##### 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, 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: 001-33634
 DemandTec, Inc.
 (Exact name of registrant as specified in its charter)
 Delaware
    
    94-3344761(State or Other Jurisdiction of
    
    (I.R.S. EmployerIncorporation or Organization)
    
    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, 2010 and February 28, 2010
    
    
    3Condensed Consolidated Statements of Operations for the Three and Nine Months Ended November 30, 2010 and 2009
    
    
    4Condensed Consolidated Statements of Cash Flows for the Nine Months Ended November 30, 2010 and 2009
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    19Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    28Item 4. Controls and Procedures
    
    
    29PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    30Item 1A. Risk Factors
    
    
    30Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    42Item 3. Defaults Upon Senior Securities
    
    
    43Item 4. (Removed and Reserved)
    
    
    43Item 5. Other Information
    
    
    43Item 6. Exhibits
    
    
    43Signature
    
    
    44EX-10.1EX-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 par value data)
 November 30,
    
    
    February 28,2010
    
    
    2010(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    16,379
    
    
    $
    21,335Marketable securities
    
    
    52,863
    
    
    
    36,068Accounts receivable, net of allowances of $130
and $145 as of November 30, 2010 and February
28, 2010, respectively
    
    
    17,362
    
    
    
    13,984Prepaid expenses and other current assets
    
    
    3,751
    
    
    
    3,127Total current assets
    
    
    90,355
    
    
    
    74,514Marketable securities, non-current
    
    
    1,860
    
    
    
    9,881Property, equipment and leasehold improvements, net
    
    
    5,942
    
    
    
    4,777Intangible assets, net
    
    
    2,128
    
    
    
    4,328Goodwill
    
    
    16,599
    
    
    
    16,599Other assets, net
    
    
    872
    
    
    
    563Total assets
    
    $
    117,756
    
    
    $
    110,662LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable and accrued expenses
    
    $
    9,442
    
    
    $
    12,441Deferred revenue
    
    
    47,820
    
    
    
    38,462Notes payable
    
    
    8
    
    
    
    434Merger consideration payable
    
    
    
    
    
    
    1,000Total current liabilities
    
    
    57,270
    
    
    
    52,337Deferred revenue, non-current
    
    
    2,217
    
    
    
    459Other long-term liabilities
    
    
    1,368
    
    
    
    928Commitments and contingencies (see Note 5)Stockholders equity:Common stock, $0.001 par value  175,000
shares authorized; 31,085 and 29,501 shares
issued and outstanding as of November 30, 2010
and February 28, 2010, respectively
    
    
    31
    
    
    
    29Additional paid-in capital
    
    
    156,332
    
    
    
    145,600Accumulated other comprehensive income
    
    
    558
    
    
    
    527Accumulated deficit
    
    
    (100,020
    )
    
    
    (89,218
    )Total stockholders equity
    
    
    56,901
    
    
    
    56,938Total liabilities and stockholders equity
    
    $
    117,756
    
    
    $
    110,662
  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 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Revenue
    
    $
    21,670
    
    
    $
    20,088
    
    
    $
    60,103
    
    
    $
    59,429Cost of revenue(1)
    
    
    7,468
    
    
    
    6,361
    
    
    
    21,664
    
    
    
    19,365Gross profit
    
    
    14,202
    
    
    
    13,727
    
    
    
    38,439
    
    
    
    40,064Operating expenses:Research and development
    
    
    8,011
    
    
    
    8,037
    
    
    
    23,557
    
    
    
    24,190Sales and marketing
    
    
    5,629
    
    
    
    5,067
    
    
    
    17,616
    
    
    
    15,912General and administrative
    
    
    2,433
    
    
    
    2,227
    
    
    
    7,273
    
    
    
    7,387Restructuring charges
    
    
    
    
    
    
    497
    
    
    
    
    
    
    
    775Amortization of purchased intangible assets
    
    
    217
    
    
    
    575
    
    
    
