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Analyst day-deck-final

  1. March 13, 2018 Financial Analyst & Investor Day
  2. 1:00 Introduction - Alexandra Geller 1:05 Cornerstone Overview & Cornerstone 2.0 - Adam Miller 2:00 Cornerstone Opportunities: A View from the Field Global Field Operations - Jeff Lautenbach Learning & Content Opportunity - Josh Schwede Winning in the Learning & HCM Market - Josh Bersin Talent Management Opportunity - Dan Bock EMEA and the HCM Opportunity - Vincent Belliveau Growth Market Opportunities - Chirag Shah 4:00 BREAK 4:10 Services Partner Panel - Moderated by Tiffany Appleby 4:30 Financial Review - Brian Swartz 5:00 Wrap-Up and Q&A - Executive Team 5:30 Cocktails - Executive Team Agenda 2
  3. This presentation includes forward-looking statements. These statements relate to, among other things, our future financial and operating performance, including our GAAP and non-GAAP guidance, the growth of the learning and human capital management market, our business strategy, and our plans and objectives for future operations. In light of the risks and uncertainties outlined below, the future events and circumstances discussed in this presentation may not occur, and actual results could differ materially from those anticipated or implied in the forward-looking statements. The Company has based these forward-looking statements largely on its current expectations and projections about future events and financial trends affecting its business. Forward-looking statements should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking statements are based on information available at the date of this presentation and management’s good faith belief as of such date with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that could cause such differences include, but are not limited to: • Statements regarding the Company’s business strategies; • The Company’s anticipated future operating results and operating expenses; • The Company’s ability to attract new clients to enter into subscriptions for its solution; • The Company’s ability to service those clients effectively and induce them to renew and upgrade their deployments of the Company’s solution; • The Company’s ability to expand its sales organization to address effectively the new industries, geographies and types of organizations the company intends to target; • The Company’s ability to accurately forecast revenue and appropriately plan its expenses; market acceptance of enhanced solutions, alternate ways of addressing learning and talent management needs or new technologies generally by the Company and its competitors; continued acceptance of SaaS as an effective method for delivering learning and talent management solutions and other business management applications; the attraction and retention of qualified employees and key personnel; • The Company’s ability to protect and defend its intellectual property; costs associated with defending intellectual property infringement and other claims; events in the markets for the Company’s solution and alternatives to the Company’s solution, as well as in the United States and global markets generally; future regulatory, judicial and legislative changes in the Company’s industry; changes in the competitive environment in the Company’s industry and the markets in which the Company operates; and other factors discussed under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s periodic reports filed with the Securities and Exchange Commission (the “SEC”). Forward-looking statements speak only as of the date of this presentation. You should not put undue reliance on any forward-looking statement. The Company assumes no obligation to update any forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting future performance or results, except to the extent required by applicable laws. If the Company updates one or more forward-looking statements, no inference should be drawn that it will make additional updates with respect to those or other forward-looking statements. In addition to U.S. GAAP financials, this presentation includes certain non-GAAP financial measures. These non-GAAP financial measures are in addition to, not a substitute for or superior to, measures of financial performance prepared in accordance with U.S. GAAP. Please see the discussion of these non-GAAP financial measures and their reconciliations to the most directly comparable U.S. GAAP measures in the Company’s press release dated February 13, 2018. Safe Harbor 3
  4. Adam Miller Founder & CEO Cornerstone Overview
  5. 5 Our Market Opportunity
  6. Work has Changed 6 WHAT WHEREWHO WHEN HOW
  7. Software is Eating the World 7
  8. Mechanization Water power Steam power 1 2 3 Mass production Assembly line Electricity Computer Automation Networks 4 Digital Machine learning Artificial intelligence The Next Industrial Revolution has Arrived 8
  9. 9 Developing new skills is essential to empowering the next revolution
  10. 10 How we manage talent & develop skills over the next 5 years will be completely different from the last 20
  11. 11 A Shift in Focus is Required Skills-based people management Relationship-centric Integrated people and work solutions Real-time data empowered decision-making Personalized leveraging machine learning Automating HR data & processes Financially motivated Application and data silos Historical, intuition-based decisions One-size-fits-all approach Transaction focused People focused to
  12. Talent in the Digital Age  Consumer expectations have entered the workforce  Competition for skills and experiences is intense  Jobs are being redefined or eliminated  “Career Walls” are the new career ladder 12
  13. The Market Need is Real 13 Kara Goldin | 11. 10. 2017 From Gap to Gen Z: Why Collaboration is More Important Than Ever Nuha Masri | 11. 7. 2017 4 Ways Technology Will Shape the Future of Work by 2020 Jeff Miller | 10. 17. 2017 Why a Culture of Learning Should be Built from the Top Down Alexandra Gibbs | 10. 27. 2017 Why Taking Care of the ‘Human-Capital’ of Your Employees is Vital Jeffrey Selingo & Kevin Simon 10. 9. 2017 The Future of Your Career Depends on Lifelong Learning
  14. 14 Our goal is to meet the needs of the business with ready leaders who can move into any business line when they’re needed, ready to lead. Between the T-Mobile team and our partnership with Cornerstone, we are really making that happen. “ ”Melissa Lanier, Director of Career and Leadership Development Programs
  15. 15 Cornerstone has allowed Hitachi to globalize HR efforts in order to achieve growth. Our plans are to increase the revenue of the non-Japanese market by 45-50% or more. “ ”Levent Arabaci, EVP & CHRO
  16. 16 Cornerstone has allowed us to grow from being a product-focused company to one that is seen as a leading solutions and technology provider. “ ”Alban Jacquin, Learners Experience Director
  17. 17 Using Cornerstone, we’ve since seen a 53% increase in [employee] movement between Hyatt brands. Employees feel like they have even more options from a career standpoint. “ ”Randy Goldberg, Vice President , Talent Management
  18. 18 With Cornerstone, it takes two minutes to verify someone is administratively and logistically ready to deploy. It makes a huge difference. We sent 60 volunteer responders to Nepal and only had to make one phone call. We had zero misses. “ ”Pat Ross, Deputy Director of Membership
  19. 19 Cornerstone helped us move from a heterogenic, localized learning approach to one that is aligned across all business units and markets. We’re seeing employees take more initiative with Cornerstone. “ ”Gerard Pieterse, Learning & Development Director
  20. What went wrong?
  21. 22 In the Past, We Focused Only on Total Sales Total New Sales by Year Note: charts are illustrative and not drawn to scale. 2012 2013 2014 2015 2016 2017 New ARR One-Time FX
  22. 23 …But Our Sales Mix Shifted Negatively New Sales Composition 2011 2013 2015 2017 Recurring ServicesNew ARR One-Time 15pts lower than in 2011 Note: charts are illustrative and not drawn to scale.
