expense of $6.2 million and payroll related costs of $4.3 million. We do not expect to incur any further restructuring expenses in 2019.

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Other Income (Expense)

	Three Months Ended March 31,
	2019			2018
	(in thousands)
Interest income	$	1,990		$	1,819
Interest expense	(5,366		)	(8,700		)
Other, net	(597		)	44
Total	$	(3,973	)	$	(6,837	)

Interest income for the three months endedMarch 31, 2019 increased $0.2 million, as compared to the same periods in 2018 due to the increase in interest income earned on increased cash balances in money market accounts.

Interest expense for the three months endedMarch 31, 2019 decreased by $3.3 million, as compared to the same period in 2018 due to a decrease in interest expense for our convertible notes, resulting from the settlement of the 2018 Notes in July 2018. Refer to the section titled “Liquidity and Capital Resources” below for additional information on the convertible notes.

Other, net is primarily comprised of foreign exchange gains and losses related to transactions denominated in foreign currencies and foreign exchange gains and losses related to our intercompany loans and certain cash accounts. Foreign exchange gains and losses for the three months endedMarch 31, 2019 and 2018, respectively, were primarily driven by fluctuations in the euro and U.S. dollar in relation to the British pound.

Income Tax Provision

	Three Months Ended March 31,
	2019			2018
	(in thousands)
Income tax provision	$	(722	)	$	(533	)

For the three months ended March 31, 2019, we recorded an income tax provision related to certain foreign and state income taxes.

Liquidity and Capital Resources

At March 31, 2019, our principal sources of liquidity were $357.0 million of cash and cash equivalents, investments in marketable securities of $35.0 million and $92.6 million of accounts receivable. In June 2013, we issued $253 million of 1.5% convertible notes due July 1, 2018 (the “2018 Notes”) and concurrently entered into convertible note hedges and separate warrant transactions. The 2018 Notes matured on July 1, 2018. On July 2, 2018, we repaid the $253.0 million in principal amount of the 2018 Notes, which are no longer outstanding.

In December 2017, we issued $300.0 million principal amount of 5.75% senior convertible notes due July 1, 2021 (the “2021 Notes”) for a purchase price equal to 98% of the principal amount, to certain entities affiliated with Silver Lake and LinkedIn. Holders of the 2021 Notes may convert their 2021 Notes at any time prior to the close of business on the scheduled trading day immediately preceding the maturity date.

In September 2018, we used approximately $18.2 million of cash in connection with our acquisition of Workpop.

In November 2018, we used approximately $22.9 million of cash in connection with our acquisition of Grovo. With the acquisition of Grovo, we recorded a facility financing obligation of $46.1 million associated with the build-to-suit asset recorded on our consolidated balance sheets. 

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We intend to use our cash for general corporate purposes, potential future acquisitions or other transactions. Depending on certain growth opportunities, we may choose to accelerate investments in sales and marketing, research and development, technology and services, which may require the use of proceeds for such additional expansion and expenditures. Based on our current level of operations and anticipated growth, we believe our future cash flows from operating activities and existing cash and cash equivalents will provide adequate funds for our ongoing operations and general corporate purposes for at least the next twelve months. Our future capital requirements will depend on many factors, including our rate of revenue growth and collections, the level of our sales and marketing efforts, the timing and extent of spending to support product development efforts and expansion into new territories, the timing of introductions of new services and enhancements to existing services, the timing of general and administrative expenses as we grow our administrative infrastructure and the continuing market acceptance of our products. To the extent that existing cash and cash from operations are not sufficient to fund our future activities, we may need to raise additional funds. In addition, we may enter into agreements or letters of intent with respect to potential investments in, or acquisitions of, complementary businesses, services or technologies in the future, which could also require us to seek additional financing or utilize our cash resources.

The following table sets forth a summary of our cash flows for the periods indicated (in thousands):

	Three Months Ended March 31,
	2019		2018
Net cash provided by (used in) operating activities	$	7,294	$	(4,580	)
Net cash provided by investing activities	159,037		32,079
Net cash provided by (used in) financing activities	6,840		(8,087		)

Our cash flows from operating activities are significantly influenced by our growth, ability to maintain our contractual billing and collection terms, and our investments in headcount and infrastructure to support anticipated growth. Given the seasonality and continued growth of our business, our cash flows from operations will vary from period to period.

Cash provided by operating activities was $7.3 million for the three months ended March 31, 2019 compared to cash used in operating activities which was $4.6 million for the three months ended March 31, 2018. The increase in operating cash flow was primarily due to improved profitability, improved collections and other working capital changes in 2018 when compared to 2017.

Our primary investing activities have consisted of investments, capital expenditures to develop our capitalized software as well as to purchase software, computer equipment, leasehold improvements and furniture and fixtures in support of expanding our infrastructure and workforce.

Cash provided by investing activities was $159.0 million for the three months ended March 31, 2019, compared to $32.1 million for the three months ended March 31, 2018. The increase in cash provided by investing activities was primarily due to an increase in maturities of investments.

Cash provided by financing activities was $6.8 million for the three months ended March 31, 2019, compared to cash used in financing activities of $8.1 million for the three months ended March 31, 2018. The increase in financing cash flows was primarily due to the completion of the stock repurchase plan.

Share Repurchase Program

In November 2017, the Company’s board of directors authorized a $100.0 million share repurchase program of its common stock. The share repurchase program has been completed as of December 31, 2018. The total number of shares repurchased was 2.3 million at an average share price of $43.71.

Contractual Obligations

There have been no material changes in contractual obligations during the quarter-ended March 31, 2019, from those disclosed in our Annual Report on Form 10-K filed with the SEC on February 26, 2019, except for the following contractual commitments with remaining obligations of approximately $1.9 million in 2019, $1.2 million in 2020, $1.1 million in 2021, $0.8 million in 2022, $0.8 million in 2023, and $5.4 million thereafter.

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Off-Balance Sheet Arrangements

As part of our ongoing business, we do not have any relationships with other entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, that have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. We are therefore not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in those types of relationships.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

We have operations in the United States and internationally, and we are exposed to market risks in the ordinary course of our business. These risks primarily include interest rate, foreign exchange, inflation and counterparty risks, as well as risks relating to changes in the general economic conditions in the countries where we conduct business. To reduce certain of these risks, we monitor the financial condition of our large clients and limit credit exposure by principally collecting in advance and setting credit limits as we deem appropriate. In addition, our investment strategy has been to invest in financial instruments, including corporate bonds, U.S. treasury securities, agency securities, commercial paper and money market funds backed by United States Treasury Bills within the guidelines established under our investment policy. We also make strategic investments in privately-held companies in the development stage. To date, we have not used derivative instruments to mitigate the impact of our market risk exposures. We have also not used, nor do we intend to use, derivatives for trading or speculative purposes.

Interest Rate Risk

At March 31, 2019, we had cash and cash equivalents of $357.0 million and investments of $35.7 million, which primarily consisted of corporate bonds, U.S. treasury securities, agency securities, commercial paper, money market funds backed by United States Treasury Bills and other debt securities. The carrying amount of our cash equivalents reasonably approximates fair value due to the short maturities of these instruments.

The primary objectives of our investment activities are the preservation of capital, the fulfillment of liquidity needs and the fiduciary control of cash and investments. We do not enter into investments for trading or speculative purposes. Our investments are exposed to market risk due to fluctuations in interest rates, which may affect the fair market value of our investments. An increase of 50-basis points in interest rates would have resulted in an insignificant reduction on the fair market value of our portfolio as of March 31, 2019. We therefore do not expect our operating results or cash flows to be materially affected by a sudden change in market interest rates.

We do not believe our cash equivalents, corporate bonds, U.S. treasury securities, agency securities and commercial paper have significant risk of default or illiquidity. While we believe these cash investments do not contain excessive risk, we cannot provide assurance that in the future our investments will not be subject to adverse changes in market value. In addition, we maintain significant amounts of cash and cash equivalents at one or more financial institutions that are in excess of federally insured limits. We cannot provide assurance that we will not experience losses on these deposits.

Foreign Currency Risk

We have foreign currency risks related to our revenue and operating expenses denominated in currencies other than the U.S. dollar, primarily euros and British pounds. Increases and decreases in our foreign-denominated revenue from movements in foreign exchange rates are often partially offset by the corresponding decreases or increases in our foreign-denominated operating expenses. Due to our legal structure, revenue and operating expenses denominated in currencies other than the U.S. dollar primarily flow through subsidiaries with functional currencies of the British pound and euro. Our other income (expense) is also impacted by the remeasurement of U.S. dollar denominated intercompany loans, cash accounts held by our overseas subsidiaries, accounts receivable denominated in foreign currencies and accounts payable denominated in foreign currencies.

As our international operations grow, our risks associated with fluctuation in currency rates will become greater, and we will continue to reassess our approach to managing this risk. In addition, currency fluctuations or a weakening U.S. dollar can increase the costs of our international expansion. To date, we have not entered into any foreign currency hedging contracts although we may do so in the future. The effect of an immediate 10% adverse change in foreign exchange rates on foreign-denominated accounts at March 31, 2019, including our intercompany loans with our subsidiaries, would result in a foreign currency loss of approximately $5.1 million.

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Inflation Risk

We do not believe that inflation has had a material effect on our business, financial condition or results of operations. Nonetheless, if our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition and results of operations.

Counterparty Risk

Our financial statements are subject to counterparty credit risk, which we consider as part of the overall fair value measurement. We attempt to mitigate this risk through credit monitoring procedures.

ITEM 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), refers to controls and procedures that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that such information is accumulated and communicated to a company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

Our management, with the participation of our chief executive officer and chief financial officer, has evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2019, the end of the period covered by this Quarterly Report on Form 10-Q. Based upon such evaluation, our chief executive officer and chief financial officer have concluded that our disclosure controls and procedures were effective as of such date.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting that occurred during the three months ended March 31, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

From time to time, we are involved in a variety of claims, suits, investigations and proceedings arising from the ordinary course of our business, including actions with respect to intellectual property claims, breach of contract and tort claims, labor and employment claims, tax and other matters. Although claims, suits, investigations and proceedings are inherently uncertain and their results cannot be predicted with certainty, we believe that the resolution of our current pending matters will not have a material adverse effect on our business, consolidated financial position, results of operations or cash flow. Regardless of the outcome, litigation can have an adverse impact on us because of defense costs, diversion of management resources and other factors. In addition, it is possible that an unfavorable resolution of one or more such proceedings could in the future materially and adversely affect our financial position, results of operations or cash flows in a particular period.

ITEM 1A. Risk Factors

The following risk factors and other information included in this Quarterly Report on Form 10-Q should be carefully considered. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we presently deem less significant may also impair our business operations. Please see page 24 of this Quarterly Report on Form 10-Q for a discussion of the forward-looking statements that are qualified by these risk factors. If any of the events or circumstances described in the following risk factors actually occurs, our business, operating results and financial condition could be materially adversely affected.

Risks Related to Our Business and Industry

Unfavorable conditions in our industry or the global economy, or reductions in information technology spending, could limit our ability to grow our business and negatively affect our operating results.

Our operating results may vary based on the impact of changes in our industry or the global economy on us or our clients. The revenue growth and potential profitability of our business depends on demand for enterprise application software generally and for human capital management platform in particular. We sell our human capital management platform primarily to large, mid-sized and small business organizations whose businesses fluctuate based on general economic and business conditions. In addition, a portion of our revenue is attributable to the number of users of our products at each of our clients, which in turn is influenced by the employment and hiring patterns of our clients and potential clients. To the extent that economic uncertainty or weak economic conditions cause our clients and potential clients to freeze or reduce their headcount, demand for our products may be negatively affected. Historically, economic downturns have resulted in overall reductions in spending on information technology and human capital management platforms as well as pressure from clients and potential clients for extended billing terms. If economic conditions deteriorate, our clients and potential clients may elect to decrease their information technology and human capital management budgets by deferring or reconsidering product purchases, which would limit our ability to grow our business and negatively affect our operating results.

Our business depends substantially on the level of our client satisfaction and specifically on clients renewing their agreements with us, purchasing additional products from us or adding additional users. Any significant decline in our client satisfaction rates or clients renewing their agreements, purchasing additional products or adding additional users would harm our future operating results.

In order for us to improve our operating results, it is important that our client satisfaction remains high and that our clients renew their agreements with us when the initial contract term expires and also purchase additional products or add additional users. Our clients have no obligation to renew their subscriptions after the initial subscription period, and there is no assurance that our clients will renew their subscriptions at the same or a higher level of service, if at all. Every year, some of our clients elect not to renew their agreements with us. Moreover, certain of our clients have the right to cancel their agreements for convenience, subject to certain notice requirements and, in some cases, early termination fees. Our client renewal rates may decline or fluctuate as a result of a number of factors, including their satisfaction or dissatisfaction with our products, our pricing, the prices of competing products or services, mergers and acquisitions affecting our client base, reduced hiring by our clients or reductions in our clients’ spending levels. If our clients do not renew their subscriptions, renew on less favorable terms, fail to purchase additional products or fail to add new users, our revenue may decline and our operating results may be harmed.

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If we fail to retain key employees and recruit qualified technical and sales personnel, our business could be harmed.

We believe that our success depends on the continued employment of our senior management and other key employees, such as our chief executive officer. In addition, because our future success is dependent on our ability to continue to enhance and introduce new software and services, we are heavily dependent on our ability to attract and retain qualified engineers with the requisite education, background and industry experience. As we expand our business, our continued success will also depend, in part, on our ability to attract and retain qualified sales, marketing and operational personnel capable of supporting a larger and more diverse client base. The loss of the services of a significant number of our engineers or sales people could be disruptive to our development efforts or business relationships. In addition, if any of our key employees joins a competitor or decides to otherwise compete with us, we may experience a material disruption of our operations and development plans, which may cause us to lose clients or increase operating expenses as the attention of our remaining senior managers is diverted to recruit replacements for the departed key employees.

Changes to U.S. immigration and work authorization laws and regulations can be significantly affected by political forces and levels of economic activity. Our international expansion and our business may be materially adversely affected if legislative or administrative changes to immigration or visa laws and regulations impair our hiring processes or projects involving personnel who are not citizens of the country where the work is to be performed.

Our financial results may fluctuate due to various business factors, some of which may be beyond our control.

There are a number of other factors that may cause our financial results to fluctuate from period to period, including among others:

• changes in billing terms and collection cycles in client agreements;

• the extent to which new clients are attracted to our products to satisfy their human capital management needs;

• the timing and rate at which we sign agreements with new clients;

• our access to service providers and partners when we outsource client service projects;

• our ability to manage the quality and completion of the client implementations performed by partners;

• the timing and duration of our client implementations, which is often outside of our direct control;

• our ability to provide, or partner with effective partners to provide, resources for client implementations and consulting projects;

• the extent to which we retain existing clients and satisfy their requirements;

• the extent to which existing clients renew their subscriptions to our products and the timing of those renewals;

• the extent to which existing clients purchase or discontinue the use of additional products and add or decrease the number of users;

• the extent to which our clients request enhancements to underlying features and functionality of our products and the timing of our delivery of these enhancements to our clients;

• the addition or loss of large clients, including through acquisitions or consolidations;

• the number and size of new clients, as well as the number and size of renewal clients in a particular period;

• the mix of clients among large, mid-sized and small organizations;

• changes in our pricing policies or those of our competitors;

• seasonal factors affecting demand for our products or potential clients’ purchasing decisions;

• the financial condition and creditworthiness of our clients;

• the amount and timing of our operating expenses, including those related to the maintenance, expansion and restructuring of our business, operations and infrastructure;

• changes in the operational efficiency of our business;

• the timing and success of our new product and service introductions;

• the timing of expenses of the development of new products and technologies, including enhancements to our products;

• our ability to aggregate large data sets into meaningful insights to drive increased demand for our products;

• continued strong demand for human capital management in the U.S. and globally;

• our ability to successfully integrate our operations with those of recently acquired privately-held companies;

• the success of current and new competitive products and services by our competitors;

• other changes in the competitive dynamics of our industry, including consolidation among competitors, clients or strategic partners;

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• our ability to manage our existing business and future growth, including in terms of additional headcount, additional clients, incremental users and new geographic regions;

• expenses related to our network and data centers and the expansion of such networks and data centers;

• the effects of, and expenses associated with, acquisitions of third-party technologies or businesses and any potential future charges for impairment of goodwill resulting from those acquisitions;

• equity issuances, including as consideration in acquisitions or due to the conversion of our outstanding convertible notes due 2021;

• business disruptions, costs and future events related to shareholder activism;

• legal or political changes in local or foreign jurisdictions that decrease demand for, or restrict our ability to sell or provide, our products;

• fluctuations in foreign currency exchange rates, including any fluctuation caused by uncertainties relating to the United Kingdom's vote in favor of exiting the European Union (often referred to as “Brexit”);

• general economic, industry and market conditions; and

• various factors related to disruptions in our SaaS hosting network infrastructure, defects in our products, privacy and data security and exchange rate fluctuations, each of which is described elsewhere in these risk factors.

In light of the foregoing factors, we believe that our financial results, including our revenue, operating income and free cash flows may vary significantly from period-to-period. As a result, period-to-period comparisons of our operating results may not be meaningful and should not be relied on as an indication of future performance.

Existing or future laws and regulations relating to privacy or data security could increase the cost of our products, limit their use and adoption, and subject us or our clients to litigation, regulatory investigations and penalties and other potential liabilities.

Our human capital management platform enables our clients to collect, manage and store a wide range of data, including personal data, related to every phase of the employee performance and management cycle. The United States and various state governments have adopted or proposed laws governing the collection, use, storage, sharing and processing of personal data. Several foreign jurisdictions, including but not limited to the European Union (the “EU”) and its member states, the United Kingdom (the “UK”), Korea, Japan, Singapore, Australia and India, have adopted legislation (including directives or regulations) that increase or change the requirements governing the personal data of individuals in these jurisdictions. In some cases, these laws impose obligations not only on many of our clients, but also directly on us. These laws and regulations are complex and change frequently, at times due to differing economic conditions and changes in political climate, with new laws and regulations proposed frequently and existing laws and regulations subject to different and conflicting interpretations. These laws have the potential to increase costs of compliance, risks of noncompliance and penalties for noncompliance and the cost and complexity of selling and delivering our solutions.

For example, the EU’s General Data Protection Regulation (“GDPR”), which took effect on May 25, 2018, imposes new obligations on our clients and directly on us. Among other obligations under the GDPR, we are required to give more detailed disclosure about how we collect, use and share personal data; contractually commit to data protection measures in our contracts with customers; maintain adequate data security measures; notify regulators and affected individuals of certain personal data breaches; meet extensive privacy governance and documentation requirements; and honor individuals’ expanded data protection rights, including their rights to access, correct and delete their personal data. Companies that violate the GDPR can face fines of up to the greater of 20 million euros or 4% of their worldwide annual turnover.

In addition, the mechanisms allowing companies to transfer personal data outside of the European Economic Area (“EEA”) face ongoing legal challenges in the EU and threaten our ability to lawfully process personal data where we operate outside of the EEA. One of these challenges has been brought against the EU-U.S. Privacy Shield Framework, which we rely on for transfers of personal data from the EEA to the United States. We also rely on the European Commission’s recognition of Israel and New Zealand, where we maintain significant support centers, as providing an “adequate” level of protection for personal data transferred from the EEA to those countries. Finally, we rely on the European Commission’s Standard Contractual Clauses for transfers of personal data from the EEA to India, where we also maintain a significant support center. Loss of our ability to lawfully transfer personal data out of the EEA to these or any other jurisdictions may cause reluctance or refusal by current or prospective European clients to use our products. Additionally, other countries outside of the EEA have passed or are considering passing laws requiring local data residency, which could increase the cost and complexity of delivering our services.

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Further, Brexit has created uncertainty with regard to data protection regulation in the United Kingdom, where our operations involve the processing of EU residents’ personal data. In particular, it is unclear whether, after Brexit, the UK will enact data protection legislation equivalent to the GDPR and how data transfers to and from the UK will be regulated. Thus, it is uncertain whether our operations in, and data transfers to and from, the UK, can comply with UK and EU law post-Brexit.

Just over a month after the GDPR took effect, the California legislature passed the California Consumer Privacy Act of 2018 (“CCPA”), which takes effect on January 1, 2020. The CCPA gives California residents certain rights similar to the individual rights given under the GDPR, including the right to access and delete their personal information, opt out of certain personal information sharing and receive detailed information about how their personal information is used. The CCPA prohibits discrimination against individuals who exercise their privacy rights, provides for civil penalties for violations, and creates a private right of action for data breaches that is expected to increase data breach litigation.

The costs of compliance with, and other burdens imposed by, privacy and data security laws and regulations may limit the use and adoption of our services, lead to negative publicity, reduce overall demand for our services, make it more difficult to meet expectations of or commitments to customers, require us to take on more onerous obligations in our contracts with customers, lead to significant fines, penalties or liabilities for noncompliance, or slow the pace at which we close sales transactions, any of which could harm our business. These laws could also impact our ability to offer, or our customers’ ability to deploy, our services in certain locations. The costs, burdens and potential liabilities imposed by existing privacy laws could be compounded if other jurisdictions in the U.S. or abroad begin to adopt similar laws.

