##### 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 November 30, 2009
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number: 001-33634
 DemandTec, Inc.
 (Exact name of registrant as specified in its charter)
 Delaware
(State or Other Jurisdiction of 
Incorporation or Organization)
    
    94-3344761
(I.R.S. Employer
Identification Number)
 One Franklin Parkway, Building 910
San Mateo, California 94403
(Address of Principal Executive Offices including Zip Code)
 (650) 645-7100
(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




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##### 



DEMANDTEC, INC.
FORM 10-Q
 TABLE OF CONTENTS
 Page No.PART I. FINANCIAL INFORMATIONItem 1. Financial StatementsCondensed Consolidated Balance Sheets as of November 30, 2009 and February 28, 2009
    
    3Condensed Consolidated Statements of Operations for the Three and Nine Months Ended November 30,
2009 and 2008
    
    4Condensed Consolidated Statements of Cash Flows for the Nine Months Ended November 30, 2009 and 2008
    
    5Notes to Condensed Consolidated Financial Statements
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    17Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    26Item 4. Controls and Procedures
    
    27PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    29Item 1A. Risk Factors
    
    29Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    41Item 3. Defaults Upon Senior Securities
    
    41Item 4. Submission of Matters to a Vote of Security Holders
    
    41Item 5. Other Information
    
    41Item 6. Exhibits
    
    42Signature
    
    43EX-31.1EX-31.2EX-32.1
  2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1.
    
    Financial Statements
 DemandTec, Inc.
 
 Condensed Consolidated Balance Sheets
(In thousands, except per share data)
 November 30,
    
    
    February 28,2009
    
    
    2009(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    14,412
    
    
    $
    33,572Marketable securities
    
    
    32,592
    
    
    
    46,426Accounts receivable, net of allowances of $145
and $120 at November 30, 2009 and February 28,
2009, respectively
    
    
    14,173
    
    
    
    11,000Other current assets
    
    
    3,649
    
    
    
    4,230Total current assets
    
    
    64,826
    
    
    
    95,228Marketable securities, non-current
    
    
    19,096
    
    
    
    7,886Property, equipment and leasehold improvements, net
    
    
    4,248
    
    
    
    5,429Intangible assets, net
    
    
    5,228
    
    
    
    8,405Goodwill
    
    
    16,662
    
    
    
    16,492Other assets, net
    
    
    652
    
    
    
    715Total assets
    
    $
    110,712
    
    
    $
    134,155LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable and accrued expenses
    
    $
    12,868
    
    
    $
    12,962Deferred revenue
    
    
    37,427
    
    
    
    46,415Notes payable, current
    
    
    434
    
    
    
    1,720Merger consideration payable
    
    
    1,000
    
    
    
    12,343Total current liabilities
    
    
    51,729
    
    
    
    73,440Deferred revenue, non-current
    
    
    1,162
    
    
    
    2,400Other long-term liabilities
    
    
    953
    
    
    
    1,666Commitments and contingencies (see Note 5)Stockholders equity:Common stock, $0.001 par value  175,000 shares
authorized; 29,090 and 28,059 shares issued and
outstanding at November 30, 2009 and February
28, 2009, respectively
    
    
    29
    
    
    
    28Additional paid-in capital
    
    
    143,199
    
    
    
    133,320Accumulated other comprehensive income
    
    
    285
    
    
    
    682Accumulated deficit
    
    
    (86,645
    )
    
    
    (77,381
    )Total stockholders equity
    
    
    56,868
    
    
    
    56,649Total liabilities and stockholders equity
    
    $
    110,712
    
    
    $
    134,155
  3




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##### Table of Contents



DemandTec, Inc.
 
 Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
 Three Months Ended
    
    
    Nine Months EndedNovember 30,
    
    
    November 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Revenue
    
    $
    20,088
    
    
    $
    18,989
    
    
    $
    59,429
    
    
    $
    55,675Cost of revenue(1)(2)
    
    
    6,361
    
    
    
    5,834
    
    
    
    19,365
    
    
    
    17,335Gross profit
    
    
    13,727
    
    
    
    13,155
    
    
    
    40,064
    
    
    
    38,340Operating expenses:Research and development(2)
    
    
    8,037
    
    
    
    6,659
    
    
    
    24,190
    
    
    
    19,772Sales and marketing(2)
    
    
    5,067
    
    
    
    4,839
    
    
    
    15,912
    
    
    
    15,250General and administrative(2)
    
    
    2,227
    
    
    
    2,662
    
    
    
    7,387
    
    
    
    7,333Restructuring charges
    
    
    497
    
    
    
    
    
    
    
    775
    
    
    
    Amortization of purchased intangible assets
    
    
    575
    
    
    
    331
    
    
    
    1,752
    
    
    
    751Total operating expenses
    
    
    16,403
    
    
    
    14,491
    
    
    
    50,016
    
    
    
    43,106Loss from operations
    
    
    (2,676
    )
    
