##### 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, 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
    
    77-0438629(State or Other Jurisdiction of
    
    (I.R.S. EmployerIncorporation or Organization)
    
    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
    
    
    22Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    31Item 4. Controls and Procedures
    
    
    32PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    32Item 1A. Risk Factors
    
    
    32Item 6. Exhibits
    
    
    33Signatures
    
    
    35Exhibit Index
    
    
    36EX-31.1EX-32.1
  ® ® ® ® ® ® ®
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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)
 March 31,
    
    
    December 31,2009
    
    
    2008(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    21,696
    
    
    $
    35,390Short-term investments
    
    
    12,191
    
    
    
    1,455Accounts receivable, net
    
    
    24,056
    
    
    
    22,710Deferred income taxes
    
    
    360
    
    
    
    360Prepaid and other current assets
    
    
    3,462
    
    
    
    4,104Total current assets
    
    
    61,765
    
    
    
    64,019Long-term investments
    
    
    4,044
    
    
    
    3,828Property and equipment, net
    
    
    4,710
    
    
    
    4,890Goodwill
    
    
    5,528
    
    
    
    5,655Intangible assets, net
    
    
    3,179
    
    
    
    3,208Deferred income taxes, noncurrent
    
    
    811
    
    
    
    811Deposits and other assets
    
    
    1,303
    
    
    
    1,468Total assets
    
    $
    81,340
    
    
    $
    83,879LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    3,379
    
    
    $
    2,447Accrued payroll and related expenses
    
    
    5,639
    
    
    
    7,128Accrued expenses
    
    
    3,674
    
    
    
    5,027Deferred income taxes
    
    
    816
    
    
    
    816Deferred revenue
    
    
    23,762
    
    
    
    21,881Total current liabilities
    
    
    37,270
    
    
    
    37,299Long-term deferred revenue
    
    
    721
    
    
    
    1,202Deferred income taxes, noncurrent
    
    
    33
    
    
    
    Other liabilities
    
    
    1,127
    
    
    
    1,412Total liabilities
    
    
    39,151
    
    
    
    39,913Stockholders equity:Common stock, $0.001 par value; 100,000
shares authorized;
29,885 and 29,240 shares issued and
outstanding at
March 31, 2009 and December 31, 2008,
respectively
    
    
    30
    
    
    
    29Additional paid-in capital
    
    
    208,457
    
    
    
    207,493Accumulated other comprehensive income
    
    
    189
    
    
    
    121Accumulated deficit
    
    
    (166,487
    )
    
    
    (163,677
    )Total stockholders equity
    
    
    42,189
    
    
    
    43,966Total liabilities and stockholders equity
    
    $
    81,340
    
    
    $
    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 EndedMarch 31,2009
    
    
    2008(Unaudited)Revenues:Recurring
    
    $
    11,697
    
    
    $
    8,284Services
    
    
    11,202
    
    
    
    15,855License
    
    
    3,001
    
    
    
    3,984Total revenues
    
    
    25,900
    
    
    
    28,123Cost of revenues:Recurring
    
    
    5,785
    
    
    
    3,279Services
    
    
    9,309
    
    
    
    12,688License
    
    
    191
    
    
    
    242Total cost of revenues
    
    
    15,285
    
    
    
    16,209Gross profit
    
    
    10,615
    
    
    
    11,914Operating expenses:Sales and marketing
    
    
    5,862
    
    
    
    7,376Research and development
    
    
    3,801
    
    
    
    3,685General and administrative
    
    
    3,567
    
    
    
    3,394Restructuring
    
    
    166
    
    
    
    397Total operating expenses
    
    
    13,396
    
    
    
    14,852Operating loss
    
    
    (2,781
    )
    
    
    (2,938
    )Interest and other income (expense), net
    
    
    29
    
    
    
    531Loss before provision (benefit) for income taxes
    
    
    (2,752
    )
    
    
    (2,407
    )Provision (benefit) for income taxes
    
    
    58
    
    
    