  23. 24
  24. Q1 '15 Q2 '15 Q3 '15 Q4 '15 Q1 '16 Q2 '16 Q3 '16 Q4 '16 Q1 '17 Q2 '17 Q3 '17 Q4 '17 Also Missed a Product Cycle in Learning in 2015 25 New startups begin entering corporate learning LinkedIn announces LinkedIn Learning Cornerstone announces Learning Experience Platform & Content Anytime Workday announces Learning product at Workday Rising
  25. 26 • Brexit • Mid-market over-investment • Spread too thin internationally Other Challenges
  26. Strategic Plan
  27. 2.0
  28. Focus on recurring revenue and exit enterprise service delivery Improve operating margins and cash flows Create new recurring revenue streams, including aggressively enter the content market Bolster the team Improve governance Transforming Cornerstone 29 1 2 3 4 5
  29. 30
  30. 31 1. Focus on Recurring Revenue 31
  31. Commission Focusing on ARR 32 100% focus by the field on recurring sales Commission plans were changed in January Quota credit non-recurring salesnon-recurring sales A. B.
  32. Shifting Delivery to Partners 33 Enterprise Deals • Partner “papers” all services work • Cornerstone provides “delivery assurance” • Cornerstone oversees delivery success Partner Client Enterprise and Strategic Clients Mid-Market and SMB Clients • Client contracts services directly with Cornerstone • Cornerstone “papers” all services work • Services charged as recurring fees • Cornerstone owns delivery success Client Mid-Market and SMB Clients
  33. 34 Activating Our Ecosystem
  34. 35 New for Us, Not for Clients (or Partners) Everybody does this
  35. • Improves margins • Simplifies the business • Frees up sales rep time • Incents partners to support us The Benefits 36
  36. 37 2. Get fit Improve Operating Margins and Cash Flows
  37. Sales & Marketing Spend – Trailing Our Peers 2017 S&M Spend as % of Revenue 38
  38. Sales & Marketing Spend Now 2018 S&M Spend as % of Revenue 39
  39. Operational Excellence Drives Profitability 40 Enterprise Service Delivery Exit Self Service Support Enhanced Commission Plan Sales Headcount Optimization Annual Price Escalators Intelligent Pricing Salesforce Productivity Order to Cash Automation Strategic Sourcing Projects 1 2 3 4 5 6 7 8 9 Sales & Marketing Cost of Sales General & Administrative
  40. 41 3. Grow Create New Recurring Revenue Streams
  41. New Recurring Revenue Streams 42 Tech Services Client Success Packages Content
  42. Learning 43 Online classes only The Content Opportunity is Enormous 2017 Registrations 392M 2017 Completions 235M
  43. Cornerstone Content Anytime • Recurring subscription content model • Usage-based partner revenue sharing • Over 3,000 courses available • Fully-integrated in Cornerstone Learning • Available NOW 44
  44. 45 Customer Success Packages: Now Recurring Technical Support Education & Training Answer Desk Client Community System Adoption Optimization Customer Success Release Readiness
  45. 46 Tech Projects: Now Recurring Inbound Data Feeds Outbound Data Feeds SSO Web Services Data Warehouse Encryption • Cornerstone continues to do all tech projects • Recurring charge for tech projects, such as “Connectors” for inbound and outbound feeds • Drive further efficiencies with Cornerstone Edge
  46. 47 4. Bolster the Team
  47. Half of the Executive Leadership Team is New in 2018 New Additions • Hired Jeff Lautenbach as President of Global Field Operations • Hired Adrianna Burrows as Chief Marketing Officer • Hired Chris Wheaton as VP of Field Operations • Hired Jennifer Gianola as VP of Investor Relations Exits • Kirsten Helvey, COO • Dave Carter, Chief Sales Officer • Frank Ricciardi, GM of Asia Pacific • Matt Gahr, VP Sales Bolstering the Team 48
  48. 49 5. Improve Governance
  49. • Added three new directors in 2017 • Planning to add two new directors in 2018; one new director in 2019 • By the end of 2018, we expect that the majority of the board will have joined in the last two years • Plan to appoint a new chairman in 2018 • June shareholder vote to declassify the board, beginning in 2019 Improving Governance 50
  50. 51 • Diagnosed issues • Got fit • Grow and grow To Summarize
  51. Jeff Lautenbach President, Global Field Operations Global Field Operations
  52. 53 Background Over 25 Years of Experience • Go-to-market leadership roles • Scaling and transforming global businesses • Building and executing growth strategies • Optimizing customer segmentation
  53. Leadership position in Learning & Talent is undeniable Initial Observations 54 Individual reps are solid sales people TAM is large, highly fragmented, and growing 2 31 54
  54. Magic Quadrant for Talent Management Suites Source: Gartner (February 2017) NICHE PLAYERS VISIONARIES CHALLENGERS LEADERS COMPLETENESS OF VISION ABILITYTOEXECUTE Technomedia Haufe SumTotal Halogen Software Saba Oracle (Talent Management Cloud) SAP (SuccessFactors) Talentsoft Cornerstone is the Market Leader in Talent Management 55
  56. Highly Fragmented Markets = Opportunity 57 None 17% Oracle Taleo 12% SAP SuccessFactors 10% Skillsoft 5% Kenexa 5% Other 48% Recruiting None 18% SAP SuccessFactors 12% Oracle Taleo 9% SumTotal 5%ADP 4% Other 46% Talent In each of our markets, we face a varied list of competitors. We intend to use our scale to grow market share in each segment. SAP SuccessFactors 19% None 16% Unknown 7% Saba 5% Other 41% Learning Source: Company Data.