    
    (1,336
    )
    
    
    (9,952
    )
    
    
    (4,766
    )Interest income
    
    
    103
    
    
    
    431
    
    
    
    494
    
    
    
    1,436Interest expense
    
    
    (12
    )
    
    
    (31
    )
    
    
    (74
    )
    
    
    (54
    )Other income (expense), net
    
    
    21
    
    
    
    37
    
    
    
    128
    
    
    
    (25
    )Loss before
provision (benefit) for income taxes
    
    
    (2,564
    )
    
    
    (899
    )
    
    
    (9,404
    )
    
    
    (3,409
    )Provision (benefit) for income taxes
    
    
    (167
    )
    
    
    (91
    )
    
    
    (140
    )
    
    
    1Net loss
    
    $
    (2,397
    )
    
    $
    (808
    )
    
    $
    (9,264
    )
    
    $
    (3,410
    )Net loss per common share, basic and diluted
    
    $
    (0.08
    )
    
    $
    (0.03
    )
    
    $
    (0.32
    )
    
    $
    (0.13
    )Shares used in computing net loss per common share, basic and diluted
    
    
    28,914
    
    
    
    27,681
    
    
    
    28,534
    
    
    
    27,192(1) Includes amortization of purchased intangible assets
    
    $
    466
    
    
    $
    152
    
    
    $
    1,397
    
    
    $
    457(2) Includes stock-based compensation expense as follows:Cost of revenue
    
    $
    377
    
    
    $
    389
    
    
    $
    1,318
    
    
    $
    1,243Research and development
    
    
    784
    
    
    
    509
    
    
    
    2,588
    
    
    
    1,681Sales and marketing
    
    
    597
    
    
    
    488
    
    
    
    1,868
    
    
    
    1,699General and administrative
    
    
    473
    
    
    
    424
    
    
    
    1,717
    
    
    
    1,222Total stock-based compensation expense
    
    $
    2,231
    
    
    $
    1,810
    
    
    $
    7,491
    
    
    $
    5,845
  4




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##### Table of Contents



DemandTec, Inc
 
 Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
 Nine Months EndedNovember 30,2009
    
    
    2008Operating activities:Net loss
    
    $
    (9,264
    )
    
    $
    (3,410
    )Adjustment to reconcile net loss to net cash provided by operating activities:Depreciation
    
    
    2,285
    
    
    
    2,149Stock-based compensation expense
    
    
    7,491
    
    
    
    5,845Amortization of purchased intangible assets
    
    
    3,149
    
    
    
    1,208Other
    
    
    (44
    )
    
    
    179Changes in operating assets and liabilities:Accounts receivable
    
    
    (3,263
    )
    
    
    5,955Other current assets
    
    
    379
    
    
    
    142Other assets
    
    
    (81
    )
    
    
    221Accounts payable and accrued liabilities
    
    
    2,108
    
    
    
    3,372Accrued compensation
    
    
    (1,683
    )
    
    
    403Deferred revenue
    
    
    (10,226
    )
    
    
    (5,274
    )Net cash provided by (used in) operating activities
    
    
    (9,149
    )
    
    
    10,790Investing activities:Purchases of property, equipment and leasehold improvements
    
    
    (1,233
    )
    
    
    (2,294
    )Purchases of marketable securities
    
    
    (52,996
    )
    
    
    (69,805
    )Maturities of marketable securities
    
    
    55,620
    
    
    
    45,220Acquisition of Connect3
    
    
    (12,544
    )
    
    
    Purchase of intangible assets
    
    
    
    
    
    
    (1,000
    )Change in restricted cash
    
    
    
    
    
    
    200Net cash used in investing activities
    
    
    (11,153
    )
    
    
    (27,679
    )Financing activities:Proceeds from issuance of common stock
    
    
    2,381
    
    
    
    2,319Payments on notes payable
    
    
    (1,286
    )
    
    
    (8
    )Net cash provided by financing activities
    
    
    1,095
    
    
    
    2,311Effect of exchange rate changes on cash and cash equivalents
    
    
    47
    
    
    
    (196
    )Net decrease in cash and cash equivalents
    
    
    (19,160
    )
    
    
    (14,774
    )Cash and cash equivalents at beginning of period
    
    
    33,572
    
    
    
    43,257Cash and cash equivalents at end of period
    
    $
    14,412
    
    
    $
    28,483
  5




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##### Table of Contents



DemandTec,
Inc.
 
