CallidusCloud Reports Record Q4 Revenue of $30.2 Million, a 20% Year-Over-Year Increase

PLEASANTON, CA–(Marketwired – Feb 5, 2014) – Callidus Software Inc. (NASDAQ: CALD), a leading provider of Cloud sales and marketing effectiveness software, today announced financial results for the fourth quarter and fiscal year ended December 31, 2013.

“Our fourth quarter results were a strong finish to an excellent year of double digit revenue growth, expanding gross margin and positive non-GAAP operating income,” said Leslie Stretch, President and CEO, CallidusCloud. “We are well positioned to accelerate our growth in 2014, with international expansion, new products coming to market and a strong demand for our Lead to Money solutions.”

Financial Highlights for the Fourth Quarter 2013
Total revenue was $30.2 million for the fourth quarter, an increase of 20%. Total recurring revenue was $21.4 million, which includes SaaS revenue of $17.2 million and maintenance revenue of $4.2 million. SaaS revenue increased 18% over the same quarter in the prior year. Services and other revenue of $8.8 million increased 30% compared to the same quarter in the prior year.

GAAP Performance

• Total gross margin was 61% compared to 46% in the same quarter in the prior year. Recurring revenue gross margin was 67% compared to 59% in the same quarter in the prior year.
• Operating loss was $1.6 million compared to $8.0 million in the same quarter in the prior year.
• Net loss was $7.0 million, or ($0.17) per share, compared to a net loss of $9.1 million, or ($0.25) per share, for the same quarter in the prior year.
• Days Sales Outstanding (DSO) on a gross basis increased to 78 days from 67 days in the prior quarter. Adjusting for a $7.0 million increase in total deferred revenue, DSO on a net basis was 64 days compared to 59 days in the third quarter of 2013.
• Cash generated from operations was $6.1 million in the current quarter compared to $5.2 million in the third quarter of 2013.

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

• Total gross margin was 64% compared to 53% for the same quarter in the prior year. Recurring revenue gross margin was 70% compared to 65% for the same quarter in the prior year.
• Operating income was $1.8 million compared to an operating loss of $2.4 million for the same quarter in the prior year.
• Net income was $1.7 million, or $0.04 per fully diluted share, compared to a net loss of $2.7 million, or ($0.07) per fully diluted share for the same quarter in the prior year.

Financial Highlights for the Full Fiscal 2013
Total revenue for the full fiscal year was $112.3 million, an increase of 18% over 2012. Total recurring revenue was $81.7 million, which includes SaaS revenue of $65.9 million and maintenance revenue of $15.8 million. SaaS revenue increased 20% over the prior year. Services and other revenue of $30.6 million increased 27% compared to 2012.

GAAP Performance

• Total gross margin for the full fiscal year was 57% compared to 47% in 2012. Recurring revenue gross margin was 65% compared to 58% in the prior year.
• Operating loss for the full fiscal year was $11.7 million compared to $23.9 million in the prior year.
• Net loss for the full fiscal year was $21.4 million, or ($0.55) per share, compared to a net loss of $27.7 million, or ($0.78) per share in the prior year.
• Cash and short term investments ended the year at $36.2 million, compared to $34.1 million in the third quarter of 2013 and $29.2 million at December 31, 2012.
• Cash generated from operations was $13.7 million for the twelve months ended December 31 2013, compared to cash used in operations of $1.7 million for the twelve months ended December 31, 2012.
• Deferred revenue increased to a record $56.7 million which represents a 14% increase compared to the third quarter of 2013 and a 45% increase compared to December 31, 2012.

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

• Total gross margin for the full fiscal year was 61% compared to 54% in 2012. Recurring revenue gross margin was 68% compared to 63% in the prior year.
• Operating income for the full fiscal year was $5.2 million compared to an operating loss of $4.7 million in the prior year.
• Net income for the full fiscal year was $3.3 million, or $0.07 per fully diluted share, compared to a net loss of $5.4 million, or ($0.15) per fully diluted share in the prior year.

Business Highlights for the Fourth Quarter 2013

• CallidusCloud hosted a sellout C3 EMEA user conference in London. Leading EMEA customers and partners shared best practice and analysis on the evolution of selling and marketing.
• CallidusCloud launched Territory and Quota Manager, our new solution to address the challenges organizations face when trying to optimize existing sales capacity and plan for growth.
• CallidusCloud sponsored key industry events including Dreamforce in San Francisco, DevLearn in Las Vegas and SiriusDecisions Summit in London.
• CallidusCloud expanded its international footprint with a new office in Mexico City to serve as the company’s Latin America hub.

