CallidusCloud Reports Record Q2 Revenue of $32.5 Million, a 25% Year-Over-Year Increase

PLEASANTON, CA–(Marketwired – Jul 31, 2014) – Callidus Software Inc. (NASDAQ: CALD), a leading provider of Cloud sales and marketing effectiveness software, today announced financial results for the second quarter ended June 30, 2014.

“I was pleased with our performance in Q2, and in particular the acceleration of our SaaS revenue. We had record total revenue, record recurring revenue, our margins expanded again and we also significantly strengthened our balance sheet,” said Leslie Stretch president and CEO of CallidusCloud. “We held our largest and most successful user conference to date, we expanded our international presence in Japan and Mexico and we added to our partner channel. As a result I believe we are well positioned for continued future success.”

Financial Highlights for the Second Quarter 2014
Total revenue was $32.5 million for the second quarter, an increase of 25%. Total recurring revenue was $23.7 million, which includes SaaS revenue of $19.6 million and maintenance revenue of $4.1 million. SaaS revenue increased 24% over the same quarter in the prior year. Services and license revenue of $8.8 million, consisting of $7.6 million in services revenue and $1.2 million in license revenue, increased 40% compared to the same quarter in the prior year. Cash and short-term investments were nearly $42 million, a 22% increase from the prior quarter.

GAAP Performance

• Recurring revenue gross margin was 68% compared to 65% in the same quarter in the prior year.
• Operating loss was $3.0 million compared to $4.3 million in the same quarter in the prior year.
• During the quarter a gain of $3.9 million was recognized as other income on the sale of select domain names and trademarks.
• Net income was $250,000, or breakeven on a per share basis, compared to a net loss of $6.4 million, or ($0.17) per share, for the same quarter in the prior year.
• Cash generated from operations was $1.0 million in the current quarter compared to $5.2 million in the same quarter in the prior year.

Non-GAAP Performance
The following non-GAAP measures are described below and reconciled to the corresponding GAAP measures at the end of this release.

• Recurring revenue gross margin was 72% compared to 68% for the same quarter in the prior year.
• Operating income was $1.4 million compared to $0.4 million for the same quarter in the prior year.
• Net income was $1.0 million, or $0.02 per fully diluted share, compared to a net loss of $0.9 million, or ($0.02) per fully diluted share for the same quarter in the prior year.

Business Highlights for the Second Quarter 2014

• Registrations nearly doubled compared to the prior year at C3, CallidusCloud’s annual user conference in May. There were over 70 breakout sessions covering all aspects of sales, marketing and learning featuring customer stories, product deep dives, and industry thought leaders. Due to the growth in attendees C3 North America will be held at the Wynn Resort May 11^th-13^th 2015.
• CallidusCloud sponsored key industry events including SAP Insider CRM 2014, NetSuite’s Suite World, the Gartner 360 Summit, Sirius Decisions Summit 2014, Forrester Forum for Marketing Leaders in EMEA, Salesforce 1 world tour in Atlanta, Boston, Chicago and London, and DocuSign Momentum in the UK.
• CallidusCloud further expanded its partner ecosystem with 9 new resellers and alliance partners including Appirio, a leading global Cloud services company.

Financial Outlook for 2014 – Third Quarter and Full Year
For the third quarter of 2014, the Company expects total revenue to be between $33.0 million and $34.0 million. GAAP operating loss is expected to be between $1.9 million and $2.7 million with ($0.04) to ($0.07) GAAP loss per share. Non-GAAP operating income is expected to be between $2.0 million and $2.5 million with non-GAAP fully diluted earnings per share between $0.03 and $0.05.

For the full year of 2014, the Company is raising the lower end of previous guidance to $129.0 million and maintaining the higher end at $132.5 million. GAAP operating loss is expected to be between $8.6 million and $11.6 million with ($0.12) to ($0.18) GAAP loss per share. Non-GAAP operating income is expected to be between $7.0 million and $9.0 million with non-GAAP fully diluted earnings per share between $0.12 and $0.16.

Conference Call
In conjunction with this announcement CallidusCloud will host a conference call at 1:30 p.m. Pacific Daylight Time (PDT) today to discuss the second quarter 2014 results and outlook for the third quarter 2014 and full year 2014. The conference call will be available via live webcast at the Investor Relations section of CallidusCloud’s website.

Webcast site: http://www.calliduscloud.com/about-us/investor-relations/
Dial-in: 866-510-0707 (International callers: 617-597-5376)
Passcode: 82138553
Replay information: A webcast replay will be available on the Investor Relations section of our website under Calendar of Events.

