10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2012

OR

oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from          to          .

Commission file number: 000-50463

Callidus Software Inc.

(Exact name of registrant as specified in its charter)

Delaware	77-0438629
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification Number)

Callidus Software Inc.
6200 Stoneridge Mall Road, Suite 500
Pleasanton, California  94588
(Address of principal executive offices, including zip code)

(925) 251-2200
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x  No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o	Accelerated filer x
Non-accelerated filer o	Smaller reporting company o
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o  No x

There were 36,189,423 shares of the registrant’s common stock, par value $0.001, outstanding on November 1, 2012, the latest practicable date prior to the filing of this report.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements	3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3. Quantitative and Qualitative Disclosures About Market Risk	30
Item 4. Controls and Procedures	31
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	32
Item 1A. Risk Factors	32
Item 6. Exhibits	32
Signatures	33
Exhibit Index	34
EXHIBIT 31.1
EXHIBIT 32.1
EXHIBIT 101

2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CALLIDUS SOFTWARE INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)

(Unaudited)

	September 30,			December 31,
	2012			2011
ASSETS
Current assets:
Cash and cash equivalents	$	6,697		$	17,383
Short-term investments	19,856			35,406
Accounts receivable, net of allowances of $216 and $235 at September 30, 2012 and December 31, 2011, respectively	29,489			21,778
Deferred income taxes	110			110
Prepaid and other current assets	7,707			5,831
Total current assets	63,859			80,508
Property and equipment, net	9,827			6,772
Goodwill	31,213			24,416
Intangible assets, net	22,362			17,769
Deferred income taxes, noncurrent	206			206
Deposits and other assets	3,212			3,936
Total assets	$	130,679		$	133,607
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	5,025		$	3,515
Accrued payroll and related expenses	4,011			4,278
Accrued expenses	12,117			12,272
Deferred income taxes	596			596
Deferred revenue	32,794			30,211
Capital lease obligations	1,107			1,196
Total current liabilities	55,650			52,068
Deferred revenue, noncurrent	3,450			4,257
Deferred income taxes, noncurrent	308			197
Other liabilities	1,881			2,413
Capital lease obligations, noncurrent	128			915
Convertible notes	59,215			59,215
Total liabilities	120,632			119,065
Commitments and contingencies (Note 8)
Stockholders’ equity:
Preferred stock, $0.001 par value; 5,000 shares authorized; no shares issued or outstanding	—			—
Common stock, $0.001 par value; 100,000 shares authorized; 38,130 and 35,198 shares issued and 35,791 and 32,859 shares outstanding at September 30, 2012 and December 31, 2011, respectively	34			33
Additional paid-in capital	252,857			238,798
Treasury stock; 2,339 shares at September 30, 2012 and December 31, 2011	(14,430		)	(14,430		)
Accumulated other comprehensive income	282			189
Accumulated deficit	(228,696		)	(210,048		)
Total stockholders’ equity	10,047			14,542
Total liabilities and stockholders’ equity	$	130,679		$	133,607

See accompanying notes to unaudited condensed consolidated financial statements.

3

CALLIDUS SOFTWARE INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands, except per share data)

(Unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2012			2011			2012			2011
Revenues:
Recurring	$	17,533		$	16,015		$	52,446		$	46,067
Services and other	6,393			5,044			17,274			15,158
Total revenues	23,926			21,059			69,720			61,225
Cost of revenues:
Recurring	6,989			8,363			22,449			24,860
Services and other	5,079			3,937			14,292			11,952
Total cost of revenues	12,068			12,300			36,741			36,812
Gross profit	11,858			8,759			32,979			24,413
Operating expenses:
Sales and marketing	8,322			5,253			23,518			14,303
Research and development	3,947			3,145			12,023			8,416
General and administrative	4,785			4,673			14,639			12,500
Acquisition-related contingent consideration	50			—			(1,787		)	—
Restructuring	(53		)	99			561			136
Total operating expenses	17,051			13,170			48,954			35,355
Operating loss	(5,193		)	(4,411		)	(15,975		)	(10,942		)
Interest income and other income (expense), net	139			(467		)	134			(341		)
Interest expense	(860		)	(1,075		)	(2,594		)	(1,642		)
Gain on extinguishment of convertible notes	—			904			—			904
Loss before provision (benefit) for income taxes	(5,914		)	(5,049		)	(18,435		)	(12,021		)
Provision (benefit) for income taxes	444			(478		)	213			(279		)
Net loss	$	(6,358	)	$	(4,571	)	$	(18,648	)	$	(11,742	)
Net loss per share - basic and diluted
Net loss per share	$	(0.18	)	$	(0.14	)	$	(0.53	)	$	(0.36	)
Shares used in basic and diluted per share computation	35,853			32,327			35,070			32,826
Comprehensive loss
Net Loss	$	(6,358	)	$	(4,571	)	$	(18,648	)	$	(11,742	)
Unrealized gains on available-for-sale securities	22			217			35			192
Foreign currency translation adjustments	53			(34		)	58			(8		)
Comprehensive loss	$	(6,283	)	$	(4,388	)	$	(18,555	)	$	(11,558	)

See accompanying notes to unaudited condensed consolidated financial statements.

4

CALLIDUS SOFTWARE INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Nine Months Ended September 30,
	2012			2011
Cash flows from operating activities:
Net loss	$	(18,648	)	$	(11,742	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation expense	2,184			2,338
Amortization of intangible assets	3,818			2,284
Provision for doubtful accounts and service remediation reserves	188			88
Stock-based compensation	10,917			8,852
Stock-based compensation related to acquisition	—			42
Release of valuation allowance	(350		)	—
Gain on disposal of property and equipment	(6		)	—
Impairment of investments	—			375
Amortization of convertibles note issuance cost	402			217
Gain on extinguishment of convertible notes	—			(904		)
Net amortization on investments	310			351
Acquisition-related contingent consideration	(1,787		)	—
Changes in operating assets and liabilities:
Accounts receivable	(7,627		)	(593		)
Prepaid and other current assets	(1,809		)	1,594
Other assets	322			(2,923		)
Accounts payable	(129		)	(302		)
Accrued expenses	741			(257		)
Accrued payroll and related expenses	(267		)	313
Accrued restructuring	37			(251		)
Deferred revenue	1,635			(1,648		)
Deferred income taxes	111			144
Net cash used in operating activities	(9,958		)	(2,022		)
Cash flows from investing activities:
Purchases of investments	(16,536		)	(47,864		)
Proceeds from maturities and sale of investments	31,811			22,595
Purchases of property and equipment	(4,927		)	(1,827		)
Proceeds from disposal of property and equipment	6			—
Purchases of intangible assets	(4,485		)	(1,381		)
Acquisitions, net of cash acquired	(7,721		)	(12,237		)
Net cash used in investing activities	(1,852		)	(40,714		)
Cash flows from financing activities:
Proceeds from issuance of common stock	5,222			5,424
Repurchases of common stock	—			(14,430		)
Repurchase of common stock from employees for payment of taxes on vesting of restricted stock units	(2,079		)	(1,046		)
Payment of consideration related to acquisitions	(1,160		)	(1,175		)
Proceeds from issuance of convertible notes, net of issuance costs	—			77,369
Repurchase of convertible notes	—			(19,188		)
Repayment of debt assumed through acquisition	(30		)	—
Payment of principal under capital leases	(887		)	(896		)
Net cash provided by financing activities	1,066			46,058
Effect of exchange rates on cash and cash equivalents	58			1
Net increase (decrease) in cash and cash equivalents	(10,686		)	3,323
Cash and cash equivalents at beginning of period	17,383			12,830
Cash and cash equivalents at end of period	$	6,697		$	16,153
Supplemental disclosures of cash flow information:
Cash paid for interest on convertible debt	$	2,110		$	—
Cash paid for interest on capital leases	83			138

See accompanying notes to unaudited condensed consolidated financial statements.

5

CALLIDUS SOFTWARE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.Summary of Significant Accounting Policies

Basis of Presentation and Summary of Accounting Policies

All amounts included herein related to the condensed consolidated financial statements as of September 30, 2012 and the three and nine months ended September 30, 2012 and 2011 are unaudited and should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) have been condensed or omitted pursuant to the Securities and Exchange Commission (SEC) rules and regulations regarding interim financial statements.

In the opinion of management, the accompanying condensed consolidated financial statements include all necessary adjustments for the fair presentation of the Company’s financial position, results of operations and cash flows. The results of operations for the interim periods presented are not necessarily indicative of the operating results to be expected for any subsequent interim period or for the full fiscal year ending December 31, 2012.

The condensed consolidated financial statements include the accounts of Callidus Software Inc. and its wholly owned subsidiaries (collectively, the “Company”), which include wholly owned subsidiaries in Australia, Canada, Germany, Hong Kong, India, New Zealand, Serbia, Singapore, and the United Kingdom. All intercompany transactions and balances have been eliminated upon consolidation.

Reclassifications

Certain prior period balances have been reclassified to conform to the current period’s presentation. Such reclassifications did not affect total revenues or net loss.

Use of Estimates

Preparation of the condensed consolidated financial statements in conformity with GAAP and the rules and regulations of the SEC requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, the reported amounts of revenues and expenses during the reporting period and the accompanying notes. Estimates are used for, but not limited to, the allocation of the value of purchase consideration for business acquisitions, uncertain tax liabilities, allowances for doubtful accounts and service remediation reserves, the useful lives of fixed assets and intangible assets, goodwill and intangible asset impairments, accrued liabilities and other contingencies. These estimates and assumptions are based on management’s best estimates and judgment. Management evaluates such estimates and assumptions on an ongoing basis for continued reasonableness, using historical experience and other factors, including the current economic environment. Appropriate adjustments, if any, to the estimates used are made prospectively based upon such evaluation. Illiquid credit markets, volatile equity and foreign currency markets and declines in Information Technology (IT) spending by companies have combined to increase the uncertainty inherent in such estimates and assumptions. As future events and their effects cannot be determined with precision, actual results could differ materially from those estimates. Changes in those estimates, if any, resulting from continuing changes in the economic environment, will be reflected in the condensed consolidated financial statements in future periods.

2.Restructuring

Restructuring expenses primarily consist of costs associated with employee terminations and exit of excess facilities. These costs are recognized in accordance with the accounting guidance for exit activities and are presented as restructuring expenses. The Company had restructuring expense adjustment of $53,000 for the three months ended September 30, 2012 and incurred restructuring expenses of $561,000 for the nine months ended September 30, 2012.  The Company incurred restructuring expenses of $99,000 and $136,000 for the three and nine months ended September 30, 2011, respectively.

6

The following table sets forth a summary of accrued restructuring expenses for the nine months ended September 30, 2012 (in thousands):

	December 31,		Cash			Additions, net		September 30,
	2011		Payments			of Adjustments		2012
Severance and termination-related costs	$	—	$	(312	)	$	457	$	145
Facilities related costs	443		(212		)	104		335
Total accrued restructuring expenses	$	443	$	(524	)	$	561	$	480

3.Acquisitions

The Company completed the following business acquisitions during the nine months ended September 30, 2012:

·On January 3, 2012 the Company acquired LeadFormix, Inc. (“LeadFormix”), a U.S. based company with operations in India. LeadFormix, a leader in next-generation marketing automation and sales enablement, was acquired for approximately $8.5 million in cash, including $1.5 million for indemnity holdback.

·On May 4, 2012, the Company acquired 6FigureJobs.com, Inc. (“6FigureJobs”), a wholly-owned subsidiary of Workstream, Inc. (“Workstream”), a Canadian corporation, for approximately $1.0 million in cash, including $0.3 million for indemnity holdback. 6FigureJobs provides job advertisement placement, recruitment media services and other career-related services.

The preliminary estimates of fair value for the assets acquired and liabilities assumed were based upon preliminary calculations and valuations and the Company’s estimates and assumptions are subject to change as the Company obtains additional information during the measurement period (up to one year from the acquisition dates). The primary areas of those preliminary estimates that are not yet finalized related to certain tangible assets and liabilities acquired, identifiable intangible assets, and income and non-income based taxes.

Developed technology represents the fair values of the acquired companies’ products that have reached technological feasibility. The estimated useful life was primarily based on projected product cycle and technology evolution. Customer relationships represent the fair value of the underlying customer support contracts and related relationships with the acquired companies’ existing customers. The estimated useful life was primarily based on projected customer retention rates. Tradenames represent the fair value of brand and name recognition associated with the marketing of the acquired companies’ products and services. The estimated useful life was based on the projected product cycle and associated marketing of the brand and name.

The excess of the purchase price over the assets acquired and liabilities assumed was recorded as goodwill. The goodwill arising from the acquisitions mainly consists of entity-specific synergies and economies of scale expected from joining the acquired companies with the Company.

7

Both acquisitions were accounted for using the purchase method of accounting. Assets acquired and liabilities assumed were recorded at their fair values as of the respective acquisition dates. The total purchase price for each acquisition was allocated as follows (amounts in thousands):

	Purchase Consideration		Net Tangible Assets Acquired/(liabilities assumed)			Identifiable Intangible Assets		Goodwill		Goodwill deductible for tax purposes	Acquisition related expenses
Leadformix	$	8,521	$	(760	)	$	2,800	$	6,481	Not deductible	$	270
6FigureJobs	1,031		(195		)	910		316		Not deductible	119
	$	9,552	$	(955	)	$	3,710	$	6,797

The following table sets forth each component of identifiable intangible assets acquired in connection with the above acquisitions (in thousands):

							Weighted
							Average
							Estimated
							Useful
	Leadformix		6FigureJobs		Total		Life
Customer relationships	$	640	$	630	$	1,270	6.01
Developed technology	1,900		220		2,120		6.79
Tradename	260		60		320		6.63
	$	2,800	$	910	$	3,710

The financial results of these companies are included in the Company’s condensed consolidated results starting from their respective acquisition dates.

Pro forma financial information for acquisitions accounted for as business combinations has not been presented, as the effects were not material to the Company’s historical condensed consolidated financial statements.

4.Goodwill and Intangible Assets

The changes in the carrying amount of goodwill for the nine months ended September 30, 2012 is as follows (in thousands):

Balance as of December 31, 2011	$	24,416
Acquisitions	6,797
Impairment losses	—
Balance as of September 30, 2012	$	31,213

Upon finalizing the purchase price allocation for the acquisition of Webcom, Inc. and 6FigureJobs.com, Inc. in 2012, we retrospectively adjusted the purchase price allocation as of respective acquisition dates as required by accounting standards. Adjustments in Webcom, Inc. and 6FigureJobs.com, Inc.’s purchase price allocations reduced net assets acquired and increased resulting goodwill by $216,000 and $126,000, respectively.

8

Intangible assets consisted of the following as of September 30, 2012 and December 31, 2011 (in thousands):

												Weighted
												Average
	December 31,		December 31,							September 30,		Amortization
	2011		2011				Amortization			2012		Period
	Cost		Net		Additions		Expense			Net		(Years)
Developed technology	$	15,179	$	10,630	$	5,286	$	(2,744	)	$	13,172	5.3
Customer relationships	6,884		4,540		1,271		(640		)	5,171		6.1
Tradenames	1,202		942		320		(165		)	1,097		6.1
Favorable lease	40		13		—		(10		)	3		0.3
Patents and licenses	1,525		1,522		1,534		(223		)	2,833		8.7
Other	142		122		—		(36		)	86		1.8
Total	$	24,972	$	17,769	$	8,411	$	(3,818	)	$	22,362

Intangible assets include third-party software licenses used in our products and acquired assets related to the Company’s acquisitions.

Amortization expense related to intangible assets was $1.2 million and $3.8 million for the three and nine months ended September 30, 2012, respectively, and was included within cost of revenues for developed technology and patents and licenses, sales and marketing expense for customer relationships and tradenames, and general and administrative expense for the favorable lease and other. Amortization expense related to intangible assets was $0.9 million and $2.3 million for the three and nine months ended September 30, 2011, respectively. The Company’s intangible assets are amortized over their estimated useful lives of one to twelve years. Total future expected amortization is as follows (in thousands):

	Developed		Customer				Favorable		Patents
	Technology		Relationships		Tradenames		Lease		and licenses		Other
Quarter Ending September 30:
Remainder of 2012	$	820	$	219	$	56	$	3	$	88	$	12
2013	2,806		876		213		—		352		47
2014	2,403		876		179		—		349		27
2015	2,122		876		179		—		344		—
2016	2,122		876		151		—		344		—
2017	1,815		767		143		—		344		—
2018 and beyond	1,084		681		176		—		1,012		—
Total expected amortization expense	$	13,172	$	5,171	$	1,097	$	3	$	2,833	$	86

5.Financial Instruments

As of September 30, 2012 and December 31, 2011, all debt and marketable equity securities are classified as available-for-sale and carried at estimated fair value, which is determined based on the inputs discussed below.

The Company classifies all highly liquid instruments with an original maturity on the date of purchase of three months or less as cash and cash equivalents.  The Company classifies available-for-sale securities that have a maturity date longer than three months to be short-term investments, including those investments with a maturity date of longer than one year that are highly liquid and for which the Company does not have a positive intent to hold to maturity.

Interest income is included within interest income and other income (expense), net in the accompanying condensed consolidated financial statements. Realized gains and losses are calculated using the specific identification method. As of September 30, 2012 and December 31, 2011, the Company had no short-term investments in an unrealized loss position with maturities of greater than 12 months.