Financial Outlook for 2014 – First Quarter and Full Year
For the first quarter of 2014, the Company expects total revenue to be between $29.0 million to $30.0 million. GAAP operating loss is expected to be between $2.1 million and $2.8 million with ($0.05) to ($0.08) GAAP loss per share. Non-GAAP operating income is expected to be between $1.5 million and $2.0 million with non-GAAP fully diluted earnings per share between $0.02 to $0.04.

For the full year of 2014, the Company expects total revenue to be between $126.0 million to $131.0 million, representing an increase to previous guidance of $125.0 million to $130.0 million. GAAP operating loss is expected to be between $8.3 million and $11.3 million with ($0.23) to ($0.28) GAAP loss per share. Non-GAAP operating income is expected to be between $7.0 million to $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 Standard Time (PST) today to discuss the fourth quarter and fiscal 2013 results and outlook for the first 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: 800-510-0146 (International callers: 617-614-3449)
Passcode: 51131502
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, is a leading provider of cloud software. CallidusCloud^® enables organizations to accelerate and maximize their lead to money process with sales and marketing effectiveness cloud software. CallidusCloud maximizes and accelerates sales and marketing processes for over 2,200 leading organizations. Small, medium and large enterprises across multiple industries and geographies rely on CallidusCloud for better marketing and smarter selling.

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

Note on Forward-Looking Statements

The forward-looking statements included in this press release, including discussion of our commercial prospects, estimates of revenues, operating expenses, stock-based compensation expense, amortization of acquired intangibles, restructuring, and patent litigation defense 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, and other risks detailed in 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 925-251-2248, 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.

Non-GAAP Financial Measures

In this release, CallidusCloud has provided 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 CallidusClouds’ industry, many of which present non-GAAP financial measures that may resemble our non-GAAP financial measures. Our non-GAAP financial measures exclude stock-based compensation expense, purchase acquisition adjustments, restructuring expense, acquisition related expense, patent litigation defense cost, convertible note interest expense, amortization of convertible note issuance cost, convertible note conversion costs and amortization of acquired intangibles. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP.

©2013. Callidus Software Inc. All rights reserved. Callidus, Callidus Software, the Callidus Software logo, CallidusCloud, the CallidusCloud logo, TrueComp Manager, ActekSoft, ACom3, Salesforce Assessments, iCentera, Webcom, Litmos, the Litmos logo, LeadFormix, Rapid Intake, and 6FigureJobs 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 December 31,								Twelve Months Ended December 31,
				2013				2012				2013				2012
Revenues:
	Recurring			$	21,375			$	18,473			$	81,734			$	70,919
	Services and other				8,812				6,760				30,603				24,033
		Total revenues			30,187				25,233				112,337				94,952
Cost of revenues:
	Recurring (1) (2) (8)				7,054				7,605				28,741				30,039
	Services and other (1) (2) (8)				4,612				6,035				19,048				20,301
		Total cost of revenues			11,666				13,640				47,789				50,340
Gross profit					18,521				11,593				64,548				44,612
Operating expenses:
	Sales and marketing (1) (2) (8)				10,400				8,898				34,916				32,442
	Research and development (1) (2) (8)				4,159				4,606				17,143				16,643
	General and administrative (1) (2) (3) (4) (8)				6,062				5,314				22,951				19,953
	Income from settlement and patent licensing				(500	)			–				(500	)			–
	Acquisition related contingent consideration				–				175				–				(1,612	)
	Restructuring				–				554				1,699				1,115
		Total operating expenses			20,121				19,547				76,209				68,541
Operating loss					(1,600	)			(7,954	)			(11,661	)			(23,929	)
Debt conversion expense					(4,776	)			–				(4,776	)			–
Interest income and other income (expense) (5) (6)					(249	)			(921	)			(2,919	)			(3,381	)
Loss before provision (benefit) for income taxes					(6,625	)			(8,875	)			(19,356	)			(27,310	)
Provision (benefit) for income taxes (7)					355				175				2,055				388
Net loss				$	(6,980	)		$	(9,050	)		$	(21,411	)		$	(27,698	)
Net loss per share – basic and diluted
	Net loss per share			$	(0.17	)		$	(0.25	)		$	(0.55	)		$	(0.78	)
Shares used in basic and diluted per share computation					41,778				36,359				38,858				35,393
(1) Stock-based compensation included in amounts above by category:
	Cost of recurring				171				270				783				1,550
	Cost of services				200				447				1,060				2,070
	Sales and marketing				496				841				2,420				3,778
	Research and development				480				406				1,797				1,782
	General and administrative				703				774				4,335				4,475
		Total stock-based compensation			2,050				2,738				10,395				13,655
(2) Acquisition, acquired and settlement related asset amortization
	Cost of recurring				520				522				2,068				2,036
	Cost of services				14				12				51				50
	Sales and marketing				233				234				926				880
	General and administrative				48				59				225				239
		Total acquisition related asset amortization			815				827				3,270				3,205
(3) Acquisition-related expense					–				45				–				865
(4) Patent litigation costs					502				317				1,504				1,103
(5) Interest expense on convertible notes					494				703				2,604				2,813
(6) Amortization of convertible note issuance costs					83				134				485				536
(7) Tax benefit from release of valuation allowance					–				–				–				(224	)
(8) India operations transfer fee					–				859				–				859