 Notes to Condensed Consolidated Financial Statements
 1. Business Summary and Significant Accounting Policies
 Description of Business
  Basis of Presentation
   Reclassifications
  Use of Estimates
  6




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##### Table of Contents



Revenue Recognition
   
    
    there is persuasive evidence of an arrangement;
    
    access to the software service has been provided to the customer;
    
    the collection of the fees is probable; and
    
    the amount of fees to be paid by the customer is fixed or determinable.
  Deferred Revenue
  Concentrations of Credit Risk, Significant Customers and Suppliers and Geographic Information
    Three Months Ended November 30,
    
    
    Nine Months Ended November 30,2009
    
    
    2008
    
    
    2009
    
    
    2008United States
    
    $
    17,396
    
    
    $
    16,528
    
    
    $
    51,399
    
    
    $
    48,028International
    
    
    2,692
    
    
    
    2,461
    
    
    
    8,030
    
    
    
    7,647Total revenue
    
    $
    20,088
    
    
    $
    18,989
    
    
    $
    59,429
    
    
    $
    55,675
  7




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##### Table of Contents



Impairment of Long-Lived Assets
  Stock-Based Compensation
  Net Loss per Common Share
   Three Months Ended November 30,
    
    
    Nine Months Ended November 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Net loss
    
    $
    (2,397
    )
    
    $
    (808
    )
    
    $
    (9,264
    )
    
    $
    (3,410
    )Weighted average number of common shares outstanding
    
    
    28,914
    
    
    
    27,694
    
    
    
    28,536
    
    
    
    27,211Weighted average number of common shares subject to
repurchase
    
    
    
    
    
    
    (13
    )
    
    
    (2
    )
    
    
    (19
    )Shares used in computing net loss per common share,
basic and diluted
    
    
    28,914
    
    
    
    27,681
    
    
    
    28,534
    
    
    
    27,192Net loss per common share, basic and diluted
    
    $
    (0.08
    )
    
    $
    (0.03
    )
    
    $
    (0.32
    )
    
    $
    (0.13
    )
 8




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##### Table of Contents



Three Months Ended November 30,
    
    
    Nine Months Ended November 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Shares subject to options to
purchase common stock, PSUs and
RSUs, and shares subject to
issuance under the ESPP
    
    
    3,779
    
    
    
    4,073
    
    
    
    3,930
    
    
    
    4,467Common stock subject to repurchase
    
    
    
    
    
    
    13
    
    
    
    2
    
    
    
    19Total
    
    
    3,779
    
    
    
    4,086
    
    
    
    3,932
    
    
    
    4,486
 New Accounting Pronouncements
   Recently Adopted Accounting Pronouncements
     9




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##### Table of Contents



2. Acquisition
   3. Balance Sheet Components
 Marketable Securities
  10




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##### Table of Contents



November 30, 2009
    
    
    February 28, 2009Unrecognized
    
    
    
    
    
    
    
    
    
    
    UnrecognizedCost
    
    
    Gain
    
    
    Loss
    
    
    Fair Value
    
    
    Cost
    
    
    Gain
    
    
    Loss
    
    
    Fair ValueCommercial paper
    
    $
    3,496
    
    
    $
    1
    
    
    $
    
    
    
    $
    3,497
    
    
    $
    6,291
    
    
    $
    2
    
    
    $
    
    
    
    $
    6,293Certificate of deposit
    
    
    1,000
    
    
    
    
    
    
    
    
    
    
    
    1,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Corporate bonds
    
    
    13,750
    
    
    
    137
    
    
    
    (1
    )
    
    
    13,886
    
    
    
    12,314
    
    
    
    41
    
    
    
    (10
    )
    
    
    12,345Obligations of
government-sponsored
enterprises
    
    
    33,442
    
    
    
    114
    
    
    
    (4
    )
    
    
    33,552
    
    
    
    23,724
    
    
    
    102
    
    
    
    (10
    )
    
    
    23,816Treasury bills
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,983
    
    
    
    14
    
    
    
    
    
    
    
    11,997$
    51,688
    
    
    $
    252
    
    
    $
    (5
    )
    
    $
    51,935
    
    
    $
    54,312
    
    
    $
    159
    
    
    $
    (20
    )
    
    $
    54,451
  Cost
    
    
    Fair ValueDue in less than one year
    
    $
    40,762
    
    
    $
    40,903Due in more than one year
    
    
    10,926
    
    
    
    11,032$
    51,688
    
    
    $
    51,935
  Accounts Payable and Accrued Expenses
  November 30,
    
    
    February 28,2009
    
    
    2009Accounts payable
    
    $
    4,008
    
    
    $
    2,822Accrued professional services
    
    
    826
    
    
    
    640Income taxes payable
    
    
    23
    
    
    
    50Other accrued liabilities
    
    
    2,081
    
    
    
    1,837Accrued compensation
    
    
    5,930
    
    
    
    7,613Total accounts payable and accrued expenses
    
    $
    12,868
    
    
    $
    12,962
 4. Goodwill and Purchased Intangible Assets
 Goodwill
  Purchased Intangible Assets
  11




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##### Table of Contents



5. Commitments and Contingencies
 Commitments
   Legal Proceedings
  6. Debt
   7. Stock-Based Compensation
 Equity Incentive Plans
 1999 Equity Incentive Plan
  12