In addition to government activity, privacy advocacy and other industry groups have established or may establish new self-regulatory standards that may place additional burdens on our ability to provide our services globally. Our customers expect us to meet voluntary certifications and other standards established by third parties, such as ISO 27001. If we are unable to earn and maintain these certifications or meet these standards, it could adversely affect our ability to provide our solutions to certain customers and could harm our business.

Furthermore, concerns regarding data privacy and security may cause our customers’ customers to resist providing the data necessary to allow our customers to use our services effectively. Even the perception that the privacy of personal information is not satisfactorily protected or does not meet regulatory requirements could inhibit sales of our products or services and could limit adoption of our cloud-based solutions.

Any of these matters could materially adversely affect our business, financial condition or operational results.

The market in which we participate is intensely competitive, and if we do not compete effectively, our operating results could be harmed.

The market for human capital management platforms is highly competitive, rapidly evolving and fragmented. Many of our competitors and potential competitors are larger and have greater brand name recognition, much longer operating histories, larger marketing budgets and significantly greater resources than we do. In addition, with the introduction of new technologies and market entrants, we expect competition to intensify in the future. If we fail to compete effectively, our business will be harmed. Some of our principal competitors offer their products or services at a lower price, which has resulted in pricing pressures. Similarly, some competitors offer different billing terms, which has resulted in pressures on our billing terms. If we are unable to maintain our pricing levels and billing terms, our operating results could be negatively impacted. In addition, pricing pressures and increased competition generally could result in reduced sales, reduced margins, losses or the failure of our products to achieve or maintain more widespread market acceptance, any of which could harm our business.

We face competition from desktop software tools and custom-built software that is designed to support the needs of a single organization, as well as from third-party talent and human resource application providers. These software vendors include, without limitation, International Business Machines Corporation, Oracle Corporation, Peoplefluent, Inc., Saba Software, Inc., SAP America, Inc., Skillsoft Corp., Talentsoft and Workday, Inc. In addition, some of the parties with which we maintain business alliances offer or may offer products or services that compete with our products or services.

Many of our competitors are able to devote greater resources to the development, promotion and sale of their products and services. In addition, many of our competitors have established marketing relationships, access to larger client bases and major distribution agreements with consultants, system integrators and distributors. Moreover, many software vendors can bundle human resource products or offer such products at a lower price as part of a larger product sale. In addition, some competitors may offer software that addresses one or a limited number of human capital management functions at a lower price point or with greater depth than our products. As a result, our competitors may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, standards or client requirements. Further, some potential clients, particularly large enterprises, may elect to develop their own internal products. For all of these reasons, we may not be able to compete successfully against our current and future competitors.

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Our systems collect, access, use and store personal and other client proprietary information. As a result, we are subject to security risks and are required to invest significant resources to prevent, mitigate, or correct issues arising from potential or actual security breaches. If a security breach occurs, our reputation could be harmed, our business may suffer and we could incur significant liability.

Our human capital management platform involves the storage and transmission of clients’ sensitive, proprietary and confidential information, including personal information, over the Internet (including public networks). Our security measures may be breached as a result of efforts by individuals or groups of hackers and sophisticated organizations, including state-sponsored organizations or nation-states. Our security measures could also be compromised by employee error or malfeasance, which could result in someone obtaining unauthorized access to, or denying authorized access to our IT systems, our customers’ data or our data, including our intellectual property and other confidential business information. Additionally, third parties may attempt to fraudulently induce employees or customers into disclosing sensitive information such as user names, passwords or other information to gain access to our customers’ data, our data or our IT systems.

Such breaches and other incidents can result in a risk of unauthorized, unlawful or inappropriate access to, denial of access to, disclosure of, or loss of our customers’ or our sensitive, proprietary and confidential information, as well as damage to our IT systems and our ability to make required reporting and disclosures as a public company. An actual or perceived security breach or similar incident could adversely affect our operating results and financial condition due to loss of confidence in the security of our products, damage to our reputation, early termination of contracts, decline in sales, disruption to our operations, litigation, regulatory investigations and penalties, or other liabilities.

In particular, federal, state and foreign governments continue to adopt new, or modify existing, laws requiring companies and their service providers to maintain certain security measures or to report data breaches to government authorities or affected individuals. In turn, customers’ expectations for the security measures we implement have increased. If we experience security breaches that could have been prevented by measures required by these laws or our customer contracts, or fail to report security breaches within timeframes mandated by law or our customer contracts, we could face significant liability.

Techniques to compromise IT systems have become more complex over time and are often not identified until they are exploited. As a result, we may be unable to anticipate or prevent such techniques. Our products operate in conjunction with and are dependent on a broad range of products, components and third-party services, and a vulnerability in any of them can expose us to a security breach. In addition, our customers and their third-party service providers may not have adequate security measures in place to protect their data that is stored in our platform, and, because we do not control our customers or their service providers, we cannot prevent vulnerabilities in their security measures from being exploited.

Our efforts to detect, prevent and remediate known or potential security vulnerabilities, including those arising from third-party hardware or software, may result in additional direct and indirect costs.

Finally, if a high profile security breach occurs with respect to another SaaS provider, our clients and potential clients may lose trust in the security of the SaaS business model generally, which could adversely impact our ability to retain existing clients or attract new ones.

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Any significant disruption in our SaaS hosting network infrastructure could harm our reputation, require us to provide credits or refunds, result in early terminations of client agreements or a loss of clients and adversely affect our business.

Our SaaS hosting network infrastructure is a critical part of our business operations. Our clients access our human capital management platform through a standard web browser and depend on us for fast and reliable access to our products. Our software is proprietary, and we currently rely on four third-party data center hosting facilities, which we lease, and the expertise of members of our engineering and software development teams for the continued performance of our platform. We are in the process of migrating our platform from our leased data center hosting facilities to public cloud third-party data center providers. After we complete this migration, we will rely extensively on these public cloud providers to provide to our clients and their users with fast and reliable access to our products. Any disruption of or interference with our SaaS hosting network infrastructure, including the services and operations of the public cloud providers could harm our reputation, business and results of operations. We have experienced, and may in the future experience, disruptions in our computing and communications infrastructure. Factors that may cause such disruptions that may harm our reputation include:

• human error;

• security breaches;

• telecommunications outages from third-party providers;

• computer viruses;

• acts of terrorism, sabotage or other intentional acts of vandalism, including cyber attacks;

• unforeseen interruption or damages experienced in moving hardware to a new location;

• fire, earthquake, flood and other natural disasters; and

• power loss.

Although we generally back-up our client databases hourly, store our data in more than one geographically distinct location at least weekly and perform real-time mirroring of data to disaster recovery locations, we do not currently offer immediate access to disaster recovery locations in the event of a disaster or major outage. Thus, in the event of any of the factors described above, or certain other failures of our computing infrastructure, clients may not be able to access their data for 24 hours or more and there is a remote chance that client data from recent transactions may be permanently lost or otherwise compromised. In addition, we may not have adequate insurance coverage to compensate for losses from a major interruption. Moreover, some of our agreements include performance guarantees and service level standards that obligate us to provide credits, refunds or termination rights in the event of a significant disruption in our SaaS hosting network infrastructure or other technical problems that relate to the functionality or design of our platform.

Defects in our platform could affect our reputation, result in significant costs to us and impair our ability to sell our products and related services.

Defects in our platform could adversely affect our reputation, result in significant costs to us and impair our ability to sell our products in the future. The costs incurred in correcting any product defects may be substantial and could adversely affect our operating results. Although we continually test our products for defects and work with clients through our client support organization to identify and correct errors, defects in our products are likely to occur in the future. Any defects that cause interruptions to the availability of our products could result in:

• lost or delayed market acceptance and sales of our products;

• early termination of client agreements or loss of clients;

• credits or refunds to clients;

• product liability suits against us;

• diversion of development resources;

• injury to our reputation; and

• increased maintenance and warranty costs.

While our client agreements typically contain limitations and disclaimers that purport to limit our liability for damages related to defects in our products, such limitations and disclaimers may not be enforced by a court or other tribunal or otherwise effectively protect us from such claims.

Evolving regulation of the Internet, changes in the infrastructure underlying the Internet, or interruptions in Internet access may adversely affect our financial condition by increasing our expenditures and causing client dissatisfaction.

As Internet commerce continues to evolve, regulation by federal, state or foreign agencies may increase. We are particularly sensitive to these risks because the Internet is a critical component of our business model. In addition, taxation of services provided over the Internet or other charges for accessing the Internet may be imposed by government agencies or

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private organizations. Changes in laws or regulations that adversely affect the growth, popularity or use of the Internet, or impact the way that Internet service providers treat Internet traffic, including laws impacting net neutrality, may negatively increase our operating costs or otherwise impact our business. Any regulation imposing greater fees for Internet use or restricting information exchanged over the Internet could result in a decline in the use of the Internet and the viability of Internet-based services, which could harm our business.

In addition, the rapid and continual growth of traffic on the Internet has resulted at times in slow connection and download speeds among Internet users. Our business expansion may be harmed if the Internet infrastructure cannot handle our clients’ demands or if hosting capacity becomes insufficient. If our clients become frustrated with the speed at which they can utilize our products over the Internet, our clients may discontinue the use of our human capital management platform and choose not to renew their contracts with us. Further, the performance of the Internet has also been adversely affected by viruses, worms, hacking, phishing attacks, denial of service attacks and other similar malicious programs, as well as other forms of damage to portions of its infrastructure, which have resulted in a variety of Internet outages, interruptions and other delays. These service interruptions could diminish the overall attractiveness of our products to existing and potential users and could cause demand for our products to suffer.

Failure to effectively retain, expand, and continue to increase the productivity of our direct sales teams and develop and expand our indirect sales channel will impede our growth.

We will need to continue to increase the productivity of and expand our sales and marketing infrastructure in order to grow our client base and our business. We plan to expand our direct sales teams and engage additional third-party distributors, both domestically and internationally. Identifying, recruiting and training these people and entities will require significant time, expense and attention. Our business will be seriously harmed and our financial resources will be wasted if our efforts to expand our direct and indirect sales channels do not generate a corresponding increase in revenue, and we may be required to sacrifice near-term growth and divert management attention in order to restructure our direct sales teams. In particular, if we are unable to achieve our expected productivity increases, we may not be able to significantly increase our revenue, profitability and/or free cash flows.

If for any reason we are not able to develop enhancements and new features, keep pace with technological developments or respond to future disruptive technologies, our business will be harmed.

Our future success will depend on our ability to adapt and innovate. To attract new clients and increase revenue from existing clients, we will need to enhance and improve our existing products and introduce new features. The success of any enhancement or new feature depends on several factors, including timely completion, introduction and market acceptance. If we are unable to enhance our existing products to meet client needs or successfully develop or acquire new features or products, or if such new features or products fail to be successful, our business and operating results will be adversely affected.

In addition, because our products are designed to operate on a variety of network, hardware and software platforms using Internet tools and protocols, we will need to continuously modify and enhance our products to keep pace with changes in internet-related hardware, software, communication, browser and database technologies. If we are unable to respond in a timely and cost-effective manner to these rapid technological developments, our products may become less marketable and less competitive or obsolete, and our operating results may be negatively impacted.

Finally, our ability to grow is subject to the risk of future disruptive technologies. If new technologies emerge that are able to deliver a human capital management platform at lower prices, more efficiently or more conveniently, such technologies could adversely impact our ability to compete.

We rely significantly on implementation partners to deliver professional services to our clients, and if these implementation partners fail to deliver these professional services effectively, or if we are unable to incentivize new partners to service our customers, our operating results will be harmed. 

We rely significantly on various partners to assist us in the successful implementation of our products and to optimize our clients’ use of our products during the terms of their engagements. We provide our implementation partners with specific training and programs to assist them in servicing our clients, but there can be no assurance that these steps will be utilized or effective. If these partners fail to deliver these services to our customers in an effective and timely manner, we may suffer reputational harm and our results of operations may be adversely impacted. We also may not be able to incentivize new partners to service our customers. If we are unable to maintain our existing relationships or enter into new ones, we would have to devote substantially more resources to delivering our professional services. If we fail to effectively manage our implementation partners, our ability to sell our products and subscriptions and our operating results will be harmed. 

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Our growth depends in part on the success of our strategic relationships with third parties.

We anticipate that we will continue to depend on various third-party relationships in order to grow our business. In addition to growing our indirect sales channels, we intend to pursue additional relationships with other third parties, such as technology and content providers and implementation consultants. Identifying, negotiating and documenting relationships with third parties require significant time and resources, as does integrating third-party content and technology. Our agreements with distributors and providers of technology, content and consulting services are typically non-exclusive and do not prohibit them from working with our competitors or from offering competing services. Our competitors may be effective in providing incentives to third parties to favor their products or services or to prevent or reduce subscriptions to our products. In addition, these distributors and providers may not perform as expected under our agreements, and we have had and may in the future have, disagreements or disputes with such distributors and providers, which could negatively affect our brand and reputation. A global economic slowdown could also adversely affect the businesses of our distributors and it is possible that they may not be able to devote the resources we expect to our relationships with such distributors.

If we are unsuccessful in establishing or maintaining our relationships with these third parties, our ability to compete in the marketplace or to grow our revenue could be impaired and our operating results could suffer. Even if we are successful, we cannot assure you that these relationships will result in improved operating results.

Our financial results may fluctuate due to our long, variable and, therefore, unpredictable sales cycle and our focus on large and mid-market organizations.

We plan our expenses based on certain assumptions about the length and variability of our sales cycle. If our sales cycle becomes longer or more variable, our results may be adversely affected. Our sales cycle generally varies in duration from two to nine months and, in some cases, much longer depending on the size of the potential client. Factors that may influence the length and variability of our sales cycle include among others:

• the need to educate potential clients about the uses and benefits of our products;

• the relatively long duration of the commitment clients make in their agreements with us;

• the discretionary nature of potential clients’ purchasing and budget cycles and decisions;

• the competitive nature of potential clients’ evaluation and purchasing processes;

• the lengthy purchasing approval processes of potential clients;

• the evolving functionality demands of potential clients;

• fluctuations in the human capital management needs of potential clients; and

• announcements or planned introductions of new products by us or our competitors.

The fluctuations that result from the length and variability of our sales cycle may be magnified by our focus on sales to large and mid-sized organizations. If we are unable to close an expected significant transaction with one or more of these companies in a particular period, or if an expected transaction is delayed until a subsequent period, our operating results for that period, and for any future periods in which revenue from such transaction would otherwise have been recognized, may be adversely affected.

Mergers of or other strategic transactions by our competitors could weaken our competitive position or reduce our revenue.

If one or more of our competitors were to merge, acquire or partner with another of our competitors, the change in the competitive landscape could adversely affect our ability to compete effectively. Our competitors may also establish or strengthen cooperative relationships with our current or future strategic distributors, systems integrators, HR outsourcers, payroll services companies, third-party consulting firms or other parties with whom we have relationships, thereby limiting our ability to promote our products and limiting the number of consultants available to implement our products. Disruptions in our business caused by these events could reduce our revenue.

Our business and operations are experiencing growth and organizational change. If we fail to effectively manage such growth and change in a manner that preserves the key aspects of our corporate culture, our business and operating results could be harmed.

We have experienced, and may continue to experience, rapid growth and organizational change, which has placed, and may continue to place, significant demands on our operational, financial and management resources. We may continue to expand our international operations into other countries in the future, either organically or through acquisitions. We have also experienced significant growth in the number of users, transactions and data that our SaaS hosting infrastructure supports. Finally, our organizational structure is becoming more complex as we improve our operational, financial and management controls as well as our reporting systems and procedures. We will require significant capital expenditures and the allocation of valuable management resources to grow and change in these areas without undermining our corporate culture of rapid

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innovation, teamwork and attention to client success that has been central to our growth so far. If we fail to manage our anticipated growth and change in a manner that preserves the key aspects of our corporate culture, the quality of our products may suffer, which could negatively affect our brand and reputation and harm our ability to retain and attract clients.

For a detailed discussion of the risks related to our ability to expand our business internationally, manage growth in our SaaS hosting network infrastructure and expand parts of our organization to implement improved operational, financial and management controls and reporting systems and procedures, see the risk factors titled “—As a public company, we are obligated to maintain proper and effective internal control over financial reporting. If our internal control over financial reporting is ineffective, our financial reporting may not be accurate, complete and timely and our auditors may be unable to attest to its effectiveness when required, thus adversely affecting investor confidence in our company.” and “—We currently have a number of international offices and are expanding our international operations. Doing business internationally has unique risks with respect to operational execution and regulatory compliance.”

Fluctuations in the exchange rate of foreign currencies could result in foreign currency gains and losses.

We conduct our business in the Americas, Europe, and Asia Pacific. As we continue to expand our international operations, we will become more exposed to the effects of fluctuations in currency exchange rates. This exposure is the result of selling in multiple currencies and operating in foreign countries where the functional currency is the local currency. Further, our overseas subsidiaries’ results are also impacted by exchange rates affecting the carrying value of U.S. dollar denominated intercompany loans with us. Because we conduct business in currencies other than U.S. dollars, but report our results of operations in U.S. dollars, fluctuations in the exchange rates of these foreign currencies, including any fluctuations caused by uncertainties relating to Brexit, may hinder our ability to predict our future results and earnings and materially impact our business, financial condition and operating results. Due to our legal structure, any fluctuations in the exchange rates of the British pound may be particularly impactful. We have not previously engaged in foreign currency hedging. If we decide to hedge our foreign currency exposure, we may not be able to completely eliminate the impact of fluctuations in the exchange rates.

As we have in the past, we may seek to acquire or invest in other companies or technologies, which could divert our management’s attention, result in additional dilution to our stockholders or otherwise disrupt our operations and harm our operating results.

As we have in the past, we may seek to acquire or invest in other businesses, products or technologies that we believe could complement or expand our existing platform, enhance our technical capabilities or otherwise offer growth opportunities. The pursuit of potential acquisitions may divert the attention of management, result in additional dilution, and cause us to incur various expenses in identifying, investigating and pursuing suitable acquisitions, whether or not they are ultimately consummated.

We have limited experience in acquiring other businesses. We may not be able to successfully integrate the personnel, operations and technologies of any businesses that we have acquired or may acquire in the future or effectively manage the combined business following the acquisition. We may also not achieve the anticipated benefits from other acquired businesses due to a number of factors, including:

• unanticipated costs or liabilities associated with the acquisition;

• incurrence of acquisition-related costs;

• diversion of management’s attention from other business concerns;

• harm to our existing relationships with partners, distributors and clients, including as a result of competing in the markets in which such parties operate;

• the potential loss of key employees and clients;

• exposure to claims and disputes by third parties, including intellectual property claims and disputes;

• the use of resources that are needed in other parts of our business; and

• the use of substantial portions of our available cash to consummate the acquisition.

In addition, a significant portion of the purchase price of companies we acquire may be allocated to acquired goodwill, which must be assessed for impairment at least annually, or to intangible assets, which are assessed for impairment upon certain triggering events. In the future, if our acquisitions do not yield expected returns, we may be required to take charges to our operating results based on this impairment assessment process, which could harm our operating results.

Acquisitions could also result in dilutive issuances of equity securities or the incurrence of debt, which could adversely affect our operating results. In addition, if an acquired business fails to meet our expectations, our operating results, business and financial condition may suffer.

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As a public company, we are obligated to maintain proper and effective internal control over financial reporting. If our internal control over financial reporting is ineffective, our financial reporting may not be accurate, complete and timely and our auditors may be unable to attest to its effectiveness when required, thus adversely affecting investor confidence in our company.

We are required, pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting. Our auditors also need to audit the effectiveness of our internal control over financial reporting. These assessments need to include disclosure of any material weaknesses in our internal control over financial reporting.

We have incurred and continue to incur significant costs assessing our system of internal control over financial reporting and processing documentation necessary to perform the evaluation needed to comply with Section 404. We may discover, and may not be able to remediate, future significant deficiencies or material weaknesses, or we may be unable to complete our evaluation, testing or any required remediation in a timely fashion. Further, to the extent we acquire other businesses, the acquired company may not have a sufficiently robust system of internal controls and we may discover deficiencies. Failure of our internal control over financial reporting to be effective could cause our financial reporting to be inaccurate, incomplete or delayed. Moreover, even if there is no inaccuracy, incompletion or delay of reporting results, if we identify one or more material weaknesses in our internal control over financial reporting, we will be unable to assert, and our auditors will be unable to affirm, that our internal control is effective, in which case investors may lose confidence in the accuracy and completeness of our financial reports, which could have a material adverse effect on the price of our common stock.

Certain of our operating results and financial metrics are difficult to predict as a result of seasonality.

We have historically experienced seasonality in terms of when we enter into client agreements for our products. We sign a significantly higher percentage of agreements with new clients, and renewal agreements with existing clients, in the fourth quarter of each year and a significant portion of these agreements are signed during the last month, and with respect to each quarter, often the last two weeks of the quarter. This seasonality is reflected to a much lesser extent, and sometimes is not immediately apparent, in our revenue, due to the fact that we generally recognize subscription revenue over the term of the client agreement, which is generally three years. We expect this seasonality to continue, which may cause fluctuations in certain of our operating results and financial metrics, and thus difficulties in predictability.