For more information, please visit: http://www.calliduscloud.com/about-us/investor-relations/

About CallidusCloud
Callidus Software Inc. (NASDAQ: CALD), doing business as CallidusCloud^®, the leading provider of sales and marketing effectiveness software. CallidusCloud enables organizations to accelerate and maximize their lead to money process with a complete suite of solutions that identify the right leads, ensure proper territory and quota distribution, enable sales forces, automate configure price quote, and streamline sales compensation — driving bigger deals, faster. Over 2500 leading organizations, across all industries, rely on CallidusCloud to optimize the lead to money process to close more deals for more money in record time.

For more information, please visit www.calliduscloud.com.

Non-GAAP Financial Measures
In this release, CallidusCloud has provided additional financial information that has not been prepared in accordance with GAAP. This information includes non-GAAP gross margin, non-GAAP recurring revenue gross margin, non-GAAP operating loss, non-GAAP net loss, and non-GAAP net loss per share. CallidusCloud uses non-GAAP measures internally in analyzing its financial results and believes that they are useful to investors as a supplement to GAAP measures in evaluating CallidusClouds’ operating performance. CallidusCloud believes that the use of these non-GAAP measures provides additional insight for investors to use in evaluation of ongoing operating results and trends and in comparing its financial measures with other companies in CallidusCloud’s industry, many of which present non-GAAP financial measures that may resemble our non-GAAP financial measures. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP.

Our non-GAAP measures reflect adjustments based on the following items:

Stock-based compensation expenses: We have excluded the effect of stock-based compensation expenses from our non-GAAP gross profit, recurring revenue gross profit, operating expenses and net income (loss). We believe the exclusion of stock-based compensation expenses provides a useful comparison of our operating results to our peers.

Restructuring and other expenses: We have excluded the effect of restructuring and other expenses from our non-GAAP operating expenses and net income (loss). Restructuring and other expenses consist of employee severance, facility exit costs and incremental depreciation expense as a result of the change in the estimated useful life of assets to be abandoned and are not a component of ongoing operations. We feel it is useful to investors to understand the effects of these items on our total operating profit and expense.

Patent litigation costs: We have excluded the effect of patent infringement and litigation defense costs from our non-GAAP operating expenses and net income (loss). We believe patent defense costs are not indicative of our ongoing business operations, and are inconsistent in amount and frequency; as such we exclude patent litigation defense costs during our evaluation of our business performance.

Convertible note interest expense and amortization of convertible note issuance costs: We have excluded the costs of convertible note interest expense, redemption inducement and issuance costs from our non-GAAP operating expenses and net income (loss). We believe that these costs are not indicative of our continuing operations or meaningful in evaluating current versus past business results.

Amortization or sale of acquired intangible assets: We have excluded the effect of amortization or sale of acquired intangibles which include developed technology, customer relationships, trade names, domain names, patents and licenses from our non-GAAP gross profit, recurring revenue gross profit, operating expenses, other income and expense and net income (loss). Amortization or sale of acquired intangibles is significantly affected by timing, and as such, can be inconsistent in amount and nature.

Note on Forward-Looking Statements

The forward-looking statements included in this press release, including for example discussion of our commercial prospects, estimates of future revenues, operating income/loss and expenses, earnings per share, stock-based compensation expenses, amortization of acquired intangible assets, restructuring expenses, and patent litigation costs reflect management’s best judgment based on factors currently known and involve risks and uncertainties. These risks and uncertainties include, but are not limited to, potential disruption of customer purchase decisions resulting from global economic conditions, timing and size of orders, relative growth of our recurring revenue, potential decreases in customer spending, uncertainty regarding purchasing trends in the cloud software market, customer cancellations or non-renewal of maintenance contracts or on-demand services, our potential inability to manage effectively any growth we experience, our ability to develop new products and services, increased competition or new entrants in the marketplace, potential impact of acquisitions and investments, changes in staffing levels, and other risks detailed in periodic reports we file with the Securities and Exchange Commission, including our most recent Annual Report on Form 10-K which may be obtained by contacting CallidusCloud’s Investor Relations department at 415-445-3238, or from the Investor Relations section of CallidusCloud’s website (http://www.calliduscloud.com/about-us/investor-relations/). Actual results may differ materially from those presently reported. We assume no obligation to update the information contained in this release.