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##### Table of Contents



2007 Equity Incentive Plan
  Stock Options
  Performance Stock Units (PSUs)
     Restricted Stock Units (RSUs)
  13




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##### Table of Contents



Shares
    
    Shares Subject
    
    Weighted AverageAvailable
    
    to Options
    
    Option Exercisefor Grant
    
    Outstanding
    
    Price per Share(Shares in thousands)Balance at February 28, 2009
    
    
    604
    
    
    
    7,732
    
    
    $
    5.20Additional shares authorized
    
    
    1,403
    
    
    
    
    
    
    
    Options granted
    
    
    (607
    )
    
    
    607
    
    
    $
    8.26Performance stock units granted
    
    
    (926
    )
    
    
    
    
    
    
    Options exercised
    
    
    
    
    
    
    (627
    )
    
    $
    1.971999 Plan options cancelled/forfeited (1)
    
    
    
    
    
    
    (80
    )
    
    $
    7.022007 Plan options cancelled/forfeited
    
    
    156
    
    
    
    (156
    )
    
    $
    9.68Performance and restricted stock units cancelled/forfeited
    
    
    286
    
    
    
    
    
    
    
    Balance at November 30, 2009
    
    
    916
    
    
    
    7,476
    
    
    $
    5.61
 
 (1)
    
    Under the terms of the 1999 Plan, shares underlying cancelled or forfeited options are no
longer available for awards. Employee Stock Purchase Plan (ESPP)
  Stock-Based Compensation Expense Associated with Awards to Employees
    14




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##### Table of Contents



WeightedAverage
    
    Expected
    
    
    
    
    
    
    
    
    
    Weighted Average perExpected
    
    Stock
    
    Risk-free
    
    Expected
    
    Share Fair Value ofTerm
    
    Price
    
    Interest
    
    Dividend
    
    Awards Granted(in years)
    
    Volatility
    
    Rate
    
    Yield
    
    During the PeriodThree months ended November 30, 2009(1)Stock options
    
    
    4.4
    
    
    
    63
    %
    
    
    2.3
    %
    
    
    0
    %
    
    $
    4.46ESPP
    
    
    0.5
    
    
    
    45
    %
    
    
    0.2
    %
    
    
    0
    %
    
    $
    2.30Three months ended November 30, 2008(1)Stock options
    
    
    4.1
    
    
    
    57
    %
    
    
    2.3
    %
    
    
    0
    %
    
    $
    4.10ESPP
    
    
    0.5
    
    
    
    72
    %
    
    
    0.9
    %
    
    
    0
    %
    
    $
    2.64Nine months ended November 30, 2009(2)Stock options
    
    
    4.3
    
    
    
    64
    %
    
    
    2.0
    %
    
    
    0
    %
    
    $
    4.23PSUs
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
    
    
    $
    7.64ESPP
    
    
    0.5
    
    
    
    71
    %
    
    
    0.2
    %
    
    
    0
    %
    
    $
    2.70Nine months ended November 30, 2008Stock options
    
    
    4.2
    
    
    
    51
    %
    
    
    2.7
    %
    
    
    0
    %
    
    $
    3.88PSUs
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
    
    
    $
    10.37RSUs
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
    
    
    $
    10.40ESPP
    
    
    0.5
    
    
    
    57
    %
    
    
    1.5
    %
    
    
    0
    %
    
    $
    2.27
 
 (1)
    
    No RSUs and PSUs were granted in the three months ended November 30, 2009 and 2008.(2)
    
    No RSUs were granted in the nine months ended November 30, 2009.  Unrecognized
    
    
    RemainingStock-Based
    
    
    Weighted AverageCompensation
    
    
    Recognition Period(in millions)
    
    
    (in years)Stock options granted after March 1, 2006
    
    $
    9.4
    
    
    
    2.3PSUs
    
    
    2.0
    
    
    
    0.8RSUs
    
    
    1.0
    
    
    
    0.4ESPP
    
    
    0.2
    
    
    
    0.5$
    12.6
    
    
    
    1.9
 8. Income Taxes
   15




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9. Derivative Financial Instruments
  
  GainReclassified from
    
    
    AccumulatedNet Unrealized
    
    
    Cumulative
    
    
    Accumulated Other
    
    
    OtherGain on
    
    
    Implied Interest on
    
    
    Comprehensive
    
    
    ComprehensiveForward Contracts
    
    
    Forward Contracts
    
    
    Income Into Revenue
    
    
    IncomeBalance at February 28, 2009
    
    $
    642
    
    
    $
    40
    
    
    $
    
    
    
    $
    682Gain reclassified from
accumulated other
comprehensive income into
revenue
    
    
    
    
    
    
    
    
    
    
    (68
    )
    
    
    (68
    )Change in net unrealized gain
and cumulative implied
interest on forward contracts
    
    
    (360
    )
    
    
    31
    
    
    
    
    
    
    
    (329
    )Balance at November 30, 2009
    
    $
    282
    
    
    $
    71
    
    
    $
    (68
    )
    