We rely on third-party computer hardware and software that may be difficult to replace or could cause errors or failures of our service.

In addition to the software we develop, we rely on computer hardware, purchased or leased, and software licensed from third parties in order to deliver our platform. This hardware and software may not continue to be available on commercially reasonable terms, if at all. Any loss of the right to use any of this hardware or software could result in delays in our ability to provide our platform until equivalent technology is either developed by us or, if available, identified, obtained and integrated. In addition, errors or defects in third-party hardware or software used in our platform could result in errors or a failure of our products, which could harm our business.

If we fail to manage our SaaS hosting network infrastructure capacity, our existing clients may experience service outages and our new clients may experience delays in the deployment of our human capital management platform.

We have experienced significant growth in the number of users, transactions and data that our hosting infrastructure supports. We seek to maintain sufficient excess capacity in our SaaS hosting network infrastructure to meet the needs of all of our clients. We also seek to maintain excess capacity to facilitate the rapid provision of new client deployments and the expansion of existing client deployments. However, the provision of new hosting infrastructure requires significant lead time. If we do not accurately predict our infrastructure capacity requirements, our existing clients may experience service outages that may subject us to financial penalties, financial liabilities and client losses. If our hosting infrastructure capacity fails to keep pace with increased sales, clients may experience delays as we seek to obtain additional capacity, which could harm our reputation and adversely affect our revenue growth.

Restructuring activities could adversely affect our ability to execute our business strategy.

In December 2017, we implemented a restructuring plan to reduce the headcount of our global service delivery team and sales teams. This restructuring and any future restructurings, should it become necessary for us to continue to restructure our business due to worldwide market conditions or other factors that reduce the demand for our products and services, could adversely affect our ability to execute our business strategy.

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Failure to effectively manage client deployments by our third-party service providers could adversely impact our business.

In cases where our third-party service providers are engaged either by us or by a client directly to deploy a product for a client, our third-party service providers need to have a substantial understanding of such client’s business so that they can configure the product in a manner that complements its existing business processes and integrates the product into its existing systems. It may be difficult for us to manage the timeliness of these deployments and the allocation of personnel and resources by our clients. Failure to successfully manage client deployments by us or our third-party service providers could harm our reputation and cause us to lose existing clients, face potential client disputes or limit the rate at which new clients purchase our products.

Forecasts of our business growth and profitability may prove to be inaccurate, and even if the markets in which we compete achieve the forecasted growth, we cannot assure you our business will grow at similar rates, or at all.

Our forecasts are subject to significant uncertainty and are based on assumptions and estimates which may not prove to be accurate. These assumptions and estimates include the timing and value of agreements with our customers, variability in the service delivery periods for our customers, impact of foreign currency exchange rate fluctuations and expected growth in our market and related costs to support the growth of our business. Our assumptions and estimates related to our business growth and profitability, including the performance of our core business and emerging businesses and the demand for our products in the United States, Europe, Japan and other regions, may prove to be inaccurate. Even if the markets experience the forecasted growth, we may not grow our business at similar rates, or at all. Our growth is subject to many factors, including our success in implementing our business strategy, which is subject to many risks and uncertainties.

Even if demand for human capital management products and services increases generally, there is no guarantee that demand for SaaS products like ours will increase to a corresponding degree.

The widespread adoption of our products depends not only on strong demand for human capital management products and services generally, but also for products and services delivered via a SaaS business model in particular. There are still a significant number of organizations that have adopted no human capital management functions at all, and it is unclear whether such organizations will ever adopt such functions and, if they do, whether they will desire a SaaS human capital management platform like ours. As a result, we cannot assure you that our SaaS human capital management platform will achieve and sustain the high level of market acceptance that is critical for the success of our business.

Integrated, comprehensive SaaS products such as ours represent a relatively recent approach to addressing organizations’ human capital management challenges, and we may be forced to change the prices we charge for our products, or the pricing model upon which they are based, as the market for these types of products evolves.

Providing organizations with applications to address their human capital management challenges through integrated, comprehensive SaaS products is a developing market. The market for these products is therefore still evolving, and competitive dynamics may cause pricing levels, as well as pricing models generally, to change, as the market matures and as existing and new market participants introduce new types of products and different approaches to enable organizations to address their human capital management needs. As a result, we may be forced to reduce the prices we charge for our products or the pricing model on which they are based, and may be unable to renew existing client agreements or enter into new client agreements at the same prices and upon the same terms that we have historically, which could have a material adverse effect on our revenue, gross margin and other operating results.

We currently have a number of international offices and are expanding our international operations. Doing business internationally has unique risks with respect to operational execution and regulatory compliance.

We currently have international offices in several countries, and we may expand our international operations into other countries in the future. If we invest substantial time and resources to expand our international operations and are unable to do so successfully, our business and operating results will suffer. Conducting our business internationally, particularly with expansion into countries in which we have limited experience, subjects us to a variety of risks that that we do not necessarily face to the same degree in the United States. These risks may lead to a decreased demand for, or restrict our ability to sell or provide, our products, and include, among others:

• unexpected changes in regulatory requirements, taxes, trade laws, tariffs, export quotas, custom duties or other trade restrictions;

• differing labor regulations;

• regulations relating to data security and the unauthorized use of, or access to, commercial and personal information;

• potential penalties or other adverse consequences for violations of anti-corruption, anti-bribery and other similar laws and regulations, including the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act;

• greater difficulty in supporting and localizing our products;

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• unrest and/or changes in a specific country’s or region’s social, political, legal or economic conditions;

• challenges inherent in efficiently managing an increased number of employees over large geographic distances, including the need to implement appropriate systems, controls, policies, benefits and compliance programs;

• currency exchange rate fluctuations, including any fluctuations caused by uncertainties relating to Brexit;

• limited or unfavorable intellectual property protection;

• competition with companies or other services that understand local markets better than we do;

• increased financial accounting and reporting burdens, and complexities associated with implementing and maintain adequate internal controls; and

• restrictions on repatriation of earnings.

Our operations could be materially affected by changes in domestic and foreign economic, political or legal conditions. For example, in 2016 the UK held a referendum to determine whether the UK should leave the EU or remain as a member state, the outcome of which was in favor of leaving the EU. This event is commonly referred to as Brexit. We are monitoring developments related to Brexit, which could have significant implications for our business. Lack of clarity about future UK laws and regulations as the UK determines which EU rules and regulations to replace or replicate in the event of a withdrawal from the EU, including financial laws and regulations, tax and free trade agreements, intellectual property rights, supply chain logistics, environmental, health and safety laws and regulations, immigration laws and employment laws, could decrease foreign direct investment in the UK, increase costs, depress economic activity and restrict access to capital. The political and economic instability created by the UK’s vote to leave the EU has also caused and may continue to cause significant volatility in global financial markets and the value of the British pound currency or other currencies, including the euro.

Such a withdrawal from the EU is unprecedented, and it is unclear how the UK’s access to the European single market for goods, capital, services and labor within the EU, or single market, and the wider commercial, legal and regulatory environment, will impact our UK operations and customers. Our UK operations service customers in the UK as well as in other countries in the EU and the EEA, and these operations could be disrupted by Brexit, particularly if there is a change in the UK’s relationship to the single market.

We may also face new regulatory costs and challenges that could have an adverse effect on our operations. Depending on the terms of the UK’s withdrawal from the EU, the UK could lose the benefits of global trade agreements negotiated by the EU on behalf of its members, which may result in increased trade barriers that could make our doing business in the EU and the EEA more difficult. Even prior to any change to the UK’s relationship with the EU, the announcement of Brexit has created economic uncertainty surrounding the terms of Brexit and its consequences could adversely impact customer confidence resulting in customers reducing their spending budgets on our solutions, which could adversely affect our business, revenue, financial condition, and results of operations.

Failure to comply with anti-bribery, anti-corruption and anti-money laundering laws could subject us to penalties and other adverse consequences.

We are subject to the Foreign Corrupt Practices Act (the “FCPA”), the U.K. Bribery Act and other anti-corruption, anti-bribery and anti-money laundering laws in various jurisdictions both domestic and abroad. We leverage third parties, including channel partners, to sell subscriptions to our platform and conduct our business abroad. We and our third-party intermediaries may have direct or indirect interactions with officials and employees of government agencies or state-owned or affiliated entities and may be held liable for the corrupt or other illegal activities of these third-party business partners and intermediaries, our employees, representatives, contractors, channel partners and agents, even if we do not explicitly authorize such activities. While we have policies and procedures to address compliance with such laws, we cannot assure you that all of our employees and agents will not take actions in violation of our policies and applicable law, for which we may be ultimately held responsible. Any violation of the FCPA or other applicable anti-bribery, anti-corruption laws and anti-money laundering laws could result in whistleblower complaints, adverse media coverage, investigations, loss of export privileges, severe criminal or civil sanctions, or suspension or debarment from U.S. government contracts, all of which may have an adverse effect on our reputation, business, operating results and prospects.

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If we fail to develop our brand, our business may suffer.

We believe that developing and maintaining awareness of the Cornerstone OnDemand brand is critical to achieving widespread acceptance of our existing and future products and is an important element in attracting new clients. Furthermore, we believe that the importance of brand recognition will increase as competition in our market increases. Successful promotion of our brand will depend largely on the effectiveness of our marketing efforts and on our ability to provide reliable and useful services at competitive prices. Brand promotion activities may not yield increased revenue, and even if they do, any increased revenue may not offset the expenses we incurred in building our brand. In addition, the Cornerstone OnDemand Foundation shares our company name and any negative perceptions of any kind about the Cornerstone OnDemand Foundation could adversely affect our brand and reputation. If we fail to successfully promote and maintain our brand, or incur substantial expenses in an unsuccessful attempt to promote and maintain our brand, we may fail to attract enough new clients or retain our existing clients to the extent necessary to realize a sufficient return on our brand-building efforts, and our business could suffer.

Our sales to government entities are subject to a number of additional challenges and risks.

We sell to U.S. federal and state and foreign governmental agency customers, and we may increase sales to government entities in the future. The additional risks and challenges associated with doing business with governmental entities include, but are not limited to, the following:

• Selling to governmental entities can be more competitive, expensive and time-consuming than selling to private entities, often requiring significant upfront time and expense without any assurance that these efforts will generate a sale;

• Government certification requirements may change, or we may lose one or more government certifications, such as FedRAMP, and in doing so restrict our ability to sell into the government sector until we have attained revised certificates;

• Governmental entities may have significant leverage in negotiations, thereby enabling such entities to demand contract terms that differ from what we generally agree to in our standard agreements, including, for example, most favored nation clauses and terms allowing contract termination for convenience;

• Government demand and payment for our products may be influenced by public sector budgetary cycles and funding authorizations, with funding reductions or delays having an adverse impact on public sector demand for our products; and

• Government contracts are generally subject to audits and investigations, which we have limited experience with, potentially resulting in termination of contracts, refund of a portion of fees received, forfeiture of profits, suspension of payments, fines and suspensions or debarment from future government business.

To the extent that we become more reliant on contracts with government entities in the future, our exposure to such risks and challenges could increase, which, in turn, could adversely impact our business.

We may require additional capital to support business growth, and this capital may not be available on acceptable terms, if at all.

We intend to continue to make investments to support our business growth and may seek additional funds to respond to business challenges, including the need to develop new features or enhance our existing products, improve our operating infrastructure or acquire complementary businesses and technologies. Accordingly, we may need to engage in additional equity or debt financings to secure additional funds. If we raise additional funds through issuances of equity or debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our common stock. Any debt financing secured by us in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. In addition, we may not be able to obtain additional financing on terms favorable to us, if at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us, when we require it, our ability to continue to support our business growth and to respond to business challenges could be significantly impaired.

Further, the indenture governing the convertible notes due 2021 includes a restrictive covenant that, subject to specified exceptions and parameters, limits our ability to incur additional debt. We may be unable to take advantage of strategic or business development opportunities as they arise, or we may not be able to react to market conditions, if we are restricted in our ability to raise debt financing, or we may be required to seek alternative means to generate cash, including by selling assets, refinancing or obtaining additional equity capital on terms that may be onerous or highly dilutive, if available at all.

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In addition, in connection with the sale of our convertible notes due 2021, we entered into an investment agreement with Silver Lake providing Silver Lake with the option to purchase all or a portion of any equity securities, or instruments convertible into or exchangeable for any equity securities, in any proposed offerings by us until the earlier of June 2019 or such time as Silver Lake no longer has a representative and no longer has rights to have a representative on our board of directors. Although Silver Lake’s option will not apply to equity securities issued in connection with acquisitions, underwritten public offerings, strategic partnerships or commercial arrangements, or equity compensation plans, Silver Lake’s participation rights could impact our ability to raise additional capital.

Servicing our debt will require a significant amount of cash, which could adversely affect our business, financial condition and results of operations.

Our ability to make scheduled payments of the principal of, to pay interest on or to refinance our indebtedness, including our convertible notes due 2021, which represent an aggregate principal amount of $300.0 million, depends on our future performance, which is subject to economic, financial, competitive and other factors beyond our control. Our business may not generate cash flow from operations in the future sufficient to satisfy our obligations under the notes and any future indebtedness we may incur and to make necessary capital expenditures. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as reducing or delaying investments or capital expenditures, selling assets, refinancing or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to refinance the notes or future indebtedness will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on the notes or future indebtedness.

Further, with certain exceptions, upon a change of control, the holders of our convertible notes due 2021 may require that we repurchase all or part of such notes at a purchase price equal to the principal amount plus the total sum of all remaining scheduled interest payments through the remainder of the term of the notes. In such event, we may not have enough cash available or be able to obtain financing to repurchase the notes, and our ability to repurchase notes may be limited by law, regulatory authority or agreements governing our other indebtedness.

Because of how we recognize revenue, a significant downturn in our business may not be immediately reflected in our operating results.

Generally, we recognize revenue from subscription agreements monthly over the terms of these agreements, which is typically three years for our human capital management platform. As a result, a significant portion of the revenue we report in each quarter is generated from client agreements entered into during previous periods. Consequently, a decline in new subscriptions in any one quarter may not significantly impact our revenue and financial performance in that quarter, but will negatively affect our revenue, or rate of revenue growth and financial performance in future quarters.

In addition, if subscription agreements expire and are not renewed in the same quarter, our revenue and financial performance in that quarter and subsequent quarters will be negatively affected. However, the revenue impact may not be immediately reflected in our operating results to the extent there is an offsetting increase in revenue from services contracts performed in that same quarter.

Finally, we may be unable to adjust our fixed costs in response to reduced revenue. Accordingly, the effect of significant declines in sales and market acceptance of our products may not be reflected in our short-term operating results.

Because we generally recognize subscription revenue from our clients over the terms of their agreements but incur most costs associated with generating such agreements upfront, rapid growth in our client base may put downward pressure on our operating margin in the short term.

The expenses associated with generating client agreements are generally incurred up front but the resulting subscription revenue is generally recognized over the life of the agreements; therefore, increased growth in the number of our clients will result in our recognition of more costs than revenue during the early periods covered by such agreements, even in cases where the agreements are expected to be profitable for us over their full terms.

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We have a history of losses, and we cannot be certain that we will achieve or sustain profitability.

We have a history of incurring losses. We experienced net losses of $(33.8) million, $(61.3) million, and $(66.8) million during the years ended December 31, 2018, December 31, 2017, and December 31, 2016, respectively. At December 31, 2018, our accumulated deficit was $(530.0) million and total stockholders’ equity was $55.9 million. Although our operating losses have decreased in each of the last three years, and in the second half of 2018 we reported operating income, it is possible that we may continue to incur operating losses in the future as a result of expenses associated with the continued development and expansion of our business. Our expenses include among others, sales and marketing, research and development, consulting and support services and other costs relating to the development, marketing and sale and service of our products that may not generate revenue until later periods, if at all. Any failure to increase revenue or manage our cost structure as we implement initiatives to grow our business could prevent us from sustaining profitability. In addition, our ability to achieve sustained profitability is subject to a number of the risks and uncertainties discussed below, many of which are beyond our control. We cannot be certain that we will be able to sustain profitability on a quarterly or annual basis.

The nature of our business requires the application of complex revenue and expense recognition rules. Changes in financial accounting standards or practices may cause adverse, unexpected financial reporting fluctuations and affect our reported operating results.

The accounting rules and regulations that we must comply with are complex and subject to interpretation by the Financial Accounting Standards Board (“FASB”), the Securities and Exchange Commission and various bodies formed to promulgate and interpret appropriate accounting principles. In addition, many companies’ accounting disclosures are being subjected to heightened scrutiny by regulators and the public. A change in accounting standards or practices can have a significant effect on our reported results and may even affect our reporting of transactions completed before the change is effective. New accounting pronouncements and varying interpretations of accounting pronouncements have occurred and may occur in the future. Changes to existing rules or the questioning of current practices may adversely affect our reported financial results or the way we conduct our business.

To the extent that our pre-tax income or loss becomes relatively modest, our ability to conclude that a control deficiency is not a material weakness or that an accounting error does not require a restatement could be adversely affected.

Under the Sarbanes-Oxley Act of 2002, our management is required to assess the impact of control deficiencies based upon both quantitative and qualitative factors, and depending upon that analysis, we classify such identified deficiencies as either a control deficiency, significant deficiency or a material weakness. One element of our analysis of the significance of any control deficiency is its actual or potential financial impact. This assessment will vary depending on our level of pre-tax income or loss. For example, a smaller pre-tax income or loss will increase the likelihood of a quantitative assessment of a control deficiency as a significant deficiency or material weakness.

To the extent that our pre-tax income or loss is relatively small, if management or our independent registered public accountants identify an error in our interim or annual financial statements, it is more likely that such an error may be determined to be a material weakness or be considered a material error that could, depending upon the complete quantitative and qualitative analysis, result in our having to restate previously issued financial statements.

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If we fail to adequately protect our proprietary rights, our competitive advantage and brand could be impaired and we may lose valuable assets, generate reduced revenue and incur costly litigation to protect our rights.

Our success is dependent, in part, upon protecting our proprietary technology. We rely on a combination of patents, copyrights, trademarks, service marks, trade secret laws and contractual restrictions to establish and protect our proprietary rights in our products and services. However, the steps we take to protect our intellectual property may be inadequate. We will not be able to protect our intellectual property if we are unable to enforce our rights or if we do not detect unauthorized use of our intellectual property. Despite our precautions, it may be possible for unauthorized third parties to copy our products and use information that we regard as proprietary to create products and services that compete with ours. Some license provisions protecting against unauthorized use, copying, transfer and disclosure of our licensed products may be unenforceable under the laws of certain jurisdictions and foreign countries. Further, the laws of some countries do not protect proprietary rights to the same extent as the laws of the United States. To the extent we expand our international activities, our exposure to unauthorized copying and use of our products and proprietary information may increase. We enter into confidentiality and invention assignment agreements with our employees and consultants and enter into confidentiality agreements with the parties with whom we have strategic relationships and business alliances. These agreements may not be effective in controlling access to and distribution of our products and proprietary information. Further, these agreements do not prevent our competitors from independently developing technologies that are substantially equivalent or superior to our products. Litigation brought to protect and enforce our intellectual property rights could be costly, time consuming and distracting to management and could result in the impairment or loss of portions of our intellectual property. If we fail to secure, protect and enforce our intellectual property rights, we may lose valuable assets, generate reduced revenue and incur costly litigation to protect our rights, which could seriously harm our brand and adversely impact our business.

We may be sued by third parties for alleged infringement of their proprietary rights or may find it necessary to enter into licensing arrangements with third parties to settle or forestall such claims, either of which could have a material adverse effect on our operating results and financial condition.

There is considerable patent and other intellectual property development activity in our industry. Our success depends in part upon our not infringing the intellectual property rights of others. However, our competitors, as well as a number of other entities and individuals, may own or claim to own intellectual property relating to our industry or, in some cases, our technology or products. From time to time, such third parties may claim that we are infringing their intellectual property rights, and we may actually be found to be infringing such rights. Moreover, we may be subject to claims of infringement with respect to technology that we acquire or license from third parties. The risk that we could be subject to infringement claims is increasing as the number of products and companies competing with our platform grows. Any claims or litigation could require the commitment of substantial time and resources and, if successfully asserted against us, could require that we pay substantial damages or ongoing royalty or licensing payments, indemnify our clients, distributors or other third parties, modify or discontinue the sale of our products, or refund fees, any of which would deplete our resources and adversely impact our business. We have in the past obtained, and may in the future obtain, licenses from third parties to forestall or settle potential claims that our products and technology infringe the intellectual property rights of others. Discussions and negotiations with such third parties, whether successful or unsuccessful, could result in substantial costs and the diversion of management resources, either of which could seriously harm our business.

Indemnity provisions in various agreements potentially expose us to substantial liability for intellectual property infringement and other losses.

Our agreements with clients and other third parties may include indemnification provisions under which we agree to indemnify them for losses suffered or incurred as a result of claims of intellectual property infringement, damages caused by us to property or persons, or other liabilities relating to or arising from our products, services or other contractual obligations. The term of these indemnity provisions generally survives termination or expiration of the applicable agreement. Large indemnity payments could harm our business, operating results and financial condition. From time to time, we are requested by clients to indemnify them for breach of confidentiality with respect to personal data. Although we normally do not agree to, or contractually limit our liability with respect to, such requests, the existence of such a dispute with a client may have adverse effects on our client relationships and reputation.