    800
    
    
    
    1,752Total operating expenses
    
    
    16,290
    
    
    
    16,403
    
    
    
    49,246
    
    
    
    50,016Loss from operations
    
    
    (2,088
    )
    
    
    (2,676
    )
    
    
    (10,807
    )
    
    
    (9,952
    )Other income, netInterest income
    
    
    62
    
    
    
    103
    
    
    
    190
    
    
    
    494Interest expense
    
    
    (26
    )
    
    
    (12
    )
    
    
    (70
    )
    
    
    (74
    )Other income (expense)
    
    
    (4
    )
    
    
    21
    
    
    
    (10
    )
    
    
    128Other income, net
    
    
    32
    
    
    
    112
    
    
    
    110
    
    
    
    548Loss before provision (benefit) for income taxes
    
    
    (2,056
    )
    
    
    (2,564
    )
    
    
    (10,697
    )
    
    
    (9,404
    )Provision (benefit) for income taxes
    
    
    29
    
    
    
    (167
    )
    
    
    105
    
    
    
    (140
    )Net loss
    
    $
    (2,085
    )
    
    $
    (2,397
    )
    
    $
    (10,802
    )
    
    $
    (9,264
    )Net loss per common share, basic and diluted
    
    $
    (0.07
    )
    
    $
    (0.08
    )
    
    $
    (0.36
    )
    
    $
    (0.32
    )Shares used in computing net loss per common share, basic and diluted
    
    
    30,751
    
    
    
    28,914
    
    
    
    30,244
    
    
    
    28,534
 (1)     Includes amortization of purchased intangible assets
    
    $
    466
    
    
    $
    466
    
    
    $
    1,397
    
    
    $
    1,397
  4




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##### Table of Contents



DemandTec, Inc
 
 Condensed Consolidated Statements of Cash Flows
(In thousands)

(Unaudited)
 Nine Months EndedNovember 30,2010
    
    
    2009Operating activities:Net loss
    
    $
    (10,802
    )
    
    $
    (9,264
    )Adjustment to reconcile net loss to net cash provided by (used in) operating activities:Depreciation
    
    
    2,434
    
    
    
    2,285Stock-based compensation expense
    
    
    7,665
    
    
    
    7,491Amortization of purchased intangible assets
    
    
    2,197
    
    
    
    3,149Provision for doubtful accounts
    
    
    485
    
    
    
    25Other
    
    
    47
    
    
    
    (69
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    (4,005
    )
    
    
    (3,263
    )Prepaid expenses and other current assets
    
    
    (506
    )
    
    
    379Other assets
    
    
    (310
    )
    
    
    (81
    )Accounts payable and accrued liabilities
    
    
    (639
    )
    
    
    2,108Accrued compensation
    
    
    (2,004
    )
    
    
    (1,683
    )Deferred revenue
    
    
    11,116
    
    
    
    (10,226
    )Net cash provided by (used in) operating activities
    
    
    5,678
    
    
    
    (9,149
    )Investing activities:Purchases of property, equipment and leasehold improvements
    
    
    (3,605
    )
    
    
    (1,233
    )Purchases of marketable securities
    
    
    (52,297
    )
    
    
    (52,996
    )Maturities of marketable securities
    
    
    43,523
    
    
    
    55,620Acquisition of TradePoint
    
    
    (426
    )
    
    
    Acquisition of Connect3
    
    
    (900
    )
    
    
    (12,544
    )Net cash used in investing activities
    
    
    (13,705
    )
    
    
    (11,153
    )Financing activities:Proceeds from issuance of common stock
    
    
    4,006
    
    
    
    2,381Payment of employee withholding tax in lieu of issuing common stock
    
    
    (937
    )
    
    
    Payments on notes payable
    
    
    
    
    
    
    (1,286
    )Net cash provided by financing activities
    
    
    3,069
    
    
    
    1,095Effect of exchange rate changes on cash and cash equivalents
    
    
    2
    
    
    
