Callidus Software Inc. ( CALD)

Q3 2010 Earnings Call

October 28, 2010 4:30 pm ET

Executives

Lorna Heynike - SVP, Marketing

Leslie Stretch - President & CEO

Ron Fior - SVP & CFO

Analysts

Ian Kell - Northland Capital Market

Kevin Liu - B. Riley and Company

Ted Ketterer - TK Associates

Gregg Speicher - 451 Group

Gene Weber - Weber Capital Management

Mike Anderson - Wedbush Morgan Securities

Presentation

Operator

Good day ladies and gentleman and welcome to the Callidus 2010 Third Quarter Results Conference Call. My name is Jeremy and I will be your operator for today. At this time all participants are in a listen-only mode. Later we will conduct a question and answer session. (Operator instructions)

I would now like to turn the conference over to your host for today, Ms. Lorna Heynike, SVP of Marketing. Please proceed.

Lorna Heynike

Thank you and welcome again to Callidus Software’s third quarter 2010 conference call. With me on the call today is Leslie Stretch, President and CEO, and Ron Fior, Senior Vice President and CFO of Callidus Software. Shortly after the markets closed today, Callidus issued financial results for the third quarter of 2010. The press release is posted on the wire and is available on our website at callidussoftware.com.

We would like to remind you that during the course of this conference call, we will make forward looking statements including predictions and estimates regarding our market opportunity and business strategy, our on-demand bookings and business, estimates of fourth quarter 2010 total revenues, recurring revenues, services revenues, perpetual license revenues, operating expenses, margins and profits, stock based compensation and restructuring charges as well as sales and marketing expectations and strategies, product development and strategic partnership and operating results in the fourth quarter of 2010.

These statements revolve a number of risks and uncertainties. Our actual results may differ materially from any future performance suggested in our forward looking statements. We refer you to the Company’s Form 10K for the year 2009 as well as the Company’s Form 10Qs for the first and second quarter of 2010 on file with the SEC for important risk factors that could cause actual results to differ materially from those contained in any forward looking statements.

We expressly disclaim any obligation to update this forward looking information. On today’s call, Leslie will begin with comments about our overall business and financial results and then Ron will discuss the financials in greater detail. We will conclude with a Q&A session. With that said, let me now turn things over to Leslie.

Leslie Stretch

Thank you, Lorna. Good afternoon everyone. Today I want to talk about five chocolates, firstly our Q3 performance and customer activity, secondly our progress in the services business, thirdly our sales talent lifecycle proposition and our solutions roadmap, fourthly, our outlook for Q4, and lastly I want to share some thoughts on 2011, our growth aspirations and specifically our gross margin expansion plans.

Let us start with a look at Q3 performance and business highlights. In the quarter, we grew total revenue sequentially for the third quarter in a row and we also grew total revenues year-over-year. We achieved year on year growth of 18% in the recurring revenue line and non GAAP operating income of approximately $400,000, meeting our previously stated commitment to be profitable in the second half. Our GAAP operating expenses were down sequentially and year over year, again reflecting our continued discipline in managing costs and our drive to achieve value from all of our resources.

On the customer front, we signed 21 on demand deals in the quarter along with several license deals in emerging markets. Our subsidiary Aztecsoft again performed well in both bookings and revenue in Q3. We signed deals across the globe, in Mexico, in Colombia, in Hong Kong, in Belgium, in Germany, in Canada, the USA and the United Kingdom. We signed deals and delivered services across the broad spectrum of our products, including incentive compensation, objective and quota management, on boarding and channel management.

Our new signings included América Móvil in Mexico, the largest telco in Latin America, Comcel in Colombia, E-Plus in Germany, a mobile telco operator with 19 million subscribers, KPN in Belgium, a leading provider of telephony and internet services, continuing our strength and leader ship in telco. We singed Artificial Life in Hong Kong and VP Healthcare in New York State, Blue Cross of Northeastern Pennsylvania, extending our leadership in insurance again.

In general markets, we signed Bluegreen Corporation a leader in vacation and the land management business. We signed a New Wells Fargo unit for on demand. We signed ADT, the UK’s leading security company, Dubaco, an oil services company and we extended our footprint in Health Net, the Vodafone Group, AAA Michigan who convert on demand, Genentech, ESPN, Fairpoint Securities and Philips Medical amongst others.

In the quarter we also partnered with the Aberdeen Group on a Callidus specific study, derived from Aberdeen’s sales performance management, getting everyone on the same page reports. Reports find with Callidus customer in particular significantly out performed the best-in-class organizations on key sales effectiveness indices.

Reports fined that Callidus customers achieved 24% higher adoption of processes to replicate superior sales behavior. The Callidus customers achieved 48% shorter sales cycles. The Callidus customers achieved 76% shorter time to productivity than new sales executives. The study is an independent confirmation that not all SPM solutions are equal and confirms the Callidus’ position as the key business partner to help drive more sustainable, repeatable sales growth.

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