  57. The Workday “Threat” Has Been Overblown 58 Cornerstone only competes with Workday in a subset of it’s total business Workday primarily competes in the United states Workday is ONLY selling talent to their ERP base
  58. 1. Sales focus had been on “easy wins” (i.e. services) at the expense of recurring sales which drive growth (Recruiting, Performance, Cornerstone HR) 2. Company missed a product cycle when LEPs came to market 3. Some damage was self-inflicted,especiallyin the Enterprisesegment 4. Marketing message has been weak; market does not understand breadth of Cornerstone’s capabilities 5. Sales processes are sub-optimized and need major over-haul So What is the Issue? 59
  59. Improve productivity Activate the base Enter the learning content market Sell recruiting suite Leverage vertical momentum 60 The Solution: Drive ARR Growth 1 2 3 4 5
  60. 1. Improving Productivity 61 1. Instituted more disciplined go-to-market cadence 2. Created global field ops and global enablement teams 3. Improved pricing discipline; introducing deal desk 4. Established sales and marketing interlock to ensure better alignment 5. Created new global dashboards and enhanced reporting
  61. 2. Activating the Base 62 Have 3+ products 70% Approximately 40% Approximately Note: Data represents purchase of an application with one of the Cornerstone product suites Have 2+ products • Introducing top account program • Leveraging deal desk and renewals team • Analyzing sales & marketing data to drive better decision-making and resource allocation • Driving U.S. to match international Recruiting sales rates
  62. 63 3. Entering the Learning Content Market Go Big or Go Home! Content Anytime deal sizes exceeding our highest expectation We will aggressively attach Content to Learning deals 4Q17 launched Content Anytime & Learning Experience Platform
  63. 64 Innovation in Driving Recruiting Success 4. Selling Recruiting – Accelerate Growth Q1 2013 Q4 2017 Applicant Tracking Onboarding Campus Recruiting Selection Candidate Experience Recruiter Experience Candidate Relationship Management Why recruiting growth now? • Established market incumbents are not innovating • Newer entrants look slick but still play in mid-market • Differentiating on product front
  64. 5. Capitalize on Vertical Momentum • Drive alignment, focus and urgency – SLED+FED+HC • Identify Extended Enterprise opportunities in Public Sector • Examples include Opioid Crisis, preventive care, certifications, constituent learning • Expand Federal into DOD PUBLIC SECTOR GREW NEW ARR IN 2017 BY GREATER THAN 150% YOY 65
  65. 66 Bonus: Execute Partner 1ST Model Drive productivity and engagement Ensure client success Ensure partner readiness Focusing marketing on more strategic initiatives Alliances Partner Opportunities Enablement Partner Marketing
  66. 67 Opportunities Abound When We Execute Learning Talent Management Human Capital Management Growth Markets
  67. Learning & Content Opportunity Josh Schwede Head of Learning Content
  68. 69 CEOs Must Upskill and Reskill Their Workforce CEOs expect digital tech to disrupt their company CEOs think their company is not equipped with the right skills to adapt (Deloitte 2017) 70%90%
  69. 70 Rising Employees Demand More Learning Say a clear career path would compel them to stay with an organization longer (Mercer 2015) 78% Say development is important in a job (Gallup 2017) 87% (Deloitte 2017) Are likely to leave because they’re not learning enough 42%
  70. 71 Skills have become the New Digital Currency
  71. How people consume video How people consume audio At the Same Time, Consumer Habits Have Changed 72
  72. 73 3 Blended learning 4 Social learning 5 Modern workplace learning FORMAL INFORMAL 1 Classroom training 2 E-Learning Source: Hart, Jane, “5 Stages of Workplace Learning (Revisited 2017)” Workplace Learning Continues to Evolve
  73. 74 Cornerstone Learning
  74. Modern learning requires a holistic strategy 75 Learning Experience (LEP) Learning Management (LMS) Modern Content Cornerstone Learning
  75. Learning Management Cornerstone Learning 76
  76. Learning Experience Cornerstone Learning 77
  77. Content Opportunity
  78. Organizations are Playing a Constant Game of Catch-up Expensive, outdated content Top-down vs. Bottom-up learning Manual curation and learning paths Complex Vendor Management 79
  79. Old Content Doesn’t Work on Mobile 80
  80. 1:1,000 Ratio 81 1 L&D professional for every 1,000 learners Source: Bersin by Deloitte, 2017
  81. 82 Cornerstone Content Anytime PRE-CURATED Constantly Evolving Library Topics • Business Skills • Creative • Health & Wellness • Leadership & Management • Office Productivity • Personal Development • Sales & Service • Technology 4PREMIER PARTNERS 2,500+COURSE OFFERINGS
  82. 83 Content Anytime: European Edition PRE-CURATED Constantly Evolving • Office Productivity • Personal Development • Sales & Service • Technology • Business Skills • Creative • Health & Wellness • Leadership & Management 5PREMIER PARTNERS 2,500+COURSE OFFERINGS English Spanish German French Portuguese Library Topics
  83. 84 Custom Curated Packages • Leadership & Management • Office Productivity • Personal Development • Sales & Service • Technology • Business Skills • Compliance • Continuing Education & Certifications • Creative • Health & Wellness • Industry Specific 34K+MULTILANGUAGE COURSE OFFERINGS 30+PREMIER PARTNERS Library Topics 84
  84. 85 We Know Content! Cornerstone Learning Suite Online classes only 2017 Registrations 392M 2017 Completions 235M 85
  85. 86 Content Gross Revenue 50% 50% CSOD Content Providers 20%+ OPERATING MARGIN Content Economics Content Subscription Margins
  86. 87 Recent Content Anytime Deals Client Industry Location No. of Users Content vs. Learning RPU Multiple Manufacturer France 500 10x Retailer United States 1,000 7x Engineering United Kingdom 750 5x Oil & Gas United Kingdom 20,000 4x Insurance United States 3,000 3x Based on Content Anytime Deals through 12/31/2017
  87. 88 3-10x Content Anytime RPU of Learning 100% Size of Content Opportunity Overall Relative to Learning ~$225M ARR Opportunity Today What We’ve Seen Relative Opportunity Today’s ARR Opportunity Content at Scale Sizing the Content Opportunity for Cornerstone
  88. 89 + VIDEO
  89. Winning in the Learning & HCM Market Josh Bersin Founder, Deloitte by Bersin
  90. Josh Bersin Principal and Founder, Bersin™ Deloitte Consulting LLP Copyright © 2018 Deloitte Development LLC. All rights reserved. The Red Hot Corporate Talent and Learning Markets A new era of growth
  91. Robots and AI 77% of CEOs expect the role of AI, Robotics, and Automation to “increase significantly” over the next 2 years. Source: Robots: The new low-cost worker, Dhara Ranasinghe, CNBC, April 10, 2015. Source: China Can’t Buy Enough Industrial Robots, Jethro Mullen, CNNTech, June 23, 2016 robots/index.html
  92. How the Global Economy Has Changed The value of “brand, IP, and services” is skyrocketing
  93. Hiring is as hard as it has been since 2001 and “time to hire” is even greater Unemployment Rate Nearing Record Lows End of Korean War Vietnam War Black Monday Dot Com Dot Bomb Financial Crisis 1970- 1976 6.2% jumping to 12.3 % Inflation 2007 4.1% Inflation Mean “time to hire” for new hires is 31 days, higher than it was in 2001. Expected to drop to 3.9%
  94. CEOs, CFOs, CHROs agree on #1 issue: risk of retaining and attracting top talent Talent Is Now the #1 CEO Issue TCB-1652 Conference Board C-Suite Challenge 2018, n=570
  95. Reinvention of the Talent Management market A new war for labor and skills. Productivity, AI, and Analytics Driving The Next Wave
  96. 1990s-2000s 2004-2012 2012-2017 2018+ Automated talent management Integrated talent management Engagement, fit, Culture, analytics Productivity, performance, teams Automate PerformIntegrate Engage Shift from talent management to team and work management Talent management: integrated processes and systems, talent as core to HR and business agenda Systems of automation Practice-driven solutions People management: focus on culture, engagement, environment, leadership, and fit Systems of engagement Empowerment solutions Team and work management: optimizing productivity, alignment, connection of the “network of teams”, tools to make work better. Systems of productivity Productivity-driven solutions
  97. • Core HR Technology spending is slowing (41% say it’s flat) • Clients not fully satisfied: only 21% of customers say talent systems “always meet their needs.” • Two biggest growth areas are Learning and Analytics (37% yty) • Career, succession, onboarding, analytics hottest functional needs • User satisfaction is 2/3 lower than vendor satisfaction How will you upgrade your HR technology? Sources: Sierra-Cedar 2016–2017 HR Systems Survey White Paper, 19th Annual Edition, and Sierra-Cedar 2017–2018 HR Systems Survey White Paper, 20th Annual Edition used with permission and 2016 Bersin by Deloitte HR Systems Research Multiple pathways to an HR tech transformation todays state of replacing HR technology HighriskLowrisk ReactiveFocused Current state 22% Rip & replace Move everything all at once to the cloud 25% Hybrids Move ONLY TM or WFM apps to cloud 22% Parallel / Patchwork Combination licensed and cloud solutions 19% Hosting / Outsource Single tenant or BPO Shift to cloud is important, not sufficient Rip and replace pace slows
  98. Feedback and engagement Reinventing performance Video-based learning & career Social recognition Well-being Work – Team management 2018 and beyond: From Talent Management to Management Marketgrowth-adoption 2016 Pulse survey Text analytics Mobile feedback 2020 Culture assessment Coaching tools Checkins with feedback Agile, open goal management Org network analysis Recognition everywhere Custom rewards programs Customer recognition Progression over time Video learning Content curation Intelligent learning Career planning Gamification accreditation Well-being fitness tracking Competitions social sharing Points gamification Fitness merges w/ engagement Virtual work management Document management Goal sharing Goal tracking Communications messaging Process automation Integration & new talent apps Analytics driven “Systems of engagement” Apps that “Make work life better” Total Addressable Market: $16.9B in US (2/3 in companies < 500)
  99. The exponential importance of learning A business, economic, and social imperative “The learning curve is the earning curve.”