    47Net decrease in cash and cash equivalents
    
    
    (4,956
    )
    
    
    (19,160
    )Cash and cash equivalents at beginning of period
    
    
    21,335
    
    
    
    33,572Cash and cash equivalents at end of period
    
    $
    16,379
    
    
    $
    14,412
  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
   Subsequent Events
  6




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##### Table of Contents



Use of Estimates
  Revenue Recognition
  
    
    there is persuasive evidence of an arrangement;
 
    
    the 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
   7




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##### Table of Contents



Three Months Ended November 30,
    
    
    Nine Months Ended November 30,2010
    
    
    2009
    
    
    2010
    
    
    2009United States
    
    $
    18,756
    
    
    $
    17,396
    
    
    $
    51,962
    
    
    $
    51,399International
    
    
    2,914
    
    
    
    2,692
    
    
    
    8,141
    
    
    
    8,030Total revenue
    
    $
    21,670
    
    
    $
    20,088
    
    
    $
    60,103
    
    
    $
    59,429
  Marketable Securities
    Impairment of Long-Lived Assets
 Form 10-Q.
 Stock-Based Compensation
  8




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##### Table of Contents



Net Loss per Common Share
   Recent Accounting Pronouncements
     9




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##### Table of Contents



2. Acquisition
   3. Balance Sheet Components
 Marketable Securities
  November 30, 2010
    
    
    February 28, 2010Unrecognized
    
    
    Fair
    
    
    
    
    
    
    Unrecognized
    
    
    FairCost
    
    
    Gain
    
    
    Loss
    
    
    Value
    
    
    Cost
    
    
    Gain
    
    
    Loss
    
    
    ValueCommercial paper
    
    $
    6,796
    
    
    $
    
    
    
    $
    
    
    
    $
    6,796
    
    
    $
    3,999
    
    
    $
    3
    
    
    $
    
    
    
    $
    4,002Certificate of deposit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,000
    
    
    
    3
    
    
    
    
    
    
    
    1,003Corporate bonds
    
    
    22,020
    
    
    
    46
    
    
    
    (2
    )
    
    
    22,064
    
    
    
    15,563
    
    
    
    14
    
    
    
    (10
    )
    
    
    15,567Obligations of
government-sponsored
enterprises
    
    
    25,907
    
    
    
    18
    
    
    
    (6
    )
    
    
    25,919
    
    
    
    25,387
    
    
    
    19
    
    
    
    
    
    
    
    25,406$
    54,723
    
    
    $
    64
    
    
    $
    (8
    )
    
    $
    54,779
    
    
    $
    45,949
    
    
    $
    39
    
    
    $
    (10
    )
    
    $
    45,978
  November 30,
    
    
    February 28,2010
    
    
    2010Due within one year
    
    $
    52,863
    
    
    $
    36,068Due within one to two years
    
    
    1,860
    
    
    
    9,881$
    54,723
    
    
    $
    45,949
  10




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##### Table of Contents



Accounts Payable and Accrued Expenses
  November 30,
    
    
    February 28,2010
    
    
    2010Accounts payable
    
    $
    2,052
    
    
    $
    2,751Accrued professional services
    
    
    692
    
    
    
    807Income taxes payable
    
    
    106
    
    
    
    32Accrued bonuses
    
    
    1,917
    
    
    
    3,820Other accrued compensation
    
    
    2,996
    
    
    
    3,097Other accrued liabilities
    
    
    1,679
    
    
    
    1,934Total accounts payable and accrued expenses
    
    $
    9,442
    
    
    $
    12,441
 4. Goodwill and Purchased Intangible Assets
    5. Commitments and Contingencies
 Commitments
   Legal Proceedings
  11




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##### Table of Contents



6. Debt
  7. Stock-Based Compensation
 Equity Incentive Plans
 1999 Equity Incentive Plan
  2007 Equity Incentive Plan
  Stock Options
  12