©2014. Callidus Software Inc. All rights reserved. Callidus, Callidus Software, the Callidus Software logo, CallidusCloud, the CallidusCloud logo, TrueComp Manager, ActekSoft, ACom3, iCentera, Webcom, Litmos, the Litmos logo, LeadFormix, Rapid Intake, 6FigureJobs and LeadRocket are trademarks, service marks, or registered trademarks of Callidus Software Inc. and its affiliates in the United States and other countries. All other brand, service or product names are trademarks or registered trademarks of their respective companies or owners.

CALLIDUS Software INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except for per share data)
(unaudited)
				Three Months Ended June 30,								Six Months Ended June 30,
				2014				2013				2014				2013
Revenue:
	Recurring			$	23,684			$	19,616			$	45,934			$	39,240
	Services and license				8,831				6,314				17,558				12,232
		Total revenue			32,515				25,930				63,492				51,472
Cost of revenue:
	Recurring				7,502				6,931				14,790				14,384
	Services and license				5,628				4,739				10,738				9,961
		Total cost of revenue			13,130				11,670				25,528				24,345
Gross profit					19,385				14,260				37,964				27,127
Operating expenses:
	Sales and marketing				11,808				7,891				22,535				15,535
	Research and development				5,045				4,409				9,918				8,838
	General and administrative				5,135				5,946				10,221				11,132
	Restructuring and other				404				315				404				1,558
		Total operating expenses			22,392				18,561				43,078				37,063
Operating loss					(3,007	)			(4,301	)			(5,114	)			(9,936	)
Interest income and other income (expense)					3,787				(995	)			3,577				(1,839	)
Income (loss) before provision for income taxes					780				(5,296	)			(1,537	)			(11,775	)
Provision for income taxes					530				1,119				680				1,243
Net income (loss)				$	250			$	(6,415	)		$	(2,217	)		$	(13,018	)
Net income (loss) per share
	Basic			$	0.00			$	(0.17	)		$	(0.05	)		$	(0.35	)
	Diluted			$	0.00			$	(0.17	)		$	(0.05	)		$	(0.35	)
Weighted average shares used in computing net income (loss) per share
	Basic				46,648				37,813				46,298				37,478
	Diluted				48,061				37,813				46,298				37,478

Includes stock-based compensation, amortization of acquired intangible assets, patent litigation costs, interest expense on convertible notes, amortization of convertible note issuance costs, restrucuring and other expenses and gain on sale of domain names and trademarks as follows:

				Three Months Ended June 30,							Six Months Ended June 30,
				2014				2013			2014				2013
Cost of revenues:
	Recurring			$	769			$	719		$	1,498			$	1,405
	Services and license				270				249			496				667
Operating expenses:
	Sales and marketing				1,054				813			1,883				1,614
	Research and development				474				467			912				933
	General and administrative				1,473				2,127			2,855				3,471
	Restructuring and other				404				315			404				1,558
Interest income and other income (expense)					(3,728	)			837			(3,527	)			1,674
		Total		$	716			$	5,527		$	4,521			$	11,322

CALLIDUS Software INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
				June 30,				December 31,
				2014				2013
ASSETS
Current assets:
	Cash and cash equivalents			$	37,914			$	28,295
	Short-term investments				4,008				7,866
	Accounts receivable, net				29,366				29,216
	Deferred income taxes				187				–
	Prepaid and other current assets				6,523				6,232
		Total current assets			77,998				71,609
Property and equipment, net					13,637				11,351
Goodwill					32,791				31,207
Intangible assets, net					17,066				16,995
Deferred income taxes, noncurrent					498				405
Deposits and noncurrent assets					1,913				2,626
	Total assets			$	143,903			$	134,193
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable			$	2,250			$	2,987
	Accrued payroll and related expenses				6,218				7,377
	Accrued expenses				8,266				5,395
	Deferred income taxes				1,159				1,159
	Deferred revenue				49,066				46,222
	Capital lease obligations				1,211				1,308
		Total current liabilities			68,170				64,448
Deferred revenue, noncurrent					11,100				10,432
Deferred income taxes, noncurrent					196				155
Capital lease obligations, noncurrent					668				987
Convertible notes					–				14,197
Revolving line of credit					2,982				–
Other noncurrent liabilities					1,532				1,921
		Total liabilities			84,648				92,140
Stockholders’ equity:
	Common stock				48				45
	Additional paid-in capital				334,831				315,430
	Treasury stock				(14,430	)			(14,430	)
	Accumulated other comprehensive income				180				165
	Accumulated deficit				(261,374	)			(259,157	)
		Total stockholders’ equity			59,255				42,053
		Total liabilities and stockholders’ equity		$	143,903			$	134,193