9

The components of the Company’s debt and marketable equity securities classified as available-for-sale were as follows at September 30, 2012 and December 31, 2011 (in thousands):

			Gross		Gross		Other
	Amortized		Unrealized		Unrealized		Than Temporary		Estimated
September 30, 2012	Cost		Gains		Losses		Impairment		Fair value
Cash	$	4,540	$	—	$	—	$	—	$	4,540
Cash equivalents:
Money market funds	2,157		—		—		—		2,157
Total cash equivalents	2,157		—		—		—		2,157
Total cash and cash equivalents	$	6,697	$	—	$	—	$	—	$	6,697
Short-term investments:
Commercial paper	$	1,000	$	—	$	—	$	—	$	1,000
U.S. government and agency obligations	7,699		1		—		—		7,700
Corporate notes and obligations	11,139		17		—		—		11,156
Total short-term investments	$	19,838	$	18	$	—	$	—	$	19,856

			Gross		Gross			Other
	Amortized		Unrealized		Unrealized			Than Temporary			Estimated
December 31, 2011	Cost		Gains		Losses			Impairment			Fair value
Cash	$	7,300	$	—	$	—		$	—		$	7,300
Cash equivalents:
Money market funds	10,083		—		—			—			10,083
Total cash equivalents	10,083		—		—			—			10,083
Total cash and cash equivalents	$	17,383	$	—	$	—		$	—		$	17,383
Short-term investments:
U.S. government and agency obligations	23,178		3		(11		)	—			23,170
Corporate notes and obligations	12,245		3		(12		)	—			12,236
Publicly traded securities	375		—		—			(375		)	—
Total short-term investments	$	35,798	$	6	$	(23	)	$	(375	)	$	35,406

For investments in securities classified as available-for-sale, market value and the amortized cost of debt securities by contractual maturities of those securities as of September 30, 2012 were as follows (in thousands):

	Amortized		Estimated
Contractual maturity	Cost		Fair value
Less than 1 year	$	10,834	$	10,845
Between 1 and 2 years	9,004		9,011
Total	$	19,838	$	19,856

At September 30, 2012, the Company had no unrealized losses related to U.S. government and agency obligations, commercial paper, or corporate notes and obligations.

The Company had no realized gains or losses on sales of its investments for the three and nine months ended September 30, 2012, and 2011. The Company had proceeds of $5.7 million and $31.8 million from maturities and sales of investments during the three and nine months ended September 30, 2012, respectively. The Company had proceeds of $12.5 million and $22.6 million from maturities and sales of investments during the three and nine months ended September 30, 2011, respectively.

The short-term investments in government obligations or highly rated credit securities generally have minor to moderate fluctuations in the fair values from period to period. The Company monitors credit ratings, downgrades and significant events surrounding these securities so as to assess if any of the impairments will be considered other-than-temporary. The Company did not identify any government obligations or highly rated credit securities held as of September 30, 2012 or as of December 31, 2011 for which the fair value declined significantly below amortized cost and considered other-than-temporary impairment.

10

For publicly traded equity securities, the Company considers various factors in determining whether to recognize an impairment charge, including the length of time and extent to which the fair value has been less than the cost basis, the financial condition and near-term prospects of the issuer, and the Company’s intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value. During the year ended December 31, 2011, the Company reclassified $260,000 of previously recognized unrealized losses related to its investment in one publicly traded equity from accumulated other comprehensive loss to earnings. In addition, the Company recognized an additional impairment of the remaining carrying value of $115,000 resulting in an impairment of $375,000 in connection with their investment in Courtland Capital, Inc. During the year ended December 31, 2011, Courtland Capital, Inc. shares were suspended by the Alberta Securities Commission for failing to file annual audited financial statements for the year ended September 30, 2011. As the Company believes the likelihood of recovery to be remote, the Company considered the loss to be other-than-temporary at December 31, 2011.

6.Fair Value Measurements

The Company measures financial assets at fair value on an ongoing basis. The estimated fair value of the Company’s financial assets was determined using the following inputs at September 30, 2012 and December 31, 2011 (in thousands):

	Fair Value Measurements at Reporting Date Using
			Quoted Prices in		Significant		Significant
			Active Markets for		Other Observable		Unobservable
			Identical Assets		Inputs		Inputs
September 30, 2012	Total		(Level 1)		(Level 2)		(Level 3)
Assets:
Money market funds (1)	$	2,157	$	2,157	$	—	$	—
U.S. Treasury bills (2)	1,000		1,000		—		—
Commercial paper (2)	1,000		—		1,000		—
Corporate notes and obligations (2)	11,156		—		11,156		—
U.S. government and agency obligations (2)	6,700		—		6,700		—
Total	$	22,013	$	3,157	$	18,856	$	—
Liabilities:
Contingent consideration (3)	$	2,075	$	—	$	—	$	2,075
Total	$	2,075	$	—	$	—	$	2,075

(1) Included in cash and cash equivalents on the condensed consolidated balance sheet.

(2) Included in short-term investments on the condensed consolidated balance sheet.

(3) Included in accrued expenses on the condensed consolidated balance sheet.

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	Fair Value Measurements at Reporting Date Using
			Quoted Prices in		Significant		Significant
			Active Markets for		Other Observable		Unobservable
			Identical Assets		Inputs		Inputs
December 31, 2011	Total		(Level 1)		(Level 2)		(Level 3)
Assets:
Money market funds (1)	$	10,083	$	10,083	$	—	$	—
U.S. Treasury bills (2)	3,503		3,503		—		—
Corporate notes and obligations (2)	12,236		—		12,236		—
U.S. government and agency obligations (2)	19,667		—		19,667		—
Total	$	45,489	$	13,586	$	31,903	$	—
Liabilities:
Contingent consideration (3)	$	2,925	$	—	$	—	$	2,925
Total	$	2,925	$	—	$	—	$	2,925

(1) Included in cash and cash equivalents on the consolidated balance sheet.

(2) Included in short-term investments on the consolidated balance sheet.

(3) Included in accrued expenses on the consolidated balance sheet.

The table below presents the changes during the period related to balances measured using significant unobservable inputs (Level 3) (in thousands):

	Balance at					Balance at
	December 31,					September 30,
	2011		Adjustment			2012
Liabilities:
Contingent consideration	$	2,925	$	(850	)	$	2,075
Total	$	2,925	$	(850	)	$	2,075

During the quarter ended June 30, 2012, the Company released iCentera acquisition contingent consideration of $900,000 as iCentera did not achieve certain earn-out revenue milestones. Additionally, during the quarter ended September 30, 2012, the Company made an upward adjustment to the estimated fair value of Rapid Intake, Inc. earn-out consideration, increasing the contingent consideration accrual by $50,000.  As a result, the release of the iCentera contingent consideration and the upward adjustment to the estimated fair value of Rapid Intake, Inc. earn-out consideration were recorded within the acquisition-related contingent consideration in the accompanying condensed consolidated statements of comprehensive loss during the quarter ended June 30, 2012 and September 30, 2012, respectively.  See Note 8 of the notes to our condensed consolidated financial statements for more details.

Valuation of Investments

Level 1 and Level 2

The Company’s available-for-sale securities include money market funds, U.S. Treasury bills, commercial paper, corporate notes and obligations, and U.S. government and agency obligations. The Company values these securities using a pricing matrix from a pricing service provider, who may use quoted prices in active markets for identical assets (Level 1 inputs) or inputs other than quoted prices that are observable either directly or indirectly (Level 2 inputs). The Company classifies all of its available-for-sale securities, except for money market funds and U.S. Treasury, as having Level 2 inputs. The Company validates the estimated fair value of certain securities from a pricing service provider on a quarterly basis. The valuation techniques used to measure the fair value of the financial instruments having Level 2 inputs, all of which have counterparties with high credit ratings, were derived from the following: non-binding market consensus prices that are corroborated by observable market data, quoted market prices for similar instruments or pricing models, such as discounted cash flow techniques, with all significant inputs derived from or corroborated by observable market data.

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Level 3

The Company valued its auction rate securities using unobservable inputs (Level 3). The Company utilized the income approach applying assumptions for interest rates using current market trends and an estimated term based on expectations from brokers for liquidity in the market and redemption periods agreed to by other broker-dealers. The Company also applied an adjustment for the lack of liquidity to the value determined by the income approach utilizing a put option model. As a result of the valuation assessment, the Company recognized unrealized losses of $1,000 and $6,000 for the three and nine months ended September 30, 2011, respectively. The Company did not hold any auction rate securities as of September 30, 2012.

Contingent consideration is defined as earn-out payments which the Company may pay in connection with acquisitions. Contingent consideration liabilities are classified as Level 3 liabilities, as the Company uses unobservable inputs to value them, which is a probability-based income approach. Subsequent changes in the fair value of contingent consideration liabilities will be recorded within the acquisition-related contingent consideration in the Company’s condensed consolidated statements of comprehensive loss.

7.Convertible Notes

In May 2011, the Company completed the sale of $80.5 million aggregate principal amount of 4.75% Convertible Senior Notes due in 2016 (the “Convertible notes”). Interest is payable on June 1 and December 1 of each year beginning on December 1, 2011 until the maturity date of June 1, 2016 unless the convertible notes are converted, redeemed or repurchased. The Company received proceeds of approximately $76.9 million from the sale of the convertible notes, net of fees and expenses of $3.6 million. The debt issuance costs are being amortized to interest expense over the life of the convertible notes. The Company used $14.4 million of the net proceeds of the offering to repurchase 2,338,797 shares of the common stock at $6.17 per share from certain purchasers of the notes through privately negotiated transactions; the repurchased shares were recorded as treasury stock offsetting additional paid-in capital in the consolidated balance sheets. The Company plans to use the remaining net proceeds for general corporate purposes, which may include potential acquisitions of complementary businesses, technology or products. The convertible notes are senior unsecured obligations of the Company.

The convertible notes contain an optional redemption feature which allows the Company, any time after June 6, 2014, to redeem all or part of the convertible notes for cash if the last reported sale price per share of common stock (as defined below) has been at least 130% of the conversion price then in effect for at least 20 trading days during any 30 consecutive trading-day period ending within five trading days prior to the date on which the Company provides notice of redemption. The redemption price would be 100% of the principal amount of the notes being redeemed, plus accrued and unpaid interest.

Holders may convert the convertible notes into common stock of the Company at any time at a conversion rate of 129.6596 shares of common stock per $1,000 principal amount, or approximately $7.71 per share, subject to certain adjustments. If holders convert their notes in connection with a “make-whole fundamental change”, such holders are entitled, under certain circumstances, to an increase in the conversion rate for notes surrendered. Upon conversion, the Company will satisfy its conversion obligations by delivering shares of the Company’s common stock.

During the year ended December 31, 2011, the Company completed the repurchase of $21.3 million aggregate principal amount of its convertible notes for cash of approximately $19.4 million through privately negotiated transactions including fees of $105,000. The Company recognized a gain on the extinguishment of the convertible notes of approximately $1.8 million which was partially offset by the write-off of $0.9 million in unamortized debt issuance costs, resulting in a net gain of $0.9 million. As of September 30, 2012 and December 31, 2011, $59.2 million aggregate principal amount of the convertible notes remain outstanding. Based on market prices, the fair value of the Company’s convertible notes was $58.7 million and $61.2 million as of September 30, 2012 and December 31, 2011, respectively.

The convertible notes are recorded as long-term debt. The current balance of the debt issuance costs associated with the issuance of the convertible notes is recorded within prepaid and other current assets, and the non-current balance is recorded within deposits and other assets, and is being amortized to interest expense over the terms of the convertible notes. At September 30, 2012 and December 31, 2011, $536,000 of the debt issuance costs are included in prepaid and other current assets, with the remaining amounts of $1.4 million and $1.8 million, respectively, recorded in deposits and other assets.

8.Commitments and Contingencies

Warranties and Indemnification

The Company generally warrants that its software will perform to its standard documentation. Under the Company’s standard warranty, should a software product not perform as specified in the documentation within the warranty period, the Company will repair or replace the software or refund the license fee paid. To date, the Company has not incurred any costs related to warranty obligations for its software.

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The Company’s product license and on-demand agreements typically include a limited indemnification provision for claims by third parties relating to the Company’s intellectual property. To date, the Company has not incurred and has not accrued for any costs related to such indemnification provisions.

Intellectual Property Litigation

On July 19, 2012, Versata Software, Inc. and Versata Development Group, Inc. filed suit against Callidus Software Inc. in the United States District Court for the District of Delaware. The suit asserted that Callidus infringed U.S. Patent Nos. 7,904,326; 7,908,304 and 7,958,024. The Company believes that the claims are without merit and intends to vigorously defend against these claims. The Company records a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. At September 30, 2012, the Company has not recorded any such liability in accordance with accounting for contingencies.

On August 31, 2012, the Company filed suit against Xactly Corporation in the United States District Court for the Central District of California.  The suit alleges that Xactly Corporation infringes two U.S. Patent Nos.  8,046,387 and 7,774,378.  On October 24, 2012, the Company amended its complaint to add Xactly’s President and Chief Executive Officer as a defendant and to add claims for trademark infringement, false advertising, false and misleading advertising, trade libel, defamation, intentional interference with prospective economic advantage, intentional interference with contractual relations, breach of contract and unfair competition, in addition to patent infringement.  The Company intends to vigorously assert the claims in order to protect the Company’s business and its intellectual property.

Other matters

In addition to the above litigation matters, the Company is from time to time a party to other various litigation and customer disputes incidental to the conduct of its business. At the present time, the Company believes that none of these matters are likely to have a material adverse effect on the Company’s future financial results.

The Company records a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. The Company reviews the need for any such liability on a quarterly basis and records any necessary adjustments to reflect the effect of ongoing negotiations, contract disputes, settlements, rulings, advice of legal counsel, and other information and events pertaining to a particular case in the period they become known. At September 30, 2012, the Company has not recorded any such liabilities in accordance with accounting for contingencies. However, litigation is subject to inherent uncertainties and our view on these matters may change in the future.

On July 5, 2011, we acquired iCentera, Inc. subject to a $1.5 million indemnity holdback and $1.0 million in earn-out related contingent consideration.  The $1.5 million indemnity holdback was to be paid one year from the date of closing of the acquisition, subject to any reduction for indemnity claims.  The contingent consideration of $1.0 million was contingent on iCentera achieving certain revenue milestones and retaining certain key employees and was to be paid one year from the date of closing of the acquisition. During the quarter ended June 30, 2012, the Company released the accruals for $937,000 of the indemnity holdback in settlement of an indemnity claim and $900,000 of contingent earn-out consideration as iCentera did not achieve the revenue milestones as of July 6, 2012. As a result, the release of iCentera acquisition-related accruals for a total of approximately $1.8 million was recorded within the acquisition-related contingent consideration in the accompanying condensed consolidated statements of comprehensive loss during the quarter ended June 30, 2012. The indemnity holdback remaining balance of $437,000 was paid during the quarter ended September 30, 2012.

On September 8, 2011, we acquired Rapid Intake, Inc. subject to a $400,000 indemnity holdback, and $500,000 in earn-out related contingent consideration.  The $400,000 indemnity holdback was to be paid one year from the date of closing of the acquisition, subject to any reduction for indemnity claims.  The earn-out contingent consideration of $500,000 is contingent on Rapid Intake achieving certain revenue milestones and is to be paid one year from the date of closing of the acquisition.  The $400,000 indemnity holdback and estimated fair value of the earn-out contingent consideration of $450,000 were recorded within accrued expenses at December 31, 2011. During the quarter ended September 30, 2012, the Company made an upward adjustment increasing the estimated fair value of the earn-out contingent consideration to 100% or $500,000 as the agreed revenue milestones were achieved as of September 9, 2012.  The change in estimated fair value of the contingent consideration was recorded within the acquisition-related contingent consideration in the accompanying condensed consolidated statements of comprehensive loss during the quarter ended September 30, 2012.

On October 3, 2011, we acquired Webcom subject to a $1.6 million indemnity holdback and $1.8 million in earn-out related contingent consideration.  The $1.6 million indemnity holdback was to be paid one year from the date of closing of the acquisition, subject to any reduction for indemnity claims.  The earn-out contingent consideration of $1.8 million is contingent on Webcom achieving certain revenue milestones and is to be paid forty five days after the end of the fiscal period in which the revenue milestone has been met. The $1.6 million indemnity holdback and estimated fair value of the earn-out contingent consideration of $1.6 million were recorded within accrued expenses at September 30, 2012 and December 31, 2011.

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On January 3, 2012 we acquired Leadformix subject to a $1.5 million indemnity holdback. The $1.5 million indemnity holdback is to be paid one year from the date of closing, subject to any reduction for indemnity claims. The $1.5 million indemnity holdback was recorded within accrued expenses at September 30, 2012.

On May 4, 2012, we acquired 6FigureJobs subject to a $275,000  indemnity holdback. The $275,000 indemnity holdback is to be paid one year from the date of closing, subject to any reduction for indemnity claims. The $275,000 indemnity holdback was recorded within accrued expenses at September 30, 2012.

In additional to the remaining contractual obligations related to acquisition-related contingent consideration as discussed above, we have the following contractual cash obligations at September 30, 2012.  Contractual cash obligations that are cancellable upon notice and without significant penalties are not included in the table.

	Payments due by Period (in thousands)
	Remainder of
Contractual Obligations	2012		2013		2014		2015		2016
Convertible notes (1)
Principal payment	$	—	$	—	$	—	$	—	$	59,215
Interest payments	703		2,813		2,813		2,813		2,813
Unconditional purchase commitments	910		—		825		—		—

(1)  Our convertible notes also contain an optional redemption feature which allows us to redeem all or part of the convertible notes for cash under certain conditions any time on or after June 6, 2014.