    $
    285
   10. Fair Value Measurements
  16




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##### Table of Contents



Level 1 
 Level 2 
 Level 3 
    Significant OtherObservable InputsDescription
    
    Total
    
    (Level 2)Assets:Foreign currency forward contracts(1)
    
    $
    42
    
    
    $
    42
 
 (1)
    
    Included in other current assets, net on our condensed consolidated balance sheet. 11. Comprehensive Loss
  Three Months Ended November 30,
    
    
    Nine Months Ended November 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Net loss
    
    $
    (2,397
    )
    
    $
    (808
    )
    
    $
    (9,264
    )
    
    $
    (3,410
    )Gain reclassified from
accumulated other
comprehensive income
into revenue
    
    
    (34
    )
    
    
    
    
    
    
    (68
    )
    
    
    Change in net
unrealized gain and
cumulative implied
interest on forward
contracts
    
    
    (68
    )
    
    
    411
    
    
    
    (329
    )
    
    
    660Total comprehensive loss
    
    $
    (2,499
    )
    
    $
    (397
    )
    
    $
    (9,661
    )
    
    $
    (2,750
    )
 12. Restructuring Charges
  13. Subsequent Events
  
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 This quarterly report on Form 10-Q contains forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended. In addition, we may make other
written and oral communications from time to time that contain
 17




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such statements. Forward-looking statements include statements as to industry trends and
future expectations of ours and other matters that do not relate strictly to historical facts.
These statements are often identified by the use of words such as may, will, expect,
believe, anticipate, intend, could, estimate, or continue, and similar expressions or
variations. These statements are based on the beliefs and assumptions of our management based on
information currently available to management. Such forward-looking statements are subject to
risks, uncertainties and other factors that could cause actual results and the timing of certain
events to differ materially from future results expressed or implied by such forward-looking
statements. These forward-looking statements include statements in this Item 2, Managements
Discussion and Analysis of Financial Condition and Results of Operations. Factors that could cause
or contribute to such differences include, but are not limited to, those identified below, and
those discussed in the section titled Risk Factors included elsewhere in this Form 10-Q and in
our other Securities and Exchange Commission filings, including our Annual Report on Form 10-K for
the fiscal year ended February 28, 2009. Furthermore, such forward-looking statements speak only as
of the date of this report. We undertake no obligation to update any forward-looking statements to
reflect events or circumstances after the date of such statements.
 The following discussion and analysis of our financial condition and results of operations should
be read in conjunction with the consolidated financial statements and related notes thereto
appearing elsewhere in this Form 10-Q and with the consolidated financial statements and notes
thereto and managements discussion and analysis of financial condition and results of operations
appearing in our Annual Report on Form 10-K for the fiscal year ended February 28, 2009.
 Overview
    .
  18




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Critical Accounting Policies and Estimates
  
    
    Revenue Recognition
 
    
    Stock-Based Compensation
 19




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
    
    Goodwill and Intangible Assets
 
    
    Impairment of Long-Lived Assets
   Results of Operations
 Revenue
  Three Months Ended November 30,
    
    Nine Months Ended November 30,2009
    
    2008
    
    2009
    
    2008(in thousands)Revenue
    
    $
    20,088
    
    
    $
    18,989
    
    
    $
    59,429
    
    
    $
    55,675
 Three and Nine Months Ended November 30, 2009 Compared to the Three and Nine Months Ended
November 30, 2008
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Cost of Revenue
  Three Months Ended November 30,
    
    Nine Months Ended November 30,2009
    
    2008
    
    2009
    
    2008(dollars in thousands)Revenue
    
    $
    20,088
    
    
    $
    18,989
    
    
    $
    59,429
    
    
    $
    55,675Cost of revenue
    
    
    6,361
    
    
    
    5,834
    
    
    
    19,365
    
    
    
    17,335Gross profit
    
    
    13,727
    
    
    
    13,155
    
    
    
    40,064
    
    
    
    38,340Gross margin
    
    
    68.3
    %
    
    
    69.3
    %
    
    
    67.4
    %
    
    
    68.9
    %
 Three and Nine Months Ended November 30, 2009 Compared to the Three and Nine Months Ended
November 30, 2008.
   Research and Development Expenses
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Three Months Ended November 30,
    
    Nine Months Ended November 30,2009
    
    2008
    
    2009
    
    2008(dollars in thousands)Research and development
    
    $
    8,037
    
    
    $
    6,659
    
    
    $
    24,190
    
    
    $
    19,772Percent of revenue
    
    
    40.0
    %
    
    
    35.1
    %
    
    
    40.7
    %
    
    
    35.5
    %
 Three and Nine Months Ended November 30, 2009 Compared to the Three and Nine Months Ended
November 30, 2008.
   Sales and Marketing Expenses
  Three Months Ended November 30,
    
