##### 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 March 31, 2010
 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
    
    77-0438629(State or Other Jurisdiction of
    
    (I.R.S. EmployerIncorporation or Organization)
    
    Identification Number)
 Callidus Software Inc.
160 West Santa Clara Street, Suite 1300
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
    
    
    24Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    33Item 4. Controls and Procedures
    
    
    34PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    35Item 1A. Risk Factors
    
    
    35Item 6. Exhibits
    
    
    36Signatures
    
    
    37Exhibit Index
    
    
    38EX-10.25EX-31.1EX-32.1
   2




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PART I. FINANCIAL INFORMATION
 
 Item 1 Financial Statements
 CALLIDUS SOFTWARE INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amount)
 March 31,
    
    
    December 31,2010
    
    
    2009(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    11,340
    
    
    $
    11,565Short-term investments
    
    
    17,773
    
    
    
    21,985Accounts receivable, net of allowances of $414 in 2010 and
$963 in 2009
    
    
    15,647
    
    
    
    12,715Deferred income taxes
    
    
    170
    
    
    
    170Prepaid and other current assets
    
    
    3,799
    
    
    
    3,872Total current assets
    
    
    48,729
    
    
    
    50,307Long-term investments
    
    
    1,116
    
    
    
    1,142Property and equipment, net
    
    
    4,222
    
    
    
    4,355Goodwill
    
    
    8,054
    
    
    
    5,528Intangible assets, net
    
    
    3,659
    
    
    
    2,993Deferred income taxes, noncurrent
    
    
    1,255
    
    
    
    1,255Deposits and other assets
    
    
    1,280
    
    
    
    679Total assets
    
    $
    68,315
    
    
    $
    66,259LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    2,265
    
    
    $
    3,407Accrued payroll and related expenses
    
    
    3,569
    
    
    
    3,929Accrued expenses
    
    
    5,366
    
    
    
    3,219Deferred income taxes
    
    
    1,229
    
    
    
    1,229Deferred revenue
    
    
    23,768
    
    
    
    21,440Total current liabilities
    
    
    36,197
    
    
    
    33,224Long-term deferred revenue
    
    
    3,577
    
    
    
    668Other liabilities
    
    
    848
    
    
    
    1,136Total liabilities
    
    
    40,622
    
    
    
    35,028Stockholders equity:Common stock, $0.001 par value; 100,000 shares authorized;
31,159 and 30,561 shares issued and outstanding at
March 31, 2010 and December 31, 2009, respectively
    
    
    30
    
    
    
    30Additional paid-in capital
    
    
    214,861
    
    
    
    212,435Acquisition contingent consideration
    
    
    77
    
    
    
    Accumulated other comprehensive income
    
    
    154
    
    
    
    244Accumulated deficit
    
    
    (187,429
    )
    
    
    (181,478
    )Total stockholders equity
    
    
    27,693
    
    
    
    31,231Total liabilities and stockholders equity
    
    $
    68,315
    
    
    $
    66,259
  3




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CALLIDUS SOFTWARE INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
 Three Months EndedMarch 31,2010
    
    
    2009(Unaudited)Revenues:Recurring
    
    $
    12,287
    
    
    $
    11,697Services
    
    
    3,645
    
    
    
    11,202License
    
    
    229
    
    
    
    3,001Total revenues
    
    
    16,161
    
    
    
    25,900Cost of revenues:Recurring
    
    
    6,414
    
    
    
    5,785Services
    
    
    4,412
    
    
    
    9,309License
    
    
    110
    
    
    
    191Total cost of revenues
    
    
    10,936
    
    
    
    15,285Gross profit
    
    
    5,225
    
    
    
    10,615Operating expenses:Sales and marketing
    
    
    4,645
    
    
    
    5,862Research and development
    
    
    3,138
    
    
    
    3,801General and administrative
    
    
    3,232
    
    
    
    3,567Restructuring
    
    
    719
    
    
    
    166Total operating expenses
    
    
    11,734
    
    
    
    13,396Operating loss
    
    
    (6,509
    )
    
