##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2009
 OR
 o
    
    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: 000-50463
 Callidus Software Inc.
 (Exact name of registrant as specified in its charter)
 Delaware(State or Other Jurisdiction of 
Incorporation or Organization)
    
    77-0438629(I.R.S. Employer
Identification Number)
 Callidus Software Inc.
160 West Santa Clara Street, Suite 1500
San Jose, CA 95113  (Address of principal executive offices, including zip code)  (408) 808-6400  (Registrants Telephone Number, including area code)
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ




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##### 



TABLE OF CONTENTS
 PART I. FINANCIAL INFORMATIONItem 1. Financial Statements
    
    
    3Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    26Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    38Item 4. Controls and Procedures
    
    
    40PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    40Item 1A. Risk Factors
    
    
    40Item 4. Submission of Matters to a Vote of Security Holders
    
    
    41Item 6. Exhibits
    
    
    42Signatures
    
    
    43Exhibit Index
    
    
    44EX-10.1EX-10.2EX-10.3EX-10.4EX-10.5EX-10.6EX-10.7EX-31.1EX-32.1
  ® ® ® ® ® ® ®
 2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1 Financial Statements
 CALLIDUS SOFTWARE INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amount)
 June 30,
    
    
    December 31,2009
    
    
    2008(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    24,501
    
    
    $
    35,390Short-term investments
    
    
    14,713
    
    
    
    1,455Accounts receivable, net
    
    
    15,225
    
    
    
    22,710Deferred income taxes
    
    
    360
    
    
    
    360Prepaid and other current assets
    
    
    3,079
    
    
    
    4,104Total current assets
    
    
    57,878
    
    
    
    64,019Long-term investments
    
    
    877
    
    
    
    3,828Property and equipment, net
    
    
    5,443
    
    
    
    4,890Goodwill
    
    
    5,528
    
    
    
    5,655Intangible assets, net
    
    
    3,747
    
    
    
    3,208Deferred income taxes, noncurrent
    
    
    811
    
    
    
    811Deposits and other assets
    
    
    871
    
    
    
    1,468Total assets
    
    $
    75,155
    
    
    $
    83,879LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    2,672
    
    
    $
    2,447Accrued payroll and related expenses
    
    
    4,888
    
    
    
    7,128Accrued expenses
    
    
    4,191
    
    
    
    5,027Deferred income taxes
    
    
    816
    
    
    
    816Deferred revenue
    
    
    20,159
    
    
    
    21,881Total current liabilities
    
    
    32,726
    
    
    
    37,299Long-term deferred revenue
    
    
    505
    
    
    
    1,202Deferred income taxes, noncurrent
    
    
    72
    
    
    
    Other liabilities
    
    
    1,621
    
    
    
    1,412Total liabilities
    
    
    34,924
    
    
    
    39,913Stockholders equity:Common stock, $0.001 par value; 100,000
shares authorized;29,970 and 29,240 shares issued and
outstanding atJune 30, 2009 and December 31, 2008,
respectively
    
    
    30
    
    
    
    29Additional paid-in capital
    
    
    209,629
    
    
    
    207,493Accumulated other comprehensive income
    
    
    240
    
    
    
    121Accumulated deficit
    
    
    (169,668
    )
    
    
    (163,677
    )Total stockholders equity
    
    
    40,231
    
    
    
    43,966Total liabilities and stockholders equity
    
    $
    75,155
    
    
    $
    83,879
  3




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##### Table of Contents



CALLIDUS SOFTWARE INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(Unaudited)Revenues:Recurring
    
    $
    11,802
    
    
    $
    10,051
    
    
    $
    23,499
    
    
    $
    18,335Services
    
    
    9,407
    
    
    
    11,539
    
    
    
    20,609
    
    
    
    27,394License
    
    
    1,161
    
    
    
    1,872
    
    
    
    4,162
    
    
    
    5,856Total revenues
    
    
    22,370
    
    
    
    23,462
    
    
    
    48,270
    
    
    
    51,585Cost of revenues:Recurring
    
    
    5,416
    
    
    
    3,670
    
    
    
    11,201
    
    
    
    6,949Services
    
    
    7,671
    
    
    
    10,956
    
    
    
    16,980
    
    
    
    23,644License
    
    
    251
    
    
    
    108
    
    
    
    442
    
    
    
    350Total cost of revenues
    
    
    13,338
    
    
    
    14,734
    
    
    
    28,623
    
    
    
    30,943Gross profit
    
    
    9,032
    
    
    
    8,728
    
    
    
    19,647
    
    
    
    20,642Operating expenses:Sales and marketing
    
    
    5,444
    
    
    
    7,213
    
    
    
    11,306
    
    
    
    14,589Research and development
    
    
    3,673
    
    
    
    3,465
    
    
    
    7,474
    
    
    
    7,150General and administrative
    
    
    2,683
    
    
    
    3,339
    
    
    
    6,250
    
    
    
    6,733Restructuring
    
    
    639
    
    
    
    
    
    
    
    805
    
    
    
    397Total operating expenses
    
    
    12,439
    
    
    
    14,017
    
    
    
    25,835
    
    
    
    28,869Operating loss
    
    
    (3,407
    )
    
    
    (5,289
    )
    
    
    (6,188
    )
    
    
    (8,227
    )Interest and other income (expense), net
    
    
    161
    
    
    
    280
    
    
    
    190
    
    
    
    811Loss before provision (benefit) for income taxes
    
    
    (3,246
    )
    
    
    (5,009
    )
    
    
    (5,998
    )
    
    
    (7,416
    )Provision (benefit) for income taxes
    
    
    88
    
    
    
    122
    
    
    
    146
    
    
    
    343Net loss
    
    $
    (3,334
    )
    
    $
    (5,131
    )
    
    $
    (6,144
    )
    
    $
    (7,759
    )Net loss
per share - basic and dilutedNet loss per share
    
    $
    (0.11
    )
    