    Nine Months Ended November 30,2009
    
    2008
    
    2009
    
    2008(dollars in thousands)Sales and marketing
    
    $
    5,067
    
    
    $
    4,839
    
    
    $
    15,912
    
    
    $
    15,250Percent of revenue
    
    
    25.2
    %
    
    
    25.5
    %
    
    
    26.8
    %
    
    
    27.4
    %
 Three and Nine Months Ended November 30, 2009 Compared to the Three and Nine Months Ended
November 30, 2008.
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General and Administrative Expenses
  Three Months Ended November 30,
    
    Nine Months Ended November 30,2009
    
    2008
    
    2009
    
    2008(dollars in thousands)General and administrative
    
    $
    2,227
    
    
    $
    2,662
    
    
    $
    7,387
    
    
    $
    7,333Percent of revenue
    
    
    11.1
    %
    
    
    14.0
    %
    
    
    12.4
    %
    
    
    13.2
    %
 Three and Nine Months Ended November 30, 2009 Compared to the Three and Nine Months Ended
November 30, 2008.
   Amortization of Purchased Intangible Assets
 Three Months Ended November 30,
    
    Nine Months Ended November 30,2009
    
    2008
    
    2009
    
    2008(dollars in thousands)Amortization of purchased intangible assets
    
    $
    575
    
    
    $
    331
    
    
    $
    1,752
    
    
    $
    751Percent of revenue
    
    
    2.9
    %
    
    
    1.7
    %
    
    
    2.9
    %
    
    
    1.3
    %
 Three and Nine Months Ended November 30, 2009 Compared to the Three and Nine Months Ended
November 30, 2008.
 Other Income, Net
 Three Months Ended November 30,
    
    
    Nine Months Ended November 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(in thousands)Interest income
    
    $
    103
    
    
    $
    431
    
    
    $
    494
    
    
    $
    1,436Interest expense
    
    
    (12
    )
    
    
    (31
    )
    
    
    (74
    )
    
    
    (54
    )Other income (expense)
    
    
    21
    
    
    
    37
    
    
    
    128
    
    
    
    (25
    )Other income, net
    
    $
    112
    
    
    $
    437
    
    
    $
    548
    
    
    $
    1,357
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Three and Nine Months Ended November 30, 2009 Compared to the Three and Nine Months Ended
November 30, 2008.
 Provision for Income Taxes
 Three Months Ended November 30,
    
    Nine Months Ended November 30,2009
    
    2008
    
    2009
    
    2008(in thousands)Provision (benefit) for income taxes
    
    $
    (167
    )
    
    $
    (91
    )
    
    $
    (140
    )
    
    $
    1
 Three and Nine Months Ended November 30, 2009 Compared to the Three and Nine and Months Ended
November 30, 2008.
   Stock-Based Compensation Expense
  Liquidity and Capital Resources
  24




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Nine Months Ended November 30,2009
    
    2008(in thousands)Net cash provided by (used in) operating activities
    
    $
    (9,149
    )
    
    $
    10,790Net cash used in investing activities
    
    
    (11,153
    )
    
    
    (27,679
    )Net cash provided by financing activities
    
    
    1,095
    
    
    
    2,311
 Operating Activities
    Investing Activities
  25




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Financing Activities
    Contractual Obligations
   Payments Due by PeriodLess Than
    
    
    
    
    
    
    
    
    
    
    More ThanTotal
    
    
    1 Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    5 Years(In thousands)Operating leases (1)
    
    $
    11,951
    
    
    $
    2,287
    
    
    $
    4,574
    
    
    $
    5,090
    
    
    $
    Merger consideration payable to former Connect3 shareholders
    
    
    1,000
    
    
    
    1,000
    
    
    
    
    
    
    
    
    
    
    
    Notes payable to former TradePoint shareholders
    
    
    434
    
    
    
    434
    
    
    
    
    
    
    
    
    
    
    
    Total contractual obligations
    
    $
    13,385
    
    
    $
    3,721
    
    
    $
    4,574
    
    
    $
    5,090
    
    
    $
    
 
 (1)
    
    Includes approximately $10.1 million in future minimum lease payments associated with our
new headquarters facility in San Mateo, California, and approximately $1.5 million in future
minimum lease payments for equipment and facility operating leases associated with our new data
center in Mesa, Arizona, all entered into in September 2009. See Note 5 of Notes to Condensed
Consolidated Financial Statements. Off-Balance Sheet Arrangements
  Recent Accounting Pronouncements
  
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
 Foreign Currency Risk
 26




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
  Interest Rate Sensitivity
   
 Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  27




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Changes in Internal Control over Financial Reporting
  28




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PART II. OTHER INFORMATION
 
 Item 1.
    
    Legal Proceedings
  
 Item 1A.
    