    221Net loss
    
    $
    (2,810
    )
    
    $
    (2,628
    )Net loss per share  basic and dilutedNet loss per share
    
    $
    (0.10
    )
    
    $
    (0.09
    )Shares used in basic and diluted per share
computation
    
    
    29,549
    
    
    
    29,756
  4




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##### Table of Contents



CALLIDUS SOFTWARE INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
 Three Months Ended March 31,2009
    
    
    2008(Unaudited)Cash flows from operating activities:Net loss
    
    $
    (2,810
    )
    
    $
    (2,628
    )Adjustments to reconcile net loss to net cash provided by (used
in) operating activities:Depreciation expense
    
    
    703
    
    
    
    543Amortization of intangible assets
    
    
    435
    
    
    
    658Provision for doubtful accounts and service remediation reserves
    
    
    40
    
    
    
    (17
    )Stock-based compensation
    
    
    977
    
    
    
    1,731Deferred income taxes
    
    
    33
    
    
    
    Net accretion on investments
    
    
    2
    
    
    
    (85
    )Put option (gain) loss
    
    
    93
    
    
    
    (Gain) loss on investments classified as trading securities
    
    
    (123
    )
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    (1,426
    )
    
    
    2,580Prepaid and other current assets
    
    
    642
    
    
    
    (373
    )Other assets
    
    
    70
    
    
    
    297Accounts payable
    
    
    955
    
    
    
    (635
    )Accrued expenses
    
    
    (1,730
    )
    
    
    (3,758
    )Accrued payroll and related expenses
    
    
    (1,461
    )
    
    
    (545
    )Deferred revenue
    
    
    1,410
    
    
    
    2,171Net cash provided by (used in) operating activities
    
    
    (2,190
    )
    
    
    (61
    )Cash flows from investing activities:Purchases of investments
    
    
    (10,760
    )
    
    
    (7,237
    )Proceeds from maturities and sale of investments
    
    
    
    
    
    
    12,826Purchases of property and equipment
    
    
    (624
    )
    
    
    (483
    )Purchases of intangible assets
    
    
    (100
    )
    
    
    (100
    )Acquisition, net of cash acquired
    
    
    (14
    )
    
    
    (7,500
    )Net cash provided by (used in) investing activities
    
    
    (11,498
    )
    
    
    (2,494
    )Cash flows from financing activities:Net proceeds from issuance of common stock
    
    
    990
    
    
    
    2,445Repurchases of stock
    
    
    (742
    )
    
    
    (2,552
    )Cash used to net share settle equity awards
    
    
    (259
    )
    
    
    Net cash (used in) provided by financing activities
    
    
    (11
    )
    
    
    (107
    )Effect of exchange rates on cash and cash equivalents
    
    
    5
    
    
    
    (26
    )Net increase (decrease) in cash and cash equivalents
    
    
    (13,694
    )
    
    
    (2,688
    )Cash and cash equivalents at beginning of period
    
    
    35,390
    
    
    
    21,813Cash and cash equivalents at end of period
    
    $
    21,696
    
    
    $
    19,125Supplemental disclosures of cash flow information:Cash paid for income taxes
    
    $
    
    
    
    $
    7Non-cash investing and financing activities:Purchases of property and equipment not paid as of quarter-end
    
    $
    407
    
    
    $
    247Purchases of intangible assets not paid as of quarter-end
    
    $
    406
    
    
    $
    Deferred direct stock-based compensation costs
    
    $
    (1
    )
    
    $
    
  5




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##### Table of Contents



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
  6




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Reserve Accounts
    Balance at
    
    Provision,
    
    
    
    
    
    Balance atBeginning
    
    Net of
    
    
    
    
    
    End ofof Period
    
    Recoveries
    
    Write-Offs
    
    PeriodAllowance for
doubtful accountsThree months
ended March 31,
2009
    
    $
    550
    
    
    $
    57
    
    
    $
    (26
    )
    
    $
    581Three months
ended March 31,
2008
    
    
    154
    
    
    