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##### Table of Contents



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 ShareBalance at February 28, 2009
    
    
    604
    
    
    
    7,732
    
    
    $
    5.20Additional shares authorized
    
    
    1,403
    
    
    
    
    
    
    
    Options granted
    
    
    (664
    )
    
    
    664
    
    
    
    8.23PSUs granted
    
    
    (926
    )
    
    
    
    
    
    
    RSUs granted
    
    
    (100
    )
    
    
    
    
    
    
    Options exercised
    
    
    
    
    
    
    (823
    )
    
    
    1.711999 Plan options cancelled/forfeited (1)
    
    
    
    
    
    
    (105
    )
    
    
    6.892007 Plan options cancelled/forfeited
    
    
    220
    
    
    
    (220
    )
    
    
    9.52PSUs and RSUs cancelled/forfeited
    
    
    822
    
    
    
    
    
    
    
    Balance at February 28, 2010
    
    
    1,359
    
    
    
    7,248
    
    
    
    5.72Additional shares authorized
    
    
    1,475
    
    
    
    
    
    
    
    Options granted
    
    
    (1,123
    )
    
    
    1,123
    
    
    
    6.91PSUs granted
    
    
    (314
    )
    
    
    
    
    
    
    RSUs granted
    
    
    (1,350
    )
    
    
    
    
    
    
    Options exercised
    
    
    
    
    
    
    (818
    )
    
    
    3.131999 Plan options cancelled/forfeited (1)
    
    
    
    
    
    
    (44
    )
    
    
    9.502007 Plan options cancelled/forfeited
    
    
    497
    
    
    
    (497
    )
    
    
    9.05PSUs and RSUs cancelled/forfeited
    
    
    113
    
    
    
    
    
    
    
    Balance at November 30, 2010
    
    
    657
    
    
    
    7,012
    
    
    
    5.95
 
 (1)
    
    Under the terms of the 1999 Plan, shares underlying cancelled or forfeited options are no
longer available for awards. 14




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##### Table of Contents



SharesSubject to PSUsOutstandingBalance at February 28, 2009
    
    
    440Granted
    
    
    926Released
    
    
    (434
    )Cancelled/forfeited
    
    
    (545
    )Balance at February 28, 2010
    
    
    387Granted
    
    
    314Released
    
    
    (188
    )Cancelled/forfeited
    
    
    (23
    )Balance at November 30, 2010
    
    
    490
  SharesSubject to RSUsOutstandingBalance at February 28, 2009
    
    
    502Granted
    
    
    100Cancelled/forfeited
    
    
    (42
    )Balance at February 28, 2010
    
    
    560Granted
    
    
    1,350Released
    
    
    (460
    )Cancelled/forfeited
    
    
    (90
    )Balance at November 30, 2010
    
    
    1,360
 Employee Stock Purchase Plan (ESPP)
  Stock-Based Compensation Expense Associated with Awards to Employees
  15




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##### Table of Contents



Weighted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    WeightedAverage
    
    
    Expected
    
    
    
    
    
    
    
    
    
    
    Average FairExpected
    
    
    Stock
    
    
    Risk-free
    
    
    Expected
    
    
    Value of AwardsTerm
    
    
    Price
    
    
    Interest
    
    
    Dividend
    
    
    Granted(in years)
    
    
    Volatility
    
    
    Rate
    
    
    Yield
    
    
    (per share)Three months ended November 30, 2010Stock options
    
    
    4.5
    
    
    
    65
    %
    
    
    2.4
    %
    
    
    0
    %
    
    $
    5.07ESPP
    
    
    0.5
    
    
    
    47
    %
    
    
    0.2
    %
    
    
    0
    %
    
    $
    3.06Three months ended November 30, 2009Stock options
    
    
    4.4
    
    
    
    63
    %
    
    
    2.3
    %
    
    
    0
    %
    
    $
    4.46ESPP
    
    
    0.5
    
    
    