    Risk Factors
 Set forth below and elsewhere in this Quarterly Report on Form 10-Q , and in other documents we
file with the Securities and Exchange Commission, or SEC, are 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 and in other written and oral
communications from time to time. Because of the following factors, as well as other variables
affecting our operating results, past financial performance should not be considered as 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 and Industry
 We may experience significant quarterly fluctuations in our operating results due to a number of
factors, which makes our future operating results difficult to predict and could cause our
operating results to fall below expectations.
   
    
    our ability to increase sales to existing customers and to renew agreements with our
existing customers at comparable prices, particularly larger retail customers;
    
    our ability to attract new customers, particularly larger retail customers and consumer
products customers;
    
    our ability to achieve success with our recently-announced nextGEN strategy;
    
    changes in our pricing policies or those of our competitors, or pricing pressure on our
software services;
    
    periodic fluctuations in demand for our software and services;
    
    volatility in the sales of our solutions on a quarterly basis and timing of the execution
of new and renewal agreements within such quarterly periods;
    
    reductions in customers budgets for information technology purchases and delays in their
purchasing cycles, particularly in light of recent deteriorating global economic conditions;
    
    our ability to develop and implement in a timely manner new software and enhancements
that meet customer requirements;
    
    our ability to hire, train and retain key personnel;
    
    any significant changes in the competitive dynamics of our market, including new entrants
or substantial discounting of products;
    
    our ability to control costs, including our operating expenses;
    
    any significant change in our facilities-related costs;
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##### Table of Contents




    
    the timing of hiring personnel and of large expenses such as those for trade shows and
third-party professional services;
    
    general economic conditions in the retail and CP markets;
    
    outages and capacity constraints with our hosting partners; and
    
    the impact of a recession or any other adverse global economic conditions on our
business, including a delay in signing or a failure to sign significant customer agreements.
    The effects of the ongoing global economic conditionss may adversely impact our business,
operating results or financial condition.
  30




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##### Table of Contents



We have a history of losses and we may not achieve or sustain profitability in the future.
  We depend on a small number of customers, which are primarily large retailers, and our growth, if
any, depends upon our ability to add new and retain existing large customers.
  Our business depends substantially on customers renewing their agreements for our software. Any
decline in our customer renewals would harm our operating results.
  Because we generally recognize revenue ratably over the terms of our customer agreements, the lack
of renewals or the failure to enter into new agreements will not immediately be reflected in our
statement of operations in any significant manner but will negatively affect revenue in future
quarters.
  31




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We may expand through acquisitions of other companies, which may divert our managements attention
and result in unexpected operating and technology integration difficulties, increased costs and
dilution to our stockholders.
   Our sales cycles are long and unpredictable, and our sales efforts require considerable time and
expense.
  Our business will be adversely affected if the retail and CP industries do not widely adopt
technology solutions incorporating scientific techniques to understand and predict consumer demand
to make pricing and other merchandising decisions.
  If we are unable to continue to enhance our current software or to develop or acquire new
software to address changing business requirements, we may not be able to attract or retain
customers.
  32




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##### Table of Contents



Understanding and predicting consumer behavior is dependent upon the continued availability of
accurate and relevant data from retailers and third-party data aggregators. If we are unable to
obtain access to relevant data, or if we do not enhance our core science and econometric modeling
methodologies to adjust for changing consumer behavior, our software may become less competitive
or obsolete.
  We rely on our management team and will need additional personnel to grow our business, and the
loss of one or more key employees or our inability to attract and retain qualified personnel could
harm our business.
  We have derived most of our revenue from sales to our retail customers. If our software is not
widely accepted by CP companies, our ability to grow our revenue and achieve our strategic
objectives will be harmed.
  We face intense competition that could prevent us from increasing our revenue and prevent us from
becoming profitable.
  33




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##### Table of Contents



We might require additional capital to support our business growth, and this capital might
not be available on acceptable terms, or at all.
  We rely on three third-party service providers to host our software, and any interruptions or
delays in services from these third parties could impair the delivery of our software as a
service.
  If our security measures are breached and unauthorized access is obtained to our customers data,
our operations may be perceived as not being secure, customers may curtail or stop using our
software and we may incur significant liabilities.
  If we fail to respond to rapidly changing technological developments or evolving industry
standards, our software may become less competitive or obsolete.
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##### Table of Contents



Our use of open source software and third-party technology could impose limitations on our ability
to commercialize our software.
  If we are unable to protect our intellectual property rights, our competitive position could be
harmed and we could be required to incur significant expenses in order to enforce our rights.
    Material defects or errors in our software could harm our reputation, result in significant
expense to us and impair our ability to sell our software.
  35




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##### Table of Contents



Because our long-term success depends, in part, on our ability to expand sales of our software
to customers located outside of the United States, our business will be increasingly susceptible to
risks associated with international operations.
  