    (26
    )
    
    
    
    
    
    
    128
 Balance at
    
    
    
    
    
    Remediation
    
    Balance atBeginning
    
    
    
    
    
    Service
    
    End ofof Period
    
    Provision
    
    Claims
    
    PeriodService remediation reserveThree months ended
March 31, 2009
    
    $
    399
    
    
    $
    490
    
    
    $
    (507
    )
    
    $
    382Three months ended
March 31, 2008
    
    
    225
    
    
    
    321
    
    
    
    (258
    )
    
    
    288
 Restricted Cash
  7




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##### Table of Contents



Revenue Recognition
   Evidence of an Arrangement.
 Delivery.
 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,
 8




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##### Table of Contents



Revenue Recognition Revenue Arrangements with Multiple Deliverables.
    Maintenance Revenue.
 Services Revenue
 Professional Service Revenue.
 9




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##### Table of Contents



License Revenue
 Perpetual Licensing.
  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
 10




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##### Table of Contents



Contracts
  Net Loss Per Share
   Three Months Ended March 31,2009
    
    
    2008Restricted stock
    
    
    1,126
    
    
    
    779Stock options
    
    
    6,674
    
    
    
    7,301ESPP
    
    
    113
    
    
    
    80Totals
    
    
    7,913
    
    
    
    8,160
  Recent Accounting Pronouncements
 Fair Value Measurements
 11




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Business Combinations
 Accounting for Assets
Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies
 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 .
 12




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Interim Disclosures
about Fair Value of Financial Instruments
 Recognition and
Presentation of Other-Than-Temporary Impairments
 2. Restructuring
    Total Costs
    
    
    Total CostsDecember 31,
    
    
    Cash
    
    
    
    
    
    
    
    
    
    
    March 31,
    
    
    Incurred to
    
    
    Expected to2008
    
    
    Payments
    
    
    Additions
    
    
    Adjustments
    
    
    2009
    
    
    Date
    
    
    be IncurredSeverance and
termination related
costs
    
    $
    810
    
    
    $
    (787
    )
    
    $
    182
    
    
    $
    (30
    )
    
    $
    175
    
    
    $
    3,265
    
    
    $
    3,440Total accrued
restructuring
charges
    
    $
    810
    
    
    $
    (787
    )
    
    $
    182
    
    
    $
    (30
    )
    
    $
    175
    
    
    $
    3,265
    
    
    $
    3,440
 3. Goodwill and Intangible Assets
   13




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December 31,
    
    
    
    
    
    
    
    
    
    
    March 31,2008
    
    
    
    
    
    
    Amortization
    
    
    2009Cost
    
    
    Net
    
    
    Additions
    
    
    Expense
    
    
    NetPurchased technology
    
    $
    3,579
    
    
    $
    1,624
    
    
    $
    406
    
    
    $
    (247
    )
    
    $
    1,783Customer backlog
    
    
    1,500
    
    
    
    63
    
    
    
    
    
    
    
    (63
    )
    
    
    Customer
relationships
    
    
    2,000
    
    
    
    1,521
    
    
    
    
    
    
    
    (125
    )
    
    
    1,396Total intangible
assets, net
    
    $
    7,079
    
    
    $
    3,208
    
    
    $
    406
    
    
    $
    (435
    )
    
    $
    3,179
  Purchased
    
    
    CustomerTechnology
    
    
    RelationshipsYear Ending December 31:Remainder of 2009
    
    $
    611
    
    
    $
    3752010
    
    
    440
    
    
    
    5002011
    
    
    524
    
    
    
    5002012
    
    
    208
    
    
    
    212013
    
    
    
    
    
    
    2014 and beyond
    
    
    
    
    
    
    Total expected future amortization
    
    $
    1,783
    
    
    $
    1,396
 4. Investments
   14




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Gain (Loss) onInvestmentsRecorded in thePar
    