    $
    (0.17
    )
    
    $
    (0.21
    )
    
    $
    (0.26
    )Shares used in basic and diluted per share
computation
    
    
    29,942
    
    
    
    29,989
    
    
    
    29,747
    
    
    
    29,873
  4




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CALLIDUS SOFTWARE INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
 Six Months Ended June 30,2009
    
    
    2008(Unaudited)Cash flows from operating activities:Net loss
    
    $
    (6,144
    )
    
    $
    (7,759
    )Adjustments to reconcile net loss to net cash provided by (used
in) operating activities:Depreciation expense
    
    
    1,433
    
    
    
    1,141Amortization of intangible assets
    
    
    848
    
    
    
    1,367Provision for doubtful accounts and service remediation reserves
    
    
    (46
    )
    
    
    (55
    )Stock-based compensation
    
    
    2,212
    
    
    
    3,896Loss on disposal of property
    
    
    3
    
    
    
    2Deferred income taxes
    
    
    72
    
    
    
    Net accretion on investments
    
    
    15
    
    
    
    (140
    )Put option (gain) loss
    
    
    306
    
    
    
    (Gain) loss on investments classified as trading securities
    
    
    (373
    )
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    7,704
    
    
    
    11,318Prepaid and other current assets
    
    
    935
    
    
    
    (984
    )Other assets
    
    
    189
    
    
    
    559Accounts payable
    
    
    234
    
    
    
    (1,518
    )Accrued expenses
    
    
    (2,270
    )
    
    
    (2,521
    )Accrued payroll and related expenses
    
    
    (1,814
    )
    
    
    (1,347
    )Accrued restructuring
    
    
    (488
    )
    
    
    (972
    )Deferred revenue
    
    
    (2,442
    )
    
    
    4,366Net cash provided by (used in) operating activities
    
    
    374
    
    
    
    7,353Cash flows from investing activities:Purchases of investments
    
    
    (13,260
    )
    
    
    (13,919
    )Proceeds from maturities and sale of investments
    
    
    3,450
    
    
    
    23,600Purchases of property and equipment
    
    
    (1,147
    )
    
    
    (1,258
    )Purchases of intangible assets
    
    
    (506
    )
    
    
    (100
    )Acquisition, net of cash acquired
    
    
    (14
    )
    
    
    (7,500
    )Change in restricted cash
    
    
    202
    
    
    
    Net cash provided by (used in) investing activities
    
    
    (11,275
    )
    
    
    823Cash flows from financing activities:Net proceeds from issuance of common stock
    
    
    990
    
    
    
    3,497Repurchases of stock
    
    
    (742
    )
    
    
    (3,721
    )Repurchase of common stock from employees for payment of taxes on
vesting of restricted stock units
    
    
    (319
    )
    
    
    Net cash (used in) provided by financing activities
    
    
    (71
    )
    
    
    (224
    )Effect of exchange rates on cash and cash equivalents
    
    
    83
    
    
    
    (29
    )Net increase (decrease) in cash and cash equivalents
    
    
    (10,889
    )
    
    
    7,923Cash and cash equivalents at beginning of period
    
    
    35,390
    
    
    
    21,813Cash and cash equivalents at end of period
    
    $
    24,501
    
    
    $
    29,736Supplemental disclosures of cash flow information:Cash paid for income taxes
    
    $
    
    
    
    $
    1Non-cash investing and financing activities:Purchases of property and equipment not paid as of quarter-end
    
    $
    1,445
    
    
    $
    1,082Purchases of intangible assets not paid as of quarter-end
    
    $
    981
    
    
    $
    Deferred direct stock-based compensation costs
    
    $
    (3
    )
    
    $
    
  5




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CALLIDUS SOFTWARE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 1. Summary of Significant Accounting Policies
 Basis of Presentation
   Corrections of Immaterial Errors
  Reclassifications
  Principles of Consolidation
  Certain Risks and Uncertainties
   6




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Use of Estimates
  Fair Value of Financial Instruments and Concentrations of Credit Risk
   Reserve Accounts
   7




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##### Table of Contents



Balance at
    
    
    Provision,
    
    
    
    
    
    
    Balance atBeginning
    
    
    Net of
    
    
    
    
    
    
    End ofof Period
    
    
    Recoveries
    
    
    Write-Offs
    
    
    PeriodAllowance for doubtful accountsThree months ended June 30, 2009
    
    $
    581
    
    
    $
    16
    
    
    $
    (58
    )
    
    $
    539Three months ended June 30, 2008
    
    
    128
    
    
    
    (15
    )
    
    
    
    
    
    
    113Six months ended June 30, 2009
    
    
    550
    
    
    
    73
    
    
    
    (84
    )
    
    
    539Six months ended June 30, 2008
    
    
    154
    
    
    
    (41
    )
    
    
    
    
    
    
    113
 Balance at
    
    
    
    
    
    Remediation
    
    Balance atBeginning
    
    
    
    
    
    Service
    
    End ofof Period
    
    Provision
    
    Claims
    
    PeriodService remediation reserveThree months ended June 30, 2009
    
    $
    382
    
    
    $
    162
    
    
    $
    (264
    )
    
    $
    280Three months ended June 30, 2008
    
    
    288
    
    
    
    178
    
    
    
    (255
    )
    
    
    211Six months ended June 30, 2009
    
    
    399
    
    
    
    652
    
    
    
    (771
    )
    
    
    280Six months ended June 30, 2008
    
    
    225
    
    
    
    499
    
    
    
    (513
    )
    
    
    211
 Restricted Cash
  Revenue Recognition
   Evidence of an Arrangement.
 Delivery.
 8




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Fixed or Determinable Fee.
 Collection is Deemed Probable.
 Recurring Revenue
  On-Demand Revenue. Application of AICPA Statement of Position 97-2 to Arrangements That Include the Right to Use
Software Stored on Another Entitys Hardware Applicability of AICPA
Statement of Position 97-2 to Non-Software Deliverables in an Arrangement Containing
More-Than-Incidental Software, Revenue Recognition Revenue Arrangements with Multiple Deliverables.
  9