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We use open source software in our products, which could subject us to litigation or other actions.

We use open source software in our products and may use more open source software in the future. From time to time, there have been claims challenging the ownership of open source software against companies that incorporate open source software into their products. As a result, we could be subject to suits by parties claiming ownership of what we believe to be open source software. Litigation could be costly for us to defend, have a negative effect on our operating results and financial condition or require us to devote additional research and development resources to change our products. In addition, if we were to combine our proprietary software products with open source software in a certain manner, we could, under certain of the open source licenses, be required to release the source code of our proprietary software products. If we inappropriately use open source software, we may be required to re-engineer our products, discontinue the sale of our products or take other remedial actions.

We are subject to governmental export and import controls that could impair our ability to compete in international markets due to licensing requirements and subject us to liability if we are not in full compliance with applicable laws.

Our products are subject to export controls, including the Commerce Department’s Export Administration Regulations and various economic and trade sanctions regulations established by the Treasury Department’s Office of Foreign Assets Controls, and exports of our products must be made in compliance with these laws. If we fail to comply with these U.S. export control laws and import laws, including U.S. Customs regulations, we and certain of our employees could be subject to substantial civil or criminal penalties, including the possible loss of export or import privileges; fines, which may be imposed on us and responsible employees or managers; and, in extreme cases, the incarceration of responsible employees or managers. In addition, if our distributors fail to obtain appropriate import, export or re-export licenses or authorizations, we may also be adversely affected through reputational harm and penalties. Obtaining the necessary authorizations, including any required license, for a particular sale may be time-consuming and is not guaranteed, and may result in the delay or loss of sales opportunities. Furthermore, the U.S. export control laws and economic sanctions laws prohibit the shipment of certain products and services to U.S. embargoed or sanctioned countries, governments and persons. Even though we take precautions to prevent our products from being shipped or provided to U.S. sanctions targets, our products and services could be shipped to those targets or provided by our distributors despite such precautions. Any such shipment could have negative consequences, including government investigations, penalties and reputational harm. In addition, various countries regulate the import of certain encryption technology, including through import permitting or licensing requirements, and have enacted laws that could limit our ability to distribute our products or could limit our clients’ ability to implement our products in those countries. Changes to our products or changes in export and import regulations may create delays in the introduction and sale of our products in international markets, prevent our clients with international operations from deploying our products or, in some cases, prevent the export or import of our products to certain countries, governments or persons altogether. Any change in export or import regulations, economic sanctions or related laws, shift in the enforcement or scope of existing regulations, or change in the countries, governments, persons or technologies targeted by such regulations, could result in decreased use of our products, or in our decreased ability to export or sell our products to existing or potential clients with international operations. Any decreased use of our products or limitation on our ability to export or sell our products would likely adversely affect our business, financial condition and operating results.

Our investment portfolio is subject to general credit, liquidity, counterparty, market and interest rate risks, any of which could impair the market value of our investments and harm our financial results.

At March 31, 2019, we had $357.0 million in cash and cash equivalents and $35.0 million in short-term investments in marketable securities, consisting of corporate bonds, money market funds backed by United States Treasury Bills, U.S. treasury securities and agency securities. Although we follow an established investment policy and set of guidelines to manage our investment portfolio, our investments are subject to general credit, liquidity, counterparty, market and interest rate risks, which have been exacerbated by the recent financial and credit crisis, rising bankruptcy filings in the United States and the ongoing debt-ceiling debate.

Because the market value of fixed-rate debt securities may be adversely impacted by a rise in interest rates, our future investment income may fall short of expectations if interest rates rise. In addition, we may suffer losses if we are forced to sell securities that have experienced a decline in market value because of changes in interest rates. Currently, we do not use financial derivatives to hedge our interest rate exposure.

The fair value of our investments may change significantly due to events and conditions in the credit and capital markets. Any investment securities that we hold, or the issuers of such securities, could be subject to review for possible downgrade. Any downgrade in these credit ratings may result in an additional decline in the estimated fair value of our investments. Changes in the various assumptions used to value these securities and any increase in the perceived market risk associated with such investments may also result in a decline in estimated fair value.

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In the event of adverse conditions in the credit and capital markets, and to the extent we make future investments, our investment portfolio may be impacted, and we could determine that some or all of our investments experienced an other-than-temporary decline in fair value, requiring impairment, which could adversely impact our financial position and operating results.

We may invest in companies for strategic reasons and may not realize a return on our investments.

In November 2013, we launched a strategic initiative created to invest in, advise and collaborate with promising cloud startups building innovative business applications that support the continued expansion of our market reach. We have made, and from time to time may continue to make, strategic investments in privately-held companies. The privately-held companies in which we may invest are considered inherently risky. The technologies and products these companies have under development are typically in the early stages and may never materialize, which could result in a loss of all or a substantial part of our initial investment in these companies. The evaluation of privately-held companies is based on information that we request from these companies, which is not subject to the same disclosure regulations as U.S. publicly traded companies, and as such, the basis for these evaluations is subject to the timing and accuracy of the data received from these companies.

We are a multinational organization faced with increasingly complex tax issues in many jurisdictions, and we could be obligated to pay additional taxes in various jurisdictions.

As a multinational organization, we are subject to taxation in several jurisdictions around the world with increasingly complex tax laws, the application of which can be uncertain. The amount of taxes we pay in these jurisdictions could increase substantially as a result of changes in the applicable tax principles, including increased tax rates, new tax laws or revised interpretations of existing tax laws and precedents, which could have a material adverse effect on our liquidity and operating results. In addition, the authorities in these jurisdictions could review our tax returns and impose additional tax, interest and penalties, and the authorities could claim that various withholding requirements apply to us or our subsidiaries or assert that benefits of tax treaties are not available to us or our subsidiaries, any of which could have a material impact on us and our operating results. If we are selected for future examinations that uncover incorrect tax positions, we could be subject to additional taxes, interest and penalties.

Risks Related to Tax Issues

Taxing authorities could reallocate our taxable income among our subsidiaries, which could increase our consolidated tax liability.

We conduct operations worldwide through subsidiaries in various tax jurisdictions pursuant to transfer pricing arrangements between our subsidiaries. If two or more affiliated companies are located in different countries, the tax laws or regulations of each country generally will require that transfer prices be the same as those between unrelated companies dealing at arms’ length and that contemporaneous documentation is maintained to support the transfer prices. While we believe that we operate in compliance with applicable transfer pricing laws and intend to continue to do so, our transfer pricing procedures are not binding on applicable tax authorities. If tax authorities in any of these countries were to successfully challenge our transfer prices as not reflecting arm’s length transactions, they could require us to adjust our transfer prices and thereby reallocate our income to reflect these revised transfer prices, which could result in a higher tax liability to us. In addition, if the country from which the income is reallocated does not agree with the reallocation, both countries could tax the same income, resulting in double taxation. If tax authorities were to allocate income to a higher tax jurisdiction, subject our income to double taxation or assess interest and penalties, it would increase our consolidated tax liability, which could adversely affect our financial condition, operating results and cash flows.

52

The December 2017 tax reform law could adversely affect our business and financial condition.

On December 22, 2017, the President of the United States signed into law the Tax Act that significantly revised the Internal Revenue Code of 1986, as amended (the "Code"). The Tax Act, among other things, contained significant changes to corporate taxation, including reduction of the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%, limitation of the tax deduction for interest expense to 30% of adjusted earnings (except for certain small businesses), limitations on the deductibility of executive compensation, limitation of the deduction for net operating losses incurred after 2017 to 80% of current year taxable income and elimination of net operating loss carrybacks, one time taxation of offshore earnings at reduced rates regardless of whether they are repatriated, elimination of U.S. tax on foreign earnings (subject to certain important exceptions), immediate deductions for certain new investments instead of deductions for depreciation expense over time, and modifying or repealing many business deductions and credits. Notwithstanding the reduction in the corporate income tax rate, the overall impact of the Tax Act is uncertain and our business and financial condition could be adversely affected. In addition, it is uncertain if and to what extent various states will conform to the Tax Act. The Tax Act's new international rules, including the Global Intangible Low-Taxed Income, the Foreign Derived Intangible Income and the Base Erosion Anti-Avoidance Tax, are highly complex and may affect our financial condition as additional interpretive guidance is issued. The impact of this tax reform on holders of our common stock is also uncertain and could be adverse. We urge our stockholders to consult with their legal and tax advisors with respect to this legislation and the potential tax consequences of investing in or holding our common stock.

Our ability to use net operating loss carryforwards to reduce future tax payments may be subject to limitations.

We have federal and state net operating loss carryforwards that will begin to expire, if not utilized. These net operating loss carryforwards could expire unused and be unavailable to offset future income tax liabilities. Under the Tax Act, federal net operating losses incurred in 2018 and in future years may be carried forward indefinitely, but the deductibility of such federal net operating losses is limited. It is uncertain if and to what extent various states will conform to the Tax Act. In addition, under Section 382 of the Code, as amended, if a corporation undergoes an “ownership change” (generally defined as a greater than 50% change (by value) in its equity ownership over a three year period), the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes (such as research tax credits) to offset its post-change income may be limited. We may experience ownership changes in the future and subsequent shifts in our stock ownership. As a result, we may be limited in the portion of net operating loss carryforwards that we can use in the future to offset taxable income for U.S. Federal income tax purposes.

Risks Related to Ownership of Our Common Stock

The trading price of our common stock may be volatile.

The trading price of our common stock has at times been volatile and could continue to be subject to significant fluctuations in response to various factors, some of which are beyond our control. In addition, the stock market in general, and the market for technology companies in particular, has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the companies operating in such markets. The market price of our common stock may be similarly volatile, and investors in our common stock may experience a decrease in the value of their shares, including as a result of factors unrelated to our operating performance and prospects. The market price of our common stock could be subject to wide fluctuations in response to a number of factors, including:

• our operating performance and the performance of other similar companies;

• the financial or non-financial metric projections we provide to the public, including the failure of the projections to meet the expectations of securities analysts or investors, and any changes in these projections or our failure to meet or exceed these projections;

• the overall performance of the equity markets;

• developments with respect to intellectual property rights;

• publication of unfavorable research reports about us or our industry or withdrawal of research coverage by securities analysts;

• speculation in the press or investment community;

• the size of our public float;

• natural disasters or terrorist acts;

• actual or perceived data security incidents that we or our service providers may suffer;

• announcements by us or our competitors of significant contracts, new technologies, acquisitions, commercial relationships, joint ventures or capital commitments; and

• global economic, legal and regulatory factors unrelated to our performance.

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In addition, in the past, following periods of volatility in the overall market and the market price of a particular company’s securities, securities class action litigation has often been initiated against these companies. This litigation, if initiated against us, could result in substantial costs and a diversion of our management’s attention and resources.

If securities or industry analysts do not publish research or publish misleading or unfavorable research about our business, the market price of our common stock and trading volume could decline.

The trading market for our common stock depends in part on the research and reports that securities or industry analysts publish about us, our business or our market. If one or more of the analysts who cover us downgrade our common stock or publish incorrect or unfavorable research about our business, the market price of our common stock would likely decline. In addition, if one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, demand for our common stock could decrease, which could cause the market price of our stock or trading volume to decline.

The issuance of additional stock in connection with acquisitions, our stock incentive plans or otherwise will dilute all other stockholdings.

Our certificate of incorporation authorizes us to issue up to 1,000,000,000 shares of common stock and up to 50,000,000 shares of preferred stock with such rights and preferences as may be determined by our board of directors. Subject to compliance with applicable rules and regulations, we may issue all of these shares that are not already outstanding without any action or approval by our stockholders. We intend to continue to evaluate strategic acquisitions in the future. We may pay for such acquisitions, partly or in full, through the issuance of additional equity. Any issuance of shares in connection with our acquisitions, the exercise of stock options, the vesting of restricted stock units or otherwise would dilute the percentage ownership held by existing investors.

Conversion of our convertible notes may dilute the ownership interest of existing stockholders, including holders who had previously converted their notes, or may otherwise depress the price of our common stock.

The conversion of some or all of our convertible notes due 2021, to the extent we deliver shares upon conversion of the 2021 notes, will dilute the ownership interests of existing stockholders. The convertible notes due 2021 and the underlying shares issuable upon conversion of such 2021 notes may be sold pursuant to a resale registration statement on Form S-3 that we filed with the Securities and Exchange Commission on August 7, 2018. Any sales in the public market of the 2021 notes or our common stock issuable upon conversion of the 2021 notes could adversely affect prevailing market prices of our common stock. In addition, the existence of the notes may encourage short selling by market participants because the conversion of the notes could be used to satisfy short positions, or anticipated conversion of the notes into shares of our common stock could depress the price of our common stock.

We do not expect to declare any dividends in the foreseeable future.

We do not anticipate declaring any cash dividends to holders of our common stock in the foreseeable future. Consequently, investors may need to sell all or part of their holdings of our common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment. Investors seeking cash dividends should not purchase our common stock.

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Anti-takeover provisions in our charter documents and Delaware law may delay or prevent an acquisition of our company.

Our certificate of incorporation, our bylaws and Delaware law contain provisions that may have the effect of delaying or preventing a change in control of us or changes in our management. Our certificate of incorporation and our bylaws include provisions that:

• authorize “blank check” preferred stock, which could be issued by the board of directors without stockholder approval and may contain voting, liquidation, dividend and other rights superior to our common stock;

• create a classified board of directors whose members serve staggered three-year terms, until the 2021 annual meeting of stockholders, at which point all directors will be elected for a one-year term;

• specify that special meetings of our stockholders can be called only by our board of directors, the chairperson of the board, the chief executive officer or the president;

• establish an advance notice procedure for stockholder approvals to be brought before an annual meeting of our stockholders, including proposed nominations of persons for election to our board of directors;

• provide that our directors may be removed only for cause until the 2021 annual meeting of stockholders when all directors may be removed either with or without cause;

• provide that vacancies on our board of directors may be filled only by a majority of directors then in office, even though less than a quorum;

• specify that no stockholder is permitted to cumulate votes at any election of directors; and

• require supermajority votes of the holders of our common stock to amend specified provisions of our charter documents.

These provisions, alone or together, could delay or prevent hostile takeovers and changes in control or changes in our management.

In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which limits the ability of stockholders owning in excess of 15% of our outstanding voting stock to merge or combine with us.

Any provision of our certificate of incorporation, our bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock, and could also affect the price that some investors are willing to pay for our common stock.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.

ITEM 3. Defaults Upon Senior Securities

Not applicable.

ITEM 4. Mine Safety Disclosures

Not applicable.

ITEM 5. Other Information

Not applicable.

55

ITEM 6. Exhibits

Exhibit Number	Exhibit Description	Incorporated by Reference
		Form	File No.	Exhibit	Filing Date
3.1	Amended and Restated Certificate of Incorporation of the Registrant.	8-K	001-35098	3.1	June 20, 2018
3.2	Amended and Restated Bylaws of the Registrant.	8-K	001-35098	3.2	June 20, 2018
10.1*	Description of 2019 Executive Bonus Plan.
10.2*	2019 Sales Commission Plan between the Registrant and Vincent Belliveau.	10-K	001-35098	10.13F	February 26, 2019
31.1	Certification of the Chief Executive Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.
31.2	Certification of the Chief Financial Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.
32.1†	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
32.2†	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
101.INS††	XBRL Instance Document
101.SCH††	XBRL Taxonomy Extension Schema Document
101.CAL††	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF††	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB††	XBRL Taxonomy Extension Label Linkbase Document
101.PRE††	XBRL Taxonomy Extension Presentation Linkbase Document

*

Indicates a management contract or compensatory plan or arrangement

†

The certifications attached as Exhibits 32.1 and 32.2 accompanying this Quarterly Report on Form 10-Q are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of Cornerstone OnDemand, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing.

†† The financial information contained in these XBRL documents is unaudited.

56

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Cornerstone OnDemand, Inc.

(Registrant)

/s/ Brian L. Swartz

Brian L. Swartz

Chief Financial Officer

(Duly Authorized Officer and Principal Financial Officer)

Date: May 7, 2019

57

EX-10.1

Exhibit 10.1

Summary of 2019 Executive Bonus Plan

On February 25, 2019, the Compensation Committee (the “Compensation Committee”) of the Board of Directors of Cornerstone OnDemand, Inc. (the “Company”) established an executive compensation plan for fiscal year 2019 (the "2019 Plan") as part of its annual review of target incentive compensation for the Company's executive officers.

Under the terms of the 2019 Plan, each of the eligible executive officers will be entitled to receive a bonus that will vary in amount depending on the Company’s success in achieving certain performance targets with respect to annual recurring revenue, subscription revenue, and operating income. The amount payable with respect to each metric may be greater or less depending on the extent to which the Company’s performance exceeds or falls short of the applicable target. No bonus payout for a particular performance metric will be earned unless the performance threshold for that metric is met.

The following table shows the target bonus amount payable under the 2019 Plan if the Company achieves each performance metric at target for each of the following executive officers:

Executive Officer	Target Bonus Amount
Mark Goldin, Chief Technology Officer	$	262,500
Jeffrey Lautenbach, President of Global Field Operations	$	400,000
Brian Swartz, Chief Financial Officer	$	297,500
Adam Weiss, Chief Administrative Officer and General Counsel	$	225,000

At the request of Adam Miller, the Company's Chief Executive Officer, Mr. Miller will not be eligible to participate in the 2019 Plan.

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a), AS ADOPTED PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, Adam L. Miller, certify that:

1.		I have reviewed this Quarterly Report on Form 10-Q of Cornerstone OnDemand, Inc.;
2.		Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.		Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.		The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.		The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
	(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Adam L. Miller

Adam L. Miller

Chief Executive Officer

Date: May 7, 2019

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a), AS ADOPTED PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, Brian L. Swartz, certify that:

1.		I have reviewed this Quarterly Report on Form 10-Q of Cornerstone OnDemand, Inc.;
2.		Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.		Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.		The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.		The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
	(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Brian L. Swartz

Brian L. Swartz

Chief Financial Officer

Date: May 7, 2019

EX-32.1

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Adam L. Miller, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report on Form 10-Q of Cornerstone OnDemand, Inc. for the fiscal quarter ended March 31, 2019 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and that information contained in such Quarterly Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Cornerstone OnDemand, Inc.

/s/ Adam L. Miller

Adam L. Miller

Chief Executive Officer

Date: May 7, 2019

EX-32.2

Exhibit 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Brian L. Swartz, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report on Form 10-Q of Cornerstone OnDemand, Inc. for the fiscal quarter ended March 31, 2019 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and that information contained in such Quarterly Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Cornerstone OnDemand, Inc.

/s/ Brian L. Swartz

Brian L. Swartz

Chief Financial Officer

Date: May 7, 2019

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	Mar. 31, 2019	May 03, 2019
Document And Entity Information [Abstract]
Document Type	10-Q
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Document Period End Date	Mar. 31, 2019
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q1
Trading Symbol	CSOD
Entity Registrant Name	CORNERSTONE ONDEMAND INC
Entity Central Index Key	0001401680
Current Fiscal Year End Date	--12-31
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		59,652,871
Entity Emerging Growth Company	false
Entity Small Business	false

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Condensed Consolidated Balance Sheets - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Assets
Cash and cash equivalents	$ 357,015	$ 183,596
Short-term investments	34,950	204,732
Accounts receivable, net	92,645	125,300
Deferred commissions, current	16,013	24,467
Prepaid expenses and other current assets	33,802	34,940
Total current assets	534,425	573,035
Capitalized software development costs, net	45,766	45,416
Property and equipment, net	33,081	77,254
Operating right-of-use assets	82,984	0
Deferred commissions, non-current	58,755	45,444
Long-term investments	750	1,250
Intangible assets, net	12,581	13,867
Goodwill	47,453	47,453
Other assets, net	2,920	3,437
Total Assets	818,715	807,156
Liabilities:
Accounts payable	9,156	11,921
Accrued expenses	46,353	68,331
Deferred revenue, current	290,993	312,526
Operating lease liabilities, current	9,274	0
Other liabilities	6,269	7,645
Total current liabilities	362,045	400,423
Convertible notes, net	289,994	288,967
Operating lease liabilities, non-current	78,930	0
Other liabilities, non-current	305	2,484
Deferred revenue, non-current	11,876	13,275
Facility financing obligation	0	46,100
Total liabilities	743,150	751,249
Commitments and contingencies (Note 12)
Stockholders’ Equity:
Common stock, $0.0001 par value; 1,000,000 shares authorized, 59,407 and 58,886 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively	6	6
Additional paid-in capital	608,168	585,387
Accumulated deficit	(533,426)	(529,962)
Accumulated other comprehensive income	817	476
Total stockholders’ equity	75,565	55,907
Total Liabilities and Stockholders’ Equity	$ 818,715	$ 807,156

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Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares	Mar. 31, 2019	Dec. 31, 2018
Statement of Financial Position [Abstract]
Common stock, par value (USD per share)	$ 0.0001	$ 0.0001
Common stock, shares authorized (in shares)	1,000,000,000	1,000,000,000
Common stock, shares issued (in shares)	59,407,000	58,886,000
Common stock, shares outstanding (in shares)	59,407,000	58,886,000

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Condensed Consolidated Statements Of Operations - USD ($) shares in Thousands, $ in Thousands	3 Months Ended
	Mar. 31, 2019		Mar. 31, 2018
Income Statement [Abstract]
Revenue	$ 140,117		$ 133,113
Cost of revenue	33,695		37,020
Gross profit	106,422		96,093
Operating expenses:
Sales and marketing	54,505		59,245
Research and development	27,746		15,984
General and administrative	22,940		21,985
Restructuring	0		7,725
Total operating expenses	105,191		104,939
Income (loss) from operations	1,231		(8,846)
Other income (expense):
Interest income	1,990		1,819
Interest expense	(5,366)		(8,700)
Other, net	(597)		44
Other income (expense), net	(3,973)		(6,837)
Loss before income tax provision	(2,742)		(15,683)
Income tax provision	(722)		(533)
Net loss	$ (3,464)	[1]	$ (16,216)
Net loss per share, basic and diluted (USD per share)	$ (0.06)		$ (0.28)
Weighted average common shares outstanding, basic and diluted (in shares)	59,141		57,425

[1] See Note 1 for additional information.