    
    (2,781
    )Interest and other income, net
    
    
    7
    
    
    
    29Loss before provision (benefit) for income taxes
    
    
    (6,502
    )
    
    
    (2,752
    )Provision (benefit) for income taxes
    
    
    (551
    )
    
    
    58Net loss
    
    $
    (5,951
    )
    
    $
    (2,810
    )Net loss per share  basic and dilutedNet loss per share
    
    $
    (0.19
    )
    
    $
    (0.10
    )Shares used in basic and diluted per share computation
    
    
    30,963
    
    
    
    29,549
  4




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CALLIDUS SOFTWARE INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
 Three Months Ended2010
    
    
    2009(unaudited)Cash flows from operating activities:Net loss
    
    $
    (5,951
    )
    
    $
    (2,810
    )Adjustments to reconcile net loss to net cash used in
operating activities:Depreciation expense
    
    
    549
    
    
    
    703Amortization of intangible assets
    
    
    869
    
    
    
    435Provision for doubtful accounts and service remediation reserves
    
    
    (148
    )
    
    
    40Stock-based compensation
    
    
    1,277
    
    
    
    977Stock-based compensation related to
acquisition contingent consideration
    
    
    77
    
    
    
    Revaluation of acquisition contingent consideration
    
    
    22
    
    
    
    Release of valuation allowance
    
    
    (614
    )
    
    
    Net amortization on investments
    
    
    47
    
    
    
    2Put option loss
    
    
    33
    
    
    
    93Gain on investments classified as trading securities
    
    
    (41
    )
    
    
    (123
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    (1,768
    )
    
    
    (1,426
    )Prepaid and other current assets
    
    
    37
    
    
    
    642Other assets
    
    
    (607
    )
    
    
    70Accounts payable
    
    
    (1,133
    )
    
    
    955Accrued expenses
    
    
    743
    
    
    
    (1,730
    )Accrued payroll and related expenses
    
    
    (329
    )
    
    
    (1,461
    )Accrued restructuring
    
    
    (133
    )
    
    
    Deferred revenue
    
    
    5,104
    
    
    
    1,410Deferred income taxes
    
    
    51
    
    
    
    33Net cash used in operating activities
    
    
    (1,915
    )
    
    
    (2,190
    )Cash flows from investing activities:Purchases of investments
    
    
    (2,474
    )
    
    
    (10,760
    )Proceeds from maturities and sale of investments
    
    
    6,700
    
    
    
    Purchases of property and equipment
    
    
    (356
    )
    
    
    (624
    )Purchases of intangible assets
    
    
    (240
    )
    
    
    (100
    )Acquisition, net of cash acquired
    
    
    (1,649
    )
    
    
    (14
    )Net cash provided by (used in) investing activities
    
    
    1,981
    
    
    
    (11,498
    )Cash flows from financing activities:Net proceeds from issuance of common stock
    
    
    762
    
    
    
    990Repurchases of stock
    
    
    
    
    
    
    (742
    )Repurchase of common stock from employees for payment of taxes on
vesting of restricted stock units
    
    
    (75
    )
    
    
    (259
    )Repayment of debt assumed through acquisition
    
    
    (899
    )
    
    
    Net cash used in financing activities
    
    
    (212
    )
    
    
    (11
    )Effect of exchange rates on cash and cash equivalents
    
    
    (79
    )
    
    
    5Net decrease in cash and cash equivalents
    
    
    (225
    )
    
    
    (13,694
    )Cash and cash equivalents at beginning of quarter
    
    
    11,565
    
    
    
    35,390Cash and cash equivalents at end of quarter
    
    $
    11,340
    
    
    $
    21,696
  5




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CALLIDUS SOFTWARE INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
 Three Months Ended2010
    
    
    2009(unaudited)Non-cash activities:Fair value of common shares issued in connection with acquisition
    
    $
    453
    
    
    $
    Fair value of liability-classified contingent consideration and additional
purchase price for net working capital adjustment
    