  100. A New War for Skills 2/3 of companies believe they have a shortage of technical and complex problem solving skills 2.8 2.9 3 3.1 3.4 3.6 4.4 4.5 5.5 5.5 5.6 5.7 6.5 9.8 0 1 2 3 4 5 6 7 8 9 10 Head of Customer Experience Reliability Engineer Marketing Content Manager Guest Experience Manager Licensed Realtor Head of Partnerships Peronsal Loan Consultant Brand Partner Big Data Developer Full Stack Engineer Customer Success Manager Sales Representative Data Scientist Machine Learning Engineer Most In-Demand Jobs 2018 Soft Skills Tech Most In-Demand Skills Most In-Demand Capabilities
  101. Yet until now, L&D had not been keeping up 75% of the workforce will be made up of Millennials by 2025, yet 45% tell us they get no leadership development at all. 45% of North American survey respondents think their current skills will be inadequate in three years Source: A New Model for Corporate Learning, by Karie Willyerd, Alwin Grünwald, Kerry Brown, Bernd Welz, and Polly Traylor, Deloitte Human Capital Trends 2017, Deloitte Millennial Survey 2017, Bersin High-Impact Learning Organization 2017, Deloitte Human Capital Trends 2017 and 2018 of survey respondents think their companies are not giving them opportunities to develop future careers 59% The Net-Promoter Score of L&D rated by non HR professionals is -15! - Bersin HILO 2017
  102. We are here E-Learning & Blended 1998-2002 2005 20182010 Self-Study Online Learning Course Catalog Online University 2020 Learning In Flow of Work LearningInTheFlow ofWork Instructional Design Kirkpatrick LMS as E-Learning Platform Talent Management Career Focused Lots of Topics Learning Path Career Track Blended Learning Social Learning LMS as Talent Platform Continuous Learning Everyone, All the Time, Everywhere Micro-Learning Real-time Video Courses Everywhere Design Thinking Learning Experience LMS invisible Data Driven, Mobile Learning Experience Learning On Demand Embedded Learning Video, Self-Authored Mobile, YouTube 70-20-10 Taxonomies LMS as Experience Platform Formats Philosophy Users Systems Source: Bersin by Deloitte, Deloitte Consulting LLP From e-learning to “learning in the flow of work” We are entering a whole new era of L&D technologies and architecture
  103. L&D Market Size: Content, Technology, Staff Tuition Reimbursement, $27.0 Managerial, $29.6 Compliance, $23.3 Process/Procedure, $21.1 Sales, $19.0Onboarding/orientatio n, $17.3 Professional (engr, acct, legal), $16.9 IT and desktop, $16.7 Soft skills, interpersonal, $16.5 Executive/leadership, $14.6 Customer Service, $12.7 Product Education, $12.7 Basic skills, $6.1 Total Worldwide L&D Spending by Program ($ Billion) US: $141 Billion Global: $211 Billion Sources: ATD Market Study, Bersin Corporate Learning Factbooks, Toward Maturity Benchmark Surveys, Sierra-Cedar HR Systems Survey, Bersin Proprietary Research
  104. The L&D Marketplace Is Growing Rapidly -11% 2% 10% 12% 10% 8% 7% 2008-2009 2010-2011 2011-2012 2012-2013 2013-2014 2014-2015 2016-2017 L&D Global Spending YTY Growth Rate Sources: ATD Market Study, Bersin Corporate Learning Factbooks, Toward Maturity Benchmark Surveys, Sierra- Cedar HR Systems Survey
  105. Breakdown of Corporate Learning Spend Training Tools and Technology Market LMS Platforms $6 Billion Development Tools $1.5 Billion Other equipment, facilities, technologies $11.5 Billion Spend Category Pct of budget WW Spend Billion Internal Payroll and Facilities 41% 86.71$ External learning providers (content and programs) 26% 54.99$ Tools and technology 9% 19.03$ Tuition Reimbursement 13% 27.49$ Administration 11% 23.26$ 100% 211.48$ Sources: ATD Market Study, Bersin Corporate Learning Factbooks, Toward Maturity Benchmark Surveys, Sierra-Cedar HR Systems Survey, Bersin Proprietary Research
  106. L&D Market: Content and Programs Managerial, $7.88 , 14.3% Compliance, $6.19 , 11.3% Process/Procedure, $5.63 , 10.2% Sales, $5.07 , 9.2% Onboarding/orientation, $4.61 , 8.4% Professional (engr, acct, legal), $4.50 , 8.2% IT and desktop, $4.45 , 8.1% Soft skills, interpersonal, $4.39 , 8.0% Executive/leadership, $3.88 , 7.1% Customer Service, $3.38 , 6.1% Product Education, $3.38 , 6.1% Basic skills, $1.63 , 3.0% Total Worldwide Content And Program Spending by Program ($ Billion) US: $36.7 Billion Global: $54.9 Billion Leadership + Mgt: $11.8B Sales + Cust Svc: $8.5B General Softskills: $4.4B IT/Tech/Prof: $8.95B Sources: ATD Market Study, Bersin Corporate Learning Factbooks, Toward Maturity Benchmark Surveys, Sierra-Cedar HR Systems Survey, Bersin Proprietary Research
  107. Source: Meet the Modern Learner: Engaging the Overwhelmed, Distracted, and Impatient Employee, Bersin by Deloitte, Deloitte Consulting LLP The Reality of Learning Today: 24 Minutes A Week 24 minutes a week
  108. And… We are living longer.. stretching the talent cycle “Since 1840 there has been an increase in life expectancy of three months for every year.” Source: Gratton, Lynda; Scott, Andrew. The 100-Year Life Today’s Millennials have a 50% chance of living to 100+ Increase in Life Expectancy Over Time Source: Will Generational Bias Be the Hot Button of 2018?