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Condensed Consolidated Statements Of Comprehensive Loss - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019		Mar. 31, 2018
Statement of Comprehensive Income [Abstract]
Net loss	$ (3,464)	[1]	$ (16,216)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment	169		(2,111)
Net change in unrealized gains (losses) on investments	172		(225)
Other comprehensive income (loss), net of tax	341		(2,336)
Total comprehensive loss	$ (3,123)		$ (18,552)

[1] See Note 1 for additional information.

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Consolidated Statements of Stockholders' Equity - USD ($) shares in Thousands, $ in Thousands	Total		Common Stock	Additional Paid-In Capital (Deficit)	Accumulated Deficit	Accumulated Other Comprehensive Income (Loss)
Beginning balance (in shares) at Dec. 31, 2017			57,512
Beginning balance at Dec. 31, 2017	$ 22,120		$ 6	$ 536,951	$ (515,054)	$ 217
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance of common stock upon the exercise of options (in shares)			211
Issuance of common stock upon the exercise of options	5,149		$ 0	5,149
Vesting of restricted stock units (in shares)			225
Vesting of restricted stock units	0		$ 0
Repurchase of common stock (in shares)			(423)
Repurchase of common stock	(16,024)		$ 0	(16,024)
Stock-based compensation	20,732			20,732
Net loss	(16,216)				(16,216)
Other comprehensive income (loss), net of tax	(2,336)					(2,336)
Ending balance (in shares) at Mar. 31, 2018			57,525
Ending balance at Mar. 31, 2018	32,360		$ 6	546,808	(512,335)	(2,119)
Beginning balance (in shares) at Dec. 31, 2018			58,886
Beginning balance at Dec. 31, 2018	$ 55,907		$ 6	585,387	(529,962)	476
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance of common stock upon the exercise of options (in shares)	129		129
Issuance of common stock upon the exercise of options	$ 4,984		$ 0	4,984
Vesting of restricted stock units (in shares)			392
Vesting of restricted stock units	0		$ 0
Stock-based compensation	17,797			17,797
Net loss	(3,464)	[1]			(3,464)
Other comprehensive income (loss), net of tax	341					341
Ending balance (in shares) at Mar. 31, 2019			59,407
Ending balance at Mar. 31, 2019	$ 75,565		$ 6	$ 608,168	$ (533,426)	$ 817

[1] See Note 1 for additional information.

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Condensed Consolidated Statements Of Cash Flows - USD ($) $ in Thousands		3 Months Ended
		Mar. 31, 2019		Mar. 31, 2018
Cash flows from operating activities:
Net loss		$ (3,464)	[1]	$ (16,216)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		10,858	[1]	7,831
Accretion of debt discount and amortization of debt issuance costs		1,027	[1]	3,426
Purchased investment premium, net of amortization		(216)	[1]	(81)
Net foreign currency (gain) loss		294	[1]	(356)
Stock-based compensation expense		17,045	[1]	19,479
Changes in operating assets and liabilities:
Accounts receivable		32,955	[1]	41,888
Deferred commissions		(4,274)	[1]	(528)
Prepaid expenses and other assets		3,641	[1]	(8,841)
Accounts payable		(2,781)	[1]	(7,605)
Accrued expenses		(23,287)	[1]	(15,059)
Deferred revenue		(23,959)	[1]	(23,751)
Other liabilities		(545)	[1]	(4,767)
Net cash provided by (used in) operating activities		7,294	[1]	(4,580)
Cash flows from investing activities:
Maturities of investments		170,679	[1]	40,677
Capital expenditures		(4,243)	[1]	(2,559)
Capitalized software costs		(7,399)	[1]	(6,039)
Net cash provided by investing activities		159,037	[1]	32,079
Cash flows from financing activities:
Payments of debt issuance costs		0	[1]	(152)
Proceeds from employee stock plans		6,840	[1]	6,765
Repurchases of common stock		0	[1]	(14,700)
Net cash provided by (used in) financing activities		6,840	[1]	(8,087)
Effect of exchange rate changes on cash and cash equivalents		248	[1]	357
Net increase in cash and cash equivalents		173,419	[1]	19,769
Cash and cash equivalents at beginning of period		183,596	[1]	393,576
Cash and cash equivalents at end of period		357,015	[1]	413,345
Supplemental cash flow information:
Cash paid for interest		8,685	[1]	3,000
Cash paid for income taxes		390	[1]	452
Proceeds from employee stock plans received in advance of stock issuance		1,856	[1]	1,616
Cash paid for operating leases	[1]	2,601		0
Right-of-use assets obtained in exchange for lease obligations	[1]	86,120		0
Non-cash investing and financing activities:
Assets acquired under capital leases and other financing arrangements		485	[1]	0
Capitalized assets financed by accounts payable and accrued expenses		1,789	[1]	5,201
Capitalized stock-based compensation		752	[1]	1,253
Unsettled share repurchase in other liabilities		$ 0	[1]	$ 1,325

[1] See Note 1 for additional information.

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Organization And Summary Of Significant Accounting Policies

3 Months Ended

Mar. 31, 2019

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Organization And Summary Of Significant Accounting Policies

ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Company Overview

Cornerstone OnDemand, Inc. (“Cornerstone” or the “Company”) was incorporated on May 24, 1999 in the state of Delaware and began its principal operations in November 1999.

The Company is a leading global provider of learning and human capital management software, delivered as Software-as-a-Service (“SaaS”). The Company helps organizations around the globe recruit, train and manage their employees. It is one of the world’s largest cloud computing companies. The Company’s human capital management platform combines the world’s leading unified talent management solutions with state-of-the-art analytics and HR administration solutions to enable organizations to manage the entire employee lifecycle. Its focus on continuous learning and development helps organizations to empower employees to realize their potential and drive success.

The Company works with clients across all geographies, verticals and market segments. Its Recruiting, Learning, Performance and HR Administration suites help with sourcing, recruiting and onboarding new hires; managing training and development requirements; nurturing knowledge sharing and collaboration among employees; goal setting, reviews, competency management and continuous feedback; linking compensation to performance; identifying development plans based on performance gaps; streamlining employee data management, self-service and compliance reporting; and then utilizing state-of-the-art analytics capabilities to make smarter, more-informed decisions using data from across the platform for talent mobility, engagement and development so that HR and leadership can focus on strategic initiatives to help their organization succeed.

The Company operates in one segment as it only reports financial information on an aggregate and consolidated basis to the Company’s chief executive officer, who is the Company’s chief operating decision maker.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared on the same basis as the Company's annual consolidated financial statements. These unaudited condensed financial statements are presented in accordance with (i) accounting standards generally accepted in the United States of America (“GAAP”) for interim financial information and (ii) the instructions to Form 10-Q and Article 10 of Regulation S-X. Certain information and note disclosures normally included in the annual consolidated financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the financial statements include all adjustments (consisting of normal recurring adjustments) necessary for the fair presentation of the interim periods presented.

Results of operations for the three months ended March 31, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019, for any other interim period or for any other future year.

Effective January 1, 2019, the Company adopted the requirements of Accounting Standards Update No. 2016-02, "Leases (Topic 842)" ("ASU 2016-02"), as discussed further in Note 1. All amounts and disclosures set forth in this Quarterly Report on Form 10-Q have been updated to comply with this new standard with results for reporting periods beginning after January 1, 2019 presented under ASU 2016-02, while prior period amounts and disclosures are not adjusted and continue to be reported under the accounting standards in effect for the prior period.

Recently Adopted Accounting Pronouncements

In February 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income" ("ASU 2018-02"), which provides entities the option to reclassify tax effects stranded in accumulated other comprehensive income as a result of the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) to retained earnings. The Company adopted this new standard effective January 1, 2019 with no impact to its consolidated condensed financial statements.

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, "Leases (Topic 842)" ("ASU 2016-02" and "ASU 2018-11"). The ASU requires lessees to record most leases on their balance sheets but recognize the expense on their statements of operations in a manner similar to accounting rules previously in effect. ASU 2016-02 states that a lessee would recognize a lease liability for the obligation to make lease payments and a right-to-use ("ROU") asset for the right to use the underlying asset for the lease term.

The Company has completed its implementation of ASU 2016-02 and applicable methods of transition. As permitted under the transition guidance, for leases in existence prior to adoption, the Company will carry forward the assessment of whether its arrangements are or contain leases, the classification of its leases, the impact of initial direct costs associated with its leases, and the remaining lease terms. The Company implemented internal controls and key system functionality to enable the preparation of financial information on adoption.

The Company adopted the requirements of ASU 2016-02 utilizing the modified retrospective method of transition to identified leases as of January 1, 2019 (the “effective date”). The adoption of the standard had a material impact to the Company’s condensed consolidated balance sheets. There was no impact upon adoption to the condensed consolidated statements of operations or cash flows. The impact of the adoption was due to:

• the recognition of additional operating lease liabilities of $82.5 million and corresponding operating ROU assets of $80.5 million. These represent the operating leases existing as of the effective date which have a lease term of greater than twelve months. The operating ROU assets were recorded net of a $2.0 million reclassification of other accrued liabilities and prepaid expenses representing previously deferred or prepaid rent and lease incentives.

• the de-recognition of previously recorded facility financing obligations of $46.1 million and related plant, property and equipment assets of $46.1 million from a build-to-suit lease arrangement for which construction is complete and the Company is leasing the constructed asset but previously did not qualify for sale accounting.

Accounting Pronouncements Pending Adoption

In August 2018, the FASB issued Accounting Standards Update No. 2018-15, "Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40) - Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract," ("ASU 2018-15"). ASU 2018-15 aligns the accounting for implementation costs incurred in a hosting arrangement that is a service contract with the accounting for implementation costs incurred to develop or obtain internal-use software under ASC 350-40, in order to determine which costs to capitalize and recognize as an asset and which costs to expense. ASU 2018-15 is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2019, and can be applied either prospectively to implementation costs incurred after the date of adoption or retrospectively to all arrangements. The Company is currently evaluating the impact of the adoption of ASU 2018-15 on its consolidated financial statements and expects to adopt the new standard in the first quarter of 2020.

Summary of Significant Accounting Policies

Except for changes to the Company's lease accounting policy, as included below, there have been no changes to the Company’s significant accounting policies described in the Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on February 26, 2019.

Leases

The Company has various non-cancelable arrangements to lease office and dedicated data center facility space. These arrangements include services and other incremental costs to maintain or operate the space and do not contain any material residual value guarantees, material variable payments, or restrictive covenants.

The Company determines at contract inception whether the arrangement 1) contains a lease based on its ability to control a physically distinct asset for more than 12 months, and 2) should be classified as an operating or finance lease. For both its office and data center facility leases, the Company combines all components of the lease including related services as a single component.

Operating leases are reflected as operating ROU assets and operating lease liabilities in the accompanying consolidated balance sheets. Operating ROU assets and operating lease liabilities represent the Company's obligation to make payments arising from the lease. The operating ROU asset also includes any lease payments made and excludes lease incentives. The liabilities are measured at the commencement date based on the present value of lease payments over the lease term utilizing our incremental borrowing rate. Lease payments are typically discounted at our incremental borrowing rate as the interest rate implicit in the lease cannot be readily determined in the absence of key inputs which are typically not reported by our lessors. Judgment was used to estimate the incremental borrowing rate associated with these leases based on relevant market data and Company inputs applied to accepted valuation methodologies.

The Company recognizes lease expense relating to its operating leases on a straight-line basis over the lease term, which commences when the Company controls the leased asset. The lease term includes optional periods to extend or terminate the leases when it is reasonably certain that the option will be exercised. Lease incentives are recognized as a reduction to lease expense on a straight-line basis over the underlying lease term.

In the normal course of operations, the Company enters into subleases for unoccupied leased office space. Any sublease payments received are recognized as a reduction to the related lease expense on a straight-line basis over the life of the sublease.

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Business Combinations

3 Months Ended

Mar. 31, 2019

Business Combinations [Abstract]

Business Combinations

BUSINESS COMBINATIONS

The following business combinations have been accounted for as acquisitions in accordance with ASC 805, Business Combinations. The purchase consideration was allocated to the tangible and intangible assets acquired and liabilities assumed based on their fair values as of the acquisition date with the excess recorded as goodwill. Acquisition related transaction costs are not included as a component of consideration transferred but are accounted for as an expense in the period in which the costs are incurred and have been included in general and administrative expenses in the condensed consolidated statement of operations.

Workpop Inc.

On September 10, 2018, the Company completed the acquisition of Workpop Inc. (“Workpop”), a privately held company. Workpop is a robust web and mobile solution for candidates and hiring managers in service-based industries. The acquisition was completed pursuant to a merger whereby Workpop became a wholly-owned subsidiary of the Company. In connection with the merger, the Company paid cash consideration of $18.2 million. Acquisition-related transaction costs were $0.5 million.

The Company had a $0.5 million cost basis investment in Workpop prior to the acquisition. As part of the acquisition of Workpop, the Company received a return of our investment with an immaterial loss, which was included in general and administrative expenses in the consolidated statement of operations.

The Company’s allocation of the total purchase price consideration as of September 10, 2018 is summarized below (in thousands):

	Fair Value
Cash and cash equivalents	$	115
Other assets	68
Intangible assets - developed technology	7,500
Goodwill	10,525
Total purchase price	$	18,208

The intangible assets related to developed technology are amortized on a straight-line basis over 3 years.

 Pro forma results of operations have not been presented as the impact of the acquisition is not material to our financial results.

Grovo Learning, Inc.

On November 9, 2018, the Company completed the acquisition of Grovo Learning, Inc. (“Grovo”), a privately held company. Grovo helps learning and development teams engage employees and drive their business forward by delivering an evolving library of customizable Microlearning® content. The acquisition was completed pursuant to a merger whereby Grovo became a wholly-owned subsidiary of the Company in exchange for cash consideration of $22.9 million. The Company acquired Grovo to expand its Cornerstone Content Anytime subscription offerings which are accessed through the Cornerstone Learning suite. Acquisition-related transaction costs were $0.6 million.

The Company’s allocation of the total purchase price consideration as of November 9, 2018 is summarized below (in thousands):

	Fair Value
Cash and cash equivalents	$	508
Accounts receivable	761
Property and equipment, net	51,967
Other current and non-current assets	1,001
Intangible assets - content library	4,700
Intangible assets - developed technology	2,500
Goodwill	11,034
Facility financing obligation	(46,100		)
Accounts payable, accrued expenses, and other liabilities, current and non-current	(3,465		)
Net assets acquired	$	22,906

The Company acquired a property lease and related leasehold improvements whereby it was deemed, for accounting purposes only, to be the owner of the entire project. In connection with the Company’s accounting for this transaction in 2018,the Company capitalized $51.1 million as a build-to-suit property within property and equipment, net, and recognized a corresponding facility financing obligation for $46.1 million. However, due to the adoption of the new lease standard ASU 2016-02 as of January 1, 2019, the build-to-suit property, exclusive of leasehold improvements of $5.0 million, and related facility financing obligation were de-recognized. Refer to Note 1 - Organization and Summary of Significant Accounting Policies above and Note 13 - Leases below for further information.

The fair value of the acquired assets are amortized on a straight-line basis over their expected useful lives.

	Useful Life
Property and equipment, net	25 years
Intangible assets - content library	6 years
Intangible assets - developed technology	3 years

Pro forma results of operations have not been presented as the impact of the acquisition is not material to the Company's financial results.

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Net Loss Per Share

3 Months Ended

Mar. 31, 2019

Earnings Per Share [Abstract]

Net Loss Per Share

NET LOSS PER SHARE

The following table presents the Company’s basic and diluted net loss per share (in thousands, except per share amounts):

	Three Months Ended
	March 31,
	2019			2018
Net loss	$	(3,464	)	$	(16,216	)
Weighted-average shares of common stock outstanding	59,141			57,425
Net loss per share – basic and diluted	$	(0.06	)	$	(0.28	)

The potential shares of common stock that would have a dilutive impact are computed using the treasury stock method or the if-converted method, as applicable. At March 31, 2019 and 2018, the following potential shares were excluded from the computation of diluted net loss per share because their effect would have been anti-dilutive (in thousands):

	March 31,
	2019	2018
Options to purchase common stock, restricted stock units and performance-based restricted stock units	10,029	11,629
Shares issuable pursuant to employee stock purchase plan	96	114
Convertible notes	7,143	11,825
Common stock warrants	—	4,682
Total shares excluded from net loss per share	17,268	28,250

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Investments

3 Months Ended

Mar. 31, 2019

Investments, Debt and Equity Securities [Abstract]

Investments

INVESTMENTS

Investments in Marketable Securities

The Company’s investments in available-for-sale marketable securities are made pursuant to its investment policy, which has established guidelines relative to the diversification of the Company’s investments and their maturities, with the principal objective of capital preservation and maintaining liquidity that is sufficient to meet cash flow requirements.

 The following is a summary of investments in marketable securities, including those that meet the definition of a cash equivalent, as of March 31, 2019 (in thousands):

	March 31, 2019
	Amortized Cost Basis		Unrealized Gains		Unrealized Losses			Fair Value		Cash Equivalent		Investments
Money market funds	$	279,317	$	—	$	—		$	279,317	$	279,317	$	—
Corporate bonds	15,973		—		—			15,973		—		15,973
U.S. treasury securities	18,987		—		(10		)	18,977		—		18,977
	$	314,277	$	—	$	(10	)	$	314,267	$	279,317	$	34,950

The following is a summary of investments in marketable securities, including those that meet the definition of a cash equivalent, as of December 31, 2018 (in thousands):

	December 31, 2018
	Amortized Cost Basis		Unrealized Gains		Unrealized Losses			Fair Value		Cash Equivalent		Investments
Money market funds	$	129,321	$	—	$	—		$	129,321	$	129,321	$	—
Corporate bonds	58,115		—		(82		)	58,033		—		58,033
U.S. treasury securities	138,826		—		(100		)	138,726		—		138,726
Commercial paper	7,973		—		—			7,973		—		7,973
	$	334,235	$	—	$	(182	)	$	334,053	$	129,321	$	204,732

As of March 31, 2019 and December 31, 2018, the Company’s investments in marketable securities had a weighted-average maturity date of approximately two months. No marketable securities held as of these periods have been in a continuous unrealized loss position for more than 12 months. The Company does not believe any unrealized losses as of March 31, 2019 and December 31, 2018 represent other-than-temporary impairments.

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Intangible Assets And Goodwill

3 Months Ended

Mar. 31, 2019

Goodwill and Intangible Assets Disclosure [Abstract]

Intangible Assets And Goodwill

INTANGIBLE ASSETS AND GOODWILL

Finite-lived Intangibles

The Company has finite-lived intangible assets which are amortized over their estimated useful lives on a straight-line basis. The following table presents the gross carrying amount and accumulated amortization of finite-lived intangible assets as of March 31, 2019 and December 31, 2018 (in thousands):

	March 31, 2019							December 31, 2018
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Developed technology	$	39,984	$	(31,769	)	$	8,215	$	39,984	$	(30,817	)	$	9,167
Content Library	4,700		(334		)	4,366		4,700		—			4,700
	$	44,684	$	(32,103	)	$	12,581	$	44,684	$	(30,817	)	$	13,867

During 2018, the Company recorded additional finite-lived intangible assets totaling $7.5 million and $7.2 million, related to developed technology from the acquisitions of Workpop Inc. and Grovo Learning, Inc., respectively.

Total amortization expense from finite-lived intangible assets was $1.3 million for the three months endedMarch 31, 2019 and zero for the three months endedMarch 31, 2018 and was recorded in cost of revenue in the accompanying condensed consolidated statements of operations.

The following table presents the Company's estimate of remaining amortization expense for finite-lived intangible assets that existed as of March 31, 2019 (in thousands):

	2019		2020		2021		2022		2023		2024 and thereafter
Estimated remaining amortization expense	$	3,141	$	4,188	$	3,236	$	855	$	855	$	306

The Company evaluates the recoverability of its long-lived assets with finite useful lives, including intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. Based on the assessment of various factors in connection with the preparation of the Company’s financial statements for the three months ended March 31, 2019, the Company does not believe there were any negative qualitative factors impacting the recoverability of the carrying values. There were no impairment charges related to identifiable intangible assets in the three months ended March 31, 2019 and March 31, 2018.