    $
    787
    
    
    $
    Purchases of property and equipment not paid as of quarter end
    
    $
    1,036
    
    
    $
    407Purchases of intangible assets not paid as of quarter end
    
    $
    443
    
    
    $
    406Deferred direct stock-based compensation costs
    
    $
    (2
    )
    
    $
    (1
    )
 6




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CALLIDUS SOFTWARE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 1. Summary of Significant Accounting Policies
 Basis of Presentation
   Principles of Consolidation
  Certain Risks and Uncertainties
   Use of Estimates
  7




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Foreign Currency Translation
  Fair Value of Financial Instruments and Concentrations of Credit Risk
   Restricted Cash
  Revenue Recognition
   Evidence of an Arrangement.
 8




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Delivery.
 Fixed or Determinable Fee.
  Collection is Deemed Probable.
 Recurring Revenue
  On-Demand Revenue. Revenue
Recognition,
  9




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Time-Based Term License
     10




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Maintenance Revenue.
 Services Revenue
 Professional Service Revenue.
  Perpetual License Revenue
   Residual Method.
  11




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Contract Accounting Method.
  Cost of Revenues
  Net Loss Per Share
   12




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Three Months Ended March 31,2010
    
    2009Restricted stock
    
    
    1,374
    
    
    
    1,126Stock options
    
    
    6,579
    
    
    
    6,674ESPP
    
    
    52
    
    
    
    113Totals
    
    
    8,005
    
    
    
    7,913
  Recent Accounting Pronouncements
  2. Acquisition
    Closing Cash Payment
    
    $
    1,651Closing Stock Issuance  Common Stock and Additional Paid-in Capital
    
    
    453Fair value of liability-classified contingent consideration
    
    
    517Additional purchase price for net working capital adjustment
    
    
    270Fair value of total consideration transferred
    
    $
    2,891
  13




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Preliminary Purchase Price Allocation
  (in thousands)
 Cash and cash equivalents
    
    $
    3Accounts receivable
    
    
    1,045Other current assets
    
    
    13Fixed assets
    
    
    341Intangible assets
    
    
    1,510Accounts payable
    
    
    (11
    )Accrued payroll and related expenses
    
    
    (117
    )Deferred revenue
    
    
    (147
    )Other accrued liabilities
    
    
    (759
    )Notes payable
    
    
    (899
    )Deferred Tax Liability
    
    
    (614
    )Total identifiable net assets
    
    
    365Goodwill
    
    
    2,526Total Purchase Price
    
    $
    2,891
 14




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Preliminary Valuation of Intangible Assets Acquired
  (in thousands)
 EstimatedPreliminary
    
    
    UsefulFair Value
    
    
    LifeCustomer relationships
    
    $
    644
    
    
    12 yearsDeveloped Technology
    
    
    524
    
    
    7 yearsTradename
    
    
    302
    
    
    IndefiniteFavorable Lease
    
    
    40
    
    
    4 yearsTotal Intangible Assets
    
    $
    1,510
    Acquisition Related Expenses
  3. Restructuring
    15




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December 31,
    
    
    Cash
    
    
    
    
    
    
    
    
    
    
    March 31,2009
    
    
    Payments
    
    
    Additions
    
    
    Adjustments
    
    
    2010Severance and termination-related costs
    
    $
    146
    
    
    $
    (857
    )
    
    $
    741
    
    
    $
    (17
    )
    
    $
    13Total accrued restructuring charges
    
    $
    146
    
    
    $
    (857
    )
    
    $
    741
    
    
    $
    (17
    )
    
    $
    13
 4. Goodwill and Intangible Assets
   Weighted
AverageAmortizationDecember 31,
    
    
    
    
    
    
    
    
    
    
    March 31,
    
    
    Period2009
    
    
    
    
    
    
    Amortization
    
    
    2010
    
    
    RemainingCost
    
    
    Net
    
    
    Additions
    
    
    Expense
    
    
    Net
    
    
    (Years)Purchased technology
    
    $
    5,422
    
    
    $
    1,972
    
    
    $
    549
    
    
    $
    (728
    )
    
    $
    1,793
    
    
    
    3.25Customer relationships
    
    
    2,000
    
    
    
