##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 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.
6200 Stoneridge Mall Road, Suite 500
Pleasanton, California 94588  (Address of principal executive offices, including zip code)   (925) 251-2200  (Registrants telephone number, including area code)
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




---



##### 



TABLE OF CONTENTS
 PART I. FINANCIAL INFORMATIONItem 1. Financial Statements
    
    
    3Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    21Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    35Item 4. Controls and Procedures
    
    
    37PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    37Item 1A. Risk Factors
    
    
    37Item 6. Exhibits
    
    
    38Signatures
    
    
    39Exhibit Index
    
    
    40EX-3.2EX-31.1EX-32.1
 ©
  2




---



##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1 Financial Statements
 CALLIDUS SOFTWARE INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amount)
 September 30,
    
    
    December 31,2010
    
    
    2009(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    10,729
    
    
    $
    11,565Short-term investments
    
    
    16,168
    
    
    
    21,985Accounts receivable, net of allowances of $357 in 2010 and
$563 in 2009
    
    
    16,748
    
    
    
    12,715Deferred income taxes
    
    
    170
    
    
    
    170Prepaid and other current assets
    
    
    5,044
    
    
    
    3,872Total current assets
    
    
    48,859
    
    
    
    50,307Long-term investments
    
    
    945
    
    
    
    1,142Property and equipment, net
    
    
    6,566
    
    
    
    4,355Goodwill
    
    
    8,054
    
    
    
    5,528Intangible assets, net
    
    
    5,067
    
    
    
    2,993Deferred income taxes, noncurrent
    
    
    1,255
    
    
    
    1,255Deposits and other assets
    
    
    1,947
    
    
    
    679Total assets
    
    $
    72,693
    
    
    $
    66,259LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    3,405
    
    
    $
    3,407Accrued payroll and related expenses
    
    
    3,380
    
    
    
    3,929Accrued expenses
    
    
    6,946
    
    
    
    3,219Deferred income taxes
    
    
    1,229
    
    
    
    1,229Deferred revenue
    
    
    24,482
    
    
    
    21,440Capital lease obligations, short-term
    
    
    526
    
    
    
    Total current liabilities
    
    
    39,968
    
    
    
    33,224Long-term deferred revenue
    
    
    4,305
    
    
    
    668Other liabilities
    
    
    1,634
    
    
    
    1,136Capital lease obligations, long-term
    
    
    944
    
    
    
    Total liabilities
    
    
    46,851
    
    
    
    35,028Stockholders equity:Common stock, $0.001 par value; 100,000 shares authorized;
31,716 and 30,561 shares issued and outstanding at
September 30, 2010 and December 31, 2009, respectively
    
    
    31
    
    
    
    30Additional paid-in capital
    
    
    218,256
    
    
    
    212,435Deferred compensation
    
    
    333
    
    
    
    Accumulated
other comprehensive income (loss)
    
    
    (15
    )
    
    
    244Accumulated deficit
    
    
    (192,763
    )
    
    
    (181,478
    )Total stockholders equity
    
    
    25,842
    
    
    
    31,231Total liabilities and stockholders equity
    
    $
    72,693
    
    
    $
    66,259
  3




---



##### Table of Contents



CALLIDUS SOFTWARE INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(Unaudited)Revenues:Recurring
    
    $
    13,231
    
    
    $
    11,170
    
    
    $
    38,783
    
    
    $
    34,669Services
    
    
    3,600
    
    
    
    5,349
    
    
    
    10,734
    
    
    
    25,958License
    
    
    1,638
    
    
    
    872
    
    
    
    2,254
    
    
    
    5,034Total revenues
    
    
    18,469
    
    
    
    17,391
    
    
    
    51,771
    
    
    
    65,661Cost of revenues:Recurring
    
    
    6,664
    
    
    
    5,711
    
    
    
    19,198
    
    
    
    16,912Services
    
    
    3,306
    
    
    
    5,054
    
    
    
    11,763
    
    
    
    22,034License
    
    
    92
    
    
    
    214
    
    
    
    290
    
    
    
    656Total cost of revenues
    
    
    10,062
    
    
    
    10,979
    
    
    
    31,251
    
    
    
    39,602Gross profit
    
    
    8,407
    
    
    
    6,412
    
    
    
    20,520
    
    
    
    26,059Operating expenses:Sales and marketing
    
    
    3,537
    
    
    
    4,586
    
    
    
    12,174
    
    
    
    15,892Research and development
    
    
    2,524
    
    
    
    3,397
    
    
    
    8,088
    
    
    
    10,871General and administrative
    
    
    3,511
    
    
    
    3,072
    
    
    
    10,371
    
    
    
    9,322Restructuring
    
    
    450
    
    
    
    1,973
    
    
    
    1,620
    
    
    
    2,778Total operating expenses
    
    
    10,022
    
    
    
    13,028
    
    
    
    32,253
    
    
    
    38,863Operating loss
    
    
    (1,615
    )
    
    
    (6,616
    )
    
    
    (11,733
    )
    
    
    (12,804
    )Interest and other income (expense), net
    
    
    79
    
    
    
    49
    
    
    
    (14
    )
    