    
    Unrealized
    
    
    Unrealized
    
    
    Statement of
    
    
    EstimatedMarch 31, 2009
    
    Value
    
    
    Gains
    
    
    Losses
    
    
    Operations
    
    
    Fair ValueMoney market funds
    
    $
    15,745
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    15,745Certificates of deposit
    
    
    1,440
    
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    1,439Auction-rate securities
    
    
    4,600
    
    
    
    93
    
    
    
    
    
    
    
    (649
    )
    
    
    4,044Corporate notes and obligations
    
    
    8,483
    
    
    
    7
    
    
    
    (19
    )
    
    
    
    
    
    
    8,471U.S. government and agency obligations
    
    
    3,000
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    3,002Investments in debt and equity securities
    
    $
    33,268
    
    
    $
    102
    
    
    $
    (20
    )
    
    $
    (649
    )
    
    $
    32,701
 Gain (Loss) onInvestmentsRecorded in thePar
    
    
    Unrealized
    
    
    Unrealized
    
    
    Statement of
    
    
    EstimatedDecember 31, 2008
    
    Value
    
    
    Gains
    
    
    Losses
    
    
    Operations
    
    
    Fair ValueMoney market funds
    
    $
    27,202
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    27,202Auction-rate securities
    
    
    4,600
    
    
    
    
    
    
    
    
    
    
    
    (772
    )
    
    
    3,828Corporate notes and obligations
    
    
    1,445
    
    
    
    10
    
    
    
    
    
    
    
    
    
    
    
    1,455Investments in debt and equity securities
    
    $
    33,247
    
    
    $
    10
    
    
    $
    
    
    
    $
    (772
    )
    
    $
    32,485
 March 31,
    
    
    December 31,2009
    
    
    2008Recorded as:Cash equivalents
    
    $
    16,466
    
    
    $
    27,202Short-term investments
    
    
    12,191
    
    
    
    1,455Long-term investments
    
    
    4,044
    
    
    
    3,828$
    32,701
    
    
    $
    32,485
   15




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##### Table of Contents



Fair Value Measurements at Reporting Date UsingQuoted Prices in
    
    
    Significant
    
    
    SignificantActive Markets for
    
    
    Other Observable
    
    
    UnobservableIdentical Assets
    
    
    Inputs
    
    
    InputsMarch 31, 2009
    
    Total
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Money market funds (1)
    
    $
    15,745
    
    
    $
    15,745
    
    
    $
    
    
    
    $
    Certificates of deposit (1), (3)
    
    
    1,439
    
    
    
    
    
    
    
    1,439
    
    
    
    Auction-rate securities (2)
    
    
    4,044
    
    
    
    
    
    
    
    
    
    
    
    4,044Corporate notes and obligations (3)
    
    
    8,471
    
    
    
    
    
    
    
    8,471
    
    
    
    U.S. government and agency obligations (3)
    
    
    3,002
    
    
    
    
    
    
    
    3,002
    
    
    
    Asset associated with put option (4)
    
    
    399
    
    
    
    
    
    
    
    
    
    
    
    399Total
    
    $
    33,100
    
    
    $
    15,745
    
    
    $
    12,912
    
    
    $
    4,443
 
 (1)
    
    Included in cash and cash equivalents
on the condensed consolidated balance
sheet(2)
    
    Included in long-term investments on the condensed consolidated balance sheet(3)
    
    Included in short-term investments on the condensed consolidated balance sheet(4)
    
    Included in deposits and other assets on the condensed consolidated balance sheet 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  Gain (Loss)Balance at
    
    
    Recorded in
    
    
    
    
    
    
    Balance atDecember 31,
    
    
    Statement of
    
    
    Unrealized
    
    
    March 31,2008
    
    
    Operations
    
    
    Gain (Loss)
    
    
    2009Auction-rate securities
    
    $
    3,828
    
    
    $
    123
    
    
    $
    93
    
    
    $
    4,044Asset associated with
put option
    
    
    492
    
    
    
    (93
    )
    
    
    
    
    