  109. Buidling a completely new career model in companies Redesigned: 58% of companies are redesigning or planning to redesign their career model Deloitte HC Trends 2017 Open Models: While 33% of companies promote vertical career moves, 67% now promote horizontal or project based career progression, and 83% expect to have “open career models” in next 3-5 years. Deloitte HC Trends 2017 More Dynamic: 31% of companies expect careers to be 3-5 years long, and 60% expect them to be 10 years or less Deloitte HC Trends 2017 Learning and career management software is the #1 fastest growing segment in HR technology (Sierra-Cedar 2016– 2017 Survey HR White Paper) Yet….54% of companies have no firm plans to build new career systems for their employees yet. Deloitte HC Trends 2018
  110. Many learning tools are needed Source: Toward Maturity, 2017 and Learning Technology Survey, Don Taylor, 2017 Source: Sierra-Cedar HR Systems Study, 2017 Change Has Come: 38% of LMS users want to “improve the user experience” 28% of companies are buying a new core learning platform 14% are planning on replacing their LMS
  111. New Learning Tech Segments Are Here Learning Experience Platforms Degreed, EdCast, PathGather Jam, Fuse, Percipio, Cornerstone, Valamis, Tribridge, … Program Experience (Delivery) Platforms Intrepid (Vitalsource), NovoEd EdX, Everwise, OpenEdX, Blackboard, Instructure, ... Micro Learning Platforms Axonify, Grovo, Qstream, Practice, Rehearsal, Jubi, Wisetail, Mindtickle, etc. LMS and Content Platforms Traditional: Cornerstone, Saba, SuccessFactors, SumTotal Modernized: Workday, Oracle, SAP, Bridge, D2L, Litmos, Intellum, Docebo, others Assessment, VR, Development Tools Video Authoring, Intelligent assessment, spaced learning, gaming, virtual reality, collaboration, simulations, … Content Libraries Udacity, Coursera, EdX, Udemy, Pluralsight, SkillSoft, CrossKnowledge, hundreds of others Learning Record Store GrassBlade, Learning Locker, Saltbox, Yet, Watershed Source: Bersin by Deloitte, Deloitte Consulting LLP 1 2 3 4 5 6 7
  112. Companies Are Not Yet Ready And Need Vendor Support 2018 Bersin Learning Organization Maturity Model Source: 2017 Bersin by Deloitte High-Impact Learning Organization, n=1,200, >1,000 employees; Bersin by Deloitte, Deloitte Consulting LLP Episodic / Programmatic Level 1 Responsive / Contextualized Level 2 Continuous / Empowering Level 3 Anticipatory / Flow Level 4 6% 20% 39% 35%
  113. believe their employees are fully aligned with the corporate purpose 23% believe internal processes for collaboration are working well 14% are excellent at building a differentiated employee experience 22% are using design thinking as part of crafting the employee experience 10% Say problem is urgent 38% Culture, engagement, and beyond Focus on the employee experience Source: Deloitte and Facebook, “Transitioning to the future of work and the workplace,” November 2016
  114. Self Service Intelligent ServicesCase Mgt. AI/Voice App Interfaces Engagement Feedback Recognition Learning Career Coaching Performance Goals Succession HRMS Payroll/Time Communications Analytics/AI ONA Workforce Mgt Wellbeing Rewards Benefits Sourcing Recruitment Assessment White collar Hourly Senior leaders Line managers Candidates Contractors External network Alumni Senior Geographic Business Partners Talent Specialists (OD, sourcing, recruiting, learning, organized in networks of excellence) Wellbeing, safety, culture, engagement, recognition Analytics, Monitoring, Predictive, WF Planning HR Tech, App development Research, Market Best Practices, Comp, Ben, Rewards HR Prof DevelopmentHR Ops, AI and Bots, Intelligence Junior Geo Bus Partners Teams@Work (productivity, services, team management, wellness, feedback, recognition, learning) People@Work (productivity, services, team management, wellness, feedback, recognition, learning) Candidates@Life Candidates (products, jobs, projects, opportunities) Leaders@Work Alumni@life Learning and HR Technology Architecture Of The Future
  115. Dan Bock Senior Vice President of Sales North America Talent Management Opportunity
  116. 117 Talent is the Competitive Advantage That Will Define the Winners & Losers of the 21st Century Success in business is all about people, people, people. Whatever industry a company is in, its employees are its biggest competitive advantage. -Richard Branson “ ”
  117. 118 How we manage talent & develop skills in the next 5 years will be completely different from the last 20
  119. Cornerstone Learning • Foster collaborative learning with fresh content • Enable online & mobile training • Manage competencies & certifications • Build communities & activity streams • Easily administer learning Modern learning to inspire continuous development 120
  120. Cornerstone Performance • Facilitate continuous feedback & coaching • Develop aligned goals • Foster career mobility • Manage compensation with ease & precision • Identify top performers & future leaders Continuous performance management to drive engagement and results 121
  121. Cornerstone Recruiting • Branded candidate experience • Social sourcing • Recruiting analytics • Robust talent pipelines • Improved process efficiency • New hire onboarding tracking Next-generation recruiting to attract, select and onboard top talent globally 122
  122. 123 Canon Visualizes their Talent with Cornerstone 25% Increase in internal hires 84% Performance review completion across 22 countries Launched self-directed learning initiative across the globe
  123. 124 ResCare Transforms People’s Lives with Cornerstone 32% Reduced application completion time 48% Reduced time-to-hire 5% Increased application flow
  124. Cornerstone 7.6% SAP 7.1% Oracle 4.5% IBM 3.5% Workday 3.3% ADP 3.2% Saba Halogen 3.2% iCIMS 2.4% SumTotal; People Fluent 2.2% Ultimate 0.9% Other 59.9% Talent Management Market Remains Highly Fragmented 125 Talent Management Market Share (2017) Source: IDC Corporation, company estimates
  125. 7.1% 4.5% 3.2% 2.2% 3.2% 2013 2014 2015 2016 2017 Cornerstone Continues to Gain Market Share 126Source: Industry analysts, market research, Cornerstone estimates. Talent management includes learning, recruiting, performance management software Talent Management Market Share 2013-2017 5.5% 7.6%
  126. Cornerstone Recruiting