    
    239Loss before provision (benefit) for income taxes
    
    
    (1,536
    )
    
    
    (6,567
    )
    
    
    (11,747
    )
    
    
    (12,565
    )Provision (benefit) for income taxes
    
    
    51
    
    
    
    173
    
    
    
    (462
    )
    
    
    319Net loss
    
    $
    (1,587
    )
    
    $
    (6,740
    )
    
    $
    (11,285
    )
    
    $
    (12,884
    )Net loss per share  basic and dilutedNet loss per share
    
    $
    (0.05
    )
    
    $
    (0.22
    )
    
    $
    (0.36
    )
    
    $
    (0.43
    )Shares used in basic and diluted per share computation
    
    
    31,546
    
    
    
    30,205
    
    
    
    31,267
    
    
    
    29,901
  4




---



##### Table of Contents



CALLIDUS SOFTWARE INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
 Nine Months Ended September 30,2010
    
    
    2009(unaudited)Cash flows from operating activities:Net loss
    
    $
    (11,285
    )
    
    $
    (12,884
    )Adjustments to reconcile net loss to net cash provided by
operating activities:Depreciation expense
    
    
    1,731
    
    
    
    2,184Amortization of intangible assets
    
    
    1,916
    
    
    
    1,450Provision for doubtful accounts and service remediation reserves
    
    
    137
    
    
    
    (128
    )Stock-based compensation
    
    
    4,322
    
    
    
    3,217Stock-based compensation related to acquisition contingent consideration
    
    
    333
    
    
    
    Revaluation of acquisition contingent consideration
    
    
    63
    
    
    
    Release of valuation allowance
    
    
    (614
    )
    
    
    Leasehold improvement allowance
    
    
    961
    
    
    
    Net amortization on investments
    
    
    166
    
    
    
    32Put option loss
    
    
    52
    
    
    
    387Gain on investments classified as trading securities
    
    
    (118
    )
    
    
    (472
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    (3,155
    )
    
    
    10,921Prepaid and other current assets
    
    
    (1,235
    )
    
    
    610Other assets
    
    
    (674
    )
    
    
    232Accounts payable
    
    
    46
    
    
    
    (57
    )Accrued expenses
    
    
    1,076
    
    
    
    (2,252
    )Accrued payroll and related expenses
    
    
    (540
    )
    
    
    (1,640
    )Accrued restructuring
    
    
    251
    
    
    
    (417
    )Deferred revenue
    
    
    6,547
    
    
    
    (3,542
    )Deferred income taxes
    
    
    128
    
    
    
    111Net cash provided by (used in) operating activities
    
    
    108
    
    
    
    (2,248
    )Cash flows from investing activities:Purchases of investments
    
    
    (13,432
    )
    
    
    (18,311
    )Proceeds from maturities and sale of investments
    
    
    19,184
    
    
    
    9,670Purchases of property and equipment
    
    
    (2,632
    )
    
    
    (1,554
    )Proceeds from disposal of property and equipment
    
    
    19
    
    
    
    Purchases of intangible assets
    
    
    (1,668
    )
    
    
    (1,487
    )Acquisition, net of cash acquired
    
    
    (1,922
    )
    
    
    (14
    )Change in restricted cash
    
    
    (600
    )
    
    
    202Net cash used in investing activities
    
    
    (1,051
    )
    
    
    (11,494
    )Cash flows from financing activities:Net proceeds from issuance of common stock
    
    
    1,407
    
    
    
    1,719Repurchases of stock
    
    
    
    
    
    
    (742
    )Repurchase of common stock from employees for payment of taxes on
vesting of restricted stock units
    
    
    (363
    )
    
    
    (372
    )Repayment of debt assumed through acquisition
    
    
    (899
    )
    
    
    Net cash provided by financing activities
    
    
    145
    
    
    
    605Effect of exchange rates on cash and cash equivalents
    
    
    (38
    )
    
    
    55Net decrease in cash and cash equivalents
    
    
    (836
    )
    
    
    (13,082
    )Cash and cash equivalents at beginning of period
    
    
    11,565
    
    
    
    35,390Cash and cash equivalents at end of period
    
    $
    10,729
    
    
    $
    22,308
  5




---



##### 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




---



##### Table of Contents



Foreign Currency Translation
  Fair Value of Financial Instruments and Concentrations of Credit Risk
   Restricted Cash
  Revenue Recognition
   Evidence of an Arrangement.
 7




---



##### Table of Contents



Delivery.
 Fixed or Determinable Fee.
  Collection is Deemed Probable.
 Recurring Revenue
  On-Demand Revenue. Revenue
Recognition,
  8




---



##### Table of Contents



Time-Based Term License
     9




---



##### Table of Contents



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




---



##### Table of Contents



Cost of Revenues
  Net Loss Per Share
   Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Restricted stock
    
    
    2,277
    
    
    
    932
    
    
    
    1,938
    
    
    
    1,041Stock options
    
    
    6,317
    
    
    
    6,643
    
    
    
    6,467
    
    
    
    6,654ESPP
    
    
    49
    
    
    
    96
    
    
    
    140
    
    
    
    297Totals
    
    
    8,643
    
    
    