    1,021
    
    
    
    644
    
    
    
    (138
    )
    
    
    1,527
    
    
    
    5.89Tradename
    
    
    
    
    
    
    
    
    
    
    302
    
    
    
    
    
    
    
    302
    
    
    
    N/AFavorable Lease
    
    
    
    
    
    
    
    
    
    
    40
    
    
    
    (3
    )
    
    
    37
    
    
    
    3.75Total intangible assets, net
    
    $
    7,422
    
    
    $
    2,993
    
    
    $
    1,535
    
    
    $
    (869
    )
    
    $
    3,659
  Purchased
    
    
    Customer
    
    
    FavorableTechnology
    
    
    Relationships
    
    
    LeaseQuarter Ending March 31:Remainder of 2010
    
    $
    600
    
    
    $
    415
    
    
    $
    112011
    
    
    613
    
    
    
    554
    
    
    
    132012
    
    
    281
    
    
    
    75
    
    
    
    132013
    
    
    75
    
    
    
    54
    
    
    
    2014
    
    
    75
    
    
    
    54
    
    
    
    2015 and beyond
    
    
    150
    
    
    
    376
    
    
    
    Total expected future amortization
    
    $
    1,794
    
    
    $
    1,528
    
    
    $
    37
 16




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5. Financial Instruments
    Total OtherThan TemporaryImpairment
    
    
    Gain (Loss) onTotal Unrealized
    
    
    Recorded In
    
    
    InvestmentsLosses in Other
    
    
    Other
    
    
    Recorded in theAmortized
    
    
    Unrealized
    
    
    Comprehensive
    
    
    Comprehensive
    
    
    Statement of
    
    
    EstimatedMarch 31, 2010
    
    Cost
    
    
    Gains
    
    
    Income (Loss)
    
    
    Income (Loss)
    
    
    Operations
    
    
    Fair ValueShort-term investments:Certificate of deposits
    
    $
    720
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    720Corporate notes and obligations
    
    
    7,397
    
    
    
    18
    
    
    
    (4
    )
    
    
    
    
    
    
    
    
    
    
    7,411U.S. government and agency obligations
    
    
    6,032
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,035Long-term investments:Auction rate securities classified as
available for sale
    
    
    900
    
    
    
    
    
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    898Investments in debt and equity securities
    
    $
    15,049
    
    
    $
    21
    
    
    $
    (6
    )
    
    $
    
    
    
    $
    
    
    
    $
    15,064
   17




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Fair Value Measurements at Reporting Date UsingQuoted Prices in
    
    
    Significant
    
    
    SignificantActive Markets for
    
    
    Other Observable
    
    
    UnobservableIdentical Assets
    
    
    Inputs
    
    
    InputsMarch 31, 2010
    
    Total
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Money market funds (1)
    
    $
    7,019
    
    
    $
    7,019
    
    
    $
    
    
    
    $
    U.S. treasury bills (2)
    
    
    5,032
    
    
    
    5,032
    
    
    
    
    
    
    
    Certificate of deposits (2)
    
    
    720
    
    
    
    
    
    
    
    720
    
    
    
    Corporate notes and obligations (2)
    
    
    7,411
    
    
    
    
    
    
    
    7,411
    
    
    
    U.S. government agency obligations (2)
    
    
    1,003
    
    
    
    
    
    
    
    1,003
    
    
    
    Auction-rate securities(2),(3)
    
    
    4,505
    
    
    
    
    
    
    
    
    
    
    
    4,505Asset associated with put option (4)
    
    
    70
    
    
    
    
    
    
    
    
    
    
    
    70Warrants (5)
    
    
    25
    
    
    
    
    
    
    
    
    
    
    
    25Publicly traded securities (5)
    
    
    193
    
    
    
    193
    
    
    
    
    
    
    
    Total
    
    $
    25,978
    
    
    $
    12,244
    
    
    $
    9,134
    
    
    $
    4,600
 
 (1)
    
    Included in cash and cash equivalents on the consolidated balance sheet.(2)
    
    Except as indicated in (3), included in short-term investments on the
consolidated balance sheet.(3)
    