CALLIDUS SOFTWARE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
					Six Months Ended June 30,
					2014				2013
Cash flows from operating activities:
	Net loss				$	(2,217	)		$	(13,018	)
	Adjustments to reconcile net loss to net cash provided by operating activities:
		Depreciation expense				2,564				2,109
		Amortization of intangible assets				2,525				2,414
		Gain on sale of intangible assets				(3,862	)			–
		Provision for doubtful accounts				480				314
		Stock-based compensation				4,924				5,801
		Release of valuation allowance				(149	)			–
		Loss on disposal of property and equipment				–				3
		Amortization of convertible notes issuance cost				58				268
		Net amortization on investments				15				46
		Changes in operating assets and liabilities:
			Accounts receivable			(243	)			86
			Prepaid and other current assets			(291	)			(272	)
			Other noncurrent assets			401				(472	)
			Accounts payable			(706	)			(3,201	)
			Accrued expenses			1,553				986
			Accrued payroll and related expenses			(1,149	)			(431	)
			Accrued restructuring and other expenses			(50	)			(578	)
			Deferred revenue			2,832				8,203
			Deferred income taxes			(239	)			118
Net cash provided by operating activities						6,446				2,376
Cash flows from investing activities:
	Purchases of investments					(1,209	)			(5,634	)
	Proceeds from maturities and sale of investments					5,050				9,450
	Purchases of property and equipment					(4,018	)			(1,356	)
	Purchases of intangible assets					(743	)			(364	)
	Proceeds from sales of intangible assets, net of expenses					4,651				–
	Acquisitions, net of cash acquired					(2,402	)			–
Net cash provided by investing activities						1,329				2,096
Cash flows from financing activities:
	Proceeds from issuance of common stock					1,975				2,168
	Repurchase of common stock from employees for payment of taxes on vesting of restricted stock units					(1,439	)			(490	)
	Proceeds from line of credit					2,982				–
	Payment of consideration related to acquisitions					(630	)			(3,078	)
	Repayment of debt					(645	)			–
	Payment of principal under capital leases					(416	)			(1,047	)
Net cash provided by (used in) financing activities						1,827				(2,447	)
Effect of exchange rates on cash and cash equivalents						17				(126	)
Net increase in cash and cash equivalents						9,619				1,899
Cash and cash equivalents at beginning of period						28,295				16,400
Cash and cash equivalents at end of period					$	37,914			$	18,299

RECONCILIATION OF GAAP TO NON-GAAP Financial MEASURES
(In thousands, except for percentages and per share data)
(unaudited)
			Three months ended								Six months ended
			June 30,								June 30,
			2014				2013				2014				2013
Non-GAAP gross profit reconciliation
Gross profit			$	19,385			$	14,260			$	37,964			$	27,127
	Gross margin			60	%			55	%			60	%			53	%
Add back:
	Non-cash stock-based compensation			448				440				844				1,020
	Non-cash amortization of acquired intangible assets			591				528				1,150				1,052
Non-GAAP gross profit			$	20,424			$	15,228			$	39,958			$	29,199
	Gross margin			63	%			59	%			63	%			57	%
Non-GAAP recurring revenue gross profit reconciliation
Recurring revenue gross profit			$	16,182			$	12,685			$	31,144				24,856
	Recurring revenue gross margin			68	%			65	%			68	%			63	%
Add back:
	Non-cash stock-based compensation			192				204				374				378
	Non-cash amortization of acquired intangible assets			577				515				1,124				1,027
Non-GAAP Recurring revenue gross profit			$	16,951			$	13,404			$	32,642			$	26,261
	Recurring revenue gross margin			72	%			68	%			71	%			67	%
Non-GAAP operating expense reconciliation
Operating expenses			$	22,392			$	18,561			$	43,078				37,063
Add back:
	Non-cash stock-based compensation			(2,184	)			(2,770	)			(4,080	)			(4,781	)
	Non-cash amortization of acquired intangible assets			(326	)			(290	)			(636	)			(576	)
	Patent litigation and settlement costs			(491	)			(347	)			(934	)			(661	)
	Restructuring and other			(404	)			(315	)			(404	)			(1,558	)
Non-GAAP Operating Expenses			$	18,987			$	14,839			$	37,024			$	29,487
Non-GAAP operating income (loss) reconciliation:
Operating loss			$	(3,007	)		$	(4,301	)		$	(5,114	)			(9,936	)
Add back:
	Non-cash stock-based compensation			2,632				3,210				4,924				5,801
	Non-cash amortization of acquired intangible assets			917				818				1,786				1,628
	Patent litigation and settlement costs			491				347				934				661
	Restructuring and other			404				315				404				1,558
Non-GAAP Operating income (loss)			$	1,437			$	389			$	2,934			$	(288	)