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Maintenance Revenue.
 Services Revenue
 Professional Service Revenue.
  Perpetual License Revenue
 Perpetual Licensing.
 10




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##### Table of Contents



Residual Method. Software Revenue Recognition, Software Revenue Recognition with
Respect to Certain Transactions.
  Contract Accounting Method. Accounting for Performance of Construction-Type and Certain
Production-Type Contracts
  Net Loss Per Share
  11




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Three Months Ended June 30,
    
    Six Months Ended June 30,2009
    
    2008
    
    2009
    
    2008Restricted stock
    
    
    1,066
    
    
    
    1,211
    
    
    
    1,096
    
    
    
    995Stock options
    
    
    6,646
    
    
    
    6,636
    
    
    
    6,660
    
    
    
    6,969ESPP
    
    
    302
    
    
    
    219
    
    
    
    265
    
    
    
    187Totals
    
    
    8,014
    
    
    
    8,066
    
    
    
    8,021
    
    
    
    8,151
  Recent Accounting Pronouncements
 Fair Value Measurements
 Business Combinations
 Accounting for
Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies
 12




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Noncontrolling Interests in
Consolidated Financial Statements
 Determination of the Useful Life
of Intangible Assets Goodwill and Other Intangible Assets
 Accounting for
Defensive Intangible Assets
 Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly .
 Interim Disclosures
about Fair Value of Financial Instruments
 13




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Recognition and
Presentation of Other-Than-Temporary Impairments
 Subsequent Events
 The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles
 2.  Restructuring
   14




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Total Costs
    
    
    Total CostsDecember 31,
    
    
    Cash
    
    
    
    
    
    
    
    
    
    
    June 30,
    
    
    Incurred to
    
    
    Expected to2008
    
    
    Payments
    
    
    Additions
    
    
    Adjustments
    
    
    2009
    
    
    Date
    
    
    be IncurredSeverance and termination related costs
    
    $
    810
    
    
    $
    (1,269
    )
    
    $
    826
    
    
    $
    (41
    )
    
    $
    326
    
    
    $
    3,904
    
    
    $
    3,904Total accrued restructuring charges
    
    $
    810
    
    
    $
    (1,269
    )
    
    $
    826
    
    
    $
    (41
    )
    
    $
    326
    
    
    $
    3,904
    
    
    $
    3,904
  3. Goodwill and Intangible Assets
   December 31,
    
    
    December 31,
    
    
    
    
    
    
    
    
    
    
    June 30,2008
    
    
    2008
    
    
    
    
    
    
    Amortization
    
    
    2009Cost
    
    
    Net
    
    
    Additions
    
    
    Expense
    
    
    NetPurchased technology
    
    $
    3,579
    
    
    $
    1,624
    
    
    $
    1,387
    
    
    $
    (535
    )
    
    $
    2,476Customer backlog
    
    
    1,500
    
    
    
    63
    
    
    
    
    
    
    
    (63
    )
    
    
    Customer relationships
    
    
    2,000
    
    
    
    1,521
    
    
    
    
    
    
    
    (250
    )
    
    
    1,271Total intangible assets, net
    
    $
    7,079
    
    
    $
    3,208
    
    
    $
    1,387
    
    
    $
    (848
    )
    
    $
    3,747
  15




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##### Table of Contents



Purchased
    
    
    CustomerTechnology
    
    
    RelationshipsYear Ending December 31:Remainder of 2009
    
    $
    807
    
    
    $
    2502010
    
    
    937
    
    
    
    5002011
    
    
    524
    
    
    
    5002012
    
    
    208
    
    
    
    212013
    
    
    
    
    
    
    2014 and beyond
    
    
    
    
    
    
    Total expected future amortization
    
    $
    2,476
    
    
    $
    1,271
 4. Investments
    Gain (Loss) onInvestmentsRecorded in theAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    Statement of
    
    
    EstimatedJune 30, 2009
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    Operations
    
    
    Fair ValueMoney market funds
    
    $
    17,759
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    17,759Certificates of deposit
    
    
    720
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    720Auction-rate securities classified as
available for sale
    
    
    900
    
    
    
    
    
    
    
    (23
    )
    
    
    
    
    
    
    877Corporate notes and obligations
    
    
    6,018
    
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    6,027U.S. government and agency obligations
    
    
    4,500
    
    
    
    12
    
    
    
    (1
    )
    
    
    
    
    
    
    4,511Investments in debt and
equity securities
    
    $
    29,897
    
    
    $
    21
    
    
    $
    (24
    )
    
    $
    
    
    
    $
    29,894
 16




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##### Table of Contents



June 30,
    
    
    December 31,2009
    
    
    2008Recorded as:Cash equivalents
    
    $
    17,759
    
    
    $
    27,202Short-term investments
    
    
    14,713
    
    
    
    1,455Long-term investments
    
    
    877
    
    
    
    3,828$
    33,349
    
    
    $
    32,485
   Fair Value Measurements at Reporting Date UsingQuoted Prices in
    
    
    Significant
    
    
    SignificantActive Markets for
    
    
    Other Observable
    
    
    UnobservableIdentical Assets
    
    
    Inputs
    
    
    InputsJune 30, 2009
    
    Total
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Money market funds (1)
    
    $
    17,759
    
    
    $
    17,759
    
    
    $
    
    
    
    $
    Certificates of deposit (3)
    
    
    720
    
    
    
    
    
    
    
    720
    
    
    
    Auction-rate securities (2), (3)
    
    
    4,332
    
    
    
    
    
    
    
    
    
    
    
    4,332Corporate notes and obligations (3)
    