    7,671
    
    
    
    8,545
    
    
    
    7,992
  Recent Accounting Pronouncements
  2. Acquisition
  11




---



##### Table of Contents



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
     12




---



##### Table of Contents



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
  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
    13




---



##### Table of Contents



Acquisition Related Expenses
  3. Restructuring
   December 31,
    
    
    Cash
    
    
    
    
    
    
    
    
    
    
    September 30,2009
    
    
    Payments
    
    
    Additions
    
    
    Adjustments
    
    
    2010Severance and termination-related costs
    
    $
    146
    
    
    $
    (1,431
    )
    
    $
    1,336
    
    
    $
    (17
    )
    
    $
    34Facilities restructuring costs
    
    
    
    
    
    
    (36
    )
    
    
    399
    
    
    
    
    
    
    
    363Total accrued restructuring charges
    
    $
    146
    
    
    $
    (1,467
    )
    
    $
    1,735
    
    
    $
    (17
    )
    
    $
    397
 4. Goodwill and Intangible Assets
   WeightedAverageDecember 31,
    
    
    
    
    
    
    
    
    
    
    September 30,
    
    
    Amortization2009
    
    
    
    
    
    
    Amortization
    
    
    2010
    
    
    PeriodCost
    
    
    Net
    
    
    Additions
    
    
    Expense
    
    
    Net
    
    
    (Years)Purchased technology
    
    $
    5,422
    
    
    $
    1,972
    
    
    $
    3,004
    
    
    $
    (1,490
    )
    
    $
    3,486
    
    
    
    3.37Customer relationships
    
    
    2,000
    
    
    
    1,021
    
    
    
    644
    
    
    
    (416
    )
    
    
    1,249
    
    
    
    7.87Tradename
    
    
    
    
    
    
    
    
    
    
    302
    
    
    
    
    
    
    
    302
    
    
    
    N/AFavorable Lease
    
    
    
    
    
    
    
    
    
    
    40
    
    
    
    (10
    )
    
    
    30
    
    
    
    4.00Total intangible assets, net
    
    $
    7,422
    
    
    $
    2,993
    
    
    $
    3,990
    
    
    $
    (1,916
    )
    
    $
    5,067
  14




---



##### Table of Contents



Purchased
    
    
    Customer
    
    
    FavorableTechnology
    
    
    Relationships
    
    
    LeaseQuarter Ending September 30:Remainder of 2010
    
    $
    489
    
    
    $
    136
    
    
    $
    42011
    
    
    1,916
    
    
    
    554
    
    
    
    132012
    
    
    781
    
    
    
    75
    
    
    
    132013
    
    
    75
    
    
    
    54
    
    
    
    2014
    
    
    75
    
    
    
    54
    
    
    
    2015 and beyond
    
    
    150
    
    
    
    376
    
    
    
    Total expected future amortization
    
    $
    3,486
    
    
    $
    1,249
    
    
    $
    30
 5. Financial Instruments
    Total OtherThan TemporaryImpairment
    
    
    Gain (Loss) onTotal Unrealized
    
    
    Recorded In
    
    
    InvestmentsLosses in Other
    
    
    Other
    
    
    Recorded in theAmortized
    
    
    Unrealized
    
    
    Comprehensive
    
    
    Comprehensive
    
    
    Statement of
    
    
    EstimatedSeptember 30, 2010
    
    Cost
    
    
    Gains
    
    
    Income (Loss)
    
    
    Income (Loss)
    
    
    Operations
    
    
    Fair ValueShort-term investments:Corporate notes and obligations
    
    
    9,159
    
    
    
    17
    
    
    
    (12
    )
    
    
    
    
    
    
    
    
    
    
    9,164U.S. government and agency obligations
    
    
    7,003
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,004Long-term investments:Auction rate securities
    
    
    800
    
    
    
    
    
    
    
    (17
    )
    
    
    
    
    
    
    
    
    
    
    783Publicly traded securities
    
    
    375
    
    
    
    
    
    
    
    (213
    )
    
    
    
    
    
    
    
    
    
    
    162Investments in debt and equity securities
    
    $
    17,337
    
    
    $
    18
    
    
    $
    (242
    )
    
    $
    
    
    
    $
    
    
    
    $
    17,113
  15




---



##### Table of Contents



Fair Value Measurements at Reporting Date UsingQuoted Prices in
    
    
    Significant
    
    
    SignificantActive Markets for
    
    
    Other Observable
    
    
    UnobservableIdentical Assets
    
    
    Inputs
    
    
    InputsSeptember 30, 2010
    
    Total
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Money market funds (1)
    
    $
    5,961
    
    
    $
    5,961
    
    
    $
    
    
    
    $
    U.S. treasury bills (2)
    
    
    5,003
    
    
    
    5,003
    
    
    
    
    
    
    
    Corporate notes and obligations (2)
    
    
    9,164
    
    
    
    
    
    
    
    9,164
    
    
    
    U.S. government agency obligations (2)
    
    
    2,001
    
    
    
    
    
    
    
    2,001
    
    
    
    Auction-rate securities (3)
    
    
    783
    
    
    
    
    
    
    
    
    
    
    