9.Segment, Geographic and Customer Information

The accounting principles guiding disclosures about segments of an enterprise and related information establishes standards for the reporting by business enterprises of information about operating segments, products and services, geographic areas, and major customers. The method of determining which information is reported is based on the way that management organizes the operating segments within the Company for making operational decisions and assessments of financial performance. The Company’s chief operating decision maker is considered to be the Company’s chief executive officer (CEO). The CEO reviews financial information presented on a consolidated basis for purposes of making operating decisions and assessing financial performance. By this definition, the Company operates in one business segment, which is the development, marketing and sale of enterprise software and related services.

The following table summarizes revenues for the three and nine months ended September 30, 2012 and 2011 by geographic areas (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
Americas	$	19,792	$	16,769	$	57,763	$	49,592
EMEA	2,484		2,813		7,919		8,385
Asia Pacific	1,650		1,477		4,038		3,248
	$	23,926	$	21,059	$	69,720	$	61,225

Substantially all of the Company’s long-lived assets are located in the United States. Long-lived assets located outside the United States are not significant.

During the three and nine months ended September 30, 2012 and 2011, no customer accounted for more than 10% of our total revenues.

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10.Net Loss Per Share

Basic net loss per share is calculated by dividing net loss for the period by the weighted average common shares outstanding during the period. Diluted net loss per share is calculated by dividing the net loss for the period by the weighted average common shares outstanding, adjusted for all dilutive potential common shares, which includes shares issuable upon the conversion of the convertible notes, the exercise of outstanding common stock options, the release of restricted stock, and purchases of employee stock purchase plan (ESPP) shares to the extent these shares are dilutive. For the three and nine months ended September 30, 2012 and 2011, the diluted net loss per share calculation was the same as the basic net loss per share calculation as all potential common shares were anti-dilutive.

Diluted net loss per share does not include the effect of the following potential weighted average common shares because to do so would be anti-dilutive for the periods presented (in thousands):

	Three Months Ended September 30,		Nine Months Ended September 30,
	2012	2011	2012	2011
Restricted stock	3,441	3,625	3,701	3,590
Stock options	3,076	4,407	3,381	4,762
ESPP	32	162	11	113
Convertible notes	7,680	9,184	7,680	4,548
Total	14,229	17,378	14,773	13,013

The weighted average exercise price of stock options excluded for the three and nine months ended September 30, 2012 was $3.34 and $3.71, respectively. The weighted average exercise price of stock options excluded for the three and nine months ended September 30, 2011 was $3.43 and $2.98, respectively.

The conversion price of our Convertible note is $7.71. Please refer to Note 7 for details.

11.Stock-based Compensation

Expense Summary

The table below sets forth a summary of stock-based compensation expenses for the three and nine months ended September 30, 2012 and 2011 (in thousands).

	Three Months Ended September 30,					Nine Months Ended September 30,
	2012			2011		2012		2011
Stock-based compensation:
Stock Options	$	143		$	217	$	713	$	922
Restricted Stock Units
Performance Awards	(60		)	192		387		472
Non-performance Awards	3,119			2,378		9,281		7,337
ESPP	220			25		536		121
Actek Acquisition Compensation	—			—		—		42
Total stock-based compensation	$	3,422		$	2,812	$	10,917	$	8,894

As of September 30, 2012, there was $0.9 million, $18.5 million and $0.7 million of total unrecognized compensation expense related to stock options, restricted stock units and the ESPP, respectively. The expenses related to stock options, restricted stock units and ESPP are expected to be recognized over a weighted average period of 1.98 years, 1.52 years and 0.61 years, respectively.

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The table below sets forth the functional classification of stock-based compensation expense for the three and nine months ended September 30, 2012 and 2011 (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
Stock-based compensation:
Cost of recurring revenues	$	351	$	731	$	1,280	$	2,523
Cost of services and other revenues	573		370		1,623		1,054
Sales and marketing	997		502		2,937		1,320
Research and development	477		366		1,376		1,090
General and administrative	1,024		843		3,701		2,907
Total stock-based compensation	$	3,422	$	2,812	$	10,917	$	8,894

Determination of Fair Value

The fair value of each restricted stock unit, relating to both performance and non-performance awards, is estimated based on the market value of the Company’s stock on the date of grant. The fair value of the performance award assumes that performance goals will be achieved.  If such goals are not met, no compensation cost is recognized and any recognized compensation cost is reversed.  The fair value of each stock option is estimated on the date of grant and the fair value of each ESPP share is estimated on the beginning date of the offering period using the Black-Scholes-Merton valuation model and the assumptions noted in the following table.

	Three Months Ended September 30,		Nine Months Ended September 30,
	2012	2011	2012	2011
Stock Option Plans
Expected life (in years)	—	3.5	5.0 to 6.0	2.5 to 3.5
Risk-free interest rate	—	0.52%	0.72% to 1.33%	0.50% to 1.12%
Volatility	—	68%	60% to 65%	60% to 69%
Dividend Yield	—	—	—	—
Employee Stock Purchase Plan
Expected life (in years)	0.5 to 1.0	0.5 to 1.0	0.5 to 1.0	0.5 to 1.0
Risk-free interest rate	0.14% to 0.20%	0.07% to 0.12%	0.13% to 0.20%	0.07% to 0.29%
Volatility	61% to 62%	47% to 54%	56% to 62%	39% to 54%
Dividend Yield	—	—	—	—

No stock options were granted during the three months ended September 30, 2012.

12.Related Party Transactions

In January 2010, Callidus entered into an operating lease agreement for certain office space with K.L. Properties LLC.  The President of K.L. Properties was a senior member of Callidus’ management staff. This lease was assumed as part of the Actek acquisition and was determined to be a below-market or favorable lease as of the acquisition date.  Before the senior member of Callidus’ management left the Company on April 6, 2012, the Company incurred rent expense for the office space owned by K.L. Properties of approximately $39,000 during the quarter ended March 31, 2012. The Company incurred rent expense of approximately $39,000 and $117,000 for the three and nine months ended September 30, 2011.

Webcom, one of the Company’s wholly-owned subsidiary, uses the services of a third party vendor to perform product modeling and maintenance of certain equipment. The third party vendor is owned by a relative of Webcom’s senior management. For the three and nine months ended September 30, 2012, Callidus paid $53,000 and $101,000 respectively, to this vendor.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of financial condition and results of operations should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and the notes thereto included in our Annual Report on Form 10-K for 2011 and with the unaudited condensed consolidated financial statements and the related notes thereto contained elsewhere in this Quarterly Report on Form 10-Q . This section of the Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements relate to our future plans, objectives, expectations, prospects, intentions and financial performance and the assumptions that underlie these statements. Generally, the words “believe,” “expect,” “intend,” “estimate,” “anticipate,” “project,” “will,” and similar expressions and the negatives thereof identify forward-looking statements, which generally are not historical in nature.  These forward-looking statements include, but are not limited to, statements concerning the following: levels of recurring revenues, changes in and expectations with respect to revenues and gross margins, future operating expense levels, the impact of quarterly fluctuations of revenue and operating results, staffing and expense levels and the impact of foreign exchange rate and interest rate fluctuations.  As and when made, management believes that these forward-looking statements are reasonable.  However, caution should be taken not to place undue reliance on any such forward-looking statements because such statements speak only as of the date when made and may be based on assumptions that do not prove to be accurate.  In addition, forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience and our present expectations or projections.  Many of these trends and uncertainties are described in “Risk Factors” set forth in our Annual Report on Form 10-K for 2011 and elsewhere in this Quarterly Report on Form 10-Q. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or circumstances occurring after the date of this Quarterly Report on Form 10-Q.

Overview of the Results for the Three Months Ended September 30, 2012

We are a market and technology leader in cloud-based solutions for sales effectiveness, sold to companies of every size throughout the world. Companies use sales effectiveness solutions to optimize investments in sales planning and performance, specifically in the areas of sales and channel quota, coverage, incentive management, and coaching and training. Callidus solutions enable businesses to achieve new insights into the principal levers that drive salesforce performance so they can repeat sales successes for more sustainable, predictable sales growth. Sales effectiveness programs are key vehicles in aligning sales and channel partner goals with top business objectives.

At the end of 2011, we adopted a new brand identity, “CallidusCloud,” to more accurately reflect our cloud-based solutions and technology roadmap. We are currently doing business as “CallidusCloud.”

The CallidusCloud solution suite helps businesses drive sales productivity across every stage of the sales talent lifecycle, from making the right sales hire, to making it easier to sell, to motivating sales execution with targeted incentives and rewards, to building a knowledge-based work culture with high frequency coaching and development. The CallidusCloud platform is composed of the Hiring Cloud, the Marketing Cloud, the Selling Cloud, and the Learning Cloud.

Our solution suite has undergone a dramatic expansion since the beginning of 2011 with the acquisition of ForceLogix (sales coaching), Salesforce Assessments (sales hire testing), iCentera (sales enablement), Litmos (learning), Rapid Intake (content authoring), Webcom (configure-price-quote, or CPQ), Leadformix (marketing automation and sales enablement), and 6FigureJobs (job advertisements, recruitment media services and other career-related services) as well as the successful launch of the Monaco Summer 2011 release and Sales Selector, an online sales recruiting solution that brings together video interviewing with online temperament assessments. For every company, regardless of size, geography or vertical, there is now one or more CallidusCloud solutions that enable them to drive productivity in their sales organization.

While we offer our customers a range of purchasing and deployment options, from on-demand subscription to on-premise term license, our business and revenue model is focused on recurring revenue. Recurring revenues consist of Software-as-a-Service (SaaS) revenues and recurring maintenance revenues. SaaS revenues are primarily made up of on-demand hosting revenues, sales operation services and term license revenue.

SaaS Revenue Growth and Customer Expansion

SaaS revenue continued to drive the growth in recurring revenues and total revenues for the three months ended September 30, 2012. SaaS revenues grew to $13.5 million for the quarter ended September 30, 2012 representing a $2.2 million or 19% increase over the same period in 2011. As we expected, our SaaS revenue was down sequentially in the second quarter of 2012 due to attrition.  During the third quarter of 2012, we were able to replace the lost revenue through new bookings and feel we have positive momentum going into the fourth quarter.  Total recurring revenues for the three months ended September 30, 2012 grew by 9% over

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the same period in 2011, reflecting the strong growth in SaaS revenues partially offset by an expected decline in recurring maintenance revenues as we continue to move away from our legacy license model. Recurring revenues continue to account for over 70% of our total revenues and we expect this trend to continue going forward. Total revenues for the three months ended September 30, 2012 were $23.9 million, up $2.9 million, or 14%, from the same period in 2011.

During the third quarter of 2012, we continued to add subscription based customers at a record rate, adding 158 new customers to the business. Our core SaaS customer retention rates on a dollar and customer count basis recovered at over 92%. We believe our high retention rates are an indication of the quality of service we provide and the quality of our customer base.

Margin Improvement

Recurring revenue gross margins for the quarter ended September 30, 2012 were $10.5 million or 60% of revenue. This is an increase of $2.9 million or 38% over the same period last year. The increase in recurring revenue gross margin is also reflected in the 35% increase in total gross margin to 50% over the same period. These increases reflect our continued efforts to drive margin improvement in our SaaS operations. Over the past year and continuing into this year, we have taken several steps to increase recurring gross margins. These steps include the transfer of hosting operation services from an external provider to an in-house team, the addition of new products, both acquired and developed internally, that have a lower operating cost of operations and the optimization of our on-demand infrastructure that takes place continuously throughout this year.

Challenges and Risks

In response to market demand, over the past few years we have shifted our primary business focus from providing perpetual software licenses to providing on-demand software as a service. Toward the end of 2009 we also began offering our on-premise products under term license arrangements. We believe that these offerings better addresses the needs of our customers, and at the same time, provides more predictable revenue streams. On the other hand, for customers that prefer to purchase software on a perpetual basis, we continue to offer such licenses, and in the quarter ended September 30, 2012, we generated over $2.0 million in perpetual license revenue.  We expect perpetual license revenue to remain a relatively small component of total revenues and to fluctuate from period to period.

While we have a number of sales opportunities in process and additional opportunities coming from our sales pipeline, we continue to experience wide variances in the timing and size of our transactions. We believe one of our major challenges continues to be increasing prospective customers’ prioritization of purchasing our solutions over competing projects. As part of our effort to address this challenge, we have set goals that include expanding our sales efforts, promoting our on-demand services and continuing to develop new products and enhancements to our suite of products. Since the beginning of 2011, in order to expand our product offerings and customer base we have completed eight acquisitions.  In addition, in 2012 we have invested and expect to continue to invest, in the expansion of our salesforce to better exploit the opportunities presented by our solutions.  These investments have adversely affected our current operating results and will continue to affect our operating results in the near term as we invest ahead of anticipated growth.  Our long term success will depend in part on our ability to realize return on these investments through increased revenue.

In addition to these risks, our future operating performance is subject to the risks and uncertainties described in “Risk Factors” in Item 1A of our 2011 Form 10-K.

Application of Critical Accounting Policies and Use of Estimates

The discussion and analysis of our financial condition and results of operations which follows is based upon our consolidated financial statements prepared in accordance with GAAP. The application of GAAP requires management to make assumptions, judgments and estimates that affect our reported amounts of assets, liabilities, revenues and expenses, and the related disclosures regarding these items. We base our assumptions, judgments and estimates on historical experience and on various other factors that we believe to be reasonable under the circumstances. Actual results could differ significantly from these estimates under different assumptions or conditions. To the extent that there are material differences between these estimates and actual results, our future financial condition or results of operations will be affected. On a regular basis, we evaluate our assumptions, judgments and estimates. We also discuss our critical accounting policies and estimates with our Audit Committee of the Board of Directors.

We believe that the assumptions, judgments and estimates involved in the accounting for revenue recognition, allowance for doubtful accounts and service remediation reserve, stock-based compensation, valuation of acquired intangible assets, goodwill impairment, long-lived asset impairment, contingent consideration and income taxes have the greatest potential impact on our consolidated financial statements. These areas are key components of our results of operations and are based on complex rules which require us to make judgments and estimates, so we consider these to be our critical accounting policies. There were no significant changes in our critical accounting policies and estimates during the three months ended September 30, 2012 as compared to the critical accounting policies and estimates disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2011.

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Recent Accounting Pronouncements

We did not adopt any new accounting pronouncements during the quarter ended September 30, 2012.

Results of Operations

Comparison of the Three and Nine Months Ended September 30, 2012 and 2011

Revenues, Cost of Revenues and Gross Profit

The table below sets forth the changes in revenues, cost of revenues and gross profit for the three and nine months ended September 30, 2012, compared to the three and nine months ended September 30, 2011 (in thousands, except for percentage data):

	Three				Three
	Months				Months
	Ended		Percentage		Ended		Percentage
	September 30,		of Total		September 30,		of Total		Increase			Percentage
	2012		Revenues		2011		Revenues		(Decrease)			Change
Revenues:
Recurring	$	17,533	73	%	$	16,015	76	%	$	1,518		9	%
Services and other	6,393		27	%	5,044		24	%	1,349			27	%
Total revenues	$	23,926	100	%	$	21,059	100	%	$	2,867		14	%
Cost of revenues:
Recurring	$	6,989	40	%	$	8,363	52	%	$	(1,374	)	(16	)%
Services and other	5,079		79	%	3,937		78	%	1,142			29	%
Total cost of revenues	$	12,068	50	%	$	12,300	58	%	$	(232	)	(2	)%
Gross profit:
Recurring	$	10,544	60	%	$	7,652	48	%	$	2,892		38	%
Services and other	1,314		21	%	1,107		22	%	207			19	%
Total gross profit	$	11,858	50	%	$	8,759	42	%	$	3,099		35	%

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	Nine				Nine
	Months				Months
	Ended		Percentage		Ended		Percentage
	September 30,		of Total		September 30,		of Total		Increase			Percentage
	2012		Revenues		2011		Revenues		(Decrease)			Change
Revenues:
Recurring	$	52,446	75	%	$	46,067	75	%	$	6,379		14	%
Services and other	17,274		25	%	15,158		25	%	2,116			14	%
Total revenues	$	69,720	100	%	$	61,225	100	%	$	8,495		14	%
Cost of revenues:
Recurring	$	22,449	43	%	$	24,860	54	%	$	(2,411	)	(10	)%
Services and other	14,292		83	%	11,952		79	%	2,340			20	%
Total cost of revenues	$	36,741	53	%	$	36,812	60	%	$	(71	)	(0	)%
Gross profit:
Recurring	$	29,997	57	%	$	21,207	46	%	$	8,790		41	%
Services and other	2,982		17	%	3,206		21	%	(224		)	(7	)%
Total gross profit	$	32,979	47	%	$	24,413	40	%	$	8,566		35	%

Total Revenues.  Total revenues for the three months ended September 30, 2012 were $23.9 million, an increase of 14% compared to the same period in 2011. Total revenues for the nine months ended September 30, 2012 were $69.7 million, an increase of 14% compared to the same period in 2011. The increases were primarily due to higher volume of recurring revenue generated by our SaaS business due to our continued emphasis and focus on recurring revenues.

Recurring Revenues.  Recurring revenues, which consists of SaaS revenues and maintenance revenues, increased by $1.5 million, or 9% in the three months ended September 30, 2012, compared to the same period in 2011. Recurring revenues increased by $6.4 million, or 14% in the nine months ended September 30, 2012, compared to the same period in 2011.  The increases were primarily attributable to growth in our SaaS revenues which increased by 19% in the three months ended September 30, 2012 and 26% in the nine months ended September 30, 2012, compared to the same periods in 2011.  SaaS revenue growth is mainly driven by an increase in new business, revenues generated from our acquired companies contributing to the increase in new business and revenues from customers going live during the period. Our investment in expanding the salesforce this year also positively impacted the revenue growth. The increases in total recurring revenues were partially offset by maintenance revenues associated with perpetual licenses which decreased by $0.5 million or 10% in the three months ended September 30, 2012 and $1.4 million or 11% in the nine months ended September 30, 2012, compared to the same periods in 2011. The decreases were primarily driven by customers converting from on-premise perpetual license to on-demand subscription service.