Goodwill

The carrying amount of goodwill was $47.5 million as of March 31, 2019 and December 31, 2018.

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Other Balance Sheet Amounts

3 Months Ended

Mar. 31, 2019

Balance Sheet Related Disclosures [Abstract]

Other Balance Sheet Amounts

OTHER BALANCE SHEET AMOUNTS

The balance of property and equipment, net is as follows (in thousands):

	Useful Life	March 31,			December 31,
		2019			2018
Computer equipment and software	3 – 5 years	$	55,230		$	52,055
Build to suit property	25 years	—			51,058
Furniture and fixtures	7 years	4,616			4,367
Leasehold improvements	2 – 6 years	14,975			9,987
Renovation in progress	n/a	3,345			1,984
		78,166			119,451
Less: accumulated depreciation and amortization		(45,085		)	(42,197		)
Total property and equipment, net		$	33,081		$	77,254

As described in Note 1 - Organization and Summary of Significant Accounting Policies and Note 2 - Business Combinations above, on January 1, 2019, the Company de-recognized the build to suit property, exclusive of $5.0 million in build-out costs which were re-classified as leasehold improvements in the current reporting period.

Depreciation expense for the three months ended March 31, 2019 and December 31, 2018 was $2.9 million and $2.2 million, respectively.

The balance of accrued expenses is as follows (in thousands):

	March 31,		December 31,
	2019		2018
Accrued compensation	$	22,045	$	31,799
Accrued commissions	6,261		13,856
Accrued interest	4,312		8,625
Other accrued expenses	13,735		14,051
Total accrued expenses	$	46,353	$	68,331

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Fair Value Of Financial Instruments

3 Months Ended

Mar. 31, 2019

Fair Value Disclosures [Abstract]

Fair Value Of Financial Instruments

FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair value represents the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Observable inputs are based on market data obtained from independent sources. The fair value hierarchy is based on the following three levels of inputs, of which the first two are considered observable and the last one is considered unobservable:

• Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

• Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

• Level 3 – Unobservable inputs.

Assets and liabilities measured at fair value on a recurring basis included the following as of March 31, 2019 and December 31, 2018 (in thousands):

	March 31, 2019								December 31, 2018
	Fair Value		Level 1		Level 2		Level 3		Fair Value		Level 1		Level 2		Level 3
Cash equivalents	$	279,317	$	279,317	$	—	$	—	$	129,172	$	129,172	$	—	$	—
Corporate bonds	15,973		—		15,973		—		58,033		—		58,033		—
U.S. treasury securities	18,977		—		18,977		—		138,726		—		138,726		—
Commercial paper	—		—		—		—		7,973		—		7,973		—
	$	314,267	$	279,317	$	34,950	$	—	$	333,904	$	129,172	$	204,732	$	—

As of March 31, 2019 and December 31, 2018, cash equivalents of $279.3 million and $129.2 million, respectively, consisted of money market funds with original maturity dates of three months or less backed by the U.S. government.

As of March 31, 2019 and December 31, 2018, corporate bonds, U.S. treasury securities, and commercial paper were classified within Level 2 of the fair value hierarchy. These instruments were valued using information obtained from pricing services, which obtained quoted market prices from a variety of industry data providers.

Convertible Notes

The Company’s 2021 Notes described in Note 8 - Debt are shown in the accompanying condensed consolidated balance sheets at their original issuance value, net of unamortized discount and debt issuance costs, and are not remeasured to fair value each period. The approximate fair value of the Company’s 2021 Notes as of March 31, 2019 was $435.6 million. The fair value of the 2021 Notes was estimated on the basis of quoted market prices of similar instruments, which, due to the lack of trading activity, are considered Level 2 in the fair value hierarchy.

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Debt

3 Months Ended

Mar. 31, 2019

Debt Disclosure [Abstract]

Debt

DEBT

2021 Senior Convertible Notes

In December 2017, the Company issued $300.0 million principal amount of 5.75% senior convertible notes (the “2021 Notes”) for a purchase price equal to 98% of the principal amount, raising net proceeds of $294.0 million before issuance costs.

The 2021 Notes are governed by an Indenture, dated December 8, 2017 between the Company and U.S. Bank National Association, as trustee (the “2017 Indenture”). The 2021 Notes mature on July 1, 2021, unless earlier repurchased or converted, and bear interest at a rate of 5.75% per year payable semi-annually in arrears on January 1 and July 1 of each year, commencing January 1, 2018.

The 2021 Notes are convertible at an initial conversion rate of 23.8095 shares of the Company’s common stock per $1,000 principal amount of the 2021 Notes, which represents an initial conversion price of $42.00 per share, subject to adjustment for anti-dilutive issuances, voluntary increases in the conversion rate and make-whole adjustments upon a fundamental change. A fundamental change includes a change in control, delisting of the Company’s common stock and a liquidation of the Company. Upon conversion, the Company will deliver the applicable number of the Company’s common stock and cash in lieu of any fractional shares. Holders of the 2021 Notes may convert their 2021 Notes at any time prior to the close of business on the scheduled trading day immediately preceding the maturity date.

The holders of the 2021 Notes may require the Company to repurchase all or a portion of their 2021 Notes at a cash repurchase price equal to 100% of the principal amount of the Notes being repurchased, plus the remaining scheduled interest through and including the maturity date, upon a fundamental change and events of default, including non-payment of interest or principal and other obligations under the 2017 Indenture.

The 2021 Notes were issued at a two percent discount and accounted for as debt upon issuance. The Company recorded $300.0 million of debt and $6.0 million for the debt discount. The debt discount is accreted to interest expense over the term of the 2021 Notes using the interest method.

The Company incurred debt issuance costs of $9.2 million that were deferred and amortized to interest expense over the term of the 2021 Notes.

The Company agreed to register the resale of the 2021 Notes and the shares of common stock issuable upon conversion of the 2021 Notes. A registration statement on Form S-3 relating to such securities was filed with the U.S. Securities and Exchange Commission by the Company on August 7, 2018.

The net carrying amounts of the liability components of the 2021 Notes as of March 31, 2019 and December 31, 2018 consists of the following (in thousands):

	March 31, 2019			December 31, 2018
Principal amount	$	300,000		$	300,000
Unamortized debt discount	(3,943		)	(4,348		)
Net carrying amount before unamortized debt issuance costs	296,057			295,652
Unamortized debt issuance costs	(6,062		)	(6,685		)
Net carrying value	$	289,994		$	288,967

The effective interest rate of the liability component is 6.4% for the 2021 Notes.

2018 Notes

In 2013, the Company issued convertible notes (the “2018 Notes”) raising gross proceeds of $253.0 million. The 2018 Notes bore interest at a rate of 1.50% per year payable semi-annually in arrears on January 1 and July 1 of each year, commencing January 1, 2014. On July 1, 2018, the 2018 Notes matured and the $253.0 million principal amount due was repaid. The 2018 Notes are no longer outstanding.

The following table presents the interest expense recognized related to the 2021 Notes and 2018 Notes for the three months endedMarch 31, 2019 and 2018 (in thousands):

	Three Months Ended
	March 31,
	2019		2018
Contractual interest expense at 1.5% and 5.75% per annum	$	4,313	$	5,261
Amortization of debt issuance costs	623		916
Accretion of debt discount	404		2,510
Total	$	5,340	$	8,687

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Stockholders' Equity

3 Months Ended

Mar. 31, 2019

Equity [Abstract]

Stockholders' Equity

STOCKHOLDERS’ EQUITY

Share Repurchase Program

In November 2017, the Company’s board of directors authorized a $100.0 million share repurchase program of its common stock. The share repurchase program was completed as of December 31, 2018. The total number of shares repurchased was 2.3 million at an average share price of $43.71.

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Stock-Based Awards

3 Months Ended

Mar. 31, 2019

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock-Based Awards

STOCK-BASED AWARDS

Stock Options

The following table summarizes the Company’s stock option activity for the three months endedMarch 31, 2019 (in thousands, except per share and term information):

	Shares		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value (1)
Outstanding, December 31, 2018	3,828		$	32.41	4.1	$	70,436
Granted	—		—
Exercised	(129	)	38.74
Forfeited	(22	)	45.40
Outstanding, March 31, 2019	3,677		$	32.12	3.8	$	83,504

	Shares	Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value (1)
Exercisable at March 31, 2019	3,647	$	32.09	3.8	$	82,901
Vested and expected to vest at March 31, 2019	3,676	32.11		3.8	83,480

(1) Based on the Company’s closing stock price of $54.78 on March 31, 2019 and $50.43 on December 31, 2018.

Unrecognized compensation expense relating to stock options was $0.3 million at March 31, 2019, which is expected to be recognized over a weighted-average period of 0.7 years.

Restricted Stock Units

The Company granted restricted stock units covering 0.5 million shares of its common stock during the three months ended March 31, 2019. At March 31, 2019, there were 4.1 million shares of the Company’s common stock issuable upon the vesting of outstanding restricted stock units. Unrecognized compensation expense related to unissued shares of the Company’s common stock subject to unvested restricted stock units was $136.7 million at March 31, 2019, which is expected to be recognized as expense over the weighted-average period of 2.9 years.

Performance-Based Restricted Stock Units

The Compensation Committee designed an annual equity compensation structure to further align the compensation levels of certain executives to the performance of the Company through the issuance of performance-based restricted stock units. The number of shares of the Company’s common stock issuable upon the vesting of these performance-based restricted stock unit awards is based upon the Company meeting a combination of revenue and cash flow growth targets determined at the time of their grants. The total amount of compensation expense recognized is based on the number of shares that the Company determines are probable of vesting. The estimate will be made each reporting period and determined by the Company’s actual and projected revenue and cash flow performance and the compensation expense will be recognized over the vesting term of the awards.

The following table summarizes the Company’s issuances of awards under the new compensation award structure:

Grant Date	Performance Measures	Vesting Term	Performance Period	# of Shares at Target	# of Shares at Maximum	Grant Date Fair Value per share		# of Shares Outstanding at Target (2)	# of Shares Outstanding at Maximum (2)
March 2017	(a) the Company meeting certain revenue and cash flow targets through December 31, 2019 and (b) the recipient continuing to provide services to the Company through the end of March 2020	Three years	Fiscal years 2017, 2018 and 2019	185,270	555,810	$	41.73	141,540	424,620
February 2018	(a) the Company meeting certain combined subscription revenue growth and unlevered cash flow margin targets for the year ending December 31, 2020 and (b) the recipient continuing to provide services to the Company through the end of February 2021	Three years	Fiscal year 2020	121,764	304,410	$	40.64	121,764	304,410
February 2018	(a) the Company meeting certain combined subscription revenue growth and unlevered cash flow margin targets for each of the years ending December 31, 2020, December 31, 2021, and December 31, 2022 and (b) the recipient continuing to provide services to the Company through each respective vest date at the end of February 2020, 2021 and 2022	Five years	Fiscal years 2020, 2021 and 2022 (1)	411,412	1,028,530	$	40.64	411,412	1,028,530
April 2018	(a) the Company meeting certain combined subscription revenue growth and unlevered cash flow margin targets for the year ending December 31, 2020 and (b) the recipient continuing to provide services to the Company through the beginning of April 2021	Three years	Fiscal year 2020	3,572	8,930	$	39.54	—	—

April 2018	(a) the Company meeting certain combined subscription revenue growth and unlevered cash flow margin targets for each of the years ending December 31, 2020, December 31, 2021, and December 31, 2022 and (b) the recipient continuing to provide services to the Company through each respective vest date at the beginning of April 2020, 2021 and 2022	Five years	Fiscal years 2020, 2021 and 2022 (1)	53,572	133,930	$	39.54	53,572	133,930
February 2019	(a) the Company meeting certain combined subscription revenue growth and unlevered cash flow margin targets for the year ending December 31, 2021 and (b) the recipient continuing to provide services to the Company through the beginning of February 2022	Three years	Fiscal year 2021	13,178	32,945	$	58.23	13,178	32,945
February 2019	(a) the Company meeting certain combined subscription revenue growth and unlevered cash flow margin targets for the year ending December 31, 2021 and (b) the recipient continuing to provide services to the Company through the beginning of February 2022	Three years	Fiscal year 2021	80,559	201,398	$	57.27	80,559	201,398
March 2019	(a) the Company meeting certain combined subscription revenue growth and unlevered cash flow margin targets for the year ending December 31, 2021 and (b) the recipient continuing to provide services to the Company through the beginning of February 2022	Three years	Fiscal year 2021	43,136	107,835	$	56.15	43,136	107,835

(1)	One-third of the total eligible shares shall vest on each of the third, fourth and fifth anniversaries of the grant date. This award is a one-time equity award intended to cover expected grant levels over a three-year period. In exchange, the Compensation Committee does not plan to grant any additional equity awards to recipients of this award until 2021.
(2)	Excludes shares that were forfeited due to termination of employment.

The Company recognized compensation expense related to all performance-based awards in the aggregate amount of $1.8 million for the three months ended March 31, 2019. There was no unrecognized compensation expense related to unvested 2016 and 2017 performance-based restricted stock unit awards at March 31, 2019. Unrecognized compensation expense related to unvested 2018 and 2019 performance-based restricted stock units was $24.3 million at March 31, 2019, based on the probable performance target at that date, which is expected to be recognized as expense over the weighted average period of 2.8 years.

Employee Stock Purchase Plan

Under the Company’s 2010 Employee Stock Purchase Plan (“ESPP”), eligible employees are granted the right to purchase shares at the lower of 85% of the fair market value of the stock at the time of grant or 85% of the fair market value at the time of exercise. The right to purchase shares is granted twice yearly for six month offering periods in June and December and exercisable on or about the succeeding December and June, respectively, on each year.

Stock-Based Compensation

Stock-based compensation expense related to stock options, restricted stock units, the ESPP and performance-based restricted stock units is included in the following line items in the accompanying Condensed Consolidated Statements of Operations for the three months endedMarch 31, 2019 and 2018 (in thousands):

	Three Months Ended
	March 31,
	2019		2018
Cost of revenue	$	1,136	$	1,002
Sales and marketing	6,047		6,246
Research and development	4,196		2,308
General and administrative	5,666		4,487
Restructuring	—		5,436
Total	$	17,045	$	19,479

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Income Taxes

3 Months Ended

Mar. 31, 2019

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

The Company’s income tax provision was approximately $0.7 million with an effective income tax rate of (26.3)% for the three months endedMarch 31, 2019. The Company’s income tax provision was approximately $0.5 million with an effective income tax rate of (3.4)% for the three months endedMarch 31, 2018. The Company’s effective tax rate differs from the statutory rate primarily due to the change in the valuation allowance on the Company’s deferred tax assets and foreign income taxes.

The income tax provision is related to domestic income, certain foreign income and withholding taxes. The Company does not have a material tax provision in the significant jurisdictions it operates in, such as the United States and United Kingdom, as it has historically generated losses. The Company has recorded a full valuation allowance against the net deferred tax assets and the Company does not currently anticipate recording an income tax benefit related to these deferred tax assets or current year losses.

The Company is subject to United States federal income tax as well as to income tax in multiple state and foreign jurisdictions, including the United Kingdom. Federal income tax returns of the Company are subject to IRS examination for the 2015 through 2018 tax years. State income tax returns are subject to examination for the 2014 through 2018 tax years. Foreign income tax returns are subject to examination for the 2007 through 2018 tax years. The Company believes it is reasonably possible that within the next twelve months it may resolve certain matters related to the years under examination, which may result in reductions of its unrecognized tax benefits and income tax expense of up to $1.2 million.

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Commitments and Contingencies

3 Months Ended

Mar. 31, 2019

Commitments and Contingencies Disclosure [Abstract]

Commitments And Contingencies

COMMITMENTS AND CONTINGENCIES

Lease Commitments

During the three months ended March 31, 2019, the Company entered into operating lease agreements with remaining obligations of approximately $0.1 million in 2019, $0.6 million in 2020 , $0.8 million in 2021, $0.8 million in 2022, $0.8 million in 2023, and $5.4 million thereafter. Refer to Note 13 below for additional details about the Company's leases.

Letters of Credit

The Company maintains standby letters of credit in association with other contractual arrangements. Total letters of credit outstanding at March 31, 2019 and December 31, 2018 was $7.8 million and $7.7 million, respectively.

Guarantees and Indemnifications

The Company has made guarantees and indemnities under which it may be required to make payments to a guaranteed or indemnified party, in relation to certain transactions, including revenue transactions in the ordinary course of business. The Company is obligated to indemnify its directors and officers to the maximum extent permitted under the laws of the State of Delaware. However, the Company has a directors and officers insurance policy that may reduce its exposure in certain circumstances and may enable it to recover a portion of future amounts that may be payable, if any. The duration of the guarantees and indemnities varies and, in many cases, is indefinite but subject to statutes of limitations. To date, the Company has made no payments related to these guarantees and indemnities. The Company estimates the fair value of its indemnification obligations as insignificant based on this history and the Company’s insurance coverage and therefore has not recorded any liability for these guarantees and indemnities in the accompanying condensed consolidated balance sheets.

Litigation

The Company is subject to various legal proceedings and claims that arise in the ordinary course of business. If the Company determines that it is probable that a loss has been incurred and the amount is reasonably estimable, the Company will record a liability. The Company has determined that it does not have a potential liability related to any legal proceedings or claims that would individually or in the aggregate materially adversely affect its financial condition or operating results.

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Leases

3 Months Ended

Mar. 31, 2019

Leases [Abstract]

Leases

LEASES

The Company has various non-cancelable operating leases for its offices and its data centers. These arrangements have remaining lease terms ranging from 1 to 12 years. Certain lease agreements contain renewal options, termination rights, rent abatement, and/or escalation clauses with renewal terms that can extend the lease term from one to 5 years or more.

The components of lease cost related to the Company's operating leases were as follows (in thousands):

	Three months ended
	March 31, 2019
Operating lease cost(1)	$	3,821
Sublease income	(810		)
Net lease cost	$	3,011
(1) Excludes cost from short-term leases and variable lease payments, which were immaterial.

Supplemental balance sheet information related to the Company's operating leases was as follows (in thousands, except lease term and discount rate):

	March 31,			January 1,
	2019			2019
Operating lease right-of-use assets	$	82,984		$	80,544
Operating lease liabilities (current and non-current)	88,204			82,544
Weighted-average remaining lease term	5 years			5 years
Weighted-average incremental borrowing rate	3.3		%	3.3		%

Maturities of the Company's operating lease liabilities at March 31, 2019 were as follows (in thousands):

2019	$	3,931
2020	16,151
2021	16,110
2022	16,514
2023	16,389
Thereafter	26,128
Total lease payments	$	95,223
Less: Imputed interest(1)	(7,019		)
Present value of operating lease liabilities	$	88,204
(1) Calculated using the incremental borrowing rate for each lease.

As previously disclosed in the Company’s 2018 Annual Report on Form 10-K and under the previous lease accounting standard, future minimum lease payments for the Company's operating leases at December 31, 2018, on an undiscounted basis, were as follows (in thousands):

	Operating Leases
2019	$	11,576
2020	14,162
2021	14,277
2022	14,823
2023	14,710
Thereafter	17,961
Total minimum lease payments	$	87,509

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Deferred Revenue and Remaining Performance Obligations

3 Months Ended

Mar. 31, 2019

Revenue from Contract with Customer [Abstract]

Deferred Revenue and Remaining Performance Obligations

DEFERRED REVENUE AND REMAINING PERFORMANCE OBLIGATIONS

The Company recognized $123.7 million and $119.4 million of revenues during the three months endedMarch 31, 2019 and 2018, respectively, that was included in the deferred revenue balances as of December 31, 2018 and January 1, 2018, respectively.

Transaction Price Allocated to Remaining Performance Obligations

As of March 31, 2019, approximately $858.6 million of revenue is expected to be recognized from remaining performance obligations. This amount mainly comprises subscription revenue, with less than 5% attributable to professional services and other revenue. The Company expects to recognize revenue on approximately two thirds of these remaining performance obligations over the next 18 months, with the balance recognized thereafter.

The estimated revenues from the remaining performance obligations do not include uncommitted contract amounts such as (i) amounts which are cancelable by the client without any significant penalty, (ii) future billings for time and material contracts, and (iii) amounts associated with optional renewal periods.

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Deferred Commissions

3 Months Ended

Mar. 31, 2019

Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]

Deferred Commissions

DEFERRED COMMISSIONS

The Company defers commissions paid to its sales force and related payroll taxes as these amounts are incremental costs of obtaining a contract with a customer and are recoverable from future revenue due to the non-cancelable client agreements that gave rise to the commissions. For the three months ended March 31, 2019 and March 31, 2018, the amount of amortization expense was $8.7 million and $10.3 million respectively and there was no impairment loss in relation to the costs capitalized.

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Related Party Transactions

3 Months Ended

Mar. 31, 2019

Related Party Transactions [Abstract]

Related Party Transactions

RELATED PARTY TRANSACTIONS

The Cornerstone OnDemand Foundation (the “Foundation”) empowers communities in the United States and internationally by increasing the impact of the non-profit sector through the utilization of human capital management technology including the Company’s products. The Company’s chief executive officer is on the board of directors of the Foundation. The Company does not direct the Foundation’s activities, and accordingly, the Company does not consolidate the Foundation’s statement of activities with its financial results. During the three months ended March 31, 2019 and 2018, the Company provided at no charge certain resources to the Foundation, with approximate values of $1.2 million and $0.8 million, respectively.