CALLIDUS SOFTWARE INC.
RECONCILIATION OF GAAP TO NON-GAAP Financial MEASURES
(In thousands, except for percentages and per share data)
(unaudited)
			Three months ended								Six months ended
			June 30,								June 30,
			2014				2013				2014				2013
Non-GAAP net loss reconciliation:
Net loss			$	250			$	(6,415	)		$	(2,217	)			(13,018	)
Add back:
	Non-cash stock-based compensation			2,632				3,210				4,924				5,801
	Non-cash amortization of acquired intangible assets			917				818				1,786				1,628
	Patent litigation and settlement costs			491				347				934				661
	Restructuring and other			404				315				404				1,558
	Interest expense on convertible notes			108				703				277				1,406
	Amortization of convertible note issuance cost			26				134				58				268
	Sale of domain names and trademarks			(3,862	)			–				(3,862	)			–
Non-GAAP Net income (loss)			$	966			$	(888	)		$	2,304			$	(1,696	)
Non-GAAP net income (loss) per share reconciliation:
Net loss per basic and diluted share			$	–			$	(0.17	)		$	(0.05	)		$	(0.35	)
Add back:
	Non-cash stock-based compensation			0.06				0.08				0.11				0.15
	Non-cash amortization of acquired intangible assets			0.02				0.02				0.04				0.04
	Patent litigation and settlement costs			0.01				0.01				0.02				0.02
	Restructuring and other			0.01				0.01				0.01				0.04
	Interest expense on convertible notes			–				0.02				0.01				0.04
	Amorization of convertible note issuance cost			–				0.01				(0.01	)			0.01
	Sale of domain names and trademarks			(0.08	)			–				(0.08	)			–
Non-GAAP net income (loss) per diluted share			$	0.02			$	(0.02	)		$	0.05			$	(0.05	)
Basic and fully diluted shares reconciliation:
GAAP Basic shares				46,648				37,813				46,298				37,478
Add back:
	Weighted average effect of dilutive securities			1,413				–				1,718				–
Shares used in calculation of diluted net income per share – GAAP				48,061				37,813				48,016				37,478
Shares used in calculation of diluted net income per share -Non-GAAP (a)				49,568				37,813				48,016				37,478

(a)		Shares used in the per share calculation for reconciling items between GAAP and Non-GAAP financial measures.

CALLIDUS SOFTWARE INC.
FINANCIAL OUTLOOK
(In thousands)
(unaudited)

The guidance figures provided below and elsewhere in this press release are forward-looking statements, reflect a number of estimates, assumptions and other uncertainties, and are approximate in nature because the Company’s future performance is difficult to predict. Such guidance is based on information available on the date of this press release, and the company assumes no obligation to update it.

		Three months ended
		September 30, 2014
		GAAP		Non-GAAP
Total revenue		$33,000 – $34,000		$33,000 – $34,000
Operating income (a)		($1,900) – ($2,700)		$2,000 – $2,500
Net income (loss) per diluted share (c)		($0.04) – ($0.07)		$0.03 – $0.05
		Twelve months ended
		December 31, 2014
		GAAP		Non-GAAP
Total revenue		$129,000 – $132,500		$129,000 – $132,500
Operating income (b)		($8,600) – ($11,600)		$7,000 – $9,000
Net income (loss) per diluted share (c)		($0.12) – ($0.18)		$0.12 – $0.16

(a)		Estimated non-GAAP amounts above for the three months ending September 30, 2014 reflect adjustments that exclude the estimated amortization of acquired intangible assets of approximately $900 – $950 thousand, estimated stock-based compensation expense of approximately $2.8 – $3.1 million, and patent litigation costs of approximately $650 – $700 thousand.
(b)		Estimated non-GAAP amounts above for the twelve months ending December 31, 2014 reflect adjustments that exclude the estimated amortization of acquired intangible assets of approximately $3.6-$3.8 million, estimated stock-based compensation expense of approximately $11.5 – $12.5 million, and patent litigation costs of approximately $2.3 – $2.5 million.
(c)		Non-GAAP fully diluted share count is between 49.0 million and 50.1 million. GAAP share count is between 46.0 million to 48.0 million.