    
    6,027
    
    
    
    
    
    
    
    6,027
    
    
    
    U.S. government and agency obligations (3)
    
    
    4,511
    
    
    
    
    
    
    
    4,511
    
    
    
    Asset associated with put option (4)
    
    
    186
    
    
    
    
    
    
    
    
    
    
    
    186Total
    
    $
    33,535
    
    
    $
    17,759
    
    
    $
    11,258
    
    
    $
    4,518
 
 (1)
    
    Included in cash and cash equivalents on the condensed consolidated balance sheet(2)
    
    $877K included in long-term investments on the condensed consolidated balance sheet(3)
    
    Except as indicated in (2), included in short-term investments on the condensed consolidated
balance sheet(4)
    
    Included in prepaid and other current assets on the condensed consolidated balance sheet 17




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Fair Value Measurements at Reporting Date UsingQuoted Prices in
    
    
    Significant
    
    
    SignificantActive Markets for
    
    
    Other Observable
    
    
    UnobservableIdentical Assets
    
    
    Inputs
    
    
    InputsDecember 31, 2008
    
    Total
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Money market funds (1)
    
    $
    27,202
    
    
    $
    27,202
    
    
    $
    
    
    
    $
    Auction-rate securities (2)
    
    
    3,828
    
    
    
    
    
    
    
    
    
    
    
    3,828Corporate notes and obligations (3)
    
    
    1,455
    
    
    
    
    
    
    
    1,455
    
    
    
    Asset associated with put option (4)
    
    
    492
    
    
    
    
    
    
    
    
    
    
    
    492Total
    
    $
    32,977
    
    
    $
    27,202
    
    
    $
    1,455
    
    
    $
    4,320
 
 (1)
    
    Included in cash and cash equivalents on the consolidated balance sheet(2)
    
    Included in long-term investments on the consolidated balance sheet(3)
    
    Included in short-term investments on the consolidated balance sheet(4)
    
    Included in deposits and other assets on the consolidated balance sheet  CumulativeEffectGain (Loss)
    
    
    
    
    
    
    AdjustmentBalance at
    
    
    Recorded in
    
    
    
    
    
    
    as a Result
    
    
    Balance atDecember 31,
    
    
    Statement of
    
    
    Unrealized
    
    
    of Adopting
    
    
    June 30,2008
    
    
    Operations
    
    
    Gain (Loss)
    
    
    FSP FAS 115-2
    
    
    2009Auction-rate securities
classified as trading
    
    $
    3,081
    
    
    $
    374
    
    
    $
    
    
    
    $
    
    
    
    $
    3,455Auction-rate securities
classified as available for
sale
    
    
    747
    
    
    
    
    
    
    
    (23
    )
    
    
    153
    
    
    
    877Asset associated with put option
    
    
    492
    
    
    
    (306
    )
    
    
    
    
    
    
    
    
    
    
    186Total
    
    $
    4,320
    
    
    $
    68
    
    
    $
    (23
    )
    
    $
    153
    
    
    $
    4,518
 Valuation of Investments and Put Option
 Level 2
  Level 3
  18




---



##### Table of Contents



Adoption of FSP FAS 115-2 and FAS 124-2
   
    
    Adverse conditions specifically related to the security, industry, or geographic area
(i.e., financial condition of the issuer, financial condition of the underlying assets,
changes to the underlying business, and changes in the quality of the underlying assets);
    
    the historical and implied volatility of the security;
    
    the payment structure of the debt security (i.e., the increased / decreased
probability of repayment);
    
    failure of the issuer to make payments or default on obligations;
    
    changes to the rating of the security; and
    
    declines in value of the underlying assets.
  19




---



##### Table of Contents



5. Commitments and Contingencies
  Accounting for Contingencies
 Other Contingencies
  Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others.
 20




---



##### Table of Contents



6. Segment, Geographic and Customer Information
 Disclosures about Segments of an Enterprise and Related Information
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Americas
    
    $
    19,744
    
    
    $
    19,938
    
    
    $
    40,865
    
    
    $
    42,690EMEA
    
    
    2,452
    
    
    
    3,343
    
    
    
    6,767
    
    
    
    8,186Asia Pacific
    
    
    174
    
    
    
    181
    
    
    
    638
    
    
    
    709$
    22,370
    
    
    $
    23,462
    
    
    $
    48,270
    
    
    $
    51,585
   7. Comprehensive Loss
  21




---



##### Table of Contents



Three Months Ended June 30,
    
    
    Six Months Ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Net loss
    
    $
    (3,334
    )
    
    $
    (5,131
    )
    
    $
    (6,144
    )
    
    $
    (7,759
    )Other comprehensive loss:Change in unrealized
gain (loss) on investments, net
    
    
    68
    
    
    
    (49
    )
    
    
    139
    
    
    
    (283
    )Change in cumulative
translation adjustments
    
    
    135
    
    
    
    (5
    )
    
    
    133
    
    
    
    (28
    )Comprehensive loss
    
    $
    (3,131
    )
    
    $
    (5,185
    )
    
    $
    (5,872
    )
    
    $
    (8,070
    )
 8. Stock-based Compensation
 Expense Summary
 Share-Based Payment
  22




---



##### Table of Contents



Three
    
    
    ThreeMonths
    
    
    MonthsEnded
    
    
    EndedJune 30,
    
    
    June 30,2009
    
    
    2008Stock-based compensation:Cost of recurring revenues
    
    $
    131
    
    
    $
    177Cost of services revenues
    
    
    243
    
    
    
    359Sales and marketing
    
    
    342
    
    
    
    597Research and development
    
    
    267
    
    
    
    331General and administrative
    
    
    252
    
    
    
    701Total stock-based compensation
    
    $
    1,235
    
    
    $
    2,165
 Six
    
    
    SixMonths
    
    
    MonthsEnded
    
    
    EndedJune 30,
    
    
    June 30,2009
    
    
    2008Stock-based compensation:Cost of recurring revenues
    
    $
    294
    
    
    $
    314Cost of services revenues
    
    
    256
    
    
    