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Subsequent Events

3 Months Ended

Mar. 31, 2019

Subsequent Events [Abstract]

Subsequent Events

SUBSEQUENT EVENTS

The Company analyzed its operations subsequent to March 31, 2019, through the date the financial statements were available to be issued and has determined that there are no material subsequent events to disclose in these condensed consolidated financial statements.

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Organization And Summary Of Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2019

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of Presentation

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared on the same basis as the Company's annual consolidated financial statements. These unaudited condensed financial statements are presented in accordance with (i) accounting standards generally accepted in the United States of America (“GAAP”) for interim financial information and (ii) the instructions to Form 10-Q and Article 10 of Regulation S-X. Certain information and note disclosures normally included in the annual consolidated financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the financial statements include all adjustments (consisting of normal recurring adjustments) necessary for the fair presentation of the interim periods presented.

Results of operations for the three months ended March 31, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019, for any other interim period or for any other future year.

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In February 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income" ("ASU 2018-02"), which provides entities the option to reclassify tax effects stranded in accumulated other comprehensive income as a result of the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) to retained earnings. The Company adopted this new standard effective January 1, 2019 with no impact to its consolidated condensed financial statements.

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, "Leases (Topic 842)" ("ASU 2016-02" and "ASU 2018-11"). The ASU requires lessees to record most leases on their balance sheets but recognize the expense on their statements of operations in a manner similar to accounting rules previously in effect. ASU 2016-02 states that a lessee would recognize a lease liability for the obligation to make lease payments and a right-to-use ("ROU") asset for the right to use the underlying asset for the lease term.

The Company has completed its implementation of ASU 2016-02 and applicable methods of transition. As permitted under the transition guidance, for leases in existence prior to adoption, the Company will carry forward the assessment of whether its arrangements are or contain leases, the classification of its leases, the impact of initial direct costs associated with its leases, and the remaining lease terms. The Company implemented internal controls and key system functionality to enable the preparation of financial information on adoption.

The Company adopted the requirements of ASU 2016-02 utilizing the modified retrospective method of transition to identified leases as of January 1, 2019 (the “effective date”). The adoption of the standard had a material impact to the Company’s condensed consolidated balance sheets. There was no impact upon adoption to the condensed consolidated statements of operations or cash flows. The impact of the adoption was due to:

• the recognition of additional operating lease liabilities of $82.5 million and corresponding operating ROU assets of $80.5 million. These represent the operating leases existing as of the effective date which have a lease term of greater than twelve months. The operating ROU assets were recorded net of a $2.0 million reclassification of other accrued liabilities and prepaid expenses representing previously deferred or prepaid rent and lease incentives.

• the de-recognition of previously recorded facility financing obligations of $46.1 million and related plant, property and equipment assets of $46.1 million from a build-to-suit lease arrangement for which construction is complete and the Company is leasing the constructed asset but previously did not qualify for sale accounting.

Accounting Pronouncements Pending Adoption

In August 2018, the FASB issued Accounting Standards Update No. 2018-15, "Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40) - Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract," ("ASU 2018-15"). ASU 2018-15 aligns the accounting for implementation costs incurred in a hosting arrangement that is a service contract with the accounting for implementation costs incurred to develop or obtain internal-use software under ASC 350-40, in order to determine which costs to capitalize and recognize as an asset and which costs to expense. ASU 2018-15 is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2019, and can be applied either prospectively to implementation costs incurred after the date of adoption or retrospectively to all arrangements. The Company is currently evaluating the impact of the adoption of ASU 2018-15 on its consolidated financial statements and expects to adopt the new standard in the first quarter of 2020.

Summary of Significant Accounting Policies

Except for changes to the Company's lease accounting policy, as included below, there have been no changes to the Company’s significant accounting policies described in the Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on February 26, 2019.

Leases

The Company has various non-cancelable arrangements to lease office and dedicated data center facility space. These arrangements include services and other incremental costs to maintain or operate the space and do not contain any material residual value guarantees, material variable payments, or restrictive covenants.

The Company determines at contract inception whether the arrangement 1) contains a lease based on its ability to control a physically distinct asset for more than 12 months, and 2) should be classified as an operating or finance lease. For both its office and data center facility leases, the Company combines all components of the lease including related services as a single component.

Operating leases are reflected as operating ROU assets and operating lease liabilities in the accompanying consolidated balance sheets. Operating ROU assets and operating lease liabilities represent the Company's obligation to make payments arising from the lease. The operating ROU asset also includes any lease payments made and excludes lease incentives. The liabilities are measured at the commencement date based on the present value of lease payments over the lease term utilizing our incremental borrowing rate. Lease payments are typically discounted at our incremental borrowing rate as the interest rate implicit in the lease cannot be readily determined in the absence of key inputs which are typically not reported by our lessors. Judgment was used to estimate the incremental borrowing rate associated with these leases based on relevant market data and Company inputs applied to accepted valuation methodologies.

The Company recognizes lease expense relating to its operating leases on a straight-line basis over the lease term, which commences when the Company controls the leased asset. The lease term includes optional periods to extend or terminate the leases when it is reasonably certain that the option will be exercised. Lease incentives are recognized as a reduction to lease expense on a straight-line basis over the underlying lease term.

In the normal course of operations, the Company enters into subleases for unoccupied leased office space. Any sublease payments received are recognized as a reduction to the related lease expense on a straight-line basis over the life of the sublease.

Fair Value Measurement

Fair value represents the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Observable inputs are based on market data obtained from independent sources. The fair value hierarchy is based on the following three levels of inputs, of which the first two are considered observable and the last one is considered unobservable:

• Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

• Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

• Level 3 – Unobservable inputs.

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Business Combinations (Tables)

3 Months Ended

Mar. 31, 2019

Business Combinations [Abstract]

Schedule of Allocation of Purchase Price

The Company’s allocation of the total purchase price consideration as of November 9, 2018 is summarized below (in thousands):

	Fair Value
Cash and cash equivalents	$	508
Accounts receivable	761
Property and equipment, net	51,967
Other current and non-current assets	1,001
Intangible assets - content library	4,700
Intangible assets - developed technology	2,500
Goodwill	11,034
Facility financing obligation	(46,100		)
Accounts payable, accrued expenses, and other liabilities, current and non-current	(3,465		)
Net assets acquired	$	22,906

The Company’s allocation of the total purchase price consideration as of September 10, 2018 is summarized below (in thousands):

	Fair Value
Cash and cash equivalents	$	115
Other assets	68
Intangible assets - developed technology	7,500
Goodwill	10,525
Total purchase price	$	18,208

Schedule of Useful Lives of Acquired Assets

The fair value of the acquired assets are amortized on a straight-line basis over their expected useful lives.

	Useful Life
Property and equipment, net	25 years
Intangible assets - content library	6 years
Intangible assets - developed technology	3 years

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Net Loss Per Share (Tables)

3 Months Ended

Mar. 31, 2019

Earnings Per Share [Abstract]

Summary of Basic and Diluted Loss Per Share

The following table presents the Company’s basic and diluted net loss per share (in thousands, except per share amounts):

	Three Months Ended
	March 31,
	2019			2018
Net loss	$	(3,464	)	$	(16,216	)
Weighted-average shares of common stock outstanding	59,141			57,425
Net loss per share – basic and diluted	$	(0.06	)	$	(0.28	)

Anti-Dilutive Shares Excluded from Calculation of Diluted Net Loss Per Share

At March 31, 2019 and 2018, the following potential shares were excluded from the computation of diluted net loss per share because their effect would have been anti-dilutive (in thousands):

	March 31,
	2019	2018
Options to purchase common stock, restricted stock units and performance-based restricted stock units	10,029	11,629
Shares issuable pursuant to employee stock purchase plan	96	114
Convertible notes	7,143	11,825
Common stock warrants	—	4,682
Total shares excluded from net loss per share	17,268	28,250

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Investments (Tables)

3 Months Ended

Mar. 31, 2019

Investments, Debt and Equity Securities [Abstract]

Summary of Marketable Securities

The following is a summary of investments in marketable securities, including those that meet the definition of a cash equivalent, as of March 31, 2019 (in thousands):

	March 31, 2019
	Amortized Cost Basis		Unrealized Gains		Unrealized Losses			Fair Value		Cash Equivalent		Investments
Money market funds	$	279,317	$	—	$	—		$	279,317	$	279,317	$	—
Corporate bonds	15,973		—		—			15,973		—		15,973
U.S. treasury securities	18,987		—		(10		)	18,977		—		18,977
	$	314,277	$	—	$	(10	)	$	314,267	$	279,317	$	34,950

The following is a summary of investments in marketable securities, including those that meet the definition of a cash equivalent, as of December 31, 2018 (in thousands):

	December 31, 2018
	Amortized Cost Basis		Unrealized Gains		Unrealized Losses			Fair Value		Cash Equivalent		Investments
Money market funds	$	129,321	$	—	$	—		$	129,321	$	129,321	$	—
Corporate bonds	58,115		—		(82		)	58,033		—		58,033
U.S. treasury securities	138,826		—		(100		)	138,726		—		138,726
Commercial paper	7,973		—		—			7,973		—		7,973
	$	334,235	$	—	$	(182	)	$	334,053	$	129,321	$	204,732

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Intangible Assets And Goodwill (Tables)

3 Months Ended

Mar. 31, 2019

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of Gross Carrying Amount and Accumulated Amortization of Finite-lived Intangible Assets

The following table presents the gross carrying amount and accumulated amortization of finite-lived intangible assets as of March 31, 2019 and December 31, 2018 (in thousands):

	March 31, 2019							December 31, 2018
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Developed technology	$	39,984	$	(31,769	)	$	8,215	$	39,984	$	(30,817	)	$	9,167
Content Library	4,700		(334		)	4,366		4,700		—			4,700
	$	44,684	$	(32,103	)	$	12,581	$	44,684	$	(30,817	)	$	13,867

Schedule of Estimated Remaining Intangible Asset Amortization

The following table presents the Company's estimate of remaining amortization expense for finite-lived intangible assets that existed as of March 31, 2019 (in thousands):

	2019		2020		2021		2022		2023		2024 and thereafter
Estimated remaining amortization expense	$	3,141	$	4,188	$	3,236	$	855	$	855	$	306

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Other Balance Sheet Amounts (Tables)

3 Months Ended

Mar. 31, 2019

Balance Sheet Related Disclosures [Abstract]

Schedule of property and equipment, net

The balance of property and equipment, net is as follows (in thousands):

	Useful Life	March 31,			December 31,
		2019			2018
Computer equipment and software	3 – 5 years	$	55,230		$	52,055
Build to suit property	25 years	—			51,058
Furniture and fixtures	7 years	4,616			4,367
Leasehold improvements	2 – 6 years	14,975			9,987
Renovation in progress	n/a	3,345			1,984
		78,166			119,451
Less: accumulated depreciation and amortization		(45,085		)	(42,197		)
Total property and equipment, net		$	33,081		$	77,254

Schedule of accrued expenses

The balance of accrued expenses is as follows (in thousands):

	March 31,		December 31,
	2019		2018
Accrued compensation	$	22,045	$	31,799
Accrued commissions	6,261		13,856
Accrued interest	4,312		8,625
Other accrued expenses	13,735		14,051
Total accrued expenses	$	46,353	$	68,331

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Fair Value Of Financial Instruments (Tables)

3 Months Ended

Mar. 31, 2019

Fair Value Disclosures [Abstract]

Summary of Assets and Liabilities Measured at Fair Value

Assets and liabilities measured at fair value on a recurring basis included the following as of March 31, 2019 and December 31, 2018 (in thousands):

	March 31, 2019								December 31, 2018
	Fair Value		Level 1		Level 2		Level 3		Fair Value		Level 1		Level 2		Level 3
Cash equivalents	$	279,317	$	279,317	$	—	$	—	$	129,172	$	129,172	$	—	$	—
Corporate bonds	15,973		—		15,973		—		58,033		—		58,033		—
U.S. treasury securities	18,977		—		18,977		—		138,726		—		138,726		—
Commercial paper	—		—		—		—		7,973		—		7,973		—
	$	314,267	$	279,317	$	34,950	$	—	$	333,904	$	129,172	$	204,732	$	—

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Debt (Tables)

3 Months Ended

Mar. 31, 2019

Debt Disclosure [Abstract]

Summary of Net Carrying Amount of Debt

The net carrying amounts of the liability components of the 2021 Notes as of March 31, 2019 and December 31, 2018 consists of the following (in thousands):

	March 31, 2019			December 31, 2018
Principal amount	$	300,000		$	300,000
Unamortized debt discount	(3,943		)	(4,348		)
Net carrying amount before unamortized debt issuance costs	296,057			295,652
Unamortized debt issuance costs	(6,062		)	(6,685		)
Net carrying value	$	289,994		$	288,967

Schedule of Interest Expense Recognized

The following table presents the interest expense recognized related to the 2021 Notes and 2018 Notes for the three months endedMarch 31, 2019 and 2018 (in thousands):

	Three Months Ended
	March 31,
	2019		2018
Contractual interest expense at 1.5% and 5.75% per annum	$	4,313	$	5,261
Amortization of debt issuance costs	623		916
Accretion of debt discount	404		2,510
Total	$	5,340	$	8,687

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Stock-Based Awards (Tables)

3 Months Ended

Mar. 31, 2019

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Summary of Stock Option Activity

The following table summarizes the Company’s stock option activity for the three months endedMarch 31, 2019 (in thousands, except per share and term information):

	Shares		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value (1)
Outstanding, December 31, 2018	3,828		$	32.41	4.1	$	70,436
Granted	—		—
Exercised	(129	)	38.74
Forfeited	(22	)	45.40
Outstanding, March 31, 2019	3,677		$	32.12	3.8	$	83,504

	Shares	Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value (1)
Exercisable at March 31, 2019	3,647	$	32.09	3.8	$	82,901
Vested and expected to vest at March 31, 2019	3,676	32.11		3.8	83,480

(1) Based on the Company’s closing stock price of $54.78 on March 31, 2019 and $50.43 on December 31, 2018.

Schedule of Issuances of Awards Under New Compensation Award Structure

The following table summarizes the Company’s issuances of awards under the new compensation award structure:

Grant Date	Performance Measures	Vesting Term	Performance Period	# of Shares at Target	# of Shares at Maximum	Grant Date Fair Value per share		# of Shares Outstanding at Target (2)	# of Shares Outstanding at Maximum (2)
March 2017	(a) the Company meeting certain revenue and cash flow targets through December 31, 2019 and (b) the recipient continuing to provide services to the Company through the end of March 2020	Three years	Fiscal years 2017, 2018 and 2019	185,270	555,810	$	41.73	141,540	424,620
February 2018	(a) the Company meeting certain combined subscription revenue growth and unlevered cash flow margin targets for the year ending December 31, 2020 and (b) the recipient continuing to provide services to the Company through the end of February 2021	Three years	Fiscal year 2020	121,764	304,410	$	40.64	121,764	304,410
February 2018	(a) the Company meeting certain combined subscription revenue growth and unlevered cash flow margin targets for each of the years ending December 31, 2020, December 31, 2021, and December 31, 2022 and (b) the recipient continuing to provide services to the Company through each respective vest date at the end of February 2020, 2021 and 2022	Five years	Fiscal years 2020, 2021 and 2022 (1)	411,412	1,028,530	$	40.64	411,412	1,028,530
April 2018	(a) the Company meeting certain combined subscription revenue growth and unlevered cash flow margin targets for the year ending December 31, 2020 and (b) the recipient continuing to provide services to the Company through the beginning of April 2021	Three years	Fiscal year 2020	3,572	8,930	$	39.54	—	—

April 2018	(a) the Company meeting certain combined subscription revenue growth and unlevered cash flow margin targets for each of the years ending December 31, 2020, December 31, 2021, and December 31, 2022 and (b) the recipient continuing to provide services to the Company through each respective vest date at the beginning of April 2020, 2021 and 2022	Five years	Fiscal years 2020, 2021 and 2022 (1)	53,572	133,930	$	39.54	53,572	133,930
February 2019	(a) the Company meeting certain combined subscription revenue growth and unlevered cash flow margin targets for the year ending December 31, 2021 and (b) the recipient continuing to provide services to the Company through the beginning of February 2022	Three years	Fiscal year 2021	13,178	32,945	$	58.23	13,178	32,945
February 2019	(a) the Company meeting certain combined subscription revenue growth and unlevered cash flow margin targets for the year ending December 31, 2021 and (b) the recipient continuing to provide services to the Company through the beginning of February 2022	Three years	Fiscal year 2021	80,559	201,398	$	57.27	80,559	201,398
March 2019	(a) the Company meeting certain combined subscription revenue growth and unlevered cash flow margin targets for the year ending December 31, 2021 and (b) the recipient continuing to provide services to the Company through the beginning of February 2022	Three years	Fiscal year 2021	43,136	107,835	$	56.15	43,136	107,835

(1)	One-third of the total eligible shares shall vest on each of the third, fourth and fifth anniversaries of the grant date. This award is a one-time equity award intended to cover expected grant levels over a three-year period. In exchange, the Compensation Committee does not plan to grant any additional equity awards to recipients of this award until 2021.
(2)	Excludes shares that were forfeited due to termination of employment.

Summary of Stock-based Compensation Expense

Stock-based compensation expense related to stock options, restricted stock units, the ESPP and performance-based restricted stock units is included in the following line items in the accompanying Condensed Consolidated Statements of Operations for the three months endedMarch 31, 2019 and 2018 (in thousands):

	Three Months Ended
	March 31,
	2019		2018
Cost of revenue	$	1,136	$	1,002
Sales and marketing	6,047		6,246
Research and development	4,196		2,308
General and administrative	5,666		4,487
Restructuring	—		5,436
Total	$	17,045	$	19,479

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Leases (Tables)

3 Months Ended

Mar. 31, 2019

Leases [Abstract]

Components of Lease Expense

The components of lease cost related to the Company's operating leases were as follows (in thousands):

	Three months ended
	March 31, 2019
Operating lease cost(1)	$	3,821
Sublease income	(810		)
Net lease cost	$	3,011
(1) Excludes cost from short-term leases and variable lease payments, which were immaterial.

Supplemental Balance Sheet Information of Operating Leases

Supplemental balance sheet information related to the Company's operating leases was as follows (in thousands, except lease term and discount rate):

	March 31,			January 1,
	2019			2019
Operating lease right-of-use assets	$	82,984		$	80,544
Operating lease liabilities (current and non-current)	88,204			82,544
Weighted-average remaining lease term	5 years			5 years
Weighted-average incremental borrowing rate	3.3		%	3.3		%

Maturities of Operating Lease Liabilities

Maturities of the Company's operating lease liabilities at March 31, 2019 were as follows (in thousands):

2019	$	3,931
2020	16,151
2021	16,110
2022	16,514
2023	16,389
Thereafter	26,128
Total lease payments	$	95,223
Less: Imputed interest(1)	(7,019		)
Present value of operating lease liabilities	$	88,204
(1) Calculated using the incremental borrowing rate for each lease.

Maturities of Leases Under Previous Standard

As previously disclosed in the Company’s 2018 Annual Report on Form 10-K and under the previous lease accounting standard, future minimum lease payments for the Company's operating leases at December 31, 2018, on an undiscounted basis, were as follows (in thousands):

	Operating Leases
2019	$	11,576
2020	14,162
2021	14,277
2022	14,823
2023	14,710
Thereafter	17,961
Total minimum lease payments	$	87,509

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Organization And Summary Of Significant Accounting Policies (Detail) $ in Thousands	3 Months Ended
	Mar. 31, 2019 USD ($) segment	Jan. 01, 2019 USD ($)	Dec. 31, 2018 USD ($)	Nov. 09, 2018 USD ($)
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Number of operating segments | segment	1
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Operating lease liabilities	$ 88,204	$ 82,544
Operating right-of-use assets	82,984	80,544	$ 0
Operating right-of-use assets, net of other liabilities and prepaids		$ 2,000
De-recognition of previously recorded financing obligation	$ 0		$ 46,100
Grovo Learning, Inc.
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
De-recognition of previously recorded financing obligation				$ 46,100

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Business Combinations - Additional Information (Details) - USD ($) $ in Thousands	Nov. 09, 2018	Sep. 10, 2018	Mar. 31, 2019	Jan. 01, 2019	Dec. 31, 2018
Business Acquisition [Line Items]
Build-to-suit property capitalized				$ 5,000
Facility financing lease obligation recognized			$ 0		$ 46,100
Workpop Inc.
Business Acquisition [Line Items]
Cash paid in acquisition		$ 18,200
Acquisition-related costs		500
Cost basis in investment		$ 500
Workpop Inc. | Developed Technology
Business Acquisition [Line Items]
Useful life of intangible asset		3 years
Grovo Learning, Inc.
Business Acquisition [Line Items]
Cash paid in acquisition	$ 22,900
Acquisition-related costs	600
Facility financing lease obligation recognized	46,100
Grovo Learning, Inc. | Build to suit property
Business Acquisition [Line Items]
Build-to-suit property capitalized	$ 51,100
Grovo Learning, Inc. | Developed Technology
Business Acquisition [Line Items]
Useful life of intangible asset	3 years

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Business Combinations - Allocation of Purchase Price (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018	Nov. 09, 2018	Sep. 10, 2018
Business Acquisition [Line Items]
Goodwill	$ 47,453	$ 47,453
Workpop Inc.
Business Acquisition [Line Items]
Cash and cash equivalents				$ 115
Other assets				68
Intangible assets - developed technology				7,500
Goodwill				10,525
Total purchase price				$ 18,208
Grovo Learning, Inc.
Business Acquisition [Line Items]
Cash and cash equivalents			$ 508
Accounts receivable			761
Property and equipment, net			51,967
Other current and non-current assets			1,001
Goodwill			11,034
Facility financing obligation			(46,100)
Accounts payable, accrued expenses, and other liabilities, current and non-current			(3,465)
Total purchase price			22,906
Content Library | Grovo Learning, Inc.
Business Acquisition [Line Items]
Intangible assets - developed technology			4,700
Developed Technology | Grovo Learning, Inc.
Business Acquisition [Line Items]
Intangible assets - developed technology			$ 2,500

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Business Combinations - Useful Lives of Acquired Assets (Details) - Grovo Learning, Inc.	Nov. 09, 2018
Business Acquisition [Line Items]
Useful life of property	25 years
Content Library
Business Acquisition [Line Items]
Useful life of intangible asset	6 years
Developed Technology
Business Acquisition [Line Items]
Useful life of intangible asset	3 years

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Net Loss Per Share - Basic and Diluted Loss Per Share (Detail) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended
	Mar. 31, 2019		Mar. 31, 2018
Earnings Per Share [Abstract]
Net loss	$ (3,464)	[1]	$ (16,216)
Weighted average common shares outstanding, basic and diluted (in shares)	59,141		57,425
Net loss per share, basic and diluted (USD per share)	$ (0.06)		$ (0.28)

[1] See Note 1 for additional information.