  127. 0 500 1,000 1,500 2,000 2,500 3,000 3,500 Learning Performance Recruiting Cornerstone HR Existing Client Penetration Client Opportunity NumberofClients Calculated based on 3,250 clients with approximately 10,850 users on average Clear Opportunity in Recruiting 128 50% penetration in Recruiting is a $100M+ incremental ARR opportunity
  128. • Candidate Communication • Employer Branding • External Sourcing • SEO & Google Analytics • Campus Recruiting / Interview Events • Candidate Search • Assessments • Talent Scoring • Talent Pools • Selection • Interview Management • Background Checks • Agency Portal • Partner Integrations • Reporting • New Hire Portals • Onboarding Tracking • Forms Management • Automatic Workflows • Dashboards • Requisition Management • Applicant Tracking • Batch Actions/High Volume OnboardHire Measure *Available with purchase of Selection Cornerstone’s Recruiting Suite Supports the Entire Talent Acquisition Process 129 Select Mobile and Localized Attract
  129. 50% 130 Increased Investment in Recruiting More Engineering Resources in 2018
  130. 131 Two Critical Areas of Focus Recruiter Experience Candidate Experience
  131. 132 Cornerstone Recruiting Becomes Best-in-Class in May
  132. 133 Cornerstone Recruiting Becomes Best-in-Class in May
  133. 134 VIDEO
  134. Vincent Belliveau Executive Vice President & General Manager, EMEA HCM Opportunity & EMEA
  135. EMEA Continues to Expand its Footprint 136 10M+ Users 650+ Clients 21 Countries 30 Languages NOTE: USER AND CLIENT COUNT FIGURES EXCLUDE GROWTH EDITION AND CORNERSTONE FOR SALESFORCE. AS OF DECEMBER 31, 2017
  136. 2016 Was a Lost Year
  137. 138 2 4 4 13 5 14 13 16 0 5 10 15 20 25 30 35 Qtr1 Qtr2 Qtr3 Qtr4 Existing New • 32% of all new logos included Cornerstone HR in scope • 38% of all new ARR $s included Cornerstone HR • 18% of new ARR $s in existing accounts included Cornerstone HR HCM-driven business (EMEA stats) …Followed by a Solid Comeback in 2017 Led by Accelerating Traction with Cornerstone HR in 2017 with Both New and Existing Clients
  138. Our HCM Value Proposition and Opportunity
  139. Digital transformation of HR processes Driving employee experience Key Drivers in HCM HR 140
  140. Legacy Core HR Technology is Simply Outdated
  141. Do Nothing Rip & Replace Organizations Used to Have Two Choices or 142
  142. 14% 12% 15% 13% 5% 14% 19% 13% 13% 18% 22% 19% 19% 16% 16% 13% 13% 10% 9% 7% 64% 69% 66% 71% 79% 73% 68% 77% 78% 75% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% TCPU Public Admin Financial Services Retail Higher Ed Other Services Healthcare Manufacturing High-Tech AMC Replace Upgrade Do Nothing Addressing the Core HR Opportunity 143Source: Sierra Cedar 2015–2016 HR Systems Survey 18th Annual Edition Cornerstone HR is attempting to address the “do nothing” segment vs. upgrade (primarily PeopleSoft) & replace (primarily Workday)
  143. Cornerstone’s Approach is Different Low time and cost to value Focused on the experience Lower risk Accelerates transformation 144
  146. 147 Analytics Discover PredictReport Plan State-of-the-art Cornerstone View Cornerstone Insights Cornerstone Reporting Cornerstone Planning
  147. Import Integrate Edge Import Easily map and load data into Cornerstone Edge Integrate Easily purchase and manage integrations with 3rd-party apps Develop Edge Develop Build external applications and reports using Cornerstone APIs Making Integrations Easy Cornerstone Edge 148
  148. Cornerstone HR Transforms HR Administration • View & manage all employee records in one place • Empower employees to manage personal data • Build configurable organizational hierarchies • Control Personally Identifiable Information (PII) access • Create headcount forecasts Modern HR administration – without the rip-and-replace price tag 149
  149. Selected Cornerstone HR Clients
  150. Cornerstone is Gaining Traction in HCM Fosway 9-Grid for Cloud HCM Source: Fosway (October 2017) Advanced into the CORE CHALLENGER position in the October 2017 Fosway 9-Grid, progressing from last year’s position as a POTENTIAL CHALLENGER PERFORMANCE POTENTIAL Potential Leader Potential Challenger Potential Performer Strategic Challenger Core Challenger Solid Performer Strategic Leader Core Leader Poor Performer ‘Oct. 2017 ‘Oct. 2016 151
  151. Cornerstone HR’s Impact on Deals 152*EMEA deals from 2016-2017 Average deal values converted from local currency to USD Average Suites Purchased Average RPU 1.7 3.5 Without Cornerstone HR With Cornerstone HR ~$20 ~$60 Without Cornerstone HR With Cornerstone HR • In the past two years, EMEA has seen that clients purchasing Cornerstone HR buy ~2x more product suites on average • Inclusion of Cornerstone HR also significantly increased RPUs by ~3x on average
  152. CHR Provides More “Shots on Goal”
  153. • Huge opportunity • Focused on EMEA • Addressing decentralized HR landscape Initially Targeting International Markets 154
  154. 155 VIDEO
  155. Chirag Shah SVP & GM, Emerging Markets Growth Market Opportunity
  156. Our SMB Opportunity
  157. 158 A Sizeable Market… 400M SEATS 100M SEATS SMB MARKET* GLOBAL ADDRESSABLE MARKET *Represents organizations with between 20 and 500 employees globally
  158. 159 …that Could Be Our Largest Segment In Dollars SMB unit economics are 4-5x Enterprise, and 2-3x Mid-Market Enterprise Mid-Market SMB
  159. 160 Established A Unified, Focused Team in 2017 We moved to a divisional structure to create a more unified, focused approach to addressing the SMB market GM SMB OperationsSMB MarketingSMB SalesSMB Product & Development *HIGHLIGHTED boxes represent new roles/functions added in 2017
  160. 161 Took Time To Understand Our Market We engaged an external research firm to help us better understand the makeup of the SMB market Talent Laggards Minimalists 31% Savvy HR Pro 27% Talent Champions 26%16% Addressable MarketNo Interest LOW MEDIUM HIGH Savviness & Feature Requirements 750+ SMBs Interviewed
  161. 162 Shifted to a Multi-Product Strategy To enable us to effectively address the entirety of the SMB market, we shifted our go-to-market to a multi-product strategy Savvy HR Pro 27M Seats Talent Champions 26M Seats Simple Robust Minimalists 31M Seats
  162. 163 Implemented a Segment-Specific Marketing Approach We have better aligned what we market and the way in which we market it by taking a segment-specific approach