    
    399Total
    
    $
    4,320
    
    
    $
    30
    
    
    $
    93
    
    
    $
    4,443
 Valuation of Investments and Put Option
 16




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Level 2
  Level 3
    5. Commitments and Contingencies
  Accounting for Contingencies
 Other Contingencies
  Guarantors Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others.
 17




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6. Segment, Geographic and Customer Information
 Disclosures about Segments of an Enterprise and Related Information
  Three Months Ended March 31,2009
    
    
    2008Americas
    
    $
    21,121
    
    
    $
    22,752EMEA
    
    
    4,315
    
    
    
    4,843Asia Pacific
    
    
    464
    
    
    
    528$
    25,900
    
    
    $
    28,123
   7. Comprehensive Loss
   18




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##### Table of Contents



Three Months Ended March 31,2009
    
    
    2008Net loss
    
    $
    (2,810
    )
    
    $
    (2,628
    )Other comprehensive loss:Change in unrealized loss on
investments, net
    
    
    (71
    )
    
    
    (234
    )Change in cumulative translation
adjustments
    
    
    (2
    )
    
    
    (23
    )Comprehensive loss
    
    $
    (2,883
    )
    
    $
    (2,885
    )
 8. Stock-based Compensation
 Expense Summary
 Share-Based Payment
   Three
    
    
    ThreeMonths
    
    
    MonthsEnded
    
    
    EndedMarch 31,
    
    
    March 31,2009
    
    
    2008Stock-based compensation:Cost of recurring revenues
    
    $
    163
    
    
    $
    137Cost of services revenues
    
    
    13
    
    
    
    290Sales and marketing
    
    
    232
    
    
    
    489Research and development
    
    
    142
    
    
    
    290General and administrative
    
    
    427
    
    
    
    525Total stock-based compensation
    
    $
    977
    
    
    $
    1,731
 Determination of Fair Value
  19




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##### Table of Contents



Three Months Ended March 31,2009
    
    2008Stock Option PlansExpected life (in years)
    
    
    3.50
    
    
    
    3.50Risk-free interest rate
    
    
    1.20
    %
    
    
    2.58
    %Volatility
    
    
    63
    %
    
    
    44
    %Dividend Yield
    
    
    
    
    
    
    Employee Stock Purchase PlanExpected life (in years)
    
    
    0.49 to 1.00
    
    
    
    0.50 to 1.00Risk-free interest rate
    
    0.46% to 0.62%
    
    2.05% to 2.10%Volatility
    
    97% to 126%
    
    48% to 61%Dividend Yield
    
    
    
    
    
    
    
 9. Stockholders Equity
 Repurchase Program
  10. Related-Party Transactions
    20




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##### Table of Contents



21




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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 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 license revenues and gross margins,
future operating expense levels, the impact of quarterly fluctuations of revenue and operating
results, levels of 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 Months Ended March 31, 2009
   Recurring Revenue Growth and Cost Control
 22




---



##### Table of Contents



Stock Repurchase Program
  Challenges and Risks
  23




---



##### Table of Contents



Application of Critical Accounting Policies and Use of Estimates
    Recent Accounting Pronouncements
 24




---



##### Table of Contents



Results of Operations
 Comparison of the Three Months Ended March 31, 2009 and 2008
 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 over2009
    
    
    Revenues
    
    
    2008
    
    
    Revenues
    
    
    (Decrease)
    
    
    YearRevenues:Recurring
    
    $
    11,697
    
    
    
    45
    %
    
    $
    8,284
    
    
    
    29
    %
    
    $
    3,413
    
    
    
    41
    %Services
    
    
    11,202
    
    
    
    43
    %
    
    
    15,855
    
    
    
    56
    %
    
    
    (4,653
    )
    
    
    (29
    )%License
    
    
    3,001
    
    
    
    12
    %
    
    
    3,984
    
    
    
    14
    %
    
    
    (983
    )
    
    
    (25
    )%Total
revenues
    
    $
    25,900
    
    
    
    100
    %
    
    $
    28,123
    
    
    