    45
    %
    
    
    0.2
    %
    
    
    0
    %
    
    $
    2.30Nine months ended November 30, 2010Stock options
    
    
    4.6
    
    
    
    67
    %
    
    
    2.3
    %
    
    
    0
    %
    
    $
    3.78ESPP
    
    
    0.5
    
    
    
    44
    %
    
    
    0.2
    %
    
    
    0
    %
    
    $
    2.30Nine months ended November 30, 2009Stock options
    
    
    4.3
    
    
    
    64
    %
    
    
    2.0
    %
    
    
    0
    %
    
    $
    4.23ESPP
    
    
    0.5
    
    
    
    71
    %
    
    
    0.2
    %
    
    
    0
    %
    
    $
    2.70
  Three Months Ended November 30,
    
    
    Nine Months Ended November 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Cost of revenue
    
    $
    484
    
    
    $
    377
    
    
    $
    1,312
    
    
    $
    1,318Research and development
    
    
    894
    
    
    
    784
    
    
    
    2,443
    
    
    
    2,588Sales and marketing
    
    
    625
    
    
    
    597
    
    
    
    2,032
    
    
    
    1,868General and administrative
    
    
    582
    
    
    
    473
    
    
    
    1,878
    
    
    
    1,717Total stock-based compensation expense
    
    $
    2,585
    
    
    $
    2,231
    
    
    $
    7,665
    
    
    $
    7,491
  UnrecognizedStock-Based
    
    
    RemainingCompensation
    
    
    Weighted AverageCosts
    
    
    Recognition Period(in thousands)
    
    
    (in years)Stock options
    
    $
    8,963
    
    
    
    2.6PSUs
    
    
    1,137
    
    
    
    0.5RSUs
    
    
    6,971
    
    
    
    1.7ESPP
    
    
    321
    
    
    
    0.4$
    17,392
    
    
    
    2.1
 8. Income Taxes
  16




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9. Derivative Financial Instruments
   AccumulatedNotional
    
    
    Notional
    
    
    
    
    
    
    AmortizedPrincipal
    
    
    Principal
    
    
    Fair Value
    
    
    Implicit Interest(Local Currency)
    
    
    (USD)
    
    
    (USD)
    
    
    (USD)Euro  maturing in February 2011
    
    
    1,581
    
    
    $
    2,241
    
    
    $
    189
    
    
    $
    11Euro  maturing in December 2010, 2011 and 2012 (1)
    
    
    2,777
    
    
    
    3,744
    
    
    
    132
    
    
    
    4Total
    
    
    4,358
    
    
    $
    5,985
    
    
    $
    321
    
    
    $
    15
 
 (1)
    
    Related to a three-year customer arrangement, under which we separately hedge each equal
annual billing amount. The contract related to the first annual billing amount matured in
December 2010 and the remaining two mature in December 2011 and 2012, respectively.  Amount of Gain (Loss) Recognized In IncomeThree Months Ended November 30,
    
    
    Nine Months Ended November 30,Derivatives Designated as Hedging Instruments
    
    Location
    
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Forward contracts
    
    Revenue
    
    $
    106
    
    
    $
    34
    
    
    $
    246
    
    
    $
    68
  17




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##### Table of Contents



10. Fair Value Measurements
  Level 1
 Level 2
 Level 3
    Significant OtherObservable InputsTotal
    
    
    (Level 2)November 30, 2010Assets:Foreign currency forward contracts(1)
    
    $
    321
    
    
    $
    321February 28, 2010Assets:Foreign currency forward contracts(1)
    
    $
    308
    
    
    $
    308
 
 (1)
    
    At November 30, 2010, $224 was included in prepaid expenses and other current assets and $97
was included in other assets, net on our condensed consolidated balance sheet. At February 28,
2010, $308 was included in prepaid expenses and current assets on our condensed consolidated
balance sheet. 11. Comprehensive Loss
  Three Months Ended November 30,
    
    
    Nine Months Ended November 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Net loss
    