  163. 165 Simplified Conversations with Pricing Consistency Pricing consistency between both PiiQ and Cornerstone solutions simplifies conversation for prospects considering both products EXAMPLE Learning & Performance: 150 users Annual Software Price $13,500 $17,500 Upfront Services Price — — Total Annual Price $13,500 $17,500 Monthly User Price $7.50 $9.72
  164. 166 The Result: Dramatic Year-Over-Year Sales Growth 3% 234% 0% 50% 100% 150% 200% 250% 1H '17 2H '17 After implementing many of the changes described earlier, SMB demonstrated strong second half growth (with fewer reps than in ‘16) Key Changes Implemented
  165. 167 Year-Over-Year Rep Productivity Improvement In the second half of 2017, the average SMB rep was generating 4.3x as much in new sales as they were in the second half of 2016 1.8x 4.3x 0.0x 1.0x 2.0x 3.0x 4.0x 5.0x 1H '17 2H '17 Key Changes Implemented
  166. 168 Significant Increase in SMB Deal Volume In Q4 of 2017, the volume of SMB deals was significantly higher than any other quarter in Cornerstone’s history 0 20 40 60 80 100 120 140 160 180 200 Q1:14 Q2:14 Q3:14 Q4:14 Q1:15 Q2:15 Q3:15 Q4:15 Q1:16 Q2:16 Q3:16 Q4:16 Q1:17 Q2:17 Q3:17 Q4:17 Key Changes Implemented Historical SMB Deal Volume
  167. Our APJ Opportunity
  168. 170 A Strong Foundation Current APJ Footprint Clients 170+ Users 3M+ Employees 85 7 Countries 8 Offices
  169. 171 But Significant Untapped Potential Remains After ten weeks assessing the APJ region, many of my observations are analogous to what I initially saw with SMB 1 Need an increased level of local expertise Sales and marketing must be more country-specific Pricing strategy must better optimize conversion 2 3
  170. 172 It’s Time to Focus We are creating a focused, country-specific GTM approach across the region, with deeper levels of investment in fewer major markets Large-Investment, Anchor Markets Secondary Markets Australia & New Zealand Japan Hong Kong South KoreaSingapore (ASEAN)
  171. 173 APJ Expected To Be Key Growth Driver After making some of the changes discussed on previous slides, we expect APJ to be the catalyst to take Cornerstone’s international mix to 40%+ in the years to come 35% 40%+ 30% 33% 36% 39% 42% 2017A 2018E 2019E 2020E International Revenue Mix
  172. 174 Cornerstone 2.0 - Services Partner Panel Bill Forsyth Chief Sales & Solutions Officer 174 Colin Brennan Executive Vice President Cloud Deployment Tiffany Appleby Vice President Alliances, North America Jason Magill Senior Manager Human Capital
  173. Brian Swartz CFO Financial Review
  174. 1. A look back: historical financial performance 2. Transformation: top line 3. Transformation: bottom line 4. ASC 606 and 2018 outlook 5. 2020 Framework Topics to cover 176
  175. A Look Back
  176. 168 280 481 806 1,237 1,631 2,153 2,595 2,918 3,250 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2.1 3.3 4.9 7.5 10.6 14.1 18.1 23.8 29.9 35.3 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Clients Users (in millions) 178 A Decade of Strong Client & User Growth
  177. $154 $232 $316 $400 $453 $526 2012 2013 2014 2015 2016 2017 $118 $185 $264 $340 $423 $482 2012 2013 2014 2015 2016 2017 179 Continued Top Line Growth Billings (in millions) Revenue (in millions) 57% 42% 29% 25% 14%Revenue Growth YOY:
  178. 180 Best Q3 in CSOD History Q3 Total New Sales Year-over-Year 2010 2011 2012 2013 2014 2015 2016 2017 New Sales Linear (New Sales) Note: charts are illustrative and not drawn to scale.
  179. 181 Second Best Q4 in CSOD History Q4 Total New Sales Year-over-Year 2010 2011 2012 2013 2014 2015 2016 2017 New Sales Linear (New Sales) Note: charts are illustrative and not drawn to scale.
  180. 182 In the Past, We Focused Only on Total Sales Total New Sales by Year Note: charts are illustrative and not drawn to scale. 2012 2013 2014 2015 2016 2017 New ARR One-Time FX
  181. 183 …But Our Sales Mix Shifted Negatively New Sales Composition 2011 2013 2015 2017 Recurring ServicesNew ARR One-Time 15pts lower than in 2011 Note: charts are illustrative and not drawn to scale.
  182. How Selling Services Impacted Our ARR 184 2014 Ending ARR Less: Churn Plus: New ARR 2015 2016 2017 2018E $439 $475-495* (8-13%) 2015 Ending ARR 2016 Ending ARR 2017 Ending ARR Less: Churn Less: Churn Less: Churn Plus: New ARR Plus: New ARR Plus: New ARR (in millions) ARR New Sales Excluded: One-Time Excluded: One-Time Excluded: One-Time *2018E ARR reflects the guidance range provided on earnings call on 2/13/18. Note: charts are illustrative and not draw to scale.
  183. RECURRING RECURRING RECURRING ARR’s Impact on Total Revenue 185 2015 2016 2017 SERVICES $340 +29% SERVICES $423 +25% SERVICES $482 +14% (in millions) Total Revenue Private & Confidential As ARR growth slowed, so did our recurring and total revenue growth…..
  184. RECURRING RECURRING RECURRING SERVICES SERVICES ARR’s Impact on Total Revenue 186 2015 2016 2017 SERVICES $430 +29% $514 +20% Source: Cornerstone estimates Maintaining historical recurring rates would have resulted in higher growth of 400bps in 2016 and 600bps in 2017 (in millions) Total Revenue +$7M (29% vs. 25%) +$32M (20% vs. 14%) Private & Confidential
  185. Transformation: Top Line
  186. How the Services Transformation Affects Billings 2015 2016 2017 2018 Recurring Billings Services Billings 188
  187. Starting ARR Currency ARR Churn New ARR from Existing Customers New ARR from New Customers Ending ARR How ARR Moves Note: Bar sizes are representative only and should not be used to estimate actual values. 189 Illustrative Year-over-Year Bridge
  188. 190 How ARR Impacts Recurring Revenue $1M Deal ARR = $1M Rev = $1M ARR = $1M Rev = $0.5M ARR = $1M Rev = $5K Jan 1 July 1 Dec 30 EXAMPLE Date Signed Date Signed Date Signed
  189. Prior Year Exit ARR Revenue Lost From Churn Revenue from New ARR Currency Fair Value Adjustment 606 Adjustment Recurring Revenue Illustrative Bridge from 2017 ARR to 2018 Recurring Revenue Note: Bar sizes are representative only and should not be used to estimate actual values. 191
  190. Transformation: Bottom Line
  191. -13% -5% -4% -4% 2% 6% 10% - 12% 2012 2013 2014 2015 2016 2017 2018E 193 Improving Operating Leverage Non-GAAP Operating Margin $52M - $62M Note: 2018 represents operating income and margin under ASC 606. Under ASC 605, operating income is $55-65M and margin is 11-13%.