    100
    %
    
    $
    (2,223
    )
    
    
    (8)
    %
 Three
    
    
    
    
    
    
    ThreeMonths
    
    
    
    
    
    
    Months
    
    
    
    
    
    
    
    
    
    
    PercentageEnded
    
    
    Percentage
    
    
    Ended
    
    
    Percentage
    
    
    Year to Year
    
    
    ChangeMarch 31,
    
    
    of Related
    
    
    March 31,
    
    
    of Related
    
    
    Increase
    
    
    Year over2009
    
    
    Revenues
    
    
    2008
    
    
    Revenues
    
    
    (Decrease)
    
    
    YearCost of revenues:Recurring
    
    $
    5,785
    
    
    
    49
    %
    
    $
    3,279
    
    
    
    40
    %
    
    $
    2,506
    
    
    
    76
    %Services
    
    
    9,309
    
    
    
    83
    %
    
    
    12,688
    
    
    
    80
    %
    
    
    (3,379
    )
    
    
    (27)
    %License
    
    
    191
    
    
    
    6
    %
    
    
    242
    
    
    
    6
    %
    
    
    (51
    )
    
    
    (21)
    %Total
cost
of
revenues
    
    $
    15,285
    
    
    
    
    
    
    $
    16,209
    
    
    
    
    
    
    $
    (924
    )Gross profit:Recurring
    
    $
    5,912
    
    
    
    51
    %
    
    $
    5,005
    
    
    
    60
    %
    
    $
    907
    
    
    
    18
    %Services
    
    
    1,893
    
    
    
    17
    %
    
    
    3,167
    
    
    
    20
    %
    
    
    (1,274
    )
    
    
    (40)
    %License
    
    
    2,810
    
    
    
    94
    %
    
    
    3,742
    
    
    
    94
    %
    
    
    (932
    )
    
    
    (25)
    %Total
gross
profit
    
    $
    10,615
    
    
    
    41
    %
    
    $
    11,914
    
    
    
    42
    %
    
    $
    (1,299
    )
    
    
    (11)
    %
 Revenues
 Recurring Revenues.
 25




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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.
 26




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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 over2009
    
    
    Revenues
    
    
    2008
    
    
    Revenues
    
    
    (Decrease)
    
    
    YearOperating expenses:Sales and
marketing
    
    $
    5,862
    
    
    
    23
    %
    
    $
    7,376
    
    
    
    26
    %
    
    $
    (1,514
    )
    
    
    (21
    )%Research and
development
    
    
    3,801
    
    
    
    15
    %
    
    
    3,685
    
    
    
    13
    %
    
    
    116
    
    
    
    3
    %General and
administrative
    
    
    3,567
    
    
    
    14
    %
    
    
    3,394
    
    
    
    12
    %
    
    
    173
    
    
    
    5
    %Restructuring
    
    
    166
    
    
    
    1
    %
    
    
    397
    
    
    
    1
    %
    
    
    (231
    )
    
    
    (58
    )%Total
operating
expenses
    
    $
    13,396
    
    
    
    52
    %
    
    $
    14,852
    
    
    
    53
    %
    
    $
    (1,456
    )
    
    
    (10
    )%
 Sales and Marketing.
 Research and Development.
 General and Administrative.
 27




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##### Table of Contents



Restructuring.
 Stock-Based Compensation
  Three
    
    
    ThreeMonths
    
    
    Months
    
    
    
    
    
    
    PercentageEnded
    
    
    Ended
    
    
    Year to Year
    
    
    ChangeMarch 31,
    
    
    March 31,
    
    
    Increase
    
    
    Year over2009
    
    
    2008
    
    
    (Decrease)
    
    
    YearStock-based compensation:Cost of recurring revenues
    
    $
    163
    
    
    $
    137
    
    
    $
    26
    
    
    
    19
    %Cost of services revenues
    
    
    13
    
    
    
    290
    
    
    
    (277
    )
    
    
    (96)
    %Sales and marketing
    
    
    232
    
    
    