    $898K included in long-term investments on
the consolidated balance sheet.(4)
    
    Included in prepaid and other current assets on the
consolidated balance sheet.(5)
    
    Included in long-term
investments on the consolidated balance sheet. Fair Value Measurements at Reporting Date UsingQuoted Prices in
    
    
    Significant
    
    
    SignificantActive Markets for
    
    
    Other Observable
    
    
    UnobservableIdentical Assets
    
    
    Inputs
    
    
    InputsDecember 31, 2009
    
    Total
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Money market funds (1)
    
    $
    6,644
    
    
    $
    6,644
    
    
    $
    
    
    
    $
    U.S. treasury bills (2)
    
    
    5,043
    
    
    
    5,043
    
    
    
    
    
    
    
    Certificate of deposits (2)
    
    
    720
    
    
    
    
    
    
    
    720
    
    
    
    Corporate notes and obligations (2)
    
    
    5,962
    
    
    
    
    
    
    
    5,962
    
    
    
    U.S. government agency obligations (2)
    
    
    6,695
    
    
    
    
    
    
    
    6,695
    
    
    
    Auction-rate securities (2), (3)
    
    
    4,458
    
    
    
    
    
    
    
    
    
    
    
    4,458Asset associated with put option (4)
    
    
    102
    
    
    
    
    
    
    
    
    
    
    
    102Warrants (5)
    
    
    25
    
    
    
    
    
    
    
    
    
    
    
    25Publicly traded securities (5)
    
    
    225
    
    
    
    225
    
    
    
    
    
    
    
    Total
    
    $
    29,874
    
    
    $
    11,912
    
    
    $
    13,377
    
    
    $
    4,585
 
 (1)
    
    Included in cash and cash equivalents on the consolidated balance sheet.(2)
    
    Except as indicated in (3), included in short-term investments on the
consolidated balance sheet.(3)
    
    $892K included in long-term investments on
the consolidated balance sheet.(4)
    
    Included in prepaid and other current assets on the
consolidated balance sheet.(5)
    
    Included in long-term
investments on the consolidated balance sheet.  18




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Gain (Loss)Balance at
    
    
    
    
    
    
    Recorded in
    
    
    
    
    
    
    Balance atDecember 31,
    
    
    
    
    
    
    Statement of
    
    
    Unrealized
    
    
    March 31,2009
    
    
    Addition
    
    
    Operations
    
    
    Gain (Loss)
    
    
    2010Auction rate securities
classified as trading
    
    $
    3,566
    
    
    $
    
    
    
    $
    41
    
    
    $
    
    
    
    $
    3,607Auction rate securities
classified as available for sale
    
    
    892
    
    
    
    
    
    
    
    
    
    
    
    6
    
    
    
    898Asset associated with put
option
    
    
    102
    
    
    
    
    
    
    
    (32
    )
    
    
    
    
    
    
    70Warrants
    
    
    25
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25Total
    
    $
    4,585
    
    
    $
    
    
    
    $
    9
    
    
    $
    6
    
    
    $
    4,600
 Valuation of Investments and Put Option
 Level 1 and Level 2
    Level 3
   19




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6. Commitments and Contingencies
   Other Contingencies
  .
 7. Segment, Geographic and Customer Information
   20




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Three Months Ended March 31,2010
    
    
    2009Americas
    
    $
    14,538
    
    
    $
    21,121EMEA
    
    
    1,463
    
    
    
    4,315Asia Pacific
    
    
    160
    
    
    
    464$
    16,161
    
    
    $
    25,900
   8. Comprehensive Loss
   Three Months Ended March 31,2010
    
    
    2009Net loss
    
    $
    (5,951
    )
    
    $
    (2,810
    )Other comprehensive loss:Change in unrealized loss
on investments, net
    
    
    (5
    )
    
    
    (71
    )Change in cumulative translation
adjustments
    
    
    (85
    )
    
    
    (2
    )Comprehensive loss
    
    $
    (6,041
    )
    