    783Publicly traded securities (3)
    
    
    162
    
    
    
    
    
    
    
    162
    
    
    
    Total
    
    $
    23,074
    
    
    $
    10,964
    
    
    $
    11,327
    
    
    $
    783
 
 (1)
    
    Included in cash and cash equivalents on the condensed
consolidated balance sheet.(2)
    
    Included in short-term investments on the condensed
consolidated balance sheet.(3)
    
    Included in long-term investments 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, 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 condensed consolidated balance sheet.(2)
    
    Except as indicated in (3), included in short-term investments on the
condensed consolidated balance sheet.(3)
    
    $892 included in long-term investments on the condensed consolidated
balance sheet.(4)
    
    Included in prepaid and other current assets on the condensed consolidated balance sheet.(5)
    
    Included in long-term investments on the condensed consolidated balance sheet.  Gain (Loss)Balance at
    
    
    
    
    
    
    
    
    
    
    Recorded in
    
    
    
    
    
    
    Balance atDecember 31,
    
    
    
    
    
    
    
    
    
    
    Statement of
    
    
    Unrealized
    
    
    September 30,2009
    
    
    Addition
    
    
    Disposition
    
    
    Operations
    
    
    Gain (Loss)
    
    
    2010Auction rate securities classified as trading
    
    $
    3,566
    
    
    $
    
    
    
    $
    (3,700
    )
    
    $
    134
    
    
    $
    
    
    
    $
    Auction rate securities classified as available for sale
    
    
    892
    
    
    
    
    
    
    
    (100
    )
    
    
    
    
    
    
    (9
    )
    
    
    783Asset associated with put
option
    
    
    102
    
    
    
    
    
    

    
    
    
    
    
    (102
    )
    
    
    
    
    
    
    Warrants
    
    
    25
    
    
    
    
    
    
    
    
    
    
    
    (25
    )
    
    
    
    
    
    
    Total
    
    $
    4,585
    
    
    $
    
    
    
    $
    (3,800
    )
    
    $
    7
    
    
    $
    (9
    )
    
    $
    783
 16




---



##### Table of Contents



Valuation of Investments and Put Option
 Level 1 and Level 2
    Level 3
   17




---



##### Table of Contents



6. Commitments and Contingencies
   Other Contingencies
  .
 7. Segment, Geographic and Customer Information
  18




---



##### Table of Contents



Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Americas
    
    $
    16,088
    
    
    $
    15,626
    
    
    $
    46,189
    
    
    $
    56,491EMEA
    
    
    1,338
    
    
    
    1,571
    
    
    
    3,901
    
    
    
    8,338Asia Pacific
    
    
    1,043
    
    
    
    194
    
    
    
    1,681
    
    
    
    832$
    18,469
    
    
    $
    17,391
    
    
    $
    51,771
    
    
    $
    65,661
   8. Comprehensive Loss
   Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Net loss
    
    $
    (1,587
    )
    
    $
    (6,740
    )
    
    $
    (11,285
    )
    
    $
    (12,884
    )Other comprehensive loss:Change in unrealized loss
on investments, net
    
    
    (163
    )
    
    
    30
    
    
    
    (220
    )
    
    
    169Change in cumulative translation
adjustments
    
    
    61
    
    
    
    (40
    )
    
    
    (39
    )
    
    
    93Comprehensive loss
    
    $
    (1,689
    )
    
    $
    (6,750
    )
    
    $
    (11,544
    )
    
    $
    (12,622
    )
 9. Stock-based Compensation
 Expense Summary
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Stock-based Compensation Expenses:Options
    
    $
    376
    
    
    $
    350
    
    
    $
    1,331
    
    
    $
    1,207Restricted Stock Units
    
    
    791
    
    
    
    470
    
    
    
    2,676
    
    
    
    1,484ESPP
    
    
    103
    
    
    
    185
    
    
    
    315
    
    
    
    526Actek Acquisition Compensation
    
    
    130
    
    
    
    
    
    
    
    333
    
    
    
    $
    1,400
    
    
    $
    1,005
    
    
    $
    4,655
    
    
    $
    3,217
  19




---



##### Table of Contents



Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Stock-based compensation:Cost of recurring revenues
    
    $
    157
    
    
    $
    108
    
    
    $
    394
    
    
    $
    402Cost of services revenues
    
    
    157
    
    
    
    185
    
    
    
    599
    
    
    
    441Sales and marketing
    
    
    180
    
    
    
    221
    
    
    
    760
    
    
    
    795Research and development
    
    
    245
    
    
    
    181
    
    
    
    712
    
    
    
    590General and administrative
    
    
    661
    
    
    
    310
    
    
    
    2,190
    
    
    
    989Total stock-based compensation
    
    $
    1,400
    
    
    $
    1,005
    
    
    $
    4,655
    
    
    $
    3,217
 Determination of Fair Value
  Three Months Ended September 30,

    
    Nine Months Ended September 30,2010

    
    2009

    
    2010

    
    2009Stock Option PlansExpected life (in years)
    

    3.50

    

    3.50

    

    2.50 to 3.50

    

    0.50 to 3.50Risk-free interest rate
    

    0.81%

    