    649Sales and marketing
    
    
    574
    
    
    
    1,086Research and development
    
    
    409
    
    
    
    621General and administrative
    
    
    679
    
    
    
    1,226Total stock-based compensation
    
    $
    2,212
    
    
    $
    3,896
 23




---



##### Table of Contents



Determination of Fair Value
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Stock Option PlansExpected life (in years)
    
    
    0.50 to 3.50
    
    
    
    2.50
    
    
    
    0.50 to 3.50
    
    
    
    2.50 to 3.50Risk-free interest rate
    
    0.30% to 1.50%
    
    
    2.48
    %
    
    0.30% to 1.50%
    
    2.48% to 2.58%Volatility
    
    67% to 106%
    
    
    42
    %
    
    63% to 106%
    
    42% to 44%Dividend Yield
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Employee Stock Purchase PlanExpected life (in years)
    
    
    0.49 to 1.00
    
    
    
    0.50 to 1.00
    
    
    
    0.49 to 1.00
    
    
    
    0.50 to 1.00Risk-free interest rate
    
    0.46% to 0.62%
    
    2.05% to 2.10%
    
    0.46% to 0.62%
    
    2.05% to 2.10%Volatility
    
    97% to 126%
    
    48% to 61%
    
    97% to 126%
    
    48% to 61%Dividend Yield
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 9. Stockholders Equity
 Repurchase Program
  10. Related-Party Transactions
    24




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##### Table of Contents



11. Subsequent Events
  Restructuring
  25




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 The following discussion of financial condition and results of operations should be read in
conjunction with Managements Discussion and Analysis of Financial Condition and Results of
Operations and the Consolidated Financial Statements and the notes thereto included in our Annual
Report on Form 10-K for 2008 and with the unaudited condensed consolidated financial statements and
the related notes thereto contained elsewhere in this Quarterly Report on Form 10-Q . This section
of the 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.
These statements relate to our future plans, objectives, expectations, prospects, intentions and
financial performance and the assumptions that underlie these statements. Generally, the words
believe, expect, intend, estimate, anticipate, project, will, and similar expressions
and the negatives thereof identify forward-looking statements, which generally are not historical
in nature. These forward-looking statements include, but are not limited to, statements concerning
the following: changes in and expectations with respect to our business strategy and products
revenues and gross margins, future operating expense levels, the impact of quarterly fluctuations
of revenue and operating results, levels of annual contract value bookings and recurring revenues,
staffing and expense levels, the impact of foreign exchange rate fluctuations and the adequacy of
our capital resources to fund operations and growth. As and when made, management believes that
these forward-looking statements are reasonable. However, caution should be taken not to place
undue reliance on any such forward-looking statements because such statements speak only as of the
date when made and may be based on assumptions that do not prove to be accurate. Our Company
undertakes no obligation to publicly update or revise any forward-looking statements, whether as a
result of new information, future events, or otherwise. In addition, forward-looking statements
are subject to certain risks and uncertainties that could cause actual results to differ materially
from our Companys historical experience and our present expectations or projections. Many of
these trends and uncertainties are described in Risk Factors set forth in our Annual Report on
Form 10-K for 2008 and elsewhere in this Quarterly Report on Form 10-Q . We undertake no obligation
to update forward-looking statements to reflect events or circumstances occurring after the date of
this Quarterly Report on Form 10-Q .
 Overview of the Results for the Three and Six Months Ended June 30, 2009
    26




---



##### Table of Contents



Annual Contract Value (ACV)
  Recurring Revenues
  27




---



##### Table of Contents



Services Revenues
  Cost Reduction
   Challenges and Risks
  28




---



##### Table of Contents



Application of Critical Accounting Policies and Use of Estimates
    29




---



##### Table of Contents



Recent Accounting Pronouncements
  Results of Operations
 Comparison of the Three and Six Months Ended June 30, 2009 and 2008
 Revenues, cost of revenues and gross profit
  Three
    
    
    
    
    
    
    ThreeMonths
    
    
    
    
    
    
    Months
    
    
    
    
    
    
    
    
    
    
    PercentageEnded
    
    
    Percentage
    
    
    Ended
    
    
    Percentage
    
    
    Year to Year
    
    
    ChangeJune 30,
    
    
    of Total
    
    
    June 30,
    
    
    of Total
    
    
    Increase
    
    
    Year over2009
    
    
    Revenues
    
    
    2008
    
    
    Revenues
    
    
    (Decrease)
    
    
    YearRevenues:Recurring
    
    $
    11,802
    
    
    
    53
    %
    
    $
    10,051
    
    
    
    43
    %
    
    $
    1,751
    
    
    
    17
    %Services
    
    
    9,407
    
    
    
    42
    %
    
    
    11,539
    
    
    
    49
    %
    
    
    (2,132
    )
    
    
    (18
    )%License
    
    
    1,161
    
    
    
    5
    %
    
    
    1,872
    
    
    
    8
    %
    
    
    (711
    )
    
    
    (38
    )%Total revenues
    
    $
    22,370
    
    
    
    100
    %
    
    $
    23,462
    
    
    
    100
    %
    
    $
    (1,092
    )
    
    
    (5
    )%
 Three
    
    
    
    
    
    
    ThreeMonths
    
    
    
    
    
    
    Months
    
    
    
    
    
    
    
    
    
    
    PercentageEnded
    
    
    Percentage
    
    
    Ended
    
    
    Percentage
    
    
    Year to Year
    
    
    ChangeJune 30,
    
    
    of Related
    
    
    June 30,
    
    
    of Related
    
    
    Increase
    
    
    Year over2009
    
    
    Revenues
    
    
    2008
    
    
    Revenues
    
    
    (Decrease)
    