    $
    (2,883
    )
 9. Stock-based Compensation
 Expense Summary
   21




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##### Table of Contents



Three
    
    
    ThreeMonths
    
    
    MonthsEnded
    
    
    EndedMarch 31,
    
    
    March 31,2010
    
    
    2009Stock-based compensation:Cost of recurring revenues
    
    $
    124
    
    
    $
    163Cost of services revenues
    
    
    241
    
    
    
    13Sales and marketing
    
    
    271
    
    
    
    232Research and development
    
    
    215
    
    
    
    142General and administrative
    
    
    503
    
    
    
    427Total stock-based compensation
    
    $
    1,354
    
    
    $
    977
 Determination of Fair Value
  Three Months Ended March 31,2010
    
    2009Stock Option PlansExpected life (in years)
    
    
    3.50
    
    
    
    3.50Risk-free interest rate
    
    1.49% to 1.52
    %
    
    
    1.20
    %Volatility
    
    
    67
    %
    
    
    63
    %Dividend Yield
    
    
    
    
    
    
    Employee Stock Purchase PlanExpected life (in years)
    
    
    0.50 to 1.00
    
    
    
    0.50 to 1.00Risk-free interest rate
    
    0.18% to 0.34
    %
    
    0.46% to 0.62
    %Volatility
    
    49% to 60
    %
    
    97% to 126
    %Dividend Yield
    
    
    
    
    
    
    
 10. Related-Party Transactions
  22




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##### Table of Contents



11. Subsequent Events
    23




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##### 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 2009 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: our ability to achieve profitability, 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 2009 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 Months Ended March 31, 2010
   24




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##### Table of Contents



Recurring Revenue Growth and Cost Control
    Perpetual License and Service Business
  Acquisition of Actek
  25




---



##### Table of Contents



Challenges and Risks
      Application of Critical Accounting Policies and Use of Estimates
  26




---



##### Table of Contents



Recent Accounting Pronouncements
    27




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##### Table of Contents



Results of Operations
 Comparison of the Three Months Ended March 31, 2010 and 2009
 Revenues, cost of revenues and gross profit
  Three
    
    
    
    
    
    
    ThreeMonths
    
    
    
    
    
    
    Months
    
    
    
    
    
    
    
    
    
    
    PercentageEnded
    
    
    Percentage
    
    
    Ended
    
    
    Percentage
    
    
    Year to Year
    
    
    ChangeMarch 31,
    
    
    of Total
    
    
    March 31,
    
    
    of Total
    
    
    Increase
    
    
    Year over2010
    
    
    Revenues
    
    
    2009
    
    
    Revenues
    
    
    (Decrease)
    
    
    YearRevenues:Recurring
    
    $
    12,287
    
    
    
    76
    %
    
    $
    11,697
    
    
    
    45
    %
    
    $
    590
    
    
    
    5
    %Services
    
    
    3,645
    
    
    
    23
    %
    
    
    11,202
    
    
    
    43
    %
    
    
    (7,557
    )
    
    
    (67
    )%License
    
    
    229
    
    
    
    1
    %
    
    
    3,001
    
    
    
    12
    %
    
    
    (2,772
    )
    
    
    (92
    )%Total revenues
    
    $
    16,161
    
    
    
    100
    %
    
    $
    25,900
    
    
    
    100
    %
    
    $
    (9,739
    )
    
    
    (38
    )%
 Three
    
    
    
    
    
    
    ThreeMonths
    
    
    
    
    
    
    Months
    
    
    
    
    
    
    
    
    
    
    PercentageEnded
    
    
    Percentage
    
    
    Ended
    
    
    Percentage
    
    
    Year to Year
    
    
    ChangeMarch 31,
    
    
    of Related
    
    
    March 31,
    
    
    of Related
    
    
    Increase
    
    
    Year over2010
    
    
    Revenues
    
    
    2009
    
    
    Revenues
    
    
    (Decrease)
    
    
    YearCost of revenues:Recurring
    
    $
    6,414
    
    
    
    52
    %
    
    $
    5,785
    
    
    
    49
    %
    
    $
    629
    
    
    