    1.78%

    
    0.81% to 1.52%

    
    0.30% to 1.78%Volatility
    

    68%

    

        67%

    
        67% to 76%


    
        63% to 106%Dividend Yield
    

    

    

    

    

    

    

        Employee Stock Purchase PlanExpected life (in years)
    

    0.50 to 1.00

    

    0.50 to 1.00

    

    0.50 to 1.00

    

    0.50 to 1.00Risk-free interest rate
    
        0.19% to 0.26%

    
        0.27% to 0.46%


    
    0.18% to 0.34%


    
    0.27% to 0.62%Volatility
    
    39% to 44%


    
    68% to 101%


    
    39% to 60%


    
        68% to 126%Dividend Yield
    

    

    

    

    

    

    

    
 20




---



##### 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 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 and Nine months Ended September 30, 2010
   21




---



##### Table of Contents



Revenue Growth
  Cost Control and Non-GAAP Profitability
  Service Business
   Challenges and Risks
  22




---



##### Table of Contents



Application of Critical Accounting Policies and Use of Estimates
   23




---



##### Table of Contents



Recent Accounting Pronouncements
   24




---



##### Table of Contents



Results of Operations
 Comparison of the Three and Nine months Ended September 30, 2010 and 2009, and the Three Months
Ended June 30, 2010
 Revenues, cost of revenues and gross profit
  Three
    
    
    
    
    
    
    ThreeMonths
    
    
    
    
    
    
    Months
    
    
    
    
    
    
    
    
    
    
    PercentageEnded
    
    
    Percentage
    
    
    Ended
    
    
    Percentage
    
    
    Year to Year
    
    
    ChangeSeptember 30,
    
    
    of Total
    
    
    September 30,
    
    
    of Total
    
    
    Increase
    
    
    Year over2010
    
    
    Revenues
    
    
    2009
    
    
    Revenues
    
    
    (Decrease)
    
    
    YearRevenues:Recurring
    
    $
    13,231
    
    
    
    72
    %
    
    $
    11,170
    
    
    
    64
    %
    
    $
    2,061
    
    
    
    18
    %Services
    
    
    3,600
    
    
    
    19
    %
    
    
    5,349
    
    
    
    31
    %
    
    
    (1,749
    )
    
    
    (33
    )%License
    
    
    1,638
    
    
    
    9
    %
    
    
    872
    
    
    
    5
    %
    
    
    766
    
    
    
    88
    %Total revenues
    
    $
    18,469
    
    
    
    100
    %
    
    $
    17,391
    
    
    
    100
    %
    
    $
    1,078
    
    
    
    6
    %Cost of revenues:Recurring
    
    $
    6,664
    
    
    
    50
    %
    
    $
    5,711
    
    
    
    51
    %
    
    $
    953
    
    
    
    17
    %Services
    
    
    3,306
    
    
    
    92
    %
    
    
    5,054
    
    
    
    94
    %
    
    
    (1,748
    )
    
    
    (35
    )%License
    
    
    92
    
    
    
    6
    %
    
    
    214
    
    
    
    25
    %
    
    
    (122
    )
    
    
    (57
    )%Total cost of revenues
    
    $
    10,062
    
    
    
    
    
    
    $
    10,979
    
    
    
    
    
    
    $
    (917
    )Gross profit:Recurring
    
    $
    6,567
    
    
    
    50
    %
    
    $
    5,459
    
    
    
    49
    %
    
    $
    1,108
    
    
    
    20
    %Services
    
    
    294
    
    
    
    8
    %
    
    
    295
    
    
    
    6
    %
    
    
    (1
    )
    
    
    (0
    )%License
    
    
    1,546
    
    
    
    94
    %
    
    
    658
    
    
    
    75
    %
    
    
    888
    
    
    
    135
    %Total gross profit
    
    $
    8,407
    
    
    
    46
    %
    
    $
    6,412
    
    
    
    37
    %
    
    $
    1,995
    
    
    
    31
    %
 25




---



##### Table of Contents



Nine
    
    
    
    
    
    
    NineMonths
    
    
    
    
    
    
    Months
    
    
    
    
    
    
    
    
    
    
    PercentageEnded
    
    
    Percentage
    
    
    Ended
    
    
    Percentage
    
    
    Year to Year
    
    
    ChangeSeptember 30,
    
    
    of Total
    
    
    September 30,
    
    
    of Total
    
    
    Increase
    
    
    Year over2010
    
    
    Revenues
    
    
    2009
    
    
    Revenues
    
    
    (Decrease)
    
    
    YearRevenues:Recurring
    
    $
    38,783
    
    
    
    75
    %
    
    $
    34,669
    
    
    
    53
    %
    
    $
    4,114
    
    
    
    12
    %Services
    
    
    10,734
    
    
    
    21
    %
    
    
    25,958
    
    
    
    40
    %
    
    
    (15,224
    )
    
    
    (59
    )%License
    
    
    2,254
    
    
    
    4
    %
    
    
    5,034
    
    
    
    8
    %
    
    
    (2,780
    )
    
    
    (55
    )%Total revenues
    
    $
    51,771
    
    
    
    100
    %
    
    $
    65,661
    
    
    