CALLIDUS SOFTWARE INC.
CONSOLIDATED BALANCE SHEETS
(In thousands except per share data)
				December 31,				December 31,
				2013				2012
ASSETS
Current assets:
	Cash and cash equivalents			$	28,295			$	16,400
	Short-term investments				7,866				12,771
	Accounts receivable, net				29,216				22,567
	Deferred income taxes				–				40
	Prepaid and other current assets				6,232				6,718
		Total current assets			71,609				58,496
Property and equipment, net					11,351				10,580
Goodwill					31,207				31,207
Intangible assets, net					16,995				21,196
Deferred income taxes, noncurrent					405				392
Deposits and other assets					2,626				2,872
		Total assets		$	134,193			$	124,743
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable			$	2,987			$	4,705
	Accrued payroll and related expenses				7,377				5,854
	Accrued expenses				5,395				8,164
	Deferred income taxes				1,159				944
	Deferred revenue				46,222				35,483
	Capital lease obligations				1,308				921
		Total current liabilities			64,448				56,071
Deferred revenue, noncurrent					10,432				3,702
Deferred income taxes, noncurrent					155				160
Other liabilities					1,921				2,159
Capital lease obligations, noncurrent					987				8
Convertible notes					14,197				59,215
		Total liabilities			92,140				121,315
Stockholders’ equity:
	Common stock				45				34
	Additional paid-in capital				315,430				255,331
	Treasury stock				(14,430	)			(14,430	)
	Accumulated other comprehensive income				165				239
	Accumulated deficit				(259,157	)			(237,746	)
		Total stockholders’ equity			42,053				3,428
		Total liabilities and stockholders’ equity		$	134,193			$	124,743

CALLIDUS SOFTWARE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
					Twelve Months Ended December 31,
					2013				2012
Cash flows from operating activities:
	Net loss				$	(21,411	)		$	(27,698	)
	Adjustments to reconcile net loss to net cash used in operating activities:
		Depreciation expense				4,458				3,114
		Amortization of intangible assets				4,825				5,094
		Provision for doubtful accounts and service remediation reserves				999				595
		Stock-based compensation				10,395				13,655
		Release of valuation allowance				–				(350	)
		Loss (gain) on disposal of property and equipment				3				(2	)
		Amortization of convertible notes issuance cost				485				402
		Net amortization on investments				79				358
		Debt conversion expense				4,776				–
		Acquisition-related contingent consideration				–				(1,612	)
		Changes in operating assets and liabilities:
			Accounts receivable			(7,648	)			(1,112	)
			Prepaid and other current assets			486				(820	)
			Other assets			(1,276	)			662
			Accounts payable			(1,702	)			914
			Accrued expenses			105				(1,106	)
			Accrued payroll and related expenses			1,861				987
			Accrued restructuring			(392	)			443
			Deferred revenue			17,469				4,576
			Deferred income taxes			237				195
Net cash provided by (used in) operating activities						13,749				(1,705	)
Cash flows from investing activities:
	Purchases of investments					(7,434	)			(16,536	)
	Proceeds from maturities and sale of investments					12,250				38,841
	Purchases of property and equipment					(1,704	)			(6,692	)
	Proceeds from disposal of property and equipment					–				2
	Purchases of intangible assets					(638	)			(6,196	)
	Acquisitions, net of cash acquired					–				(7,715	)
Net cash provided by investing activities						2,474				1,704
Cash flows from financing activities:
	Proceeds from issuance of common stock					6,630				5,225
	Repurchase of common stock from employees for payment of taxes on vesting of restricted stock units					(1,298	)			(2,346	)
	Payment of consideration related to acquisitions					(2,903	)			(2,660	)
	Repayment of debt assumed through acquisition					–				(30	)
	Payment on debt conversion					(4,374	)			–
	Payment of principal under capital leases					(2,319	)			(1,193	)
Net cash used in financing activities						(4,264	)			(1,004	)
Effect of exchange rates on cash and cash equivalents						(64	)			22
Net increase (decrease) in cash and cash equivalents						11,895				(983	)
Cash and cash equivalents at beginning of period						16,400				17,383
Cash and cash equivalents at end of period					$	28,295			$	16,400