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Net Loss Per Share - Anti-dilutive Shares Excluded From Calculation of Diluted Net Loss Per (Detail) - shares shares in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Total shares excluded from net loss per share (in shares)	17,268	28,250
Options to purchase common stock, restricted stock units and performance-based restricted stock units
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Total shares excluded from net loss per share (in shares)	10,029	11,629
Shares issuable pursuant to employee stock purchase plan
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Total shares excluded from net loss per share (in shares)	96	114
Convertible notes
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Total shares excluded from net loss per share (in shares)	7,143	11,825
Common stock warrants | Common Stock
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Total shares excluded from net loss per share (in shares)	0	4,682

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Investments (Details) $ in Thousands	Mar. 31, 2019 USD ($) security	Dec. 31, 2018 USD ($)
Debt Securities, Available-for-sale [Line Items]
Amortized Cost Basis	$ 314,277	$ 334,235
Unrealized Gains	0	0
Unrealized Losses	(10)	(182)
Fair Value	$ 314,267	$ 334,053
Weighted average term of maturity	2 months	2 months
Number of positions in a continuous unrealized loss (securities) | security	0
Cash Equivalent
Debt Securities, Available-for-sale [Line Items]
Fair Value	$ 279,317	$ 129,321
Investments
Debt Securities, Available-for-sale [Line Items]
Fair Value	34,950	204,732
Money market funds
Debt Securities, Available-for-sale [Line Items]
Amortized Cost Basis	279,317	129,321
Unrealized Gains	0	0
Unrealized Losses	0	0
Fair Value	279,317	129,321
Money market funds | Cash Equivalent
Debt Securities, Available-for-sale [Line Items]
Fair Value	279,317	129,321
Money market funds | Investments
Debt Securities, Available-for-sale [Line Items]
Fair Value	0	0
Corporate bonds
Debt Securities, Available-for-sale [Line Items]
Amortized Cost Basis	15,973	58,115
Unrealized Gains	0	0
Unrealized Losses	0	(82)
Fair Value	15,973	58,033
Corporate bonds | Cash Equivalent
Debt Securities, Available-for-sale [Line Items]
Fair Value	0	0
Corporate bonds | Investments
Debt Securities, Available-for-sale [Line Items]
Fair Value	15,973	58,033
U.S. treasury securities
Debt Securities, Available-for-sale [Line Items]
Amortized Cost Basis	18,987	138,826
Unrealized Gains	0	0
Unrealized Losses	(10)	(100)
Fair Value	18,977	138,726
U.S. treasury securities | Cash Equivalent
Debt Securities, Available-for-sale [Line Items]
Fair Value	0	0
U.S. treasury securities | Investments
Debt Securities, Available-for-sale [Line Items]
Fair Value	$ 18,977	138,726
Commercial paper
Debt Securities, Available-for-sale [Line Items]
Amortized Cost Basis		7,973
Unrealized Gains		0
Unrealized Losses		0
Fair Value		7,973
Commercial paper | Cash Equivalent
Debt Securities, Available-for-sale [Line Items]
Fair Value		0
Commercial paper | Investments
Debt Securities, Available-for-sale [Line Items]
Fair Value		$ 7,973

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Intangible Assets And Goodwill - Gross Carrying Amount and Accumulated Amortization of Finite-lived Intangible Assets (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	$ 44,684	$ 44,684
Accumulated Amortization	(32,103)	(30,817)
Net Carrying Amount	12,581	13,867
Developed technology
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	39,984	39,984
Accumulated Amortization	(31,769)	(30,817)
Net Carrying Amount	8,215	9,167
Content Library
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	4,700	4,700
Accumulated Amortization	(334)	0
Net Carrying Amount	$ 4,366	$ 4,700

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Intangible Assets And Goodwill - Additional Information (Details) - USD ($)	3 Months Ended		12 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Dec. 31, 2018	Nov. 09, 2018	Sep. 10, 2018
Finite-Lived Intangible Assets [Line Items]
Amortization expense from finite-lived intangible assets	$ 1,300,000	$ 0
Carrying amount of goodwill	$ 47,453,000		$ 47,453,000
Workpop Inc.
Finite-Lived Intangible Assets [Line Items]
Carrying amount of goodwill					$ 10,525,000
Workpop Inc. | Developed technology
Finite-Lived Intangible Assets [Line Items]
Finite-lived intangible assets acquired			7,500,000
Grovo Learning, Inc.
Finite-Lived Intangible Assets [Line Items]
Carrying amount of goodwill				$ 11,034,000
Grovo Learning, Inc. | Developed technology
Finite-Lived Intangible Assets [Line Items]
Finite-lived intangible assets acquired			$ 7,200,000

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Intangible Assets And Goodwill - Estimated Remaining Intangible Asset Amortization (Details) $ in Thousands	Mar. 31, 2019 USD ($)
Goodwill and Intangible Assets Disclosure [Abstract]
2019	$ 3,141
2020	4,188
2021	3,236
2022	855
2023	855
2024 and thereafter	$ 306

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Other Balance Sheet Amounts - Property and Equipment (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Jan. 01, 2019	Dec. 31, 2018
Property, Plant and Equipment [Line Items]
Property and equipment, gross	$ 78,166			$ 119,451
Less: accumulated depreciation and amortization	(45,085)			(42,197)
Total property and equipment, net	33,081			77,254
Leasehold improvements on build to suit property de-recognized			$ 5,000
Depreciation expense	2,900	$ 2,200
Computer equipment and software
Property, Plant and Equipment [Line Items]
Property and equipment, gross	$ 55,230			52,055
Computer equipment and software | Minimum
Property, Plant and Equipment [Line Items]
Property and equipment, useful life	3 years
Computer equipment and software | Maximum
Property, Plant and Equipment [Line Items]
Property and equipment, useful life	5 years
Build to suit property
Property, Plant and Equipment [Line Items]
Property and equipment, gross	$ 0			51,058
Property and equipment, useful life	25 years
Furniture and fixtures
Property, Plant and Equipment [Line Items]
Property and equipment, gross	$ 4,616			4,367
Property and equipment, useful life	7 years
Leasehold improvements
Property, Plant and Equipment [Line Items]
Property and equipment, gross	$ 14,975			9,987
Leasehold improvements | Minimum
Property, Plant and Equipment [Line Items]
Property and equipment, useful life	2 years
Leasehold improvements | Maximum
Property, Plant and Equipment [Line Items]
Property and equipment, useful life	6 years
Renovation in progress
Property, Plant and Equipment [Line Items]
Property and equipment, gross	$ 3,345			$ 1,984

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Other Balance Sheet Amounts - Accrued Expenses (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Balance Sheet Related Disclosures [Abstract]
Accrued compensation	$ 22,045	$ 31,799
Accrued commissions	6,261	13,856
Accrued interest	4,312	8,625
Other accrued expenses	13,735	14,051
Total accrued expenses	$ 46,353	$ 68,331

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Fair Value Of Financial Instruments - Summary of Asset and Liabilities Measured at Fair Value (Detail) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents	$ 279,317	$ 129,172
Available-for-sale securities	314,267	334,053
Assets measured at fair value on a recurring basis	314,267	333,904
Level 1
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents	279,317	129,172
Assets measured at fair value on a recurring basis	279,317	129,172
Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents	0	0
Assets measured at fair value on a recurring basis	34,950	204,732
Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents	0	0
Assets measured at fair value on a recurring basis	0	0
Corporate bonds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities	15,973	58,033
Corporate bonds | Level 1
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities	0	0
Corporate bonds | Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities	15,973	58,033
Corporate bonds | Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities	0	0
U.S. treasury securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities	18,977	138,726
U.S. treasury securities | Level 1
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities	0	0
U.S. treasury securities | Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities	18,977	138,726
U.S. treasury securities | Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities	0	0
Commercial paper
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities	0	7,973
Commercial paper | Level 1
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities	0	0
Commercial paper | Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities	0	7,973
Commercial paper | Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities	$ 0	$ 0

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Fair Value Of Financial Instruments - Additional Information (Detail) - USD ($) $ in Millions	Mar. 31, 2019	Dec. 31, 2018
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Money market fund value	$ 279.3	$ 129.2
Convertible Senior Notes At 5.75%, Maturing 2021 | Convertible notes
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value of convertible debt	$ 435.6

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Debt - Additional Information (Detail) - Convertible notes	1 Months Ended
	Dec. 31, 2017 USD ($) $ / shares	Mar. 31, 2019 USD ($)	Dec. 31, 2018 USD ($)	Jul. 01, 2018 USD ($)	Dec. 31, 2013 USD ($)
Debt Instrument [Line Items]
Debt interest rate		1.50%	5.75%
Debt discount recorded		$ (3,943,000)	$ (4,348,000)
Transaction costs related to the issuance of Notes		$ 6,062,000	$ 6,685,000
Convertible Senior Notes At 5.75%, Maturing 2021
Debt Instrument [Line Items]
Debt gross proceeds	$ 300,000,000
Debt interest rate	5.75%
Effective interest rate	98.00%	6.40%
Net proceeds from the Notes	$ 294,000,000
Initial conversion rate	23.8095
Conversion price (USD per share) | $ / shares	$ 42
Debt discount recorded	$ (6,000,000)
Transaction costs related to the issuance of Notes	$ 9,200,000
Senior Convertible Notes At 1.50%, Maturing 2018
Debt Instrument [Line Items]
Debt gross proceeds					$ 253,000,000
Debt interest rate					1.50%
Debt repaid upon maturing				$ 253,000,000

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Debt - Summary of Net Carrying Amount of Debt (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Debt Instrument [Line Items]
Net carrying amount	$ 289,994	$ 288,967
Convertible Debt
Debt Instrument [Line Items]
Principal amount	300,000	300,000
Unamortized debt discount	(3,943)	(4,348)
Net carrying amount before unamortized debt issuance costs	296,057	295,652
Unamortized debt issuance costs	(6,062)	(6,685)
Net carrying amount	$ 289,994	$ 288,967

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Debt - Schedule of Interest Expense Recognized (Details) - Convertible Debt - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Dec. 31, 2018
Schedule of Debt Cost and Interest Expense Recognized [Line Items]
Debt interest rate	1.50%		5.75%
Contractual interest expense at 1.5% and 5.75% per annum	$ 4,313	$ 5,261
Amortization of debt issuance costs	623	916
Accretion of debt discount	404	2,510
Total	$ 5,340	$ 8,687

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Stockholders' Equity (Details) - USD ($) $ / shares in Units, shares in Millions	14 Months Ended
	Dec. 31, 2018	Nov. 30, 2017
Equity [Abstract]
Authorized share repurchase program amount		$ 100,000,000
Shares repurchased (in shares)	2.3
Average cost of shares repurchased (USD per share)	$ 43.71

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Stock-Based Awards - Stock Option Activity (Detail) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Dec. 31, 2018
Shares
Beginning balance (in shares)	3,828
Options, Granted (in shares)	0
Options, Exercised (in shares)	(129)
Options, Forfeited (in shares)	(22)
Ending balance (in shares)	3,677
Weighted- Average Exercise Price
Weighted-average exercise price, outstanding at beginning of period (USD per share)	$ 32.41
Weighted average exercise price, granted (USD per share)	0.00
Weighted average exercise price, exercised (USD per share)	38.74
Weighted average exercise price, forfeited (USD per share)	45.40
Weighted-average exercise price, outstanding at end of period (USD per share)	$ 32.12
Additional Disclosures
Weighted-average remaining contractual term, outstanding	3 years 9 months 18 days	4 years 1 month 6 days
Aggregate intrinsic value, outstanding	$ 83,504		$ 70,436
Exercisable at end of period (in shares)	3,647
Weighted average exercise price, exercisable at end of period (USD per share)	$ 32.09
Weighted-average remaining contractual term, exercisable	3 years 9 months 18 days
Aggregate intrinsic value, exercisable at end of period	$ 82,901
Vested and Expected to Vest
Vested and expected to vest at end of period (in shares)	3,676
Weighted average exercise price, vested and expected to vest at end of period (USD per share)	$ 32.11
Weighted-average remaining contractual term, vested and expected to vest	3 years 9 months 18 days
Aggregate intrinsic value, vested and expected to vest at end of period	$ 83,480
Closing stock price (USD per share)	$ 56.75		$ 50.43

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Stock-Based Awards - Additional Information (Detail) - USD ($)	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Unrecognized compensation expense relating to stock options	$ 300,000
Share based compensation expense	$ 17,045,000	$ 19,479,000
Percent purchase price, grant date, ESPP	85.00%
Percent purchase price, exercise date, ESPP	85.00%
Employee Stock Option
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Unrecognized compensation expense, expected recognition weighted average period	8 months 12 days
Restricted Stock Units (RSUs)
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Unrecognized compensation expense, expected recognition weighted average period	2 years 10 months 28 days
Restricted stock units granted (in shares)	527,873
Share of non-vested restricted stock units were outstanding (in shares)	4,117,276
Unrecognized compensation expense related to non-vested restricted stock units	$ 136,700,000
Performance Shares
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Unrecognized compensation expense, expected recognition weighted average period	2 years 9 months 7 days
Share based compensation expense	$ 1,800,000
Awarded 2016 and 2017 | Performance Shares
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Unrecognized compensation expense related to performance shares	0
Awarded 2018 | Performance Shares
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Unrecognized compensation expense related to performance shares	$ 24,300,000

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Stock-Based Awards - Issuance of Awards Under New Compensation Award Structure (Details) - Performance Shares - $ / shares	1 Months Ended
	Mar. 31, 2019	Feb. 28, 2019	Apr. 30, 2018	Feb. 28, 2018	Mar. 31, 2017
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting term	3 years				3 years
Grant date fair value (USD per share)	$ 56.15				$ 41.73
Minimum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Accounting grant date (in shares)	43,136				185,270
Share of non-vested restricted stock units were outstanding (in shares)	43,136,000				141,540,000
Maximum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Accounting grant date (in shares)	107,835				555,810
Share of non-vested restricted stock units were outstanding (in shares)	107,835,000				424,620,000
Performance Period One
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting term		3 years	3 years	3 years
Grant date fair value (USD per share)		$ 58.23	$ 39.54	$ 40.64
Performance Period One | Minimum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Accounting grant date (in shares)		13,178	3,572	121,764
Share of non-vested restricted stock units were outstanding (in shares)		13,178,000	0	121,764,000
Performance Period One | Maximum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Accounting grant date (in shares)		32,945	8,930	304,410
Share of non-vested restricted stock units were outstanding (in shares)		32,945,000	0	304,410,000
Performance Period Two
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting term		3 years	5 years	5 years
Grant date fair value (USD per share)		$ 57.27	$ 39.54	$ 40.64
Performance Period Two | Third Anniversary
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting right percentage			33.00%	33.00%
Performance Period Two | Fourth Anniversary
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting right percentage			33.00%	33.00%
Performance Period Two | Fifth Anniversary
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting right percentage			33.00%	33.00%
Performance Period Two | Minimum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Accounting grant date (in shares)		80,559	53,572	411,412
Share of non-vested restricted stock units were outstanding (in shares)		80,559,000	53,572,000	411,412,000
Performance Period Two | Maximum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Accounting grant date (in shares)		201,398	133,930	1,028,530
Share of non-vested restricted stock units were outstanding (in shares)		201,398,000	133,930,000	1,028,530,000

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Stock-Based Awards - Stock-Based Compensation Expense (Detail) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Share based compensation expense	$ 17,045	$ 19,479
Cost of revenue
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Share based compensation expense	1,136	1,002
Sales and marketing
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Share based compensation expense	6,047	6,246
Research and development
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Share based compensation expense	4,196	2,308
General and administrative
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Share based compensation expense	5,666	4,487
Restructuring
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Share based compensation expense	$ 0	$ 5,436

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Income Taxes (Detail) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Income Tax Disclosure [Abstract]
Income tax provision	$ (722)	$ (533)
Effective income tax rate	(26.30%)	(3.40%)
Potential reduction in unrecognized tax benefit	$ 1,200

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Commitments and Contingencies (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Other Commitments [Line Items]
Operating lease agreements due in next twelve months	$ 3,931
Operating lease agreements due in year two	16,151
Operating lease agreements due in year three	16,110
Operating lease agreements due in year four	16,514
Operating lease agreements due in year five	16,389
Operating lease agreements due thereafter	26,128
Other Contractual Arrangements
Other Commitments [Line Items]
Operating lease agreements due in next twelve months	100
Operating lease agreements due in year two	600
Operating lease agreements due in year three	800
Operating lease agreements due in year four	800
Operating lease agreements due in year five	800
Operating lease agreements due thereafter	5,400
Letter of Credit | Other Contractual Arrangements
Other Commitments [Line Items]
Letters of credit outstanding	$ 7,800	$ 7,700

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Leases - Components of Lease Expense (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Jan. 01, 2019
Lessee, Lease, Description [Line Items]
Remaining lease terms	5 years	5 years
Operating lease cost	$ 3,821
Sublease income	(810)
Net lease cost	$ 3,011
Minimum
Lessee, Lease, Description [Line Items]
Remaining lease terms	1 year
Optional extension period	1 year
Maximum
Lessee, Lease, Description [Line Items]
Remaining lease terms	12 years
Optional extension period	5 years

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Leases - Supplemental Balance Sheet Information of Operating Leases (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Jan. 01, 2019	Dec. 31, 2018
Leases [Abstract]
Operating lease right-of-use assets	$ 82,984	$ 80,544	$ 0
Operating lease liabilities (current and non-current)	$ 88,204	$ 82,544
Weighted-average remaining lease term	5 years	5 years
Weighted-average incremental borrowing rate	3.30%	3.30%

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Leases - Maturities of Operating Lease Liabilities (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Jan. 01, 2019
Leases [Abstract]
2019	$ 3,931
2020	16,151
2021	16,110
2022	16,514
2023	16,389
Thereafter	26,128
Total lease payments	95,223
Less: Imputed interest	(7,019)
Present value of operating lease liabilities	$ 88,204	$ 82,544

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Leases - Maturities of Leases Under Previous Standard (Details) $ in Thousands	Dec. 31, 2018 USD ($)
Leases [Abstract]
2019	$ 11,576
2020	14,162
2021	14,277
2022	14,823
2023	14,710
Thereafter	17,961
Total minimum lease payments	$ 87,509

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Deferred Revenue and Remaining Performance Obligations (Details) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Revenue from Contract with Customer [Abstract]
Revenue recognized	$ 123.7	$ 119.4
Revenue expected to be recognized from remaining obligations	$ 858.6
Amount of revenue expected to be recognized in the next 18 months	66.66667%
Period within obligations expected to be recognized	18 months

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Deferred Commissions (Details) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]
Amortization of expenses from commissions paid to sales force	$ 8.7	$ 10.3

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Related Party Transactions (Details) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Related Party Transactions [Abstract]
Services provided to related party at no charge	$ 1.2	$ 0.8

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Label	Element	Value
Cumulative Effect of New Accounting Principle in Period of Adoption	us-gaap_CumulativeEffectOfNewAccountingPrincipleInPeriodOfAdoption	$ 18,935,000
Retained Earnings [Member]
Cumulative Effect of New Accounting Principle in Period of Adoption	us-gaap_CumulativeEffectOfNewAccountingPrincipleInPeriodOfAdoption	$ 18,935,000