    $
    (2,085
    )
    
    $
    (2,397
    )
    
    $
    (10,802
    )
    
    $
    (9,264
    )Gain reclassified from
accumulated
comprehensive income
into revenue
    
    
    (106
    )
    
    
    (34
    )
    
    
    (246
    )
    
    
    (68
    )Change in net
unrealized gain and
cumulative implied
interest on forward
contracts
    
    
    (124
    )
    
    
    (68
    )
    
    
    277
    
    
    
    (329
    )Total comprehensive loss
    
    $
    (2,315
    )
    
    $
    (2,499
    )
    
    $
    (10,771
    )
    
    $
    (9,661
    )
 12.
Subsequent Event
   18




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##### Table of Contents



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 such statements. Forward-looking
statements include statements as to industry trends and future expectations 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, 2010. 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 condensed 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
operation appearing in our Annual Report on Form 10-K for the fiscal year ended February 28, 2010.
 Overview
  tm, tm, tm, tm tm, tm.
  19




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##### Table of Contents



Critical Accounting Policies and Estimates
  
    
    Revenue Recognition
    
    Stock-Based Compensation
    
    Goodwill and Intangible Assets
    
    Impairment of Long-Lived Assets
 20




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##### Table of Contents



Form 10-K
 Results of Operations
 Revenue
  Three Months Ended November 30,
    
    
    Nine Months Ended November 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(in thousands)Revenue
    
    $
    21,670
    
    
    $
    20,088
    
    
    $
    60,103
    
    
    $
    59,429
 Three and Nine Months Ended November 30, 2010 Compared to the Three and Nine Months Ended
November 30, 2009
  21




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##### Table of Contents



Three Months Ended November 30,
    
    
    Nine Months Ended November 30,2010
    
    
    2009
    
    
    2010
    
    
    2009By customer type:Retail
    
    
    82
    %
    
    
    82
    %
    
    
    81
    %
    
    
    82
    %CP
    
    
    18
    
    
    
    18
    
    
    
    19
    
    
    
    18Total revenue
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %By location:United States
    
    
    87
    %
    
    
    87
    %
    
    
    86
    %
    
    
    86
    %International
    
    
    13
    
    
    
    13
    
    
    
    14
    
    
    
    14Total revenue
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
  Cost of Revenue
  Three Months Ended November 30,
    
    
    Nine Months Ended November 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(dollars in thousands)Revenue
    
    $
    21,670
    
    
    $
    20,088
    
    
    $
    60,103
    
    
    $
    59,429Cost of revenue
    
    
    7,468
    
    
    
    6,361
    
    
    
    21,664
    
    
    
    19,365Gross profit
    
    
    14,202
    
    
    
    13,727
    
    
    
    38,439
    
    
    
    40,064Gross margin
    
    
    66
    %
    
    
    68
    %
    
    
    64
    %
    
    
    67
    %
 Three and Nine Months Ended November 30, 2010 Compared to the Three and Nine Months Ended
November 30, 2009.
  22




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##### Table of Contents



Research and Development Expenses
  Three Months Ended November 30,
    
    
    Nine Months Ended November 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(dollars in thousands)Research and development
    
    $
    8,011
    
    
    $
    8,037
    
    
    $
    23,557
    
    
    $
    24,190Percent of revenue
    
    
    37
    %
    
    
    40
    %
    
    
    39
    %
    
    
    41
    %
 Three and Nine Months Ended November 30, 2010 Compared to the Three and Nine Months Ended
November 30, 2009.
   Sales and Marketing Expenses
  Three Months Ended November 30,
    
    
    Nine Months Ended November 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(dollars in thousands)Sales and marketing
    
    $
    5,629
    
    
    $
    5,067
    
    
    $
    17,616
    
    
    $
    15,912Percent of revenue
    
    
    26
    %
    
    
    25
    %
    
    
    29
    %
    
    
    27
    %
 23




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##### Table of Contents



Three and Nine Months Ended November 30, 2010 Compared to the Three and Nine Months Ended
November 30, 2009.
   General and Administrative Expenses
  Three Months Ended November 30,
    