    489
    
    
    
    (257
    )
    
    
    (53)
    %Research and development
    
    
    142
    
    
    
    290
    
    
    
    (148
    )
    
    
    (51)
    %General and administrative
    
    
    427
    
    
    
    525
    
    
    
    (98
    )
    
    
    (19)
    %Total stock-based
compensation
    
    $
    977
    
    
    $
    1,731
    
    
    $
    (754
    )
    
    
    (44)
    %
  Other Items
  Three
    
    
    ThreeMonths
    
    
    Months
    
    
    
    
    
    
    PercentageEnded
    
    
    Ended
    
    
    Year to Year
    
    
    ChangeMarch 31,
    
    
    March 31,
    
    
    Increase
    
    
    Year over2009
    
    
    2008
    
    
    (Decrease)
    
    
    YearInterest and other income (expense)
    
    $
    29
    
    
    $
    531
    
    
    $
    (502
    )
    
    
    (95)
    %Provision (benefit) for income taxes
    
    $
    58
    
    
    $
    221
    
    
    $
    (163
    )
    
    
    (74)
    %
 28




---



##### Table of Contents



Interest and Other Income
  Provision for Income Taxes
  Liquidity and Capital Resources
  Net Cash Used in Operating Activities.
 Three Months Ended March 31,2009
    
    
    2008Cash collections
    
    $
    25,910
    
    
    $
    29,098Payroll related costs
    
    
    (18,269
    )
    
    
    (18,811
    )Professional services
    
    
    (6,240
    )
    
    
    (5,861
    )Employee expense reports
    
    
    (1,671
    )
    
    
    (1,795
    )Facilities related costs
    
    
    (1,309
    )
    
    
    (1,317
    )Third-party royalty payments
    
    
    (245
    )
    
    
    (102
    )Restructuring payments
    
    
    (787
    )
    
    
    (813
    )Other
    
    
    421
    
    
    
    (460
    )Net cash (used in) provided by operating activities
    
    $
    (2,190
    )
    
    $
    (61
    )
  29




---



##### Table of Contents



Net Cash Used in Investing Activities.
 Net Cash Used in Financing Activities.
 Auction Rate Securities
  Contractual Obligations and Commitments
  Payments due by PeriodRemaining
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2014Contractual Obligations
    
    Total
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    2012
    
    
    2013
    
    
    and beyondOperating lease
commitments
    
    $
    5,433
    
    
    $
    1,935
    
    
    $
    1,972
    
    
    $
    829
    
    
    $
    156
    
    
    $
    161
    
    
    $
    380Unconditional
purchase commitments
    
    $
    2,469
    
    
    $
    1,635
    
    
    $
    562
    
    
    $
    172
    
    
    $
    100
    
    
    $
    
    
    
    $
    
   30




---



##### Table of Contents



Off-Balance Sheet Arrangements
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
 Market Risk.
   Interest Rate Risk.
  Expected MaturityTotal
    
    Total1 Year
    
    More Than
    
    Principal
    
    Fairor Less
    
    1 Year
    
    Amount
    
    ValueAvailable-for-sale
securities
    
    $
    23,662
    
    
    $
    5,006
    
    
    $
    28,668
    
    
    $
    28,657Weighted average
interest rate
    
    
    0.56
    %
    
    
    1.61
    %
  31




---



##### Table of Contents



Foreign Currency Exchange Risk.
    