  192. Sales & Marketing Spend – Trailing Our Peers 2017 S&M Spend as % of Revenue 194
  193. Sales & Marketing Spend Now 2018 S&M Spend as % of Revenue 195
  194. A Clear Path to Operating Margin Expansion Cost-cuts already made will drive operating margin expansion 2017 Adjustments 2018E Revenue $482M $497 - $507M 2017 Expenses $455M - Expense cuts announced 12/2017 -$25M + Incremental Expenses $15M = 2018 Expenses $445M Operating Profit $27M $52 - $62M Operating Margin 6% 10 -12% Note: 2018 represents operating income and margin under ASC 606. Under ASC 605, operating income is $55-65M and margin is 11-13%. 196
  195. 3% 2% 6% 5% 4% 9% 10% - 12% 2012 2013 2014 2015 2016 2017 2018E 197 Improving Operating Leverage $50M - $60M Unlevered Free Cash Flow
  196. 198 Normalized uFCF 2018 uFCF Guidance Midpoint New Datacenters Restructuring Services Exit Working Capital Impact "Normalized" 2018 uFCF ~15% Margin 10-12% Margin ~ 1% ~ 0.5% ~ 3% Operating Cash Flow - Capitalized Software - Capex + Cash Interest = UNLEVERED FREE CASH FLOW
  197. 606 and 2018 Outlook
  198. 200 1. Billings 2. Revenue 3. Operating Profit 4. Free Cash Flow How Best to Measure Our Progress During Our Transition… Our historical key financial measures have been: Going forward we believe the key metrics will be: 1. ARR 2. Subscription Revenue 3. Operating Profit 4. Unlevered Free Cash Flow
  199. 201 2017 – 2018 Revenue Transition Expected revenue impact of sun-setting services $397 $453 - $463 $85 $43 $0 $100 $200 $300 $400 $500 $600 2017 2018E Subscription Revenue Services Total Revenue Note: 2018 assumes ASC 606. (in millions)
  200. 202 Understanding ASC 606 • Modified Retrospective Adoption • 2018 financial statements and guidance reported under 606 to reflect adoption of new accounting standard • Financial statements footnotes will include 2018 results reported under 605 • New disclosure in first quarter 10-Q will provide total backlog • One-Time Financial Impacts from Adopting ASC 606 (On Jan. 1, 2018) • Reduction of $7M in deferred revenue with an increase to shareholder equity • Increase of $16M in deferred commissions with an increase to shareholder equity *Update from previous guidance of $29M in deferred commissions • 2018 Financial Impacts • ~$3M total revenue headwind • Slight increase to commission expense • ~$3M operating profit headwind • No impact to cash flow • Expect Commission accounting to improve margins by 2pts over the next several years
  201. 2017 Actual (605) 2018 Guidance (605) 2018 Guidance (606) Annual Recurring Revenue* $439M $475 - $495M (8-13% growth) $475 - $495M (8-13% growth) Total Revenue $482M $500 - $510M (4-6% growth) $497 - $507M (3-5% growth) Subscription Revenue $397M $458 - $468M (15-18% growth) $453 - $463 (14-17% growth) Professional Consulting Services Revenue $85M Down ~50% Down ~50% Operating Profit* $27M (6% margin) $55 - $65M (11-13% margin) $52 - $62M (10-12% margin) Unlevered Free Cash Flow* $44M (9% margin) $50 - $60M (10-12% margin) $50 - $60M (10-12% margin) 2018 Guidance (605 and 606) *Denotes a non-GAAP metric. ** Net Interest Expense is Gross Interest Expense less Interest Income Note: Reflects guidance issued as of February 13th, 2018. Please refer to the earnings press release for Q1 2018 guidance. 203 OTHER: 1. Total S&M dollars down YOY 2. Net Interest Expense**: 1. GAAP $25M 2. Non-GAAP $16M 3. Cash Interest Paid $14M 4. Shares outstanding to increase from 58M to 63M when EPS is positive. 5. Operating margin and uFCF margin percentages could vary depending on the pace of services roll-off 6. Income tax expense slightly above $2M 7. Capex 3-4% of revenue
  202. Q1 2017 Actual (605) Q1 2018 Guidance (605) Q1 2018 Guidance (606) Total Revenue $112M $126 - $128M (13-15%) $126 - $128M (13-15%) Subscription Revenue $93M $112 - $114M (21-23%) $111 - $113M (19-22%) Professional Consulting Services Revenue $19M Down ~20% Down ~20% Operating Margin* 4.4% Slight Improvement YOY Slight Improvement YOY Unlevered Free Cash Flow Margin* ($14M) Slight Improvement YOY Slight Improvement YOY Q1 2018 Guidance (605 and 606) 204 OTHER: 1. Gross margin expected to be down YOY in Q1, but to significantly improve on a sequential basis in Q2-Q4 2018 2. Net Interest Expense**: 1. GAAP $8M 2. Non-GAAP $5M 3. Cash Interest Paid $3M *Denotes a non-GAAP metric. ** Net Interest Expense is Gross Interest Expense less Interest Income Note: Reflects guidance issued as of February 13th, 2018. Please refer to the earnings press release for Q1 2018 guidance.
  203. 2020 Framework
  204. 206 FY17 Actual FY18 Guidance Low Growth Moderate Growth High Growth SUBSCRIPTION REVENUE GROWTH 16.8% 14-17% < 10% 10 - 20% 20 - 30% NON-GAAP OPERATING MARGIN 5.6% 10-12% 30%+ 18 - 28% 12 - 22% UNLEVERED FREE CASH FLOW MARGIN 9.1% 10-12% 30%+ 20 - 30% 15 - 25% 2020 Growth/Profitability Framework 2020 Framework Note: 2018 assume ASC 606.
  205. 207Note: 2020 uFCF target assumes we have no cash taxes and assumes the convertible note is converted into equity. 2020 “Moderate Growth” Target in uFCF ~$150M per share ~$2.00 2020 Growth/Profitability Framework
  206. Adam Miller Founder & CEO Summary
  207. 1. Exited the enterprise delivery business 2. Reduced Sales & Marketing spend 3. Accelerated margin improvement initiatives 209 Got fit
  208. 210 Growing 1. Attaching Content to Learning deals 2. Layering on recurring services 3. Penetrating the installed base
  209. 211 and Growing
  210. 212 Dominate the Learning Market Definitive market leader in Learning Management Only holistic “learning platform” in the market Embedded content & machine learning (Learning Management + Learning Experience)
  211. 213 Re-establish Our Leadership in Talent Management Deepest functionality in the market Extreme focus on the experience Holistically integrated across the talent suite
  212. 214 Emerge as a Global Human Capital Management Player Only real alternative to “rip & replace” Employee-driven experience Transformation without the cost
  213. Human Capital Management 215
  214. Questions?
  215. Thank You