    
    Nine Months Ended November 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(dollars in thousands)General and administrative
    
    $
    2,433
    
    
    $
    2,227
    
    
    $
    7,273
    
    
    $
    7,387Percent of revenue
    
    
    11
    %
    
    
    11
    %
    
    
    12
    %
    
    
    12
    %
 Three and Nine Months Ended November 30, 2010 Compared to the Three and Nine Months Ended
November 30, 2009.
   Amortization of Purchased Intangible Assets
 Three Months Ended November 30,
    
    
    Nine Months Ended November 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(dollars in thousands)Amortization of purchased intangible assets
    
    $
    217
    
    
    $
    575
    
    
    $
    800
    
    
    $
    1,752Percent of revenue
    
    
    1
    %
    
    
    3
    %
    
    
    1
    %
    
    
    3
    %
 Three and Nine Months Ended November 30, 2010 Compared to the Three and Nine Months Ended
November 30, 2009.
 24




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##### Table of Contents



Other Income, Net
 Three Months Ended November 30,
    
    
    Nine Months Ended November 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(in thousands)Interest income
    
    $
    62
    
    
    $
    103
    
    
    $
    190
    
    
    $
    494Interest expense
    
    
    (26
    )
    
    
    (12
    )
    
    
    (70
    )
    
    
    (74
    )Other income (expense)
    
    
    (4
    )
    
    
    21
    
    
    
    (10
    )
    
    
    128Other income, net
    
    $
    32
    
    
    $
    112
    
    
    $
    110
    
    
    $
    548
 Three and Nine Months Ended November 30, 2010 Compared to the Three and Nine Months Ended
November 30, 2009.
 Provision (Benefit) for Income Taxes
 Three Months Ended November 30,
    
    
    Nine Months Ended November 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(in thousands)Provision (benefit) for income taxes
    
    $
    29
    
    
    $
    (167
    )
    
    $
    105
    
    
    $
    (140
    )
 Three and Nine Months Ended November 30, 2010 Compared to the Three and Nine Months Ended
November 30, 2009.
  Stock-Based Compensation Expense
  25




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Liquidity and Capital Resources
   The table below sets forth the cash flows provided by (used in) various activities:
 Nine Months Ended November 30,2010
    
    
    2009(in thousands)Net cash provided by (used in) operating activities
    
    $
    5,678
    
    
    $
    (9,149
    )Net cash used in investing activities
    
    
    (13,705
    )
    
    
    (11,153
    )Net cash provided by financing activities
    
    
    3,069
    
    
    
    1,095
 Operating Activities
    Investing Activities
  26




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##### Table of Contents



Financing Activities
    Contractual Obligations
   Payments Due by PeriodLess Than
    
    
    
    
    
    
    
    
    
    
    More ThanTotal
    
    
    1 Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    5 YearsOperating leases(1)
    
    $
    9,859
    
    
    $
    2,359
    
    
    $
    4,700
    
    
    $
    2,800
    
    
    $
    Contractual commitments(2)
    
    
    2,511
    
    
    
    2,511
    
    
    
    
    
    
    
    
    
    
    
    Total contractual obligations
    
    $
    12,370
    
    
    $
    4,870
    
    
    $
    4,700
    
    
    $
    2,800
    
    
    $
    
 
 (1)
    
    Includes approximately $8.9 million in future minimum lease payments associated with our
headquarters facility in San Mateo, California, and approximately $1.0 million in future
minimum lease payments for equipment and facility operating leases associated with our data
center in Mesa, Arizona, entered into in September 2009 and July 2010. See Note 5 of Notes to
Condensed Consolidated Financial Statements.(2)
    