Services and Other Revenues.  Services and other revenues, which consist of integration and configuration services, training and perpetual licenses, increased by $1.3 million or 27% in the three months ended September 30, 2012 and $2.1 million or 14% in the nine months ended September 30, 2012, compared to the same periods in 2011. The increase in the three months ended September 30, 2012, as compared to the same period in 2011, was primarily due to the increase in our perpetual license revenue from $1.0 million in 2011 to $2.0 million in 2012, a $1.0 million or 102% increase.  Additionally, our revenue generated from integration and configuration services increased by $0.3 million or 7%, from $4.0 million in the three months ended September 30, 2011 to $4.3 million in the three months ended September 30, 2012.   The increase in the nine months ended September 30, 2012, as compared to the same period in 2011, was primarily due to $1.6 million or 12% increase in our revenue generated from integration and configuration services, from $12.6 million in the nine months ended September 30, 2011 to $14.2 million in the nine months ended September 30, 2012.  Additionally, our perpetual license revenues also increased by  $0.5 million or 20%, from $2.6 million in the nine months ended September 30, 2011 to $3.1 million in the nine months ended September 30, 2012. The increases in our revenue generated from integration and configuration services were primarily related to additional services revenue from our recently acquired businesses, Webcom CPQ and Rapid Intake. The increases in our perpetual license revenue were primarily due to certain existing perpetual license customers continuing to purchase additional licenses in compliance with their license rights under the contract. We expect our perpetual license revenue to continue to fluctuate from period to period as our primary business focus has shifted to our recurring revenue model.

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Cost of Revenues and Gross Profit

Cost of Recurring Revenues.  Cost of recurring revenues decreased by $1.4 million or 16%, in the three months ended September 30, 2012 and $2.4 million or 10% in the nine months ended September 30, 2012, compared to the same periods in 2011. The decrease was primarily due to lower third-party data center costs of $0.5 million in the three months ended September 30, 2012 and $1.8 million in the nine months ended September 30, 2012, lower personnel cost of $0.4 million in the three months ended September 30, 2012, and lower professional fees of $0.3 million in the three months ended September 30, 2012 and $0.5 million in the nine months ended September 30, 2012.  Our third-party data center costs decreased as we transitioned certain functions from external to internal resources. Our personnel-related costs decreased in the three months ended September 30, 2012 due to decreased cost of support personnel attributed to the centralization of support function to our headquarters in Pleasanton.  Our professional fees decreased due to a reduction in the number of contractors used to support certain customers.

Cost of Services and Other Revenues.  Cost of services and other revenues increased by $1.1 million or 29% in the three months ended September 30, 2012 and $2.3 million or 20% in the nine months ended September 30, 2012, compared to the same periods in 2011. The increases were primarily due to higher personnel-related costs, including stock-based compensation, and consulting fees.  Personnel-related costs increased by $0.4 million in the three months ended September 30, 2012 and $1.0 million in the nine months ended September 30, 2012 primarily due to increased headcount as a result of the 2011 and 2012 acquisitions and new hires in our core business. The increase was also driven by an increase in stock-based compensation expense of $0.2 million in the three months ended September 30, 2012 and $0.6 million for the nine months ended September 30, 2012 primarily due to vesting of stock grants, as well as new hire, merit and retention stock grants.  Additionally, consulting fees increased by $0.5 million in the three months and nine months ended September 30, 2012 primarily due to increase in third party consulting services used to support the business.

Gross Profit.  Overall gross margin percentage was 50% for the three months ended September 30, 2012, compared to 42% during the same period in 2011, resulting in $3.1 million or 35% increase in gross margin. Overall gross margin percentage was 47% for the nine months ended September 30, 2012, compared to 40% during the same period in 2011, resulting in an increase of $8.6 million or 35% in gross profit dollar value.  Our gross margins improved substantially as a result of higher recurring revenues which were driven by a 19% increase in SaaS revenues for the three months ended September 30, 2012 and 26% for the nine months ended September 30, 2012, compared to the same periods in 2011.

Our recurring revenue gross margin percentage increased to 60% for the three months ended September 30, 2012, from 48% in the same period in 2011, while the gross profit dollar value increased by 38% or $2.9 million. The recurring revenue gross margin percentage increased to 57% for the nine months ended September 30, 2012, from 46% in the same period in 2011, while the gross profit dollar value increased by 41% or $8.8 million.  The increases in recurring revenue gross margin were primarily the result of improved SaaS margins driven by lower third-party data center and personnel costs as we moved away from outsourcing our data center resources to third-party and used our own internal resources.

Services and other revenue gross margin percentage was 21% for the three months ended September 30, 2012, a decrease from 22% in the same period of 2011, while the gross profit dollar value increased by 19% or $0.2 million. The increase in gross profit dollar value was primarily due to an increase in perpetual license gross profit by $1.0 million.  This was partially offset by lower gross profit generated from services and other revenues generated from integration and configuration services for the three months ended September 30, 2012, which negatively impacted the overall services and other revenue gross profit by $0.8 million.   Services and other revenue gross margin was 17% for the nine months ended September 30, 2012, a decrease from 21% in the same period of 2011, while the gross profit dollar value decreased by 7% or $0.2 million.  The decrease in gross margin was primarily due to lower gross margin generated from services and other revenues generated from integration and configuration service for the nine months ended September 30, 2012. This had a negative impact on the overall services and other revenue gross profit by $0.6 million, partially offset by the increase in perpetual license gross profit by $0.4 million.

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Operating Expense

The table below sets forth the changes in operating expenses for the three and nine months ended September 30, 2012, compared to the same periods in 2011 (in thousands, except percentage data):

	Three					Three
	Months					Months
	Ended			Percentage		Ended		Percentage
	September 30,			of Total		September 30,		of Total		Increase			Percentage
	2012			Revenues		2011		Revenues		(Decrease)			Change
Operating expenses:
Sales and marketing	$	8,322		35	%	$	5,253	25	%	$	3,069		58	%
Research and development	3,947			16	%	3,145		15	%	802			26	%
General and administrative	4,785			20	%	4,673		22	%	112			2	%
Acquisition-related contingent consideration	50			—	%	—		—	%	50
Restructuring	(53		)	—	%	99		—	%	(152		)	(154	)%
Total operating expenses	$	17,051		71	%	$	13,170	63	%	$	3,881		29	%

	Nine					Nine
	Months					Months
	Ended			Percentage		Ended		Percentage
	September 30,			of Total		September 30,		of Total		Increase			Percentage
	2012			Revenues		2011		Revenues		(Decrease)			Change
Operating expenses:
Sales and marketing	$	23,518		34	%	$	14,303	23	%	$	9,215		64	%
Research and development	12,023			17	%	8,416		14	%	3,607			43	%
General and administrative	14,639			21	%	12,500		20	%	2,139			17	%
Acquisition-related contingent consideration	(1,787		)	(3	)%	—		—	%	(1,787		)
Restructuring	561			1	%	136		—	%	425			313	%
Total operating expenses	$	48,954		70	%	$	35,355	58	%	$	13,599		38	%

Sales and Marketing.  Sales and marketing expenses increased by $3.1 million or 58%, in the three months ended September 30, 2012 and $9.2 million or 64% in the nine months ended September 30, 2012, compared to the same periods in 2011. The increases were primarily driven by the increase in personnel-related costs, stock-based compensation, marketing events and programs, and professional fees.  The increase in personnel-related costs of $1.9 million in the three months ended September 30, 2012 and $5.3 million in the nine months ended September 30, 2012 was due to increased headcount from our 2011 and 2012 acquisitions as well as our continued salesforce build-out in our core business in 2012. The increase in stock-based compensation of $0.5 million in the three months ended September 30, 2012 and $1.6 million in the nine months ended September 30, 2012 was primarily due to vesting of stock grants, as well as new hire, merit and retention stock grants.  The increase in marketing events and programs of $0.4 million in the three months ended September 30, 2012 and $1.2 million in the nine months ended September 30, 2012 was related to new product offerings of Callidus as well as the costs associated with conducting our annual C3 customer conference in May 2012, which was not held in 2011.  Professional fees increased by $0.1 million in the three months ended September 30, 2012 and $0.3 million in the nine months ended September 30, 2012 as compared to the same periods in 2011. We expect sales and marketing expenses to continue to increase in both absolute amount and as a percentage of revenue as we continue to expand the salesforce for the remainder of the year.

23

Research and Development.  Research and development expenses increased by $0.8 million or 26% for the three months ended September 30, 2012 and $3.6 million or 43% for the nine months ended September 30, 2012, compared to the same periods in 2011. The increases were primarily due to increased personnel-related expenses of $0.7 million in the three months ended September 30, 2012 and $2.8 million in the nine months ended September 30, 2012, due to increased headcount from our 2011 and 2012 acquisitions. Stock-based compensation expense also increased by $0.1 million in the three months ended September 30, 2012 and $0.3 million in the nine months ended September 30, 2012, as a result of vesting of stock grants, as well as new hire, merit and retention stock grants.

General and Administrative.  General and administrative expenses increased by $0.1 million or 2% during the three months ended September 30, 2012 and $2.1 million or 17% during the nine months ended September 30, 2012, compared to the same periods in 2011. The increase in general and administrative expense for the nine months ended September 30, 2012 was primarily due to the increase in stock-based compensation expense, professional fees and personnel-related costs. Stock-based compensation expense increased by $0.1 million for the three months ended September 30, 2012 and $0.8 million for the nine months ended September 30, 2012, as a result of vesting of stock grants, as well as new hire, merit and retention stock grants.  Professional fees increased by $0.7 million for the nine months ended September 30, 2012, primarily driven by the increase in outside consultants attributed to our NetSuite implementation and outsourcing of certain IT functions, and increased patent litigation expenses, investor relations and regulatory filing costs. Personnel-related costs increased by $0.5 million for the nine months ended September 30, 2012 due to increased headcount.  We are now involved in two separate patent litigation matters, one as a defendant and one as a plaintiff, and as such, we are budgeting ongoing patent litigation expense in an aggregate amount of approximately $0.5 million going forward until such matters are resolved.

Acquisition-related Contingent Consideration.  Acquisition-related contingent consideration for the nine months ended September 30, 2012 of $1.8 million mainly pertained to the reversal of certain purchase consideration recorded for the iCentera acquisition as a result of a reduction in the iCentera indemnity holdback of $937,000 and the release of the related accrual for earn-out contingent consideration of $900,000 during the quarter ended June 30, 2012, as these amounts were not paid to the former owner of iCentera.  This was partially offset by the $50,000 upward adjustment to the estimated fair value of Rapid Intake, Inc. earn-out consideration.  Refer to Note 8 of the notes to our condensed consolidated financial statements for more details.

Restructuring.  Restructuring expenses reflected a credit of $53,000 in the three months ended September 30, 2012 as compared to expense of $99,000 for the same period in 2011.  Overall restructuring expenses increased by $0.4 million for the nine months ended September 30, 2012 compared to the same period in 2011 as we centralized certain company functions to our headquarters in Pleasanton, and outsourced certain IT functions during first half of 2012.

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Stock-Based Compensation

The following table sets forth a summary of our stock-based compensation expenses for the three and nine months ended September 30, 2012, compared to the same periods in 2011 (in thousands, except percentage data):

	Three		Three
	Months		Months
	Ended		Ended
	September 30,		September 30,		Increase			Percentage
	2012		2011		(Decrease)			Change
Stock-based compensation:
Cost of recurring revenues	$	351	$	731	$	(380	)	(52	)%
Cost of services revenues	573		370		203			55	%
Sales and marketing	997		502		495			99	%
Research and development	477		366		111			30	%
General and administrative	1,024		843		181			21	%
Total stock-based compensation	$	3,422	$	2,812	$	610		22	%

	Nine		Nine
	Months		Months
	Ended		Ended
	September 30,		September 30,		Increase			Percentage
	2012		2011		(Decrease)			Change
Stock-based compensation:
Cost of recurring revenues	$	1,280	$	2,523	$	(1,243	)	(49	)%
Cost of services revenues	1,623		1,054		569			54	%
Sales and marketing	2,937		1,320		1,617			123	%
Research and development	1,376		1,090		286			26	%
General and administrative	3,701		2,907		794			27	%
Total stock-based compensation	$	10,917	$	8,894	$	2,023		23	%

Total stock-based compensation expenses increased $0.6 million or 22% during the three months ended September 30, 2012 and $2.0 million or 23% during the nine months ended September 30, 2012, compared to the same periods in 2011. The increases in stock-based compensation were primarily due to vesting of previously issued stock grants, additional granting of restricted stock units, and additional stock grants given to employees of acquired companies. The additional granting of restricted stock units was to retain employees as well as incentivize new hires. Additionally, stock-based compensation expenses fluctuate in relation to the fluctuations in our stock price which impact the fair value per share of stock options and restricted stock unit awards.

25

Other Items

The table below sets forth the changes in other items for the three and nine months ended September 30, 2012, compared to the same periods in 2011 (in thousands, except percentage data):

	Three			Three
	Months			Months
	Ended			Ended
	September 30,			September 30,			Increase			Percentage
	2012			2011			(Decrease)			Change
Other income (expense), net
Interest income and other income (expense), net	$	139		$	(467	)	$	606		130	%
Interest expense	(860		)	(1,075		)	215			(20	)%
Gain on extinguishment of convertible notes	—			904			(904		)	(100	)%
	$	(721	)	$	(638	)	$	(83	)	13	%
Provision (benefit) for income taxes	$	444		(478		)	922			193	%

	Nine			Nine
	Months			Months
	Ended			Ended
	September 30,			September 30,			Increase			Percentage
	2012			2011			(Decrease)			Change
Other income (expense), net
Interest income and other income (expense), net	$	134		$	(341	)	$	475		139	%
Interest expense	(2,594		)	(1,642		)	(952		)	58	%
Gain on extinguishment of convertible notes	—			904			(904		)	(100	)%
	$	(2,460	)	$	(1,079	)	$	(1,381	)	128	%
Provision (benefit) for income taxes	$	213		(279		)	492			176	%

Interest Income and Other Income (Expense), Net

Interest income and other income (expense), net improved during the three and nine months ended September 30, 2012 compared to the same periods in 2011. The improvement was primarily driven by an impairment expense of $0.4 million recognized during the three months ended September 30, 2011 in connection with our investment in Courtland Capital, Inc.  No such impairment occurred in 2012.  Refer to Note 5 of the notes to our condensed consolidated financial statements for more details.  Additionally, foreign currency transaction gains were higher in the three months and nine months ended September 30, 2012, compared to the same periods in 2011.

Interest Expense

Interest expense decreased by $0.2 million in the three months ended September 30, 2012 and increased by $1.0 million for the nine months ended September 30, 2012, compared to the same periods in 2011. The decrease in the three months ended September 30, 2012, compared to the same period in 2011, was primarily due to lower interest expense incurred in 2012 driven by lower principal amount of convertible notes outstanding in 2012.  This was a result of our convertible notes repurchase of $21.0 million aggregate principal amount in August 2011.  The increase in interest expense in the nine months ended September 30, 2012, compared to the same period in 2011, was primarily attributed to longer period of time that the convertible notes were outstanding in 2012, which contributed to the increase by $0.8 million, as the convertible notes were issued in May 2011.  Additionally, amortization of debt issuance costs in relation to our convertible notes issued in May 2011 increased by $0.2 million in the nine months ended September 30, 2012, compared to the same period in 2011, which was also attributed to longer period of time that the convertible notes were outstanding in 2012. Refer to Note 7 of the notes to our condensed consolidated financial statements for more details on our convertible debt.

26

Gain on Extinguishment of Convertible Notes

Due to our repurchase of $21.0 million aggregate principal amount of our convertible notes for cash of approximately $19.2 million through privately negotiated transactions, including fees of $0.1 million, we recognized a gain on the extinguishment of the convertible notes of approximately $1.8 million.  The gain was partially offset by a write-off of $0.9 million in unamortized debt issuance costs, resulting in a net gain of $0.9 million.  Please see Note 7 of our notes to condensed consolidated financial statements above for details.

Provision (Benefit) for Income Taxes

Provision for income tax for the three months ended September 30, 2012 was $0.4 million, compared to an income tax benefit of $0.5 million for the same period in 2011.  The tax provision for the three months ended September 30, 2012 of $0.4 million was primarily related to taxes attributed to our foreign operations. The tax benefit for the three months ended September 30, 2011 of $0.5 million was primarily due to the recognition of deferred tax liabilities related to the intangible assets acquired from Rapid Intake which created an additional source of income and as such released a portion of the valuation allowance on our deferred tax assets.

Provision for income tax for the nine months ended September 30, 2012 was $0.2 million, compared to an income tax benefit of $0.3 million for the same period in 2011.  The tax provision for the nine months ended September 30, 2012 was primarily related to taxes attributed to our foreign operations, offset by the tax benefit of $0.4 million relating to the recognition of deferred tax liabilities attributed to the LeadFormix and 6FigureJobs acquisitions which created an additional source of income and as such released a portion of the valuation allowance on our deferred tax assets. The tax benefit for the nine months ended September 30, 2011 was primarily due to the recognition of deferred tax liabilities related to the intangible assets acquired from Rapid Intake which created an additional source of income and as such released a portion of the valuation allowance on our deferred tax assets of $0.6 million, partially offset by a $0.3 million provision for income taxes relating to withholding taxes from our foreign operations.