    
    fluctuations in currency exchange rates;
    
    unexpected changes in foreign regulatory requirements;
    
    localization of our software, including translation of the interface of our software into
foreign languages and creation of localized agreements;
    
    longer accounts receivable payment cycles and difficulties in collecting accounts
receivable;
    
    tariffs and trade barriers and other regulatory or contractual limitations on our ability
to sell or develop our software in certain international markets;
    
    difficulties in managing and staffing international operations;
    
    potentially adverse tax consequences, including the complexities of international value
added tax systems and restrictions on the repatriation of earnings;
    
    the burdens of complying with a wide variety of international laws and different legal
standards, including local data privacy laws and local consumer protection laws that could
regulate retailers permitted pricing and promotion practices;
    
    political, social and economic instability abroad, terrorist attacks and security
concerns in general; and
    
    reduced or varied protection of intellectual property rights in some countries.
  Because portions of our software development, sustaining engineering, quality assurance and
testing, operations and customer support are provided by a third party in China, our business will
be susceptible to risks associated with having substantial operations overseas.
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##### Table of Contents



If we fail to maintain proper and effective internal controls, our ability to produce accurate
financial statements could be impaired, which could adversely affect our operating results, our
ability to operate our business and investors views of us.
   If one or more of our key strategic relationships were to become impaired or if these third
parties were to align with our competitors, our business could be harmed.
  Claims by others that we infringe their proprietary technology could harm our business.
   37




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##### Table of Contents



Changes in financial accounting standards or practices may cause adverse, unexpected financial
reporting fluctuations and affect our reported results of operations.
  We have experienced growth in recent periods. If we fail to manage our growth effectively, we
may be unable to execute our business plan, maintain high levels of customer service or address
competitive challenges adequately.
  Evolving regulation of the Internet may affect us adversely.
  We incur significantly increased costs as a result of operating as a public company, and our
management is required to devote substantial time to compliance efforts.
  38




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##### Table of Contents



Risks Related to Ownership of Our Common Stock
 The trading price of our common stock has been volatile in the past, may continue to be volatile,
and may decline.
  
    
    variations in our operating results, including any decline in our revenues;
    
    announcements of technological innovations, new products and services, acquisitions,
strategic alliances or significant agreements by us or by our competitors;
    
    recruitment or departure of key personnel;
    
    the financial projections we may provide to the public, any changes in these projections
or our failure to meet these projections;
    
    changes in the estimates of our operating results or changes in recommendations by any
securities analysts that elect to follow our common stock;
    
    market conditions in our industry, the retail industry and the economy as a whole;
    
    price and volume fluctuations in the overall stock market;
    
    lawsuits threatened or filed against us;
    
    adoption or modification of regulations, policies, procedures or programs applicable to
our business; and
    
    the volume of trading in our common stock, including sales upon exercise of outstanding
options.
  Future sales of shares by existing stockholders, or the perception that such sales may occur,
could cause our stock price to decline.
  If securities analysts do not publish research or publish unfavorable research about our business,
our stock price and trading volume could decline.
  Insiders and other affiliates have substantial control over us and will be able to influence
corporate matters.
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##### Table of Contents



Anti-takeover provisions in our charter documents and Delaware law could discourage, delay or
prevent a change in control of our company and may affect the trading price of our common stock.
  
    
    authorize the issuance of blank check preferred stock that could be issued by our board
of directors to thwart a takeover attempt;
    
    establish a classified board of directors, as a result of which the successors to the
directors whose terms have expired will be elected to serve from the time of election and
qualification until the third annual meeting following their election;
    
    require that directors only be removed from office for cause and only upon a majority
stockholder vote;
    
    provide that vacancies on our board of directors, including newly created directorships,
may be filled only by a majority vote of directors then in office;
    
    limit who may call special meetings of stockholders;
    
    prohibit stockholder action by written consent, thus requiring all actions to be taken at
a meeting of the stockholders;
    
    require supermajority stockholder voting to effect certain amendments to our restated
certificate of incorporation and amended and restated bylaws; and
    
    require advance notification of stockholder nominations and proposals.
 
 40




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##### Table of Contents



Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
   (b) Use Proceeds from Public Offering of Common Stock
      (c) Purchases of Equity Securities by the Issuer and Affiliated Purchasers
  
 Item 3.
    
    Defaults Upon Senior Securities
  
 Item 4.
    
    Submission of Matters to a Vote of Security Holders
  
 Item 5.
    
    Other Information
  41




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##### Table of Contents



Item 6.
    
    Exhibits
 ExhibitNo.
    
    Description31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1*
    
    Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 *
    
    This certification is not deemed filed with the Securities and Exchange Commission and is not
to be incorporated by reference into any filing of DemandTec, Inc. under the Securities Act of
1933 or the Securities Exchange Act of 1934, whether made before or after the date of this
Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in
such filing. 42




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##### Table of Contents



SIGNATURES
   DemandTec, Inc.By:
    /s/ Mark A. CulhaneMark A. CulhaneExecutive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer) 43




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##### Table of Contents



ExhibitNo.
    
    Description31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1*
    
    Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 *
    
    This certification is not deemed filed with the Securities and Exchange Commission and is not
to be incorporated by reference into any filing of DemandTec, Inc. under the Securities Act of
1933 or the Securities Exchange Act of 1934, whether made before or after the date of this
Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in
such filing. 44