    11
    %Services
    
    
    4,412
    
    
    
    121
    %
    
    
    9,309
    
    
    
    83
    %
    
    
    (4,897
    )
    
    
    (53
    )%License
    
    
    110
    
    
    
    48
    %
    
    
    191
    
    
    
    6
    %
    
    
    (81
    )
    
    
    (42
    )%Total cost of revenues
    
    $
    10,936
    
    
    
    
    
    
    $
    15,285
    
    
    
    
    
    
    $
    (4,349
    )Gross profit:Recurring
    
    $
    5,873
    
    
    
    48
    %
    
    $
    5,912
    
    
    
    51
    %
    
    $
    (39
    )
    
    
    (1
    )%Services
    
    
    (767
    )
    
    
    (21
    )%
    
    
    1,893
    
    
    
    17
    %
    
    
    (2,660
    )
    
    
    (141
    )%License
    
    
    119
    
    
    
    52
    %
    
    
    2,810
    
    
    
    94
    %
    
    
    (2,691
    )
    
    
    (96
    )%Total gross profit
    
    $
    5,225
    
    
    
    32
    %
    
    $
    10,615
    
    
    
    41
    %
    
    $
    (5,390
    )
    
    
    (51
    )%
 Revenues
 Recurring Revenues.
 28




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##### Table of Contents



Services Revenues.
 License Revenues.
 Cost of Revenues and Gross Margin
 Cost of Recurring Revenues.
 Cost of Services Revenues.
 Cost of License Revenues.
 Gross Margin.
   29




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##### Table of Contents



Operating Expenses
  Three
    
    
    
    
    
    
    ThreeMonths
    
    
    
    
    
    
    Months
    
    
    
    
    
    
    
    
    
    
    PercentageEnded
    
    
    Percentage
    
    
    Ended
    
    
    Percentage
    
    
    Year to Year
    
    
    ChangeMarch 31,
    
    
    of Total
    
    
    March 31,
    
    
    of Total
    
    
    Increase
    
    
    Year over2010
    
    
    Revenues
    
    
    2009
    
    
    Revenues
    
    
    (Decrease)
    
    
    YearOperating expenses:Sales and marketing
    
    $
    4,645
    
    
    
    29
    %
    
    $
    5,862
    
    
    
    23
    %
    
    $
    (1,217
    )
    
    
    (21
    )%Research and development
    
    
    3,138
    
    
    
    19
    %
    
    
    3,801
    
    
    
    15
    %
    
    
    (663
    )
    
    
    (17
    )%General and administrative
    
    
    3,232
    
    
    
    20
    %
    
    
    3,567
    
    
    
    14
    %
    
    
    (335
    )
    
    
    (9
    )%Restructuring
    
    
    719
    
    
    
    4
    %
    
    
    166
    
    
    
    1
    %
    
    
    553
    
    
    
    333
    %Total operating expenses
    
    $
    11,734
    
    
    
    73
    %
    
    $
    13,396
    
    
    
    52
    %
    
    $
    (1,662
    )
    
    
    (12
    )%
 Sales and Marketing.
 Research and Development.
 General and Administrative.
 Restructuring.
 Stock-Based Compensation
  30




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##### Table of Contents



Three
    
    
    ThreeMonths
    
    
    Months
    
    
    
    
    
    
    PercentageEnded
    
    
    Ended
    
    
    Year to Year
    
    
    ChangeMarch 31,
    
    
    March 31,
    
    
    Increase
    
    
    Year over2010
    
    
    2009
    
    
    (Decrease)
    
    
    YearStock-based compensation:Cost of recurring revenues
    
    $
    124
    
    
    $
    163
    
    
    $
    (39
    )
    
    
    (24
    )%Cost of services revenues
    
    
    241
    
    
    
    13
    
    
    
    228
    
    
    
    1,754
    %Sales and marketing
    
    
    271
    
    
    
    232
    
    
    
    39
    
    
    
    17
    %Research and development
    
    
    215
    
    
    
    142
    
    
    
    73
    
    
    
    51
    %General and administrative
    
    
    503
    
    
    