Liquidity and Capital Resources

As of September 30, 2012, our principal sources of liquidity were cash and cash equivalents and short-term investments totaling $26.6 million, as well as accounts receivable of $29.5 million, compared to $31.5 million and $28.7 million at June 30, 2012, respectively.  The principal uses of cash in the current quarter were our net loss of $0.7 million (adjusted for non-cash items), capital expenditures of $3.2 million related to the establishment of our new in-house data center and the $0.9 million increase in accounts receivable in the current period.  While we expect positive operating cash flow in the fourth quarter, overall we expect to use up to $4.0 million in cash due to earn-out payments from prior acquisitions, further investment in intangible assets and continued capital expenditures related to the completion of the data center.  We believe our existing cash, cash equivalents and short-term investments will be sufficient to meet our cash needs for at least the next twelve months.

The Company has not provided for federal income taxes on all of our non-U.S. subsidiaries’ undistributed earnings as of September 30, 2012, because such earnings are intended to be indefinitely reinvested.  The residual U.S. tax liability, if such amounts were remitted, would be nominal.

The following table summarizes, for the periods indicated, selected items in our condensed consolidated statements of cash flows (in thousands):

	Nine Months Ended September 30,
	2012			2011
Net cash used in operating activities	$	(9,958	)	$	(2,022	)
Net cash used in investing activities	(1,852		)	(40,714		)
Net cash provided by financing activities	1,066			46,058

Cash Flows During the Nine Months Ended September 30, 2012 and 2011

In the nine months ended September 30, 2012, cash and cash equivalents decreased by approximately $10.7 million primarily due to $9.9 million of cash used in our operating activities and $1.8 million of cash used in our investing activities, partially offset by $1.0 million of cash provided by our financing activities.

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Operating Activities

In the nine months ended September 30, 2012, net cash used in operating activities was $9.9 million, $7.9 million higher compared to net cash used in operating activities of $2.0 million in the same period in 2011.  The change was primarily driven by a higher net loss adjusted for certain non-cash items.  Net loss for the nine months ended September 30, 2012 of $18.6 million was $6.9 million higher compared to net loss for the same period in 2011 of $11.7 million. Non-cash items in the nine months ended September 30, 2012, compared to the same period in 2011, were as follows:

·Stock-based compensation expense for the nine months ended September 30, 2012 of $10.9 million was $2.0 million higher compared to the same period in 2011 of $8.9 million;

·Depreciation and amortization expense for the nine months ended September 30, 2012 of $6.0 million was $1.4 million higher compared to the same period in 2011 of $4.6 million;

·A release of acquisition-related contingent consideration accrual of $1.8 million during the nine months ended September 30, 2012 and none in 2011;

·A gain on extinguishment of convertible notes of $0.9 million during the nine months ended September 30, 2011 and none in 2012; and

·An impairment of investments of $0.4 million during the nine months ended September 30, 2011 and none in 2012.

Additionally, net cash used for working capital during the nine months ended September 30, 2012 of $7.0 million was $3.1 million higher compared to same period in 2011 of $3.9 million. The significant changes in working capital for the nine months ended September 30, 2012 as compared to the same period in 2011 were as follows:

·$7.6 million increase in accounts receivable for the nine months ended September 30, 2012 as compared to $0.6 million increase for the same period in 2011, due to increased billings and the timing of collections, primarily attributed to timing of issuing invoices as a result of our ERP transition;

·$1.8 million increase in prepayments and other current assets for the nine months ended September 30, 2012 as compared to $1.6 million decrease for the same period in 2011, primarily attributed to prepayments of maintenance services and third party licenses;

·$0.3 million decrease in other assets for the nine months ended September 30, 2012 as compared to $2.9 million increase for the same period in 2011, primarily attributed to recognition of deferred costs;

·$0.5 million increase in accounts payable and accrued liabilities for the nine months ended September 30, 2012 as compared to $0.4 million decrease for the same period in 2011, primarily due to increased capital expenditures in 2012; and

·$1.6 million increase in deferred revenue for the nine months ended September 30, 2012 as compared to $1.6 million decrease for the same period in 2011, due to timing of billings and revenue recognition.

Investing Activities

In the nine months ended September 30, 2012, net cash used in investing activities was $1.8 million, $38.9 million lower compared to net cash used in investing activities of $40.7 million in the same period in 2011.  The changes in net cash used in investing activities were attributed to the following:

·Net inflows from sales or maturities and purchases of investments for the nine months ended September 30, 2012 of $15.3 million was $40.6 million higher compared to net outflows from sales or maturities and purchases of investments for the same period in 2011 of $25.3 million;

·Net outflows relating to acquisitions for the nine months ended September 30, 2012 of $7.7 million was $4.5 million lower compared to the same period in 2011 of $12.2 million, primarily due to lower number of acquisitions in 2012;

·Net outflows relating to purchases of property and equipment for the nine months ended September 30, 2012 of $4.9 million was $3.1 million higher compared to the same period in 2011 of $1.8 million, primarily due to our data center and Pleasanton headquarters expansion; and

·Net outflows relating to purchases of intangible assets for the nine months ended September 30, 2012 of $4.5 million was $3.1 million higher compared to the same period in 2011 of $1.4 million, primarily related to third-party software licenses and patents.

28

Financing Activities

In the nine months ended September 30, 2012, net cash provided by financing activities was $1.0 million, $45.1 million lower compared to net cash provided by financing activities of $46.1 million in the same period in 2011.  The changes in net cash provided by financing activities were attributed to the following:

·Proceeds from issuance of convertible debt, net of issuance costs, for the nine months ended September 30, 2011 was $77.4 million and none in 2012;

·Outflow for the repurchase of convertible notes for the nine months ended September 30, 2011 was $19.2 million and none in 2012;

·Outflow for the repurchase of common stock for the nine months ended September 30, 2011 was $14.4 million and none in 2012;

·Net proceeds from exercises of stock options and purchases of ESPP for the nine months ended September 30, 2012 of $5.2 million was $0.2 million lower compared to the same period in 2011 of $5.4 million; and

·Outflows for the repurchase of common stock from employees related to statutory income tax withholdings paid on vested restricted stock unit awards in lieu of issuing shares of common stock for the nine months ended September 30, 2012 of $2.1 million was $1.1 million higher compared to the same period in 2011 of $1.0 million.

Contractual Obligations and Commitments

Refer to Note 8 of our notes to condensed consolidated financial statements for further information. For additional information on existing unconditional purchase commitments, please refer to the 2011 Form 10-K.

Off-Balance Sheet Arrangements

With the exception of the above contractual obligations, we have no material off-balance sheet arrangements that have not been recorded in our condensed consolidated financial statements.

29

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Market Risk. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is also a result of fluctuations in interest rates and foreign exchange rates.

We do not hold or issue financial instruments for trading purposes and we invest in investment grade securities. We limit our exposure to interest rate and credit risk by establishing and monitoring clear policies and guidelines for our investment portfolios, which is approved by the Audit Committee of our Board of Directors. The guidelines also establish credit quality standards, limits on exposure to any one security issue or issuer, and limits on exposure to the type of instrument.

Financial instruments that potentially subject us to market risk are investments and trade receivables denominated in foreign currencies.  We mitigate market risk by monitoring ratings, credit spreads and potential downgrades for all bank counterparties on at least a quarterly basis.  Based on our on-going assessment of counterparty risk, we will adjust our exposure to various counterparties as necessary.

Interest Rate Risk. We invest in a variety of financial instruments, consisting primarily of investments in money market funds, commercial paper, high quality corporate debt obligations and U.S. government obligations.

Investments in both fixed-rate and floating-rate interest earning instruments carry a degree of interest rate risk. The fair market value of fixed-rate securities may be adversely affected by a rise in interest rates, while floating rate securities, which typically have a shorter duration, may produce less income than expected if interest rates fall. Due in part to these factors, our investment income may decrease in the future as a result of changes in interest rates. At September 30, 2012, the average maturity of our investments was approximately 10.8 months, and all investment securities had maturities of less than 24 months. The following table presents certain information about our financial instruments at September 30, 2012 that are sensitive to changes in interest rates (in thousands, except for interest rates):

	Expected Maturity						Total		Total
	1 Year			More Than			Principal		Fair
	or Less			1 Year			Amount		Value
Available-for-sale securities	$	10,845		$	9,011		$	19,838	$	19,856
Weighted average interest rate	0.53		%	0.49		%

Our exposure to interest rate risk also relates to the increase or decrease in the amount of interest expense we must pay on our outstanding debt instruments.

In May 2011, we issued $80.5 million aggregate principal amount of convertible notes due in 2016. Our convertible notes have a fixed annual interest rate of 4.75% and therefore, we do not have economic interest rate exposure on the convertible notes. In August 2011, the Company completed the repurchase of $21.0 million aggregate principal amount of its convertible notes for cash of approximately $19.2 million through privately negotiated transactions, including fees of $105,000. As of September 30, 2012, $59.5 million aggregate principal amount of the convertible notes remain outstanding. For further information, please refer to Note 7 of our condensed consolidated financial statements.

Foreign Currency Risk. Our revenues and expenses, except those related to our non-U.S. operations, are generally denominated in U.S. dollar. For the three months and nine months ended September 30, 2012, approximately 17% of our total revenues were denominated in foreign currencies. For the three months and nine months ended September 30, 2011, approximately 20% and 19%, respectively, of our total revenues were denominated in foreign currencies. At September 30, 2012 and 2011, approximately 13% and 19%, respectively, of our total accounts receivable were denominated in foreign currencies.  Our exchange risks and foreign exchange losses have been minimal to date. We expect to continue to transact a majority of our business in U.S. dollar.

Occasionally, we may enter into forward exchange contracts to reduce our exposure to currency fluctuations on our foreign currency transactions. The objective of these contracts is to minimize the impact of foreign currency exchange rate movements on our operating results. We do not use these contracts for speculative or trading purposes.

As of September 30, 2012, we had no outstanding foreign currency forward exchange contracts.

30

Item 4. Controls and Procedures

Our Chief Executive Officer and our Chief Financial Officer, after evaluating the effectiveness of our “disclosure controls and procedures” (as defined in the Securities Exchange Act of 1934 (Exchange Act) Rules 13a-15(e) or 15d-15(e)) as of the end of the period covered by this quarterly report, have concluded that our disclosure controls and procedures are effective based on their evaluation of these controls and procedures required by paragraph (b) of Exchange Act Rules 13a-15 or 15d-15.

In connection with their evaluation of our disclosure controls and procedures as of the end of the period covered by this report, our Chief Executive Officer and Chief Financial Officer did not identify any changes in our internal control over financial reporting during the three months ended September 30, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

31

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

On July 19, 2012, Versata Software, Inc. and Versata Development Group, Inc. filed suit against Callidus Software Inc. in the United States District Court for the District of Delaware. The suit asserted that Callidus infringed U.S. Patent Nos. 7,904,326; 7,908,304 and 7,958,024. The Company believes that the claims are without merit and intends to vigorously defend against these claims. Refer to Note 8 of the notes to our condensed consolidated financial statements for more details.

On August 31, 2012, the Company filed suit against Xactly Corporation in the United States District Court for the Central District of California.   The suit alleges that Xactly Corporation infringes two U.S. Patent Nos.  8,046,387 and 7,774,378.  On October 24, 2012, the Company amended its complaint to add Xactly’s President and Chief Executive Officer as a defendant and to add claims for trademark infringement, false advertising, false and misleading advertising, trade libel, defamation, intentional interference with prospective economic advantage, intentional interference with contractual relations, breach of contract and unfair competition, in addition to patent infringement.  The Company intends to vigorously assert the claims in order to protect the Company’s business and its intellectual property.

We are, from time to time, a party to other various litigation matters incidental to the conduct of our business, none of which, at the present time, is likely to have a material adverse effect on our future financial results.

Item 1A. Risk Factors

There have been no material changes from the risk factors previously described under Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2011.  You should carefully consider the factors discussed in the foregoing reports, which are incorporated herein by reference. These risks are not the only risks facing us and could affect our business, financial condition and operating results. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may adversely affect our business, financial condition and operating results.

Factors That Could Affect Future Results

We operate in a dynamic and rapidly changing environment that involves numerous 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.  Because of the factors discussed in our Annual Report on Form 10-K for the year ended December 31, 2011, as well as other variables affecting our operating results, past financial performance should not be considered a reliable indicator of future performance, and investors should not use historical trends to anticipate results or trends in future periods.

Item 6. Exhibits

Exhibit
Number	Description
31.1	Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted by Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002
101	Interactive Data Files Pursuant to Rule 405 of Regulation S-T: (i) Condensed Consolidated Balance Sheets as of September 30, 2012 and December 31, 2011, (ii) Condensed Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2012 and 2011, (iii) Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2012 and 2011 and (iv) Notes to Condensed Consolidated Financial Statements

32

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on November 7, 2012.

CALLIDUS SOFTWARE INC.
By:	/s/ RONALD J. FIOR
	Ronald J. Fior
	Chief Financial Officer,
	Senior Vice President, Finance and Operations

33

EXHIBIT INDEX

TO
CALLIDUS SOFTWARE INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2012

Exhibit
Number	Description
31.1	Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted by Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002
101	Interactive Data Files Pursuant to Rule 405 of Regulation S-T: (i) Condensed Consolidated Balance Sheets as of September 30, 2012 and December 31, 2011, (ii) Condensed Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2012 and 2011, (iii) Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2012 and 2011 and (iv) Notes to Condensed Consolidated Financial Statements

34

EX-31.1

EXHIBIT 31.1

302 CERTIFICATIONS

I, Leslie J. Stretch, certify that:

1.I have reviewed this quarterly report of Callidus Software Inc. on Form 10-Q;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of the annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 7, 2012
	/s/ LESLIE J. STRETCH
	Leslie J. Stretch
	President and Chief Executive Officer

I, Ronald J. Fior, certify that:

1.I have reviewed this quarterly report of Callidus Software Inc. on Form 10-Q;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of the annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 7, 2012
	/s/ RONALD J. FIOR
	Ronald J. Fior
	Chief Financial Officer,
	Senior Vice President, Finance and Operations

EX-32.1

EXHIBIT 32.1

906 CERTIFICATION

The certification set forth below is being submitted in connection with this quarterly report of Callidus Software Inc. on Form 10-Q (the Report) for the purpose of complying with Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 (the Exchange Act) and Section 1350 of Chapter 63 of Title 18 of the United States Code.

Leslie J. Stretch, the Chief Executive Officer and Ronald J. Fior, the Chief Financial Officer of Callidus Software Inc., each certifies that, to the best of his knowledge:

1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and

2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Callidus Software Inc.

The foregoing certifications are not deemed filed with the Securities and Exchange Commission for purposes of Section 18 of the Exchange Act, as amended, or otherwise subject to the liabilities of such Section, and are not to be incorporated by reference into any filing of Callidus Software Inc. under the Securities Act of 1933, as amended, or the Exchange Act, as amended (whether made before, on, or after the date of this Report), irrespective of any general incorporation language contained in such filing.

Date: November 7, 2012
	/s/ LESLIE J. STRETCH
	Leslie J. Stretch
	President and Chief Executive Officer
	/s/ RONALD J. FIOR
	Ronald J. Fior
	Chief Financial Officer,
	Senior Vice President, Finance and Operations

XML

Commitments and Contingencies (Details) (USD $)	3 Months Ended	9 Months Ended	3 Months Ended			1 Months Ended	3 Months Ended			1 Months Ended	9 Months Ended			1 Months Ended				1 Months Ended			1 Months Ended			0 Months Ended
	Sep. 30, 2012	Sep. 30, 2012	Sep. 30, 2012 iCentera	Jan. 03, 2012 LeadFormix	May 04, 2012 6Figurejobs.com, Inc	Jul. 31, 2011 Acquisition consideration related contingency iCentera	Jun. 30, 2012 Acquisition consideration related contingency iCentera	Sep. 30, 2012 Acquisition consideration related contingency iCentera	Jul. 05, 2011 Acquisition consideration related contingency iCentera	Sep. 30, 2011 Acquisition consideration related contingency Rapid Intake, Inc.	Sep. 30, 2012 Acquisition consideration related contingency Rapid Intake, Inc.	Sep. 08, 2011 Acquisition consideration related contingency Rapid Intake, Inc.	Dec. 31, 2011 Acquisition consideration related contingency Rapid Intake, Inc. Accrued expenses	Oct. 31, 2011 Acquisition consideration related contingency Webcom	Oct. 03, 2011 Acquisition consideration related contingency Webcom	Sep. 30, 2012 Acquisition consideration related contingency Webcom Accrued expenses	Dec. 31, 2011 Acquisition consideration related contingency Webcom Accrued expenses	Jan. 31, 2012 Acquisition consideration related contingency LeadFormix	Jan. 03, 2012 Acquisition consideration related contingency LeadFormix	Sep. 30, 2012 Acquisition consideration related contingency LeadFormix Accrued expenses	May 31, 2012 Acquisition consideration related contingency 6Figurejobs.com, Inc Accrued expenses	Sep. 30, 2012 Acquisition consideration related contingency 6Figurejobs.com, Inc Accrued expenses	May 04, 2012 Acquisition consideration related contingency 6Figurejobs.com, Inc Accrued expenses	Aug. 31, 2012 Infringement of patents Xactly Corporation [Member] security
Commitments and Contingencies
Number of U.S. patents infringed																								2
Indemnity holdback				$ 1,500,000	$ 275,000			$ 437,000	$ 1,500,000			$ 400,000	$ 300,000		$ 1,600,000	$ 1,600,000	$ 1,600,000		$ 1,500,000				$ 275,000
Indemnity holdback released							937,000
Acquisition-related contingent consideration	50,000	(1,787,000)
Contingent consideration released			900,000				900,000
Earn-out related contingent consideration									1,000,000			500,000			1,800,000
Period for payment of indemnity holdback						1 year				1 year				1 year				1 year			1 year
Period for payment of contingent consideration						1 year				1 year				45 days
Fair value of the earn-out contingent consideration													450,000			1,600,000	1,600,000			1,500,000		275,000
Increase in estimated fair value of the earn-out contingent consideration (as a percent)											100.00%
Maximum amount of estimated fair value of the earn-out contingent consideration											$ 500,000