    100
    %
    
    $
    (13,890
    )
    
    
    (21
    )%Cost of revenues:Recurring
    
    $
    19,198
    
    
    
    50
    %
    
    $
    16,912
    
    
    
    49
    %
    
    $
    2,286
    
    
    
    14
    %Services
    
    
    11,763
    
    
    
    110
    %
    
    
    22,034
    
    
    
    85
    %
    
    
    (10,271
    )
    
    
    (47
    )%License
    
    
    290
    
    
    
    13
    %
    
    
    656
    
    
    
    13
    %
    
    
    (366
    )
    
    
    (56
    )%Total cost of revenues
    
    $
    31,251
    
    
    
    
    
    
    $
    39,602
    
    
    
    
    
    
    $
    (8,351
    )Gross profit:Recurring
    
    $
    19,585
    
    
    
    50
    %
    
    $
    17,757
    
    
    
    51
    %
    
    $
    1,828
    
    
    
    10
    %Services
    
    
    (1,029
    )
    
    
    (10
    )%
    
    
    3,924
    
    
    
    15
    %
    
    
    (4,953
    )
    
    
    (126
    )%License
    
    
    1,964
    
    
    
    87
    %
    
    
    4,378
    
    
    
    87
    %
    
    
    (2,414
    )
    
    
    (55
    )%Total gross profit
    
    $
    20,520
    
    
    
    40
    %
    
    $
    26,059
    
    
    
    40
    %
    
    $
    (5,539
    )
    
    
    (21
    )%
 26




---



##### Table of Contents



Three
    
    
    
    
    
    
    ThreeMonths
    
    
    
    
    
    
    Months
    
    
    
    
    
    
    Quarter to
    
    
    PercentageEnded
    
    
    Percentage
    
    
    Ended
    
    
    Percentage
    
    
    Quarter
    
    
    ChangeSeptember 30,
    
    
    of Total
    
    
    June 30,
    
    
    of Total
    
    
    Increase
    
    
    Quarter over2010
    
    
    Revenues
    
    
    2010
    
    
    Revenues
    
    
    (Decrease)
    
    
    QuarterRevenues:Recurring
    
    $
    13,231
    
    
    
    72
    %
    
    $
    13,265
    
    
    
    77
    %
    
    $
    (34
    )
    
    
    (0
    )%Services
    
    
    3,600
    
    
    
    19
    %
    
    
    3,488
    
    
    
    20
    %
    
    
    112
    
    
    
    3
    %License
    
    
    1,638
    
    
    
    9
    %
    
    
    387
    
    
    
    2
    %
    
    
    1,251
    
    
    
    323
    %Total revenues
    
    $
    18,469
    
    
    
    100
    %
    
    $
    17,140
    
    
    
    100
    %
    
    $
    1,329
    
    
    
    8
    %Cost of revenues:Recurring
    
    $
    6,664
    
    
    
    50
    %
    
    $
    6,120
    
    
    
    46
    %
    
    $
    544
    
    
    
    9
    %Services
    
    
    3,306
    
    
    
    92
    %
    
    
    4,045
    
    
    
    116
    %
    
    
    (739
    )
    
    
    (18
    )%License
    
    
    92
    
    
    
    6
    %
    
    
    87
    
    
    
    22
    %
    
    
    5
    
    
    
    6
    %Total cost of revenues
    
    $
    10,062
    
    
    
    
    
    
    $
    10,252
    
    
    
    
    
    
    $
    (190
    )Gross profit:Recurring
    
    $
    6,567
    
    
    
    50
    %
    
    $
    7,145
    
    
    
    54
    %
    
    $
    (578
    )
    
    
    (8
    )%Services
    
    
    294
    
    
    
    8
    %
    
    
    (557
    )
    
    
    (16
    )%
    
    
    851
    
    
    
    (153
    )%License
    
    
    1,546
    
    
    
    94
    %
    
    
    300
    
    
    
    78
    %
    
    
    1,246
    
    
    
    415
    %Total gross profit
    
    $
    8,407
    
    
    
    46
    %
    
    $
    6,888
    
    
    
    40
    %
    
    $
    1,519
    
    
    
    22
    %
 Revenues
 Total Revenues
 Recurring Revenues.
  27




---



##### Table of Contents



Services Revenues.
 License Revenues.
 Cost of Revenues and Gross Margin
 Cost of Recurring Revenues.
  Cost of Services Revenues.
 28




---



##### Table of Contents



Cost of License Revenues.
 Gross Margin.
     29




---



##### Table of Contents



Operating Expenses
  Three
    
    
    
    
    
    
    ThreeMonths
    
    
    
    
    
    
    Months
    
    
    
    
    
    
    
    
    
    
    PercentageEnded
    
    
    Percentage
    
    
    Ended
    
    
    Percentage
    
    
    Year to Year
    
    
    ChangeSeptember 30,
    
    
    of Total
    
    
    September 30,
    
    
    of Total
    
    
    Increase
    
    
    Year over2010
    
    
    Revenues
    
    
    2009
    
    
    Revenues
    
    
    (Decrease)
    
    
    YearOperating expenses:Sales and marketing
    
    $
    3,537
    
    
    