    427
    
    
    
    76
    
    
    
    18
    %Total stock-based compensation
    
    $
    1,354
    
    
    $
    977
    
    
    $
    377
    
    
    
    39
    %
  Other Items
  Three
    
    
    ThreeMonths
    
    
    Months
    
    
    
    
    
    
    PercentageEnded
    
    
    Ended
    
    
    Year to Year
    
    
    ChangeMarch 31,
    
    
    March 31,
    
    
    Increase
    
    
    Year over2010
    
    
    2009
    
    
    (Decrease)
    
    
    YearInterest and other income
    
    $
    7
    
    
    $
    29
    
    
    $
    (22
    )
    
    
    (76
    )%Provision (benefit) for income taxes
    
    $
    (551
    )
    
    $
    58
    
    
    $
    (609
    )
    
    
    (1,050
    )%
 Interest and Other Income
  Provision (benefit) for Income Taxes
  31




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##### Table of Contents



Liquidity and Capital Resources
   Three Months Ended March 31,2010
    
    2009Net cash provided by (used in):Operating activities
    
    $
    (1,915
    )
    
    $
    (2,190
    )Investing activities
    
    
    1,981
    
    
    
    (11,498
    )Financing activities
    
    
    (212
    )
    
    
    (11
    )
 Net Cash Used In Operating Activities.
 Net Cash Provided by (Used in) Investing Activities.
 Net Cash Used in Financing Activities.
 Auction Rate Securities
  32




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##### Table of Contents



Contractual Obligations and Commitments
  Payments due by PeriodRemaining
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2015Contractual Obligations
    
    Total
    
    
    2010
    
    
    2011
    
    
    2012
    
    
    2013
    
    
    2014
    
    
    and beyondOperating lease
commitments
    
    $
    3,822
    
    
    $
    1,549
    
    
    $
    1,141
    
    
    $
    472
    
    
    $
    279
    
    
    $
    166
    
    
    $
    215Unconditional
purchase commitments
    
    $
    942
    
    
    $
    510
    
    
    $
    330
    
    
    $
    102
    
    
    $
    
    
    
    $
    
    
    
    $
    
    Off-Balance Sheet Arrangements
  
 Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
 Market Risk.
   Interest Rate Risk.
 33




---



##### Table of Contents



Expected Maturity
    
    
    Total
    
    
    Total1 Year
    
    
    More Than
    
    
    Principal
    
    
    Fairor Less
    
    
    1 Year
    
    
    Amount
    
    
    ValueAvailable-for-sale securities
    
    $
    10,680
    
    
    $
    3,469
    
    
    $
    14,149
    
    
    $
    14,166Weighted average interest rate
    
    
    0.52
    %
    
    
    1.36
    %
  Foreign Currency Exchange Risk.
    
 Item 4.
    
    Controls and Procedures
  34




---



##### Table of Contents



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
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 2009, 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
 We cannot accurately predict customer subscription and maintenance renewal rates and the impact
these renewal rates will have on our future revenues or operating results.
  35




---



##### Table of Contents



Item 6.
    
    Exhibits
 (a) Exhibits
 ExhibitNumber
    
    Description10.25
    
    Office Lease Agreement between 6200 Stoneridge Mall Road Investors LLC and
Callidus Software Inc. dated March 30, 201031.1
    
    Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act32.1
    
    Certification Pursuant to Section 906 of the Sarbanes-Oxley Act
 Availability of this Report
  36




---



##### Table of Contents



SIGNATURES
  CALLIDUS SOFTWARE INC.By:
    /s/ RONALD J. FIORRonald J. FiorChief Financial Officer,
Senior Vice President, Finance and Operations 37




---



##### Table of Contents



EXHIBIT INDEX
TO
CALLIDUS SOFTWARE INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2010
 
 ExhibitNumber
    
    Description10.25
    
    Office Lease Agreement between 6200 Stoneridge Mall Road Investors LLC and
Callidus Software Inc. dated March 30, 201031.1
    
    Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act32.1
    
    Certification Pursuant to Section 906 of the Sarbanes-Oxley Act
 38