RECONCILIATION OF GAAP TO NON-GAAP Financial MEASURES
(In thousands, except for percentages and per share data)
(unaudited)
			Three months ended								Twelve months ended
			December 31,								December 31,
			2013				2012				2013				2012
Non-GAAP gross profit reconciliation
Gross profit			$	18,521			$	11,593			$	64,548			$	44,612
	Profit margin, as a % of total revenues			61	%			46	%			57	%			47	%
Add back:
	Non-cash stock-based compensation			371				717				1,843				3,620
	Non-cash amortization of acquired intangible assets			534				534				2,119				2,086
	India operations transfer fee			–				535				–				535
Non-GAAP gross profit			$	19,426			$	13,379			$	68,510			$	50,853
	Profit margin, as a % of total revenues			64	%			53	%			61	%			54	%
Non-GAAP recurring revenue gross profit reconciliation
Recurring revenue gross profit			$	14,321			$	10,868			$	52,993				40,880
	Recurring revenue profit margin, as a % of recurring revenues			67	%			59	%			65	%			58	%
Add back:
	Non-cash stock-based compensation			171				270				783				1,550
	Non-cash amortization of acquired intangible assets			520				522				2,068				2,036
	India operations transfer fee			–				387				–				387
Non-GAAP Recurring revenue gross profit			$	15,012			$	12,047			$	55,844			$	44,853
	Recurring revenue profit margin, as a % of recurring revenues			70	%			65	%			68	%			63	%
Non-GAAP operating expense reconciliation:
Operating expenses			$	20,121				19,547			$	76,209				68,541
	Operating expenses, as a % of total revenues			67	%			77	%			68	%			72	%
Add back:
	Non-cash stock-based compensation			(1,679	)			(2,021	)			(8,552	)			(10,035	)
	Non-cash amortization of acquired intangible assets			(281	)			(293	)			(1,151	)			(1,119	)
	Acquisition-related expense			–				(45	)			–				(865	)
	Patent litigation and settlement costs			(502	)			(317	)			(1,504	)			(1,103	)
	Acquisition-related adjustment			–				(175	)			–				1,612
	Restructuring			–				(554	)			(1,699	)			(1,115	)
	India operations transfer fee			–				(324	)			–				(324	)
Non-GAAP Operating Expenses			$	17,659			$	15,818			$	63,303			$	55,592
	Non-GAAP Operating expenses, as a % of total revenues			58	%			63	%			56	%			59	%
Non-GAAP operating income (loss) reconciliation:
Operating loss			$	(1,600	)			(7,954	)		$	(11,661	)			(23,929	)
	Operating loss, as a % of total revenues			-5	%			-32	%			-10	%			-25	%
Add back:
	Non-cash stock-based compensation			2,050				2,738				10,395				13,655
	Non-cash amortization of acquired intangible assets			815				827				3,270				3,205
	Acquisition-related expense			–				45				–				865
	Patent litigation and settlement costs			502				317				1,504				1,103
	Acquisition-related adjustment			–				175				–				(1,612	)
	Restructuring			–				554				1,699				1,115
	India operations transfer fee			–				859				–				859
Non-GAAP Operating income (loss)			$	1,767			$	(2,439	)		$	5,207			$	(4,739	)
	Non-GAAP Operating income (loss), as a % of total revenues			6	%			-10	%			5	%			-5	%
CALLIDUS SOFTWARE INC.
RECONCILIATION OF GAAP TO NON-GAAP Financial MEASURES
(In thousands, except for percentages and per share data)
(unaudited)
			Three months ended								Twelve months ended
			December 31,								December 31,
			2013				2012				2013				2012
Non-GAAP net loss reconciliation:
Net loss			$	(6,980	)		$	(9,050	)		$	(21,411	)			(27,698	)
	Net loss, as a % of total revenues			-23	%			-36	%			-19	%			-29	%
Add back:
	Non-cash stock-based compensation			2,050				2,738				10,395				13,655
	Non-cash amortization of acquired intangible assets			815				827				3,270				3,205
	Acquisition-related expenses			–				45				–				865
	Patent litigation and settlement costs			502				317				1,504				1,103
	Acquisition-related adjustment			–				175				–				(1,612	)
	Restructuring			–				554				1,699				1,115
	Interest expense on convertible notes			494				703				2,604				2,813
	Amortization of convertible note issuance cost			83				134				485				536
	Debt conversion expense			4,776				–				4,776				–
	India operations transfer fee			–				859				–				859
	Tax benefit from release of valuation allowance			–				–				–				(224	)
Non-GAAP Net income (loss)			$	1,740			$	(2,698	)		$	3,322			$	(5,383	)
	Non-GAAP Net income (loss), as a % of total revenues			6	%			-11	%			3	%			-6	%
Non-GAAP net income (loss) per share reconciliation:
Net loss per basic and diluted share			$	(0.17	)			(0.25	)		$	(0.55	)		$	(0.78	)
Add back:
	Non-cash stock-based compensation			0.05				0.08				0.27				0.38
	Non-cash amortization of acquired intangible assets			0.02				0.02				0.08				0.09
	Acquisition-related expenses			–				–				–				0.02
	Patent litigation and settlement costs			0.01				0.01				0.04				0.03
	Acquisition-related adjustment			–				0.01				–				(0.04	)
	Restructuring			–				0.02				0.04				0.03
	Interest expense on convertible notes			0.01				0.02				0.07				0.08
	Amortization of convertible note issuance cost			–				–				0.01				0.02
	Debt conversion expense			0.11				–				0.12				–
	India operations transfer fee			–				0.02				–				0.02
	Tax benefit from release of valuation allowance			–				–				–				(0.01	)
	Diluted shares impact on non-GAAP basis			0.01				–				(0.01	)			0.01
Non-GAAP net income (loss) per diluted share			$	0.04			$	(0.07	)		$	0.07			$	(0.15	)
Basic and fully diluted shares reconciliation:
Basic shares				41,778				36,359				38,858				35,393
Add back:
	Weighted average effect of dilutive securities			7,382				–				8,910				–
Diluted shares				49,160				36,359				47,768				35,393