    Amounts are associated with agreements for hosting, contract engineering services, and other
purchase commitments that are enforceable and legally binding and that specify all significant
terms, including fixed or minimum services to be used, fixed, minimum or variable price
provisions, and the approximate timing of the transaction. Obligations under contracts that we
can cancel without a significant penalty are not included. 27




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Off-Balance Sheet Arrangements
  Recent Accounting Pronouncements
  
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
 Foreign Currency Risk
    Interest Rate Sensitivity
   28




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Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
   Changes in Internal Control over Financial Reporting
  29




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##### Table of Contents



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 and consumer products
customers in both domestic and foreign markets;
    
    our ability to achieve success with our 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;
    
    our ability to develop and implement in a timely manner new software and enhancements
that meet customer requirements, including our ability to develop certain substantial and
customer-specific functionality as required under certain customer engagements;
    
    our ability to hire, train and retain key personnel;
 30




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##### Table of Contents




    
    our success in broadening the range of our offerings, including our ability to develop
and sell solutions to apparel retailers;
    
    the short-term impact of acquisitions of businesses or technologies, including the
expenses associated with integrating the acquired businesses or technologies into our
operations or solutions;
    
    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;
    
    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;
    
    our ability to appropriately resolve any disputes with customers;
    
    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.
    31




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##### Table of Contents



We have a history of losses and we may not achieve or sustain profitability in the future.
  The effects of adverse global economic conditions may adversely impact our business, operating
results or financial condition.
  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.
  32




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##### Table of Contents



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 may not immediately be reflected in
our statement of operations in any significant manner but may negatively affect revenue in future
quarters.
  We may expand through acquisitions of and/or partnerships with 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.
   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.
  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, which is becoming increasingly
complex, or to develop or acquire new software to address changing business requirements, we may
not be able to attract or retain customers.
  34




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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.
   35




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##### Table of Contents



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.
  Our use of open source software and third-party technology could impose limitations on our
ability to commercialize our software.
  36




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##### Table of Contents



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 or any failure to meet service level agreements with
our customers could harm our reputation, result in significant expense to us and impair our
ability to sell our software.
  Because our long-term success depends, in part, on our ability to operate and to expand sales
of our software to customers located outside of the United States, our business may be
increasingly susceptible to risks associated with international operations.
  
    
    fluctuations in currency exchange rates;
 37




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##### Table of Contents




    
    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, in
particular China and Russia.
  Because portions of our software development, sustaining engineering, quality assurance and
testing, operations and customer support are provided internationally, including by third parties
in China and Russia, our business is susceptible to risks associated with having substantial
operations overseas.
   38




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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.
   Changes in financial accounting standards or practices may cause adverse, unexpected financial
reporting fluctuations and affect our reported results of operations.
  39




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##### Table of Contents



We have expanded our operations in recent periods. If we fail to manage this expansion
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.
  Third-party claims and litigation could seriously harm our business.
  We incur significant costs as a result of operating as a public company, and our management is
required to devote substantial time to compliance efforts.
  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;
 40




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##### Table of Contents




    
    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 or other disputes;
    
    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 significant stockholders have substantial control over us and will be able to
influence corporate matters.
  41




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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.
 
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
   (b) Use Proceeds from Public Offering of Common Stock
   42




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##### Table of Contents



(c) Purchases of Equity Securities by the Issuer and Affiliated Purchasers
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. (Removed and Reserved)
  
 Item 5. Other Information
  
 Item 6. Exhibits
 ExhibitNo.
    
    Description10.1*
    
    Form of Stock Option Agreement for Non-U.S. Optionees under the Registrants 2007 Equity Incentive Plan31.1
    
    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
 
 *
    
    Represents a management agreement or compensatory plan**
    
    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. 43




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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) 44




---



##### Table of Contents



ExhibitNo.
    
    Description10.1*
    
    Form of Stock Option Agreement for Non-U.S. Optionees under the Registrants 2007 Equity Incentive Plan31.1
    
    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
 
 *
    
    Represents a management agreement or compensatory plan**
    
    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. 45