    
    YearCost of revenues:Recurring
    
    $
    5,416
    
    
    
    46
    %
    
    $
    3,670
    
    
    
    37
    %
    
    $
    1,746
    
    
    
    48
    %Services
    
    
    7,671
    
    
    
    82
    %
    
    
    10,956
    
    
    
    95
    %
    
    
    (3,285
    )
    
    
    (30
    )%License
    
    
    251
    
    
    
    22
    %
    
    
    108
    
    
    
    6
    %
    
    
    143
    
    
    
    132
    %Total cost of revenues
    
    $
    13,338
    
    
    
    
    
    
    $
    14,734
    
    
    
    
    
    
    $
    (1,396
    )Gross profit:Recurring
    
    $
    6,386
    
    
    
    54
    %
    
    $
    6,381
    
    
    
    63
    %
    
    $
    5
    
    
    
    *
    %Services
    
    
    1,736
    
    
    
    18
    %
    
    
    583
    
    
    
    5
    %
    
    
    1,153
    
    
    
    198
    %License
    
    
    910
    
    
    
    78
    %
    
    
    1,764
    
    
    
    94
    %
    
    
    (854
    )
    
    
    (48
    )%Total gross profit
    
    $
    9,032
    
    
    
    40
    %
    
    $
    8,728
    
    
    
    37
    %
    
    $
    304
    
    
    
    3
    %
 30




---



##### Table of Contents



Six
    
    
    
    
    
    
    SixMonths
    
    
    
    
    
    
    Months
    
    
    
    
    
    
    
    
    
    
    PercentageEnded
    
    
    Percentage
    
    
    Ended
    
    
    Percentage
    
    
    Year to Year
    
    
    ChangeJune 30,
    
    
    of Total
    
    
    June 30,
    
    
    of Total
    
    
    Increase
    
    
    Year over2009
    
    
    Revenues
    
    
    2008
    
    
    Revenues
    
    
    (Decrease)
    
    
    YearRevenues:Recurring
    
    $
    23,499
    
    
    
    49
    %
    
    $
    18,335
    
    
    
    36
    %
    
    $
    5,164
    
    
    
    28
    %Services
    
    
    20,609
    
    
    
    43
    %
    
    
    27,394
    
    
    
    53
    %
    
    
    (6,785
    )
    
    
    (25
    )%License
    
    
    4,162
    
    
    
    9
    %
    
    
    5,856
    
    
    
    11
    %
    
    
    (1,694
    )
    
    
    (29
    )%Total revenues
    
    $
    48,270
    
    
    
    100
    %
    
    $
    51,585
    
    
    
    100
    %
    
    $
    (3,315
    )
    
    
    (6
    )%
 Six
    
    
    
    
    
    
    SixMonths
    
    
    
    
    
    
    Months
    
    
    
    
    
    
    
    
    
    
    PercentageEnded
    
    
    Percentage
    
    
    Ended
    
    
    Percentage
    
    
    Year to Year
    
    
    ChangeJune 30,
    
    
    of Related
    
    
    June 30,
    
    
    of Related
    
    
    Increase
    
    
    Year over2009
    
    
    Revenues
    
    
    2008
    
    
    Revenues
    
    
    (Decrease)
    
    
    YearCost of revenues:Recurring
    
    $
    11,201
    
    
    
    48
    %
    
    $
    6,949
    
    
    
    38
    %
    
    $
    4,252
    
    
    
    61
    %Services
    
    
    16,980
    
    
    
    82
    %
    
    
    23,644
    
    
    
    86
    %
    
    
    (6,664
    )
    
    
    (28
    )%License
    
    
    442
    
    
    
    11
    %
    
    
    350
    
    
    
    6
    %
    
    
    92
    
    
    
    26
    %Total cost of revenues
    
    $
    28,623
    
    
    
    
    
    
    $
    30,943
    
    
    
    
    
    
    $
    (2,320
    )Gross profit:Recurring
    
    $
    12,298
    
    
    
    52
    %
    
    $
    11,386
    
    
    
    62
    %
    
    $
    912
    
    
    
    8
    %Services
    
    
    3,629
    
    
    
    18
    %
    
    
    3,750
    
    
    
    14
    %
    
    
    (121
    )
    
    
    (3
    )%License
    
    
    3,720
    
    
    
    89
    %
    
    
    5,506
    
    
    
    94
    %
    
    
    (1,786
    )
    
    
    (32
    )%Total gross profit
    
    $
    19,647
    
    
    
    41
    %
    
    $
    20,642
    
    
    
    40
    %
    
    $
    (995
    )
    
    
    (5
    )%
 
 * Less than 1% Revenues
 Recurring Revenues.
 Services Revenues.
 31




---



##### Table of Contents



License Revenues.
 Cost of Revenues and Gross Margin
 Cost of Recurring Revenues.
 Cost of Services Revenues.
 Cost of License Revenues.
 Gross Margin.
 32




---



##### Table of Contents



Operating Expenses
  Three
    
    
    
    
    
    
    ThreeMonths
    
    
    
    
    
    
    Months
    
    
    
    
    
    
    
    
    
    
    PercentageEnded
    
    
    Percentage
    
    
    Ended
    
    
    Percentage
    
    
    Year to Year
    
    
    ChangeJune 30,
    
    
    of Total
    
    
    June 30,
    
    
    of Total
    
    
    Increase
    
    
    Year over2009
    
    
    Revenues
    
    
    2008
    
    
    Revenues
    
    
    (Decrease)
    
    
    YearOperating expenses:Sales and marketing
    
    $
    5,444
    
    
    
    24
    %
    
    $
    7,213
    
    
    
    31
    %
    
    $
    (1,769
    )
    
    
    (25
    )%Research and
development
    
    
    3,673
    
    
    
    16
    %
    
    
    3,465
    
    
    
    15
    %
    
    
    208
    
    
    