XML

Related Party Transactions (Details) (USD $)	3 Months Ended		9 Months Ended	3 Months Ended	9 Months Ended
	Mar. 31, 2012 K.L. Properties LLC Actek, Inc.	Sep. 30, 2011 K.L. Properties LLC Actek, Inc.	Sep. 30, 2011 K.L. Properties LLC Actek, Inc.	Sep. 30, 2012 Webcom	Sep. 30, 2012 Webcom
Related party transactions
Rent expense	$ 39,000	$ 39,000	$ 117,000
Product modeling and maintenance of certain equipment				$ 53,000	$ 101,000

XML

Goodwill and Intangible Assets (Details 3) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended						9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012 Minimum	Sep. 30, 2012 Maximum	Sep. 30, 2012 Developed technology	Dec. 31, 2011 Developed technology	Sep. 30, 2012 Customer relationships	Sep. 30, 2012 Tradenames	Sep. 30, 2012 Favorable Lease	Sep. 30, 2012 Patents and licenses	Sep. 30, 2012 Other
Intangible assets
Amortization expense related to intangible assets	$ 1,200	$ 900	$ 3,818	$ 2,284			$ (2,744)		$ (640)	$ (165)	$ (10)	$ (223)	$ (36)
Estimated useful life					1 year	12 years
Future expected amortization expense
Remainder of 2012								820	219	56	3	88	12
2013								2,806	876	213		352	47
2014								2,403	876	179		349	27
2015								2,122	876	179		344
2016								2,122	876	151		344
2017								1,815	767	143		344
2018 and beyond								1,084	681	176		1,012
Total expected amortization expense								$ 13,172	$ 5,171	$ 1,097	$ 3	$ 2,833	$ 86

XML

Segment, Geographic and Customer Information (Tables)

9 Months Ended

Sep. 30, 2012

Segment, Geographic and Customer Information

Summary of revenues by geographic areas

	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
Americas	$	19,792	$	16,769	$	57,763	$	49,592
EMEA	2,484		2,813		7,919		8,385
Asia Pacific	1,650		1,477		4,038		3,248
	$	23,926	$	21,059	$	69,720	$	61,225

XML

Net Loss Per Share (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Net Loss Per Share
Anti-dilutive securities excluded from computation of diluted net loss per share (in shares)	14,229	17,378	14,773	13,013
Restricted stock
Net Loss Per Share
Anti-dilutive securities excluded from computation of diluted net loss per share (in shares)	3,441	3,625	3,701	3,590
Stock options
Net Loss Per Share
Anti-dilutive securities excluded from computation of diluted net loss per share (in shares)	3,076	4,407	3,381	4,762
Weighted average exercise price (in dollars per share)	3.34	3.43	3.71	2.98
ESPP
Net Loss Per Share
Anti-dilutive securities excluded from computation of diluted net loss per share (in shares)	32	162	11	113
Convertible notes
Net Loss Per Share
Anti-dilutive securities excluded from computation of diluted net loss per share (in shares)	7,680	9,184	7,680	4,548
Conversion price (in dollars per share)	7.71		7.71

XML

Fair Value Measurements (Details 3) (Level 3, Auction rate securities, USD $)	3 Months Ended	9 Months Ended
	Sep. 30, 2011	Sep. 30, 2011
Level 3 | Auction rate securities
Level 3
Unrealized losses	$ 1,000	$ 6,000

XML

Goodwill and Intangible Assets

9 Months Ended

Sep. 30, 2012

Goodwill and Intangible Assets

Goodwill and Intangible Assets

4.Goodwill and Intangible Assets

The changes in the carrying amount of goodwill for the nine months ended September 30, 2012 is as follows (in thousands):

Balance as of December 31, 2011	$	24,416
Acquisitions	6,797
Impairment losses	—
Balance as of September 30, 2012	$	31,213

Upon finalizing the purchase price allocation for the acquisition of Webcom, Inc. and 6FigureJobs.com, Inc. in 2012, we retrospectively adjusted the purchase price allocation as of respective acquisition dates as required by accounting standards. Adjustments in Webcom, Inc. and 6FigureJobs.com, Inc.’s purchase price allocations reduced net assets acquired and increased resulting goodwill by $216,000 and $126,000, respectively.

Intangible assets consisted of the following as of September 30, 2012 and December 31, 2011 (in thousands):

												Weighted
												Average
	December 31,		December 31,							September 30,		Amortization
	2011		2011				Amortization			2012		Period
	Cost		Net		Additions		Expense			Net		(Years)
Developed technology	$	15,179	$	10,630	$	5,286	$	(2,744	)	$	13,172	5.3
Customer relationships	6,884		4,540		1,271		(640		)	5,171		6.1
Tradenames	1,202		942		320		(165		)	1,097		6.1
Favorable lease	40		13		—		(10		)	3		0.3
Patents and licenses	1,525		1,522		1,534		(223		)	2,833		8.7
Other	142		122		—		(36		)	86		1.8
Total	$	24,972	$	17,769	$	8,411	$	(3,818	)	$	22,362

Intangible assets include third-party software licenses used in our products and acquired assets related to the Company’s acquisitions.

Amortization expense related to intangible assets was $1.2 million and $3.8 million for the three and nine months ended September 30, 2012, respectively, and was included within cost of revenues for developed technology and patents and licenses, sales and marketing expense for customer relationships and tradenames, and general and administrative expense for the favorable lease and other. Amortization expense related to intangible assets was $0.9 million and $2.3 million for the three and nine months ended September 30, 2011, respectively. The Company’s intangible assets are amortized over their estimated useful lives of one to twelve years. Total future expected amortization is as follows (in thousands):

	Developed		Customer				Favorable		Patents
	Technology		Relationships		Tradenames		Lease		and licenses		Other
Quarter Ending September 30:
Remainder of 2012	$	820	$	219	$	56	$	3	$	88	$	12
2013	2,806		876		213		—		352		47
2014	2,403		876		179		—		349		27
2015	2,122		876		179		—		344		—
2016	2,122		876		151		—		344		—
2017	1,815		767		143		—		344		—
2018 and beyond	1,084		681		176		—		1,012		—
Total expected amortization expense	$	13,172	$	5,171	$	1,097	$	3	$	2,833	$	86

XML

Stock-based Compensation (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Stock-based compensation
Stock-based compensation expense	$ 3,422,000	$ 2,812,000	$ 10,917,000	$ 8,894,000
Stock-based compensation related to acquisition				42,000
Actek, Inc.
Stock-based compensation
Stock-based compensation related to acquisition				42,000
Options
Stock-based compensation
Stock-based compensation expense	143,000	217,000	713,000	922,000
Unrecognized compensation expense, stock options	900,000		900,000
Weighted average recognition period			1 year 11 months 23 days
Restricted Stock Units
Stock-based compensation
Unrecognized compensation expense, share-based awards other than options	18,500,000		18,500,000
Weighted average recognition period			1 year 6 months 7 days
Performance Awards
Stock-based compensation
Stock-based compensation expense	(60,000)	192,000	387,000	472,000
Non-performance Awards
Stock-based compensation
Stock-based compensation expense	3,119,000	2,378,000	9,281,000	7,337,000
ESPP
Stock-based compensation
Stock-based compensation expense	220,000	25,000	536,000	121,000
Unrecognized compensation expense, share-based awards other than options	$ 700,000		$ 700,000
Weighted average recognition period			7 months 10 days

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Acquisitions (Details) (USD $)		1 Months Ended		1 Months Ended
	Sep. 30, 2012	Jan. 31, 2012 LeadFormix, Inc	Jan. 03, 2012 LeadFormix, Inc	May 31, 2012 6Figurejobs.com, Inc	May 04, 2012 6Figurejobs.com, Inc
Acquisitions
Cash paid for the acquisition			$ 8,500,000		$ 1,000,000
Indemnity holdback			1,500,000		275,000
Purchase Consideration	9,552,000		8,521,000		1,031,000
Net Tangible Assets Acquired/(liabilities assumed)	(955,000)		(760,000)		(195,000)
Identifiable Intangible Assets	3,710,000		2,800,000		910,000
Goodwill	6,797,000		6,481,000		316,000
Acquisition-related expenses		$ 270,000		$ 119,000

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Restructuring (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Restructuring
Restructuring expenses	$ (53)	$ 99	$ 561	$ 136
Changes in restructuring reserve
Balance at the beginning of the period			443
Cash Payments			(524)
Additions, net of Adjustments			561
Balance at the end of the period	480		480
Severance and termination-related costs
Changes in restructuring reserve
Cash Payments			(312)
Additions, net of Adjustments			457
Balance at the end of the period	145		145
Facilities related costs
Changes in restructuring reserve
Balance at the beginning of the period			443
Cash Payments			(212)
Additions, net of Adjustments			104
Balance at the end of the period	$ 335		$ 335

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Stock-based Compensation (Details 2) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Classification of stock-based compensation expense
Stock-based compensation expense	$ 3,422	$ 2,812	$ 10,917	$ 8,894
Cost of recurring revenues
Classification of stock-based compensation expense
Stock-based compensation expense	351	731	1,280	2,523
Cost of services and other revenues
Classification of stock-based compensation expense
Stock-based compensation expense	573	370	1,623	1,054
Sales and marketing
Classification of stock-based compensation expense
Stock-based compensation expense	997	502	2,937	1,320
Research and development
Classification of stock-based compensation expense
Stock-based compensation expense	477	366	1,376	1,090
General and administrative
Classification of stock-based compensation expense
Stock-based compensation expense	$ 1,024	$ 843	$ 3,701	$ 2,907

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Acquisitions (Details 2) (USD $) In Thousands, unless otherwise specified		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2012 Customer relationships	Sep. 30, 2012 Developed technology	Sep. 30, 2012 Tradename	Jan. 03, 2012 LeadFormix, Inc	Jan. 03, 2012 LeadFormix, Inc Customer relationships	Jan. 03, 2012 LeadFormix, Inc Developed technology	Jan. 03, 2012 LeadFormix, Inc Tradename	May 04, 2012 6Figurejobs.com, Inc	May 04, 2012 6Figurejobs.com, Inc Customer relationships	May 04, 2012 6Figurejobs.com, Inc Developed technology	May 04, 2012 6Figurejobs.com, Inc Tradename
Components of identifiable intangible assets acquired in connection with the acquisition
Identifiable intangible assets	$ 3,710	$ 1,270	$ 2,120	$ 320	$ 2,800	$ 640	$ 1,900	$ 260	$ 910	$ 630	$ 220	$ 60
Weighted Average Estimated Useful Life		6 years 4 days	6 years 9 months 14 days	6 years 7 months 17 days

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Goodwill and Intangible Assets (Details) (USD $)	9 Months Ended
	Sep. 30, 2012
Changes in the carrying amount of goodwill
Balance at the beginning of the period	$ 24,416,000
Acquisitions	6,797,000
Balance at the end of the period	31,213,000
Webcom, Inc.
Additional disclosure
Increase in goodwill as a result of retrospectively adjustment of purchase price allocation	216,000
6Figurejobs.com, Inc
Additional disclosure
Increase in goodwill as a result of retrospectively adjustment of purchase price allocation	$ 126,000

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Acquisitions

9 Months Ended

Sep. 30, 2012

Acquisitions

Acquisitions

3.Acquisitions

The Company completed the following business acquisitions during the nine months ended September 30, 2012:

·On January 3, 2012 the Company acquired LeadFormix, Inc. (“LeadFormix”), a U.S. based company with operations in India. LeadFormix, a leader in next-generation marketing automation and sales enablement, was acquired for approximately $8.5 million in cash, including $1.5 million for indemnity holdback.

·On May 4, 2012, the Company acquired 6FigureJobs.com, Inc. (“6FigureJobs”), a wholly-owned subsidiary of Workstream, Inc. (“Workstream”), a Canadian corporation, for approximately $1.0 million in cash, including $0.3 million for indemnity holdback. 6FigureJobs provides job advertisement placement, recruitment media services and other career-related services.

The preliminary estimates of fair value for the assets acquired and liabilities assumed were based upon preliminary calculations and valuations and the Company’s estimates and assumptions are subject to change as the Company obtains additional information during the measurement period (up to one year from the acquisition dates). The primary areas of those preliminary estimates that are not yet finalized related to certain tangible assets and liabilities acquired, identifiable intangible assets, and income and non-income based taxes.

Developed technology represents the fair values of the acquired companies’ products that have reached technological feasibility. The estimated useful life was primarily based on projected product cycle and technology evolution. Customer relationships represent the fair value of the underlying customer support contracts and related relationships with the acquired companies’ existing customers. The estimated useful life was primarily based on projected customer retention rates. Tradenames represent the fair value of brand and name recognition associated with the marketing of the acquired companies’ products and services. The estimated useful life was based on the projected product cycle and associated marketing of the brand and name.

The excess of the purchase price over the assets acquired and liabilities assumed was recorded as goodwill. The goodwill arising from the acquisitions mainly consists of entity-specific synergies and economies of scale expected from joining the acquired companies with the Company.

Both acquisitions were accounted for using the purchase method of accounting. Assets acquired and liabilities assumed were recorded at their fair values as of the respective acquisition dates. The total purchase price for each acquisition was allocated as follows (amounts in thousands):

	Purchase Consideration		Net Tangible Assets Acquired/(liabilities assumed)			Identifiable Intangible Assets		Goodwill		Goodwill deductible for tax purposes	Acquisition related expenses
Leadformix	$	8,521	$	(760	)	$	2,800	$	6,481	Not deductible	$	270
6FigureJobs	1,031		(195		)	910		316		Not deductible	119
	$	9,552	$	(955	)	$	3,710	$	6,797

The following table sets forth each component of identifiable intangible assets acquired in connection with the above acquisitions (in thousands):

							Weighted
							Average
							Estimated
							Useful
	Leadformix		6FigureJobs		Total		Life
Customer relationships	$	640	$	630	$	1,270	6.01
Developed technology	1,900		220		2,120		6.79
Tradename	260		60		320		6.63
	$	2,800	$	910	$	3,710

The financial results of these companies are included in the Company’s condensed consolidated results starting from their respective acquisition dates.

Pro forma financial information for acquisitions accounted for as business combinations has not been presented, as the effects were not material to the Company’s historical condensed consolidated financial statements.

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Goodwill and Intangible Assets (Details 2) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011
Changes in intangible assets during the year
Cost					$ 24,972
Balance at the beginning of the period, net			17,769
Additions			8,411
Amortization Expense	(1,200)	(900)	(3,818)	(2,284)
Balance at the end of the period, net	22,362		22,362
Developed technology
Changes in intangible assets during the year
Cost					15,179
Balance at the beginning of the period, net			10,630
Additions			5,286
Amortization Expense			2,744
Balance at the end of the period, net	13,172		13,172
Developed technology | Weighted average
Changes in intangible assets during the year
Weighted Average Amortization Period (Years)			5 years 3 months 18 days
Customer Relationships
Changes in intangible assets during the year
Cost					6,884
Balance at the beginning of the period, net			4,540
Additions			1,271
Amortization Expense			640
Balance at the end of the period, net	5,171		5,171
Customer Relationships | Weighted average
Changes in intangible assets during the year
Weighted Average Amortization Period (Years)			6 years 1 month 6 days
Tradenames
Changes in intangible assets during the year
Cost					1,202
Balance at the beginning of the period, net			942
Additions			320
Amortization Expense			165
Balance at the end of the period, net	1,097		1,097
Tradenames | Weighted average
Changes in intangible assets during the year
Weighted Average Amortization Period (Years)			6 years 1 month 6 days
Favorable Lease
Changes in intangible assets during the year
Cost					40
Balance at the beginning of the period, net			13
Amortization Expense			10
Balance at the end of the period, net	3		3
Favorable Lease | Weighted average
Changes in intangible assets during the year
Weighted Average Amortization Period (Years)			3 months 18 days
Patents and licenses
Changes in intangible assets during the year
Cost					1,525
Balance at the beginning of the period, net			1,522
Additions			1,534
Amortization Expense			223
Balance at the end of the period, net	2,833		2,833
Patents and licenses | Weighted average
Changes in intangible assets during the year
Weighted Average Amortization Period (Years)			8 years 8 months 12 days
Other
Changes in intangible assets during the year
Cost					142
Balance at the beginning of the period, net			122
Amortization Expense			36
Balance at the end of the period, net	$ 86		$ 86
Other | Weighted average
Changes in intangible assets during the year
Weighted Average Amortization Period (Years)			1 year 9 months 18 days

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Commitments and Contingencies (Details 2) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012
Unconditional purchase commitments
2012	$ 910
2014	825
4.75 % Convertible Senior Notes due in 2016
Contractual Obligations
Principal payment, 2016	59,215
Interest payments, Remainder of 2012	703
Interest payments, 2013	2,813
Interest payments, 2014	2,813
Interest payments, 2015	2,813
Interest payments, 2016	$ 2,813

