Recommendation: Buy Christian Meunier, Ian Strgar April 19 th, 2013

Background ›Founded in 1999, headquartered in Santa Monica, CA –Began principle operations in November ›Strong IPO (November 17 th, 2011): 10.5 million shares at $13 per share –Closed the day up 46.7% to $19.07 ›Leading provider of talent management software

Segments ›Talent Management Suite –SaaS deployment, 1-3 year contracts paid monthly, annually or in three year installments, pricing based on number of employees ›Supportive Consulting Services –Implementation, installation, systems configuration and integration, and training

Talent Management Suite ›Recruiting Cloud –Manage job postings, new candidate identification, skill and competency assessment, onboarding ›Learning Cloud –Train new employees and employees in new positions with classroom training, online training, social collaboration, compliance management ›Performance Cloud –Align individual goals with organizational by managing performance requirements, succession plans, and compensation ›Extended Enterprise Cloud –Same great features for extend supplier networks

Industry Overview: Talent Management ›Niche industry within overall human capital management (HCM) ›Growth drivers: increasing globalization and competition –Pressure on HR on recruit, develop, and retain talented individuals –Consolidation of all talent management processes (cost and effort savings) ›Recruiting & Staffing, Learning & Development, Performance Management, and Career Planning

Market Opportunity ›Underpenetrated market as talent management is seeing increased recognition as a necessary function ›2012 Market Size: Approximately $4B –CAGR of 16.5% through 2014, fastest within overall HCM ›Sources: Deloitte, Forrester

Competitive Landscape ›Diversified Software Providers –IBM (Kenexa, Dec. 2012), Oracle (PeopleSoft, Dec. 2004; Taleo, Feb. 2012), SAP (SuccessFactors, Feb. 2012) ›SaaS Talent Management Providers –Halogen Software, Lumesse, Peoplefluent, Saba Software, SilkRoad, SumTotal Systems ›Result: the company reports competing primarily as a comprehensive TM Suite; enterprise competitors

Leadership Recognition ›Gartner, Forrester, IDC: talent management market leader

Growth Strategies: Organic ›Direct sales team and resellers –Direct sales team: roughly 1/3 of company in sales and marketing ( ) ›Non-linear growth in sales teams - allowing for better regional/sector coverage ›Roughly 80% of revenues –Resellers, alliances: very useful to international growth ›Key international players: Affiliated Computer Services, Appirio, ADP › Salesforce.com integrations ›Client retention - average ADRR since 2002: 95%

Growth Strategies: Acquisitions ›Sonar Limited, April 5 th, 2012 –Based in Auckland, New Zealand –Strong focus on SMB segments, 375 global clients ›Rebranded “Cornerstone Small Business solution” –NOT integrated into Cornerstone’s solution

Growth Opportunities ›International: roughly 60% annually; 186 countries and 42 languages –EMEA: one client in 2007, currently 175 –APAC: opening new offices; plans to provide direct sales, alliances, support ›Public sector –Cloud First, FEDRAMP

Good Things To Come: Bookings Growth ›A view into CSOD’s backlog of sales

Comparable Companies ›We value CSOD purely on an EV/Revenue and EV/Gross Profit basis –Lower line growth and CFs irrelevant at this point in the company’s growth stage

DCF ›Looked at six companies that went through similar growth stages as Cornerstone OnDemand –Salesforce.com, Netsuite, Concur Technologies, The Ultimate Software Group, Exact Target, Responsys ›Revenue model –Unable to isolate individual line items; 80% of revenues from subscription fees

Cost of Revenue ›Due to cloud operations, cost of revenue will decline as a percentage of revenue in the future

Other DCF Considerations ›Research & Development –Constant, as a percent of revenue, due to high industry competition ›Tax Rate –Difficult to currently project due to unprofitability –Looked at profitable, high growth, tech companies to find rate at perpetuity ›Beta

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Recommendation ›In conclusion, we recommend a buy for all portfolios based on qualitative factors and an undervaluation of 38%