 Item 4. Controls and Procedures
   
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  32




---



##### Table of Contents



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 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.
 Uncertain Economic Conditions May Adversely Impact Our Business
   
 Item 6. Exhibits
 (a) Exhibits
 33




---



##### Table of Contents



ExhibitNumber
    
    Description3.1
    
    
    Amended and Restated Certificate of Incorporation (incorporated by
reference to Exhibit 3.1 to the Companys Registration Statement
on Form S-1 (File No. 333-109059) filed with the Commission on
September 23, 2003, and declared effective on November 19, 2003)3.2
    
    
    Amended and Restated By-Laws (incorporated by reference to Exhibit
3.2 to the Companys Form 10-K filed with the Commission on March
27, 2006)4.1
    
    
    Certificate of Designations (incorporated by reference from
Exhibit A to Exhibit 10.27 to the Companys Form 8-K filed with
the Commission on September 3, 2004)4.2
    
    
    Specimen Stock Certificate (incorporated by reference to Exhibit
4.1 to the Companys Registration Statement on Form S-1 (File No.
333-109059) filed with the Commission on September 23, 2003, and
declared effective on November 19, 2003)4.3
    
    
    Stockholders Rights Agreement dated September 2, 2004
(incorporated by reference herein from Exhibit 10.27 to the
Companys Form 8-K filed with the Commission on September 3, 2004)4.4
    
    
    Amendment to Stockholders Rights Agreement dated September 28,
2004 (incorporated by reference herein from Exhibit 10.27.1 to the
Companys Form 10-Q filed with the Commission on November 15,
2004)10.1
    
    
    Form of Restricted Stock Unit Agreement (incorporated by reference
to Exhibit 10.6 to the Companys Form 10-K filed with the
Commission on March 12, 2009)10.2
    
    
    Form of Executive Change of Control Agreement (incorporated by
reference to Exhibit 10.7 to the Companys Form 10-K filed with
the Commission on March 12, 2009)10.3
    
    
    Form of Offer Letter for Executive Officers (incorporated by
reference to Exhibit 10.10 to the Companys Form 10-K filed with
the Commission on March 12, 2009)31.1
    
    
    302 Certifications32.1
    
    
    906 Certification
 Availability of this Report
  34




---



##### Table of Contents



SIGNATURES
  CALLIDUS SOFTWARE INC.By:
    /s/ RONALD J. FIORRonald J. FiorChief Financial Officer,
Senior Vice President, Finance and Operations 35




---



##### Table of Contents



EXHIBIT INDEX
TO
CALLIDUS SOFTWARE INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2009
 ExhibitNumber
    
    Description3.1
    
    
    Amended and Restated Certificate of Incorporation (incorporated by
reference to Exhibit 3.1 to the Companys Registration Statement
on Form S-1 (File No. 333-109059) filed with the Commission on
September 23, 2003, and declared effective on November 19, 2003)3.2
    
    
    Amended and Restated By-Laws (incorporated by reference to Exhibit
3.2 to the Companys Form 10-K filed with the Commission on March
27, 2006)4.1
    
    
    Certificate of Designations (incorporated by reference from
Exhibit A to Exhibit 10.27 to the Companys Form 8-K filed with
the Commission on September 3, 2004)4.2
    
    
    Specimen Stock Certificate (incorporated by reference to Exhibit
4.1 to the Companys Registration Statement on Form S-1 (File No.
333-109059) filed with the Commission on September 23, 2003, and
declared effective on November 19, 2003)4.3
    
    
    Stockholders Rights Agreement dated September 2, 2004
(incorporated by reference herein from Exhibit 10.27 to the
Companys Form 8-K filed with the Commission on September 3, 2004)4.4
    
    
    Amendment to Stockholders Rights Agreement dated September 28,
2004 (incorporated by reference herein from Exhibit 10.27.1 to the
Companys Form 10-Q filed with the Commission on November 15,
2004)10.1
    
    
    Form of Restricted Stock Unit Agreement (incorporated by reference
to Exhibit 10.6 to the Companys Form 10-K filed with the
Commission on March 12, 2009)10.2
    
    
    Form of Executive Change of Control Agreement (incorporated by
reference to Exhibit 10.7 to the Companys Form 10-K filed with
the Commission on March 12, 2009)10.3
    
    
    Form of Offer Letter for Executive Officers (incorporated by
reference to Exhibit 10.10 to the Companys Form 10-K filed with
the Commission on March 12, 2009)31.1
    
    
    302 Certifications32.1
    
    
    906 Certification
 36