    19
    %
    
    $
    4,586
    
    
    
    26
    %
    
    $
    (1,049
    )
    
    
    (23
    )%Research and development
    
    
    2,524
    
    
    
    14
    %
    
    
    3,397
    
    
    
    20
    %
    
    
    (873
    )
    
    
    (26
    )%General and administrative
    
    
    3,511
    
    
    
    19
    %
    
    
    3,072
    
    
    
    18
    %
    
    
    439
    
    
    
    14
    %Restructuring
    
    
    450
    
    
    
    2
    %
    
    
    1,973
    
    
    
    11
    %
    
    
    (1,523
    )
    
    
    (77
    )%Total operating expenses
    
    $
    10,022
    
    
    
    54
    %
    
    $
    13,028
    
    
    
    75
    %
    
    $
    (3,006
    )
    
    
    (23
    )%Nine
    
    
    
    
    
    
    NineMonths
    
    
    
    
    
    
    Months
    
    
    
    
    
    
    
    
    
    
    PercentageEnded
    
    
    Percentage
    
    
    Ended
    
    
    Percentage
    
    
    Year to Year
    
    
    ChangeSeptember 30,
    
    
    of Total
    
    
    September 30,
    
    
    of Total
    
    
    Increase
    
    
    Year over2010
    
    
    Revenues
    
    
    2009
    
    
    Revenues
    
    
    (Decrease)
    
    
    YearOperating expenses:Sales and marketing
    
    $
    12,174
    
    
    
    24
    %
    
    $
    15,892
    
    
    
    24
    %
    
    $
    (3,718
    )
    
    
    (23
    )%Research and development
    
    
    8,088
    
    
    
    16
    %
    
    
    10,871
    
    
    
    17
    %
    
    
    (2,783
    )
    
    
    (26
    )%General and administrative
    
    
    10,371
    
    
    
    20
    %
    
    
    9,322
    
    
    
    14
    %
    
    
    1,049
    
    
    
    11
    %Restructuring
    
    
    1,620
    
    
    
    3
    %
    
    
    2,778
    
    
    
    4
    %
    
    
    (1,158
    )
    
    
    (42
    )%Total operating expenses
    
    $
    32,253
    
    
    
    62
    %
    
    $
    38,863
    
    
    
    59
    %
    
    $
    (6,610
    )
    
    
    (17
    )%Three
    
    
    
    
    
    
    ThreeMonths
    
    
    
    
    
    
    Months
    
    
    
    
    
    
    Quarter to
    
    
    PercentageEnded
    
    
    Percentage
    
    
    Ended
    
    
    Percentage
    
    
    Quarter
    
    
    ChangeSeptember 30,
    
    
    of Total
    
    
    June 30,
    
    
    of Total
    
    
    Increase
    
    
    Quarter over2010
    
    
    Revenues
    
    
    2010
    
    
    Revenues
    
    
    (Decrease)
    
    
    QuarterOperating expenses:Sales and marketing
    
    $
    3,537
    
    
    
    19
    %
    
    $
    3,993
    
    
    
    23
    %
    
    $
    (456
    )
    
    
    (11
    )%Research and development
    
    
    2,524
    
    
    
    14
    %
    
    
    2,427
    
    
    
    14
    %
    
    
    97
    
    
    
    4
    %General and administrative
    
    
    3,511
    
    
    
    19
    %
    
    
    3,627
    
    
    
    21
    %
    
    
    (116
    )
    
    
    (3
    )%Restructuring
    
    
    450
    
    
    
    2
    %
    
    
    451
    
    
    
    3
    %
    
    
    (1
    )
    
    
    (0
    )%Total operating expenses
    
    $
    10,022
    
    
    
    54
    %
    
    $
    10,498
    
    
    
    61
    %
    
    $
    (476
    )
    
    
    (5
    )%
 Sales and Marketing.
  30




---



##### Table of Contents



Research and Development.
  General and Administrative.
  Restructuring.
 31




---



##### Table of Contents



Stock-Based Compensation
  Three
    
    
    ThreeMonths
    
    
    Months
    
    
    
    
    
    
    PercentageEnded
    
    
    Ended
    
    
    Year to Year
    
    
    ChangeSeptember 30,
    
    
    September 30,
    
    
    Increase
    
    
    Year over2010
    
    
    2009
    
    
    (Decrease)
    
    
    YearStock-based compensation:Cost of recurring revenues
    
    $
    157
    
    
    $
    108
    
    
    $
    49
    
    
    
    45
    %Cost of services revenues
    
    
    157
    
    
    
    185
    
    
    
    (28
    )
    
    
    (15
    )%Sales and marketing
    
    
    180
    
    
    
    221
    
    
    
    (41
    )
    
    
    (19
    )%Research and development
    
    
    245
    
    
    
    181
    
    
    
    64
    
    
    
    35
    %General and administrative
    
    
    661
    
    
    
    310
    
    
    
    351
    
    
    
    113
    %Total stock-based compensation
    
    $
    1,400
    
    
    $
    1,005
    
    
    $
    395
    
    
    
    39
    %
 Nine
    
    
    NineMonths
    
    
    Months
    
    
    