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CONDENSED CONSOLIDATED BALANCE SHEETS (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Current assets:
Cash and cash equivalents	$ 6,697	$ 17,383
Short-term investments	19,856	35,406
Accounts receivable, net of allowances of $216 and $235 at September 30, 2012 and December 31, 2011, respectively	29,489	21,778
Deferred income taxes	110	110
Prepaid and other current assets	7,707	5,831
Total current assets	63,859	80,508
Property and equipment, net	9,827	6,772
Goodwill	31,213	24,416
Intangible assets, net	22,362	17,769
Deferred income taxes, noncurrent	206	206
Deposits and other assets	3,212	3,936
Total assets	130,679	133,607
Current liabilities:
Accounts payable	5,025	3,515
Accrued payroll and related expenses	4,011	4,278
Accrued expenses	12,117	12,272
Deferred income taxes	596	596
Deferred revenue	32,794	30,211
Capital lease obligations	1,107	1,196
Total current liabilities	55,650	52,068
Deferred revenue, noncurrent	3,450	4,257
Deferred income taxes, noncurrent	308	197
Other liabilities	1,881	2,413
Capital lease obligations, noncurrent	128	915
Convertible notes	59,215	59,215
Total liabilities	120,632	119,065
Commitments and contingencies (Note 8)
Stockholders' equity:
Preferred stock, $0.001 par value; 5,000 shares authorized; no shares issued or outstanding
Common stock, $0.001 par value; 100,000 shares authorized; 38,130 and 35,198 shares issued and 35,791 and 32,859 shares outstanding at September 30, 2012 and December 31, 2011, respectively	34	33
Additional paid-in capital	252,857	238,798
Treasury stock; 2,339 shares, at September 30, 2012 and December 31, 2011	(14,430)	(14,430)
Accumulated other comprehensive income	282	189
Accumulated deficit	(228,696)	(210,048)
Total stockholders' equity	10,047	14,542
Total liabilities and stockholders' equity	$ 130,679	$ 133,607

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Stock-based Compensation (Details 3)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Stock Option Plans
Fair value assumptions using the Black-Scholes-Merton valuation model
Expected life (in years)		3 years 6 months
Risk-free interest rate, minimum (as a percent)			0.72%	0.50%
Risk-free interest rate (as a percent)		0.52%
Risk-free interest rate, maximum (as a percent)			1.33%	1.12%
Volatility, minimum (as a percent)			60.00%	60.00%
Volatility (as a percent)		68.00%
Volatility, maximum (as a percent)			65.00%	69.00%
Stock Option Plans | Minimum
Fair value assumptions using the Black-Scholes-Merton valuation model
Expected life (in years)			5 years	2 years 6 months
Stock Option Plans | Maximum
Fair value assumptions using the Black-Scholes-Merton valuation model
Expected life (in years)			6 years	3 years 6 months
Employee Stock Purchase Plan
Fair value assumptions using the Black-Scholes-Merton valuation model
Risk-free interest rate, minimum (as a percent)	0.14%	0.07%	0.13%	0.07%
Risk-free interest rate, maximum (as a percent)	0.20%	0.12%	0.20%	0.29%
Volatility, minimum (as a percent)	61.00%	47.00%	56.00%	39.00%
Volatility, maximum (as a percent)	62.00%	54.00%	62.00%	54.00%
Employee Stock Purchase Plan | Minimum
Fair value assumptions using the Black-Scholes-Merton valuation model
Expected life (in years)	6 months	6 months	6 months	6 months
Employee Stock Purchase Plan | Maximum
Fair value assumptions using the Black-Scholes-Merton valuation model
Expected life (in years)	1 year	1 year	1 year	1 year

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Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2012

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

1.Summary of Significant Accounting Policies

Basis of Presentation and Summary of Accounting Policies

All amounts included herein related to the condensed consolidated financial statements as of September 30, 2012 and the three and nine months ended September 30, 2012 and 2011 are unaudited and should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) have been condensed or omitted pursuant to the Securities and Exchange Commission (SEC) rules and regulations regarding interim financial statements.

In the opinion of management, the accompanying condensed consolidated financial statements include all necessary adjustments for the fair presentation of the Company’s financial position, results of operations and cash flows. The results of operations for the interim periods presented are not necessarily indicative of the operating results to be expected for any subsequent interim period or for the full fiscal year ending December 31, 2012.

The condensed consolidated financial statements include the accounts of Callidus Software Inc. and its wholly owned subsidiaries (collectively, the “Company”), which include wholly owned subsidiaries in Australia, Canada, Germany, Hong Kong, India, New Zealand, Serbia, Singapore, and the United Kingdom. All intercompany transactions and balances have been eliminated upon consolidation.

Reclassifications

Certain prior period balances have been reclassified to conform to the current period’s presentation. Such reclassifications did not affect total revenues or net loss.

Use of Estimates

Preparation of the condensed consolidated financial statements in conformity with GAAP and the rules and regulations of the SEC requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, the reported amounts of revenues and expenses during the reporting period and the accompanying notes. Estimates are used for, but not limited to, the allocation of the value of purchase consideration for business acquisitions, uncertain tax liabilities, allowances for doubtful accounts and service remediation reserves, the useful lives of fixed assets and intangible assets, goodwill and intangible asset impairments, accrued liabilities and other contingencies. These estimates and assumptions are based on management’s best estimates and judgment. Management evaluates such estimates and assumptions on an ongoing basis for continued reasonableness, using historical experience and other factors, including the current economic environment. Appropriate adjustments, if any, to the estimates used are made prospectively based upon such evaluation. Illiquid credit markets, volatile equity and foreign currency markets and declines in Information Technology (IT) spending by companies have combined to increase the uncertainty inherent in such estimates and assumptions. As future events and their effects cannot be determined with precision, actual results could differ materially from those estimates. Changes in those estimates, if any, resulting from continuing changes in the economic environment, will be reflected in the condensed consolidated financial statements in future periods.

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Fair Value Measurements (Details) (Ongoing basis, USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Total
Assets:
Fair value of assets	$ 22,013	$ 45,489
Liabilities:
Fair value of liabilities	2,075	2,925
Total | Contingent consideration
Liabilities:
Fair value of liabilities	2,075	2,925
Total | Money market funds
Assets:
Fair value of assets	2,157	10,083
Total | U.S. Treasury bills
Assets:
Fair value of assets	1,000	3,503
Total | Commercial paper
Assets:
Fair value of assets	1,000
Total | Corporate notes and obligations
Assets:
Fair value of assets	11,156	12,236
Total | U.S. government and agency obligations
Assets:
Fair value of assets	6,700	19,667
Quoted Prices in Active Markets for Identical Assets (Level 1)
Assets:
Fair value of assets	3,157	13,586
Quoted Prices in Active Markets for Identical Assets (Level 1) | Money market funds
Assets:
Fair value of assets	2,157	10,083
Quoted Prices in Active Markets for Identical Assets (Level 1) | U.S. Treasury bills
Assets:
Fair value of assets	1,000	3,503
Significant Other Observable Inputs (Level 2)
Assets:
Fair value of assets	18,856	31,903
Significant Other Observable Inputs (Level 2) | Commercial paper
Assets:
Fair value of assets	1,000
Significant Other Observable Inputs (Level 2) | Corporate notes and obligations
Assets:
Fair value of assets	11,156	12,236
Significant Other Observable Inputs (Level 2) | U.S. government and agency obligations
Assets:
Fair value of assets	6,700	19,667
Significant Unobservable Inputs (Level 3)
Liabilities:
Fair value of liabilities	2,075	2,925
Significant Unobservable Inputs (Level 3) | Contingent consideration
Liabilities:
Fair value of liabilities	$ 2,075	$ 2,925

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Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2012

Financial Instruments

Schedule of components of debt and marketable equity securities classified as available-for-sale

			Gross		Gross		Other
	Amortized		Unrealized		Unrealized		Than Temporary		Estimated
September 30, 2012	Cost		Gains		Losses		Impairment		Fair value
Cash	$	4,540	$	—	$	—	$	—	$	4,540
Cash equivalents:
Money market funds	2,157		—		—		—		2,157
Total cash equivalents	2,157		—		—		—		2,157
Total cash and cash equivalents	$	6,697	$	—	$	—	$	—	$	6,697
Short-term investments:
Commercial paper	$	1,000	$	—	$	—	$	—	$	1,000
U.S. government and agency obligations	7,699		1		—		—		7,700
Corporate notes and obligations	11,139		17		—		—		11,156
Total short-term investments	$	19,838	$	18	$	—	$	—	$	19,856

			Gross		Gross			Other
	Amortized		Unrealized		Unrealized			Than Temporary			Estimated
December 31, 2011	Cost		Gains		Losses			Impairment			Fair value
Cash	$	7,300	$	—	$	—		$	—		$	7,300
Cash equivalents:
Money market funds	10,083		—		—			—			10,083
Total cash equivalents	10,083		—		—			—			10,083
Total cash and cash equivalents	$	17,383	$	—	$	—		$	—		$	17,383
Short-term investments:
U.S. government and agency obligations	23,178		3		(11		)	—			23,170
Corporate notes and obligations	12,245		3		(12		)	—			12,236
Publicly traded securities	375		—		—			(375		)	—
Total short-term investments	$	35,798	$	6	$	(23	)	$	(375	)	$	35,406

Schedule of contractual maturities of available-for-sale debt securities

	Amortized		Estimated
Contractual maturity	Cost		Fair value
Less than 1 year	$	10,834	$	10,845
Between 1 and 2 years	9,004		9,011
Total	$	19,838	$	19,856

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Fair Value Measurements (Details 2) (USD $)	9 Months Ended	3 Months Ended	9 Months Ended	3 Months Ended
	Sep. 30, 2012	Sep. 30, 2012 iCentera	Sep. 30, 2012 Contingent consideration	Sep. 30, 2012 Contingent consideration Rapid Intake, Inc.
Liabilities:
Balance at the beginning of the period	$ 2,925,000		$ 2,925,000
Adjustment	(850,000)		(850,000)
Balance at the end of the period	2,075,000		2,075,000
Contingent consideration released		900,000
Increase in contingent consideration accrual				$ 50,000

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Commitments and Contingencies (Tables)

9 Months Ended

Sep. 30, 2012

Commitments and Contingencies

Schedule of contractual cash obligations

	Payments due by Period (in thousands)
	Remainder of
Contractual Obligations	2012		2013		2014		2015		2016
Convertible notes (1)
Principal payment	$	—	$	—	$	—	$	—	$	59,215
Interest payments	703		2,813		2,813		2,813		2,813
Unconditional purchase commitments	910		—		825		—		—

(1)  Our convertible notes also contain an optional redemption feature which allows us to redeem all or part of the convertible notes for cash under certain conditions any time on or after June 6, 2014.

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Restructuring

9 Months Ended

Sep. 30, 2012

Restructuring

Restructuring

2.Restructuring

Restructuring expenses primarily consist of costs associated with employee terminations and exit of excess facilities. These costs are recognized in accordance with the accounting guidance for exit activities and are presented as restructuring expenses. The Company had restructuring expense adjustment of $53,000 for the three months ended September 30, 2012 and incurred restructuring expenses of $561,000 for the nine months ended September 30, 2012.  The Company incurred restructuring expenses of $99,000 and $136,000 for the three and nine months ended September 30, 2011, respectively.

The following table sets forth a summary of accrued restructuring expenses for the nine months ended September 30, 2012 (in thousands):

	December 31,		Cash			Additions, net		September 30,
	2011		Payments			of Adjustments		2012
Severance and termination-related costs	$	—	$	(312	)	$	457	$	145
Facilities related costs	443		(212		)	104		335
Total accrued restructuring expenses	$	443	$	(524	)	$	561	$	480

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CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $) In Thousands, except Per Share data, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
CONDENSED CONSOLIDATED BALANCE SHEETS
Accounts receivable, allowances (in dollars)	$ 216	$ 235
Preferred stock, par value (in dollars per share)	$ 0.001	$ 0.001
Preferred stock, shares authorized	5,000	5,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized	100,000	100,000
Common stock, shares issued	38,130	35,198
Common stock, shares outstanding	35,791	32,859
Treasury stock, shares	2,339	2,339

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Related Party Transactions

9 Months Ended

Sep. 30, 2012

Related Party Transactions

Related Party Transactions

12.Related Party Transactions

In January 2010, Callidus entered into an operating lease agreement for certain office space with K.L. Properties LLC.  The President of K.L. Properties was a senior member of Callidus’ management staff. This lease was assumed as part of the Actek acquisition and was determined to be a below-market or favorable lease as of the acquisition date.  Before the senior member of Callidus’ management left the Company on April 6, 2012, the Company incurred rent expense for the office space owned by K.L. Properties of approximately $39,000 during the quarter ended March 31, 2012. The Company incurred rent expense of approximately $39,000 and $117,000 for the three and nine months ended September 30, 2011.

Webcom, one of the Company’s wholly-owned subsidiary, uses the services of a third party vendor to perform product modeling and maintenance of certain equipment. The third party vendor is owned by a relative of Webcom’s senior management. For the three and nine months ended September 30, 2012, Callidus paid $53,000 and $101,000 respectively, to this vendor.

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Document and Entity Information	9 Months Ended
	Sep. 30, 2012	Nov. 01, 2012
Document and Entity Information
Entity Registrant Name	CALLIDUS SOFTWARE INC
Entity Central Index Key	0001035748
Document Type	10-Q
Document Period End Date	Sep. 30, 2012
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		36,189,423
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q3

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Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2012

Summary of Significant Accounting Policies

Basis of Presentation and Summary of Accounting Policies

All amounts included herein related to the condensed consolidated financial statements as of September 30, 2012 and the three and nine months ended September 30, 2012 and 2011 are unaudited and should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) have been condensed or omitted pursuant to the Securities and Exchange Commission (SEC) rules and regulations regarding interim financial statements.

In the opinion of management, the accompanying condensed consolidated financial statements include all necessary adjustments for the fair presentation of the Company’s financial position, results of operations and cash flows. The results of operations for the interim periods presented are not necessarily indicative of the operating results to be expected for any subsequent interim period or for the full fiscal year ending December 31, 2012.

The condensed consolidated financial statements include the accounts of Callidus Software Inc. and its wholly owned subsidiaries (collectively, the “Company”), which include wholly owned subsidiaries in Australia, Canada, Germany, Hong Kong, India, New Zealand, Serbia, Singapore, and the United Kingdom. All intercompany transactions and balances have been eliminated upon consolidation.

Reclassifications

Certain prior period balances have been reclassified to conform to the current period’s presentation. Such reclassifications did not affect total revenues or net loss.

Use of Estimates

Preparation of the condensed consolidated financial statements in conformity with GAAP and the rules and regulations of the SEC requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, the reported amounts of revenues and expenses during the reporting period and the accompanying notes. Estimates are used for, but not limited to, the allocation of the value of purchase consideration for business acquisitions, uncertain tax liabilities, allowances for doubtful accounts and service remediation reserves, the useful lives of fixed assets and intangible assets, goodwill and intangible asset impairments, accrued liabilities and other contingencies. These estimates and assumptions are based on management’s best estimates and judgment. Management evaluates such estimates and assumptions on an ongoing basis for continued reasonableness, using historical experience and other factors, including the current economic environment. Appropriate adjustments, if any, to the estimates used are made prospectively based upon such evaluation. Illiquid credit markets, volatile equity and foreign currency markets and declines in Information Technology (IT) spending by companies have combined to increase the uncertainty inherent in such estimates and assumptions. As future events and their effects cannot be determined with precision, actual results could differ materially from those estimates. Changes in those estimates, if any, resulting from continuing changes in the economic environment, will be reflected in the condensed consolidated financial statements in future periods.

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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Revenues:
Recurring	$ 17,533	$ 16,015	$ 52,446	$ 46,067
Services and other	6,393	5,044	17,274	15,158
Total revenues	23,926	21,059	69,720	61,225
Cost of revenues:
Recurring	6,989	8,363	22,449	24,860
Services and other	5,079	3,937	14,292	11,952
Total cost of revenues	12,068	12,300	36,741	36,812
Gross profit	11,858	8,759	32,979	24,413
Operating expenses:
Sales and marketing	8,322	5,253	23,518	14,303
Research and development	3,947	3,145	12,023	8,416
General and administrative	4,785	4,673	14,639	12,500
Acquisition-related contingent consideration	50		(1,787)
Restructuring	(53)	99	561	136
Total operating expenses	17,051	13,170	48,954	35,355
Operating loss	(5,193)	(4,411)	(15,975)	(10,942)
Interest income and other income (expense), net	139	(467)	134	(341)
Interest expense	(860)	(1,075)	(2,594)	(1,642)
Gain on extinguishment of convertible notes		904		904
Loss before provision (benefit) for income taxes	(5,914)	(5,049)	(18,435)	(12,021)
Provision (benefit) for income taxes	444	(478)	213	(279)
Net loss	(6,358)	(4,571)	(18,648)	(11,742)
Net loss per share - basic and diluted
Net loss per share (in dollars per share)	$ (0.18)	$ (0.14)	$ (0.53)	$ (0.36)
Shares used in basic and diluted per share computation (in shares)	35,853	32,327	35,070	32,826
Comprehensive loss
Net Loss	(6,358)	(4,571)	(18,648)	(11,742)
Unrealized gains on available-for-sale securities	22	217	35	192
Foreign currency translation adjustments	53	(34)	58	(8)
Comprehensive loss	$ (6,283)	$ (4,388)	$ (18,555)	$ (11,558)

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Convertible Notes

9 Months Ended

Sep. 30, 2012

Convertible Notes

Convertible Notes

7.Convertible Notes

In May 2011, the Company completed the sale of $80.5 million aggregate principal amount of 4.75% Convertible Senior Notes due in 2016 (the “Convertible notes”). Interest is payable on June 1 and December 1 of each year beginning on December 1, 2011 until the maturity date of June 1, 2016 unless the convertible notes are converted, redeemed or repurchased. The Company received proceeds of approximately $76.9 million from the sale of the convertible notes, net of fees and expenses of $3.6 million. The debt issuance costs are being amortized to interest expense over the life of the convertible notes. The Company used $14.4 million of the net proceeds of the offering to repurchase 2,338,797 shares of the common stock at $6.17 per share from certain purchasers of the notes through privately negotiated transactions; the repurchased shares were recorded as treasury stock offsetting additional paid-in capital in the consolidated balance sheets. The Company plans to use the remaining net proceeds for general corporate purposes, which may include potential acquisitions of complementary businesses, technology or products. The convertible notes are senior unsecured obligations of the Company.