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 of 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
		March 31, 2014
		GAAP		Non-GAAP
Total Revenue		$29,000 – $30,000		$29,000 – $30,000
Operating Income (a)		($2,100) – ($2,800)		$1,500 – $2,000
Net income (loss) per diluted share (c)		($0.05) – ($0.08)		$0.02 – $0.04
		Twelve months ended
		December 31, 2014
		GAAP		Non-GAAP
Total Revenue		$126,000 – $131,000		$126,000 – $131,000
Operating Income (b)		($8,300) – ($11,300)		$7,000 – $9,000
Net income (loss) per diluted share (c)		($0.23) – ($0.28)		$0.12 – $0.16

(a)	Estimated non-GAAP amounts above for the three months ending March 31, 2014, reflect adjustments that exclude the estimated amortization of acquired intangible assets of approximately $800 – $850 thousand, estimated stock-based compensation expense of approximately $2.7 – $3.0 million, patent litigation and settlement costs of approximately $500 – $550 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 $3.2 – $3.4 million, estimated stock-based compensation expense of approximately $12.2 – $13.2 million, and patent litigation and settlement costs of approximately $1.7 – $1.9 million.
(c)	Non-GAAP fully diluted share count is between 49.0 million to 50.5 million.  GAAP share count is between 46.0 million to 48.5 million.