Based in Santa Monica, California, Cornerstone OnDemand (CSOD) is scheduling for Thursday, March 17 a $105 million IPO with a market capitalization of $464 million at the price range mid-point of $10. Joint Managers are Goldman & Barclays. Co Managers are Blair/, Piper, Pacific Crest, and JMP.

SUMMARY & CONCLUSION

CSOD provides solutions based on a Software as a Service model. Neither CSOD nor any of their public competitors mentioned the S-1 filing were profitable for the December quarter.

CSOD has generated a consistent stream of operating losses, and gross margin fell to 50% for the December quarter, even though sales continued to increase.

Deferred revenue grew from $9 million at 2007 year-end to $34 million at 2010 year end.

Valuation

Even though revenue grew 62% from 2009 to 2010; there was good quarterly revenue growth during 2010; and clients are set up on a multi-year subscription basis, CSOD has yet to show an operating profit

CSOD is a speculative investment in an industry where losses are common. If CSOD can generate a breakeven operating profit (loss), then the stock could substantially increase in value.

The market segment isn’t particularly hot. Companies mentioned as competitors showed a 14% on average increase in the last three months. Those competitors all generated higher gross margins in the December quarter than CSOD.

	.Dec 10	March 11	% change
Saba Software (SABA)	$6.41	$7.79	22%
SuccessFactors (SPSF)	$31.04	$35.75	15%
Taleo (TLEO)	$31.77	$33.57	6%
Average gain			14%

Valuation Ratios	IPO Mrkt	Price /	Price /	Price /	Price /	Gross
annualized Dec quarter	Cap (mm)	Sales	Earnings	BookValue	TangibleBV	Profit %
Cornerstn OnDmd CSOD	$464	8.3	-2	8.8	8.9	50%
Saba Software (SABA)	$215	1.9	-47	4.6	26.9	64%
SuccessFactors (SPSF)	$2,790	11.6	-174	10.3	16.4	70%
Taleo (TLEO)	$1,370	5.1	-552	3.7	13.4	66%

BUSINESS

Global provider of a comprehensive learning and talent management solution delivered as software-as-a-service. Solutions consists of five integrated platforms for learning management, enterprise social networking, performance management, succession planning and extended enterprise.

. Over 480 clients, up from 105 December 31, 2007. . Includes multi-national corporations, large domestic enterprises, mid-market companies, state and local public sector organizations, higher education institutions and non-profit entities, such as Barclays Bank PLC, BJC HealthCare, Flextronics International USA, Inc., Kelly Services, Inc., Liberty Mutual Insurance Company, Pearson, Inc., Starwood Hotels & Resorts Worldwide, Inc., State of Nebraska, Teach for America and Virgin Media Limited. . Supports multiple client deployments of over 150,000 users, including one client with over 700,000 users.

DEFERRED REVENUE GROWTH

. With the growth in the number of client agreements, CSOD’s deferred revenue have grown from $9.1 million at December 31, 2007 to $33.8 million at December 31, 2010

. CSOD generally invoices clients annually in advance for multi-year subscriptions and also in advance for any consulting services.

. Records amounts invoiced for portions of annual subscription periods that have not occurred or services that have not been performed as deferred revenue on the balance sheet.

COMPETITION

In the learning management systems segment, CSOD competitors include Plateau Systems, Saba Software and SumTotal Systems. Most competitors in this segment have multiple versions of legacy software, whereas CSOD offers a single version of its Software as a Service solution.

In the employee performance management systems segment, competitors include Halogen Software, Softscape, Stepstone and SuccessFactors. These vendors are, like us, largely SaaS providers

In addition, we compete with talent management solutions like Jive Software and Taleo that focus on specific aspects of talent management, such as social networking or applicant tracking. Most of CSOD’s clients are seeking a broader talent management solution, but may combine our solution with a niche solution, such as one for applicant tracking.

CSOD also competes with Oracle and SAP, though most of CSOD’s enterprise clients have CSOD integrate with their implementations of those enterprise resource planning, or ERP, systems.

USE OF PROCEEDS

$65 million from from sale of 7.5mm shares. Shareholders intend to sell 3mm shares $9.2 to repay debt, Balance for general corporate purposes

Cornerstone OnDemand (CSOD)	CSOD, C+, 7					Post IPO shares: 46mm
Talent/mgt solutions
Santa Monica, CA	2007	2008	2009	2010		IPO Mkt
Revenues ($mm)	$11	$19	$29	$47		Cap (mm)
Gross margin % of rev	64%	69%	70%	63%		$464
Operating loss % of rev	-61%	-44%	-18%	-28%		@$10
Net income (loss)*	-$6	-$10	-$8	-$48
Net income % of rev	-52%	-54%	-29%	-104%
*includes change in preferred stock warrant liablities. All preferred stock is to be
converted on the IPO so those charges won't occur in the future
Quarterly results	Sep-09	Dec 2009	March 2010	June 2010	Sept, 2010	Dec, 2010
Revenues ($mm)	$7.4	$8.1	$9.7	$10.6	$12.3	$14.0
Gross margin % of rev	72%	68%	68%	70%	68%	50%
Operating loss % of rev	-18%	-30%	-23%	-19%	-20%	-45%
Valuation Ratios	IPO Mrkt	Price /	Price /	Price /	Price /	% offered
Year ended Dec 31, 2010	Cap (mm)	Sales	Earnings	BookValue	TangibleBV	in IPO
Cornerstn OnDmd CSOD	$464	8.3	losses	8.8	8.9	23%
COMPARE
Valuation Ratios	IPO Mrkt	Price /	Price /	Price /	Price /	Gross
annualized Dec quarter	Cap (mm)	Sales	Earnings	BookValue	TangibleBV	Profit %
Cornerstn OnDmd CSOD	$464	8.3	-2	8.8	8.9	50%
Saba Software (SABA)	$215	1.9	-47	4.6	26.9	64%
SuccessFactors (SPSF)	$2,790	11.6	-174	10.3	16.4	70%
Taleo (TLEO)	$1,370	5.1	-552	3.7	13.4	66%
SABA, SPSF & TLEO are listed as competitors in CSOD's S-1 filing
	.Dec 10	March 11	% change
Saba Software (SABA)	$6.41	$7.79	22%
SuccessFactors (SPSF)	$31.04	$35.75	15%
Taleo (TLEO)	$31.77	$33.57	6%
Average gain			14%
SCORECARD		Mgt	Market	Market Do-	Proprie-	Total
1-5, 5 is high			Growth	mination	tary	rating
20 is perfect		2	2	2	1	7