    
    
    
    PercentageEnded
    
    
    Ended
    
    
    Year to Year
    
    
    ChangeSeptember 30,
    
    
    September 30,
    
    
    Increase
    
    
    Year over2010
    
    
    2009
    
    
    (Decrease)
    
    
    YearStock-based compensation:Cost of recurring revenues
    
    $
    394
    
    
    $
    402
    
    
    $
    (8
    )
    
    
    (2
    )%Cost of services revenues
    
    
    599
    
    
    
    441
    
    
    
    158
    
    
    
    36
    %Sales and marketing
    
    
    760
    
    
    
    795
    
    
    
    (35
    )
    
    
    (4
    )%Research and development
    
    
    712
    
    
    
    590
    
    
    
    122
    
    
    
    21
    %General and administrative
    
    
    2,190
    
    
    
    989
    
    
    
    1,201
    
    
    
    121
    %Total stock-based compensation
    
    $
    4,655
    
    
    $
    3,217
    
    
    $
    1,438
    
    
    
    45
    %
  32




---



##### Table of Contents



Other Items
  Three
    
    
    ThreeMonths
    
    
    Months
    
    
    
    
    
    
    PercentageEnded
    
    
    Ended
    
    
    Year to Year
    
    
    ChangeSeptember 30,
    
    
    September 30,
    
    
    Increase
    
    
    Year over2010
    
    
    2009
    
    
    (Decrease)
    
    
    YearInterest and other income
    
    $
    79
    
    
    $
    49
    
    
    $
    30
    
    
    
    61
    %Provision for income taxes
    
    $
    51
    
    
    $
    173
    
    
    $
    (122
    )
    
    
    (71)
    %
 Nine
    
    
    NineMonths
    
    
    Months
    
    
    
    
    
    
    PercentageEnded
    
    
    Ended
    
    
    
    
    
    
    ChangeSeptember 30,
    
    
    September 30,
    
    
    Year to Year
    
    
    Year over2010
    
    
    2009
    
    
    Decrease
    
    
    YearInterest and other income (expense)
    
    $
    (14
    )
    
    $
    239
    
    
    $
    (253
    )
    
    
    (106)
    %Provision for (benefit from) income taxes
    
    $
    (462
    )
    
    $
    319
    
    
    $
    (781
    )
    
    
    (245)
    %
 Interest and Other Income
  Provision (benefit) for Income Taxes
   33




---



##### Table of Contents



Liquidity and Capital Resources
   Nine Months Ended September 30,2010
    
    
    2009Net cash provided by (used in):Operating activities
    
    $
    108
    
    
    $
    (2,248
    )Investing activities
    
    
    (1,051
    )
    
    
    (11,494
    )Financing activities
    
    
    145
    
    
    
    605
 Net Cash Provided by (Used in) Operating Activities.
 Net Cash Used in Investing Activities.
 Net Cash Provided by Financing Activities.
 Auction Rate Securities
  34




---



##### Table of Contents



Contractual Obligations and Commitments
  Payments due by PeriodRemaining
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2015Contractual Obligations
    
    Total
    
    
    2010
    
    
    2011
    
    
    2012
    
    
    2013
    
    
    2014
    
    
    and beyondOperating lease
commitments
    
    $
    7,315
    
    
    $
    267
    
    
    $
    1,765
    
    
    $
    1,172
    
    
    $
    998
    
    
    $
    904
    
    
    $
    2,209Unconditional
purchase commitments
    
    $
    664
    
    
    $
    232
    
    
    $
    330
    
    
    $
    102
    
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    Off-Balance Sheet Arrangements
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
 Market Risk.
   35




---



##### Table of Contents



Interest Rate Risk.
  Expected MaturityTotal
    
    
    Total1 Year
    
    
    More Than
    
    
    Principal
    
    
    Fairor Less
    
    
    1 Year
    
    
    Amount
    
    
    ValueAvailable-for-sale securities
    
    $
    9,949
    
    
    $
    6,214
    
    
    $
    16,163
    
    
    $
    16,168Weighted average interest rate
    
    
    0.51
    %
    
    
    0.68
    %
  Foreign Currency Exchange Risk.
   36




---



##### Table of Contents



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
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 and those factors included
in our quarterly reports on Form 10-Q filed subsequently thereto, if any, 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 or maintenance renewal rates or the impact
these renewal rates will have on our future revenues or operating results.
  37




---



##### Table of Contents



Item 6. Exhibits
 (a) Exhibits
 ExhibitNumber
    
    Description3.2
    
    Second Amended and Restated Bylaws31.1
    
    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
  38




---



##### Table of Contents



SIGNATURES
  CALLIDUS SOFTWARE INC.By:
    /s/ RONALD J. FIORRonald J. FiorChief Financial Officer,
Senior Vice President, Finance and Operations 39




---



##### Table of Contents



EXHIBIT INDEX
TO
CALLIDUS SOFTWARE INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2010
 ExhibitNumber
    
    Description3.2
    
    Second Amended and Restated Bylaws31.1
    
    Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act32.1
    
    Certification Pursuant to Section 906 of the Sarbanes-Oxley Act
 40