    6
    %General and
administrative
    
    
    2,683
    
    
    
    12
    %
    
    
    3,339
    
    
    
    14
    %
    
    
    (656
    )
    
    
    (20
    )%Restructuring
    
    
    639
    
    
    
    3
    %
    
    
    
    
    
    
    
    %
    
    
    639
    
    
    
    100
    %Total operating
expenses
    
    $
    12,439
    
    
    
    56
    %
    
    $
    14,017
    
    
    
    60
    %
    
    $
    (1,578
    )
    
    
    (11)
    %
 Six
    
    
    
    
    
    
    SixMonths
    
    
    
    
    
    
    Months
    
    
    
    
    
    
    
    
    
    
    PercentageEnded
    
    
    Percentage
    
    
    Ended
    
    
    Percentage
    
    
    Year to Year
    
    
    ChangeJune 30,
    
    
    of Total
    
    
    June 30,
    
    
    of Total
    
    
    Increase
    
    
    Year over2009
    
    
    Revenues
    
    
    2008
    
    
    Revenues
    
    
    (Decrease)
    
    
    YearOperating expenses:Sales and marketing
    
    $
    11,306
    
    
    
    23
    %
    
    $
    14,589
    
    
    
    28
    %
    
    $
    (3,283
    )
    
    
    (23
    )%Research and
development
    
    
    7,474
    
    
    
    15
    %
    
    
    7,150
    
    
    
    14
    %
    
    
    324
    
    
    
    5
    %General and
administrative
    
    
    6,250
    
    
    
    13
    %
    
    
    6,733
    
    
    
    13
    %
    
    
    (483
    )
    
    
    (7
    )%Restructuring
    
    
    805
    
    
    
    2
    %
    
    
    397
    
    
    
    1
    %
    
    
    408
    
    
    
    103
    %Total operating
expenses
    
    $
    25,835
    
    
    
    54
    %
    
    $
    28,869
    
    
    
    56
    %
    
    $
    (3,034
    )
    
    
    (11)
    %
 Sales and Marketing.
  33




---



##### Table of Contents



Research and Development.
  General and Administrative.
  Restructuring.
 34




---



##### Table of Contents



Stock-Based Compensation
  Three
    
    
    ThreeMonths
    
    
    Months
    
    
    
    
    
    
    PercentageEnded
    
    
    Ended
    
    
    Year to Year
    
    
    ChangeJune 30,
    
    
    June 30,
    
    
    Increase
    
    
    Year over2009
    
    
    2008
    
    
    (Decrease)
    
    
    YearStock-based compensation:Cost of recurring revenues
    
    $
    131
    
    
    $
    177
    
    
    $
    (46
    )
    
    
    (26)
    %Cost of services revenues
    
    
    243
    
    
    
    359
    
    
    
    (116
    )
    
    
    (32)
    %Sales and marketing
    
    
    342
    
    
    
    597
    
    
    
    (255
    )
    
    
    (43)
    %Research and development
    
    
    267
    
    
    
    331
    
    
    
    (64
    )
    
    
    (19)
    %General and administrative
    
    
    252
    
    
    
    701
    
    
    
    (449
    )
    
    
    (64)
    %Total stock-based
compensation
    
    $
    1,235
    
    
    $
    2,165
    
    
    $
    (930
    )
    
    
    (43)
    %
 Six
    
    
    SixMonths
    
    
    Months
    
    
    
    
    
    
    PercentageEnded
    
    
    Ended
    
    
    Year to Year
    
    
    ChangeJune 30,
    
    
    June 30,
    
    
    Increase
    
    
    Year over2009
    
    
    2008
    
    
    (Decrease)
    
    
    YearStock-based compensation:Cost of recurring revenues
    
    $
    294
    
    
    $
    314
    
    
    $
    (20
    )
    
    
    (6)
    %Cost of services revenues
    
    
    256
    
    
    
    649
    
    
    
    (393
    )
    
    
    (61)
    %Sales and marketing
    
    
    574
    
    
    
    1,086
    
    
    
    (512
    )
    
    
    (47)
    %Research and development
    
    
    409
    
    
    
    621
    
    
    
    (212
    )
    
    
    (34)
    %General and administrative
    
    
    679
    
    
    
    1,226
    
    
    
    (547
    )
    
    
    (45)
    %Total stock-based
compensation
    
    $
    2,212
    
    
    $
    3,896
    
    
    $
    (1,684
    )
    
    
    (43)
    %
  35




---



##### Table of Contents



Other Items
  Three
    
    
    ThreeMonths
    
    
    Months
    
    
    
    
    
    
    PercentageEnded
    
    
    Ended
    
    
    Year to Year
    
    
    ChangeJune 30,
    
    
    June 30,
    
    
    Increase
    
    
    Year over2009
    
    
    2008
    
    
    (Decrease)
    
    
    YearInterest and other income (expense)
    
    $
    161
    
    
    $
    280
    
    
    $
    (119
    )
    
    
    (43)
    %Provision (benefit) for income taxes
    
    $
    88
    
    
    $
    122
    
    
    $
    (34
    )
    
    
    (28)
    %
 Six
    
    
    SixMonths
    
    
    Months
    
    
    
    
    
    
    PercentageEnded
    
    
    Ended
    
    
    Year to Year
    
    
    ChangeJune 30,
    
    
    June 30,
    
    
    Increase
    
    
    Year over2009
    
    
    2008
    
    
    (Decrease)
    
    
    YearInterest and other income
    
    $
    190
    
    
    $
    811
    
    
    $
    (621
    )
    
    
    (77)
    %Provision (benefit) for income taxes
    
    $
    146
    
    
    $
    343
    
    
    $
    (197
    )
    
    
    (57)
    %
 Interest and Other Income
   Provision for Income Taxes
   36




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##### Table of Contents



Liquidity and Capital Resources
  Net Cash Provided by Operating Activities.
 Six Months Ended June 30,2009
    
    
    2008Cash collections
    
    $
    54,593
    
    
    $
    60,421Payroll related costs
    
    
    (33,282
    )
    
    
    (36,058
    )Professional services
    
    
    (11,973
    )
    
    
    (10,705
    )Employee expense reports
    
    
    (3,192
    )
    
    
    (3,989
    )Facilities related costs
    
    
    (2,739
    )
    
    
    (2,715
    )Third-party royalty payments
    
    
    (333
    )
    
    
    (313
    )Restructuring payments
    
    
    (1,269
    )
    
    
    (971
    )Other
    
    
    (1,431
    )
    
    
    1,683Net cash provided by operating activities
    
    $
    374
    
    
    $
    7,353
  Net Cash (Used in) Provided by Investing Activities.
 Net Cash Used in Financing Activities.
 37




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##### Table of Contents



Auction Rate Securities
  Contractual Obligations and Commitments
  Payments due by PeriodRemaining
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2014Contractual Obligations
    
    Total
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    2012
    
    
    2013
    
    
    and beyondOperating lease
commitments
    
    $
    5,331
    
    
    $
    1,325
    
    
    $
    2,125
    
    
    $
    984
    
    
    $
    316
    
    
    $
    201
    
    
    $
    380Unconditional
purchase commitments
    
    $
    3,517
    
    
    $
    1,200
    
    
    $
    1,548
    
    
    $
    667
    
    
    $
    102
    
    
    $
    
    
    
    $
    
   Off-Balance Sheet Arrangements
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
 Market Risk.
  38




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##### Table of Contents



Interest Rate Risk.
  Expected MaturityTotal
    
    
    Total1 Year
    
    
    More Than
    
    
    Principal
    
    
    Fairor Less
    
    
    1 Year
    
    
    Amount
    
    
    ValueAvailable-for-sale
securities
    
    $
    22,492
    
    
    $
    6,505
    
    
    $
    28,997
    
    
    $
    29,017Weighted average
interest rate
    
    
    0.33
    %
    
    
    1.36
    %
  Foreign Currency Exchange Risk.
    39




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##### Table of Contents



As of June 30, 2009AverageNotional
    
    
    Contract
    
    
    EstimatedAmount
    
    
    Exchange Rate
    
    
    Fair Value(In thousands except contract rates)Foreign currency forward
contracts:Mexican Pesos (MXN)
    
    $
    613
    
    
    
    13.5343
    
    
    $
    9
 
 Item 4. Controls and Procedures
   
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  Factors That Could Affect Future Results
 We
operate in a dynamic and rapidly changing environment that involves
numerous risks and
 40




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##### Table of Contents



uncertainties that could cause actual results to differ materially from the results
contemplated by the forward-looking statements contained in this Quarterly Report on Form 10-Q.
Because of the factors discussed below and in our Annual Report on Form 10-K for 2008, as well as
other variables affecting our operating results, past financial performance should not be
considered a reliable indicator of future performance, and investors should not use historical
trends to anticipate results or trends in future periods.
 RISKS RELATED TO OUR BUSINESS
 Our failure to effectively implement and manage the offering of our on-premise
product on a term license or
subscription basis or the restructuring of our sales and marketing organizations in connection with
our transition to a recurring revenue business model may harm our business and financial results.
  Uncertain Economic Conditions May Adversely Impact Our Business
   
 Item 4. Submission of Matters to a Vote of Security Holders
    41




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##### Table of Contents



Nominees of the Board of Directors
    
    For
    
    
    WithheldCharles M. Boesenberg
    
    
    24,534,641
    
    
    
    938,050Leslie J. Stretch
    
    
    24,175,106
    
    
    
    1,297,585
   For
    
    Against
    
    Abstain25,390,480
    
    82,126
    
    85
 
 Item 6. Exhibits
 (a) Exhibits
 ExhibitNumber
    
    Description10.1
    
    Offer Letter with V. Holly Albert dated August 8, 2006.10.2
    
    Employment Agreement with Merritt Alberti dated January 16, 2008.10.3
    
    Relocation Expense Allowance agreement with Merritt Alberti dated
June 18, 2009.10.4
    
    Offer Letter with Jimmy Duan dated September 24, 2008.10.5
    
    Offer Letter with Michael Graves dated February 6, 2007.10.6
    
    Offer Letter with Jeffrey Saling dated January 8, 2004.10.7
    
    Letter agreement with Jeffrey Saling dated April 8, 2008.31.1
    
    Certifications Pursuant to Section 302 of the Sarbanex-Oxley Act32.1
    
    Certification Pursuant to Section 906 of the Sarbanex-Oxley Act
 Availability of this Report
  42




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##### Table of Contents



SIGNATURES
  CALLIDUS SOFTWARE INC.By:
    /s/ RONALD J. FIORRonald J. FiorChief Financial Officer,
Senior Vice President, Finance and Operations 43




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##### Table of Contents



EXHIBIT INDEX
TO
CALLIDUS SOFTWARE INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2009
 ExhibitNumber
    
    Description10.1
    
    Offer Letter with V. Holly Albert dated August 8, 2006.10.2
    
    Employment Agreement with Merritt Alberti dated January 16, 2008.10.3
    
    Relocation Expense Allowance agreement with Merritt Alberti dated
June 18, 2009.10.4
    
    Offer Letter with Jimmy Duan dated September 24, 2008.10.5
    
    Offer Letter with Michael Graves dated February 6, 2007.10.6
    
    Offer Letter with Jeffrey Saling dated January 8, 2004.10.7
    
    Letter agreement with Jeffrey Saling dated April 8, 2008.31.1
    
    Certifications Pursuant to Section 302 of the Sarbanex-Oxley Act32.1
    
    Certification Pursuant to Section 906 of the Sarbanex-Oxley Act
 44