The convertible notes contain an optional redemption feature which allows the Company, any time after June 6, 2014, to redeem all or part of the convertible notes for cash if the last reported sale price per share of common stock (as defined below) has been at least 130% of the conversion price then in effect for at least 20 trading days during any 30 consecutive trading-day period ending within five trading days prior to the date on which the Company provides notice of redemption. The redemption price would be 100% of the principal amount of the notes being redeemed, plus accrued and unpaid interest.

Holders may convert the convertible notes into common stock of the Company at any time at a conversion rate of 129.6596 shares of common stock per $1,000 principal amount, or approximately $7.71 per share, subject to certain adjustments. If holders convert their notes in connection with a “make-whole fundamental change”, such holders are entitled, under certain circumstances, to an increase in the conversion rate for notes surrendered. Upon conversion, the Company will satisfy its conversion obligations by delivering shares of the Company’s common stock.

During the year ended December 31, 2011, the Company completed the repurchase of $21.3 million aggregate principal amount of its convertible notes for cash of approximately $19.4 million through privately negotiated transactions including fees of $105,000. The Company recognized a gain on the extinguishment of the convertible notes of approximately $1.8 million which was partially offset by the write-off of $0.9 million in unamortized debt issuance costs, resulting in a net gain of $0.9 million. As of September 30, 2012 and December 31, 2011, $59.2 million aggregate principal amount of the convertible notes remain outstanding. Based on market prices, the fair value of the Company’s convertible notes was $58.7 million and $61.2 million as of September 30, 2012 and December 31, 2011, respectively.

The convertible notes are recorded as long-term debt. The current balance of the debt issuance costs associated with the issuance of the convertible notes is recorded within prepaid and other current assets, and the non-current balance is recorded within deposits and other assets, and is being amortized to interest expense over the terms of the convertible notes. At September 30, 2012 and December 31, 2011, $536,000 of the debt issuance costs are included in prepaid and other current assets, with the remaining amounts of $1.4 million and $1.8 million, respectively, recorded in deposits and other assets.

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Fair Value Measurements

9 Months Ended

Sep. 30, 2012

Fair Value Measurements

Fair Value Measurements

6.Fair Value Measurements

The Company measures financial assets at fair value on an ongoing basis. The estimated fair value of the Company’s financial assets was determined using the following inputs at September 30, 2012 and December 31, 2011 (in thousands):

	Fair Value Measurements at Reporting Date Using
			Quoted Prices in		Significant		Significant
			Active Markets for		Other Observable		Unobservable
			Identical Assets		Inputs		Inputs
September 30, 2012	Total		(Level 1)		(Level 2)		(Level 3)
Assets:
Money market funds (1)	$	2,157	$	2,157	$	—	$	—
U.S. Treasury bills (2)	1,000		1,000		—		—
Commercial paper (2)	1,000		—		1,000		—
Corporate notes and obligations (2)	11,156		—		11,156		—
U.S. government and agency obligations (2)	6,700		—		6,700		—
Total	$	22,013	$	3,157	$	18,856	$	—
Liabilities:
Contingent consideration (3)	$	2,075	$	—	$	—	$	2,075
Total	$	2,075	$	—	$	—	$	2,075

(1) Included in cash and cash equivalents on the condensed consolidated balance sheet.

(2) Included in short-term investments on the condensed consolidated balance sheet.

(3) Included in accrued expenses on the condensed consolidated balance sheet.

	Fair Value Measurements at Reporting Date Using
			Quoted Prices in		Significant		Significant
			Active Markets for		Other Observable		Unobservable
			Identical Assets		Inputs		Inputs
December 31, 2011	Total		(Level 1)		(Level 2)		(Level 3)
Assets:
Money market funds (1)	$	10,083	$	10,083	$	—	$	—
U.S. Treasury bills (2)	3,503		3,503		—		—
Corporate notes and obligations (2)	12,236		—		12,236		—
U.S. government and agency obligations (2)	19,667		—		19,667		—
Total	$	45,489	$	13,586	$	31,903	$	—
Liabilities:
Contingent consideration (3)	$	2,925	$	—	$	—	$	2,925
Total	$	2,925	$	—	$	—	$	2,925

(1) Included in cash and cash equivalents on the consolidated balance sheet.

(2) Included in short-term investments on the consolidated balance sheet.

(3) Included in accrued expenses on the consolidated balance sheet.

The table below presents the changes during the period related to balances measured using significant unobservable inputs (Level 3) (in thousands):

	Balance at					Balance at
	December 31,					September 30,
	2011		Adjustment			2012
Liabilities:
Contingent consideration	$	2,925	$	(850	)	$	2,075
Total	$	2,925	$	(850	)	$	2,075

During the quarter ended June 30, 2012, the Company released iCentera acquisition contingent consideration of $900,000 as iCentera did not achieve certain earn-out revenue milestones. Additionally, during the quarter ended September 30, 2012, the Company made an upward adjustment to the estimated fair value of Rapid Intake, Inc. earn-out consideration, increasing the contingent consideration accrual by $50,000.  As a result, the release of the iCentera contingent consideration and the upward adjustment to the estimated fair value of Rapid Intake, Inc. earn-out consideration were recorded within the acquisition-related contingent consideration in the accompanying condensed consolidated statements of comprehensive loss during the quarter ended June 30, 2012 and September 30, 2012, respectively.  See Note 8 of the notes to our condensed consolidated financial statements for more details.

Valuation of Investments

Level 1 and Level 2

The Company’s available-for-sale securities include money market funds, U.S. Treasury bills, commercial paper, corporate notes and obligations, and U.S. government and agency obligations. The Company values these securities using a pricing matrix from a pricing service provider, who may use quoted prices in active markets for identical assets (Level 1 inputs) or inputs other than quoted prices that are observable either directly or indirectly (Level 2 inputs). The Company classifies all of its available-for-sale securities, except for money market funds and U.S. Treasury, as having Level 2 inputs. The Company validates the estimated fair value of certain securities from a pricing service provider on a quarterly basis. The valuation techniques used to measure the fair value of the financial instruments having Level 2 inputs, all of which have counterparties with high credit ratings, were derived from the following: non-binding market consensus prices that are corroborated by observable market data, quoted market prices for similar instruments or pricing models, such as discounted cash flow techniques, with all significant inputs derived from or corroborated by observable market data.

Level 3

The Company valued its auction rate securities using unobservable inputs (Level 3). The Company utilized the income approach applying assumptions for interest rates using current market trends and an estimated term based on expectations from brokers for liquidity in the market and redemption periods agreed to by other broker-dealers. The Company also applied an adjustment for the lack of liquidity to the value determined by the income approach utilizing a put option model. As a result of the valuation assessment, the Company recognized unrealized losses of $1,000 and $6,000 for the three and nine months ended September 30, 2011, respectively. The Company did not hold any auction rate securities as of September 30, 2012.

Contingent consideration is defined as earn-out payments which the Company may pay in connection with acquisitions. Contingent consideration liabilities are classified as Level 3 liabilities, as the Company uses unobservable inputs to value them, which is a probability-based income approach. Subsequent changes in the fair value of contingent consideration liabilities will be recorded within the acquisition-related contingent consideration in the Company’s condensed consolidated statements of comprehensive loss.

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Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2012

Fair Value Measurements

Schedule of estimated fair value of financial assets

	Fair Value Measurements at Reporting Date Using
			Quoted Prices in		Significant		Significant
			Active Markets for		Other Observable		Unobservable
			Identical Assets		Inputs		Inputs
September 30, 2012	Total		(Level 1)		(Level 2)		(Level 3)
Assets:
Money market funds (1)	$	2,157	$	2,157	$	—	$	—
U.S. Treasury bills (2)	1,000		1,000		—		—
Commercial paper (2)	1,000		—		1,000		—
Corporate notes and obligations (2)	11,156		—		11,156		—
U.S. government and agency obligations (2)	6,700		—		6,700		—
Total	$	22,013	$	3,157	$	18,856	$	—
Liabilities:
Contingent consideration (3)	$	2,075	$	—	$	—	$	2,075
Total	$	2,075	$	—	$	—	$	2,075

(1) Included in cash and cash equivalents on the condensed consolidated balance sheet.

(2) Included in short-term investments on the condensed consolidated balance sheet.

(3) Included in accrued expenses on the condensed consolidated balance sheet.

	Fair Value Measurements at Reporting Date Using
			Quoted Prices in		Significant		Significant
			Active Markets for		Other Observable		Unobservable
			Identical Assets		Inputs		Inputs
December 31, 2011	Total		(Level 1)		(Level 2)		(Level 3)
Assets:
Money market funds (1)	$	10,083	$	10,083	$	—	$	—
U.S. Treasury bills (2)	3,503		3,503		—		—
Corporate notes and obligations (2)	12,236		—		12,236		—
U.S. government and agency obligations (2)	19,667		—		19,667		—
Total	$	45,489	$	13,586	$	31,903	$	—
Liabilities:
Contingent consideration (3)	$	2,925	$	—	$	—	$	2,925
Total	$	2,925	$	—	$	—	$	2,925

(1) Included in cash and cash equivalents on the consolidated balance sheet.

(2) Included in short-term investments on the consolidated balance sheet.

(3) Included in accrued expenses on the consolidated balance sheet.

Schedule of changes during the period related to balances measured using significant unobservable inputs (Level 3)

	Balance at					Balance at
	December 31,					September 30,
	2011		Adjustment			2012
Liabilities:
Contingent consideration	$	2,925	$	(850	)	$	2,075
Total	$	2,925	$	(850	)	$	2,075

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Restructuring (Tables)

9 Months Ended

Sep. 30, 2012

Restructuring

Summary of accrued restructuring expenses

	December 31,		Cash			Additions, net		September 30,
	2011		Payments			of Adjustments		2012
Severance and termination-related costs	$	—	$	(312	)	$	457	$	145
Facilities related costs	443		(212		)	104		335
Total accrued restructuring expenses	$	443	$	(524	)	$	561	$	480

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Net Loss Per Share

9 Months Ended

Sep. 30, 2012

Net Loss Per Share

Net Loss Per Share

10.Net Loss Per Share

Basic net loss per share is calculated by dividing net loss for the period by the weighted average common shares outstanding during the period. Diluted net loss per share is calculated by dividing the net loss for the period by the weighted average common shares outstanding, adjusted for all dilutive potential common shares, which includes shares issuable upon the conversion of the convertible notes, the exercise of outstanding common stock options, the release of restricted stock, and purchases of employee stock purchase plan (ESPP) shares to the extent these shares are dilutive. For the three and nine months ended September 30, 2012 and 2011, the diluted net loss per share calculation was the same as the basic net loss per share calculation as all potential common shares were anti-dilutive.

Diluted net loss per share does not include the effect of the following potential weighted average common shares because to do so would be anti-dilutive for the periods presented (in thousands):

	Three Months Ended September 30,		Nine Months Ended September 30,
	2012	2011	2012	2011
Restricted stock	3,441	3,625	3,701	3,590
Stock options	3,076	4,407	3,381	4,762
ESPP	32	162	11	113
Convertible notes	7,680	9,184	7,680	4,548
Total	14,229	17,378	14,773	13,013

The weighted average exercise price of stock options excluded for the three and nine months ended September 30, 2012 was $3.34 and $3.71, respectively. The weighted average exercise price of stock options excluded for the three and nine months ended September 30, 2011 was $3.43 and $2.98, respectively.

The conversion price of our Convertible note is $7.71. Please refer to Note 7 for details.

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Commitments and Contingencies

9 Months Ended

Sep. 30, 2012

Commitments and Contingencies

Commitments and Contingencies

8.Commitments and Contingencies

Warranties and Indemnification

The Company generally warrants that its software will perform to its standard documentation. Under the Company’s standard warranty, should a software product not perform as specified in the documentation within the warranty period, the Company will repair or replace the software or refund the license fee paid. To date, the Company has not incurred any costs related to warranty obligations for its software.

The Company’s product license and on-demand agreements typically include a limited indemnification provision for claims by third parties relating to the Company’s intellectual property. To date, the Company has not incurred and has not accrued for any costs related to such indemnification provisions.

Intellectual Property Litigation

On July 19, 2012, Versata Software, Inc. and Versata Development Group, Inc. filed suit against Callidus Software Inc. in the United States District Court for the District of Delaware. The suit asserted that Callidus infringed U.S. Patent Nos. 7,904,326; 7,908,304 and 7,958,024. The Company believes that the claims are without merit and intends to vigorously defend against these claims. The Company records a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. At September 30, 2012, the Company has not recorded any such liability in accordance with accounting for contingencies.

On August 31, 2012, the Company filed suit against Xactly Corporation in the United States District Court for the Central District of California.  The suit alleges that Xactly Corporation infringes two U.S. Patent Nos.  8,046,387 and 7,774,378.  On October 24, 2012, the Company amended its complaint to add Xactly’s President and Chief Executive Officer as a defendant and to add claims for trademark infringement, false advertising, false and misleading advertising, trade libel, defamation, intentional interference with prospective economic advantage, intentional interference with contractual relations, breach of contract and unfair competition, in addition to patent infringement.  The Company intends to vigorously assert the claims in order to protect the Company’s business and its intellectual property.

Other matters

In addition to the above litigation matters, the Company is from time to time a party to other various litigation and customer disputes incidental to the conduct of its business. At the present time, the Company believes that none of these matters are likely to have a material adverse effect on the Company’s future financial results.

The Company records a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. The Company reviews the need for any such liability on a quarterly basis and records any necessary adjustments to reflect the effect of ongoing negotiations, contract disputes, settlements, rulings, advice of legal counsel, and other information and events pertaining to a particular case in the period they become known. At September 30, 2012, the Company has not recorded any such liabilities in accordance with accounting for contingencies. However, litigation is subject to inherent uncertainties and our view on these matters may change in the future.

On July 5, 2011, we acquired iCentera, Inc. subject to a $1.5 million indemnity holdback and $1.0 million in earn-out related contingent consideration.  The $1.5 million indemnity holdback was to be paid one year from the date of closing of the acquisition, subject to any reduction for indemnity claims.  The contingent consideration of $1.0 million was contingent on iCentera achieving certain revenue milestones and retaining certain key employees and was to be paid one year from the date of closing of the acquisition. During the quarter ended June 30, 2012, the Company released the accruals for $937,000 of the indemnity holdback in settlement of an indemnity claim and $900,000 of contingent earn-out consideration as iCentera did not achieve the revenue milestones as of July 6, 2012. As a result, the release of iCentera acquisition-related accruals for a total of approximately $1.8 million was recorded within the acquisition-related contingent consideration in the accompanying condensed consolidated statements of comprehensive loss during the quarter ended June 30, 2012. The indemnity holdback remaining balance of $437,000 was paid during the quarter ended September 30, 2012.

On September 8, 2011, we acquired Rapid Intake, Inc. subject to a $400,000 indemnity holdback, and $500,000 in earn-out related contingent consideration.  The $400,000 indemnity holdback was to be paid one year from the date of closing of the acquisition, subject to any reduction for indemnity claims.  The earn-out contingent consideration of $500,000 is contingent on Rapid Intake achieving certain revenue milestones and is to be paid one year from the date of closing of the acquisition.  The $400,000 indemnity holdback and estimated fair value of the earn-out contingent consideration of $450,000 were recorded within accrued expenses at December 31, 2011. During the quarter ended September 30, 2012, the Company made an upward adjustment increasing the estimated fair value of the earn-out contingent consideration to 100% or $500,000 as the agreed revenue milestones were achieved as of September 9, 2012.  The change in estimated fair value of the contingent consideration was recorded within the acquisition-related contingent consideration in the accompanying condensed consolidated statements of comprehensive loss during the quarter ended September 30, 2012.

On October 3, 2011, we acquired Webcom subject to a $1.6 million indemnity holdback and $1.8 million in earn-out related contingent consideration.  The $1.6 million indemnity holdback was to be paid one year from the date of closing of the acquisition, subject to any reduction for indemnity claims.  The earn-out contingent consideration of $1.8 million is contingent on Webcom achieving certain revenue milestones and is to be paid forty five days after the end of the fiscal period in which the revenue milestone has been met. The $1.6 million indemnity holdback and estimated fair value of the earn-out contingent consideration of $1.6 million were recorded within accrued expenses at September 30, 2012 and December 31, 2011.

On January 3, 2012 we acquired Leadformix subject to a $1.5 million indemnity holdback. The $1.5 million indemnity holdback is to be paid one year from the date of closing, subject to any reduction for indemnity claims. The $1.5 million indemnity holdback was recorded within accrued expenses at September 30, 2012.

On May 4, 2012, we acquired 6FigureJobs subject to a $275,000  indemnity holdback. The $275,000 indemnity holdback is to be paid one year from the date of closing, subject to any reduction for indemnity claims. The $275,000 indemnity holdback was recorded within accrued expenses at September 30, 2012.

In additional to the remaining contractual obligations related to acquisition-related contingent consideration as discussed above, we have the following contractual cash obligations at September 30, 2012.  Contractual cash obligations that are cancellable upon notice and without significant penalties are not included in the table.

	Payments due by Period (in thousands)
	Remainder of
Contractual Obligations	2012		2013		2014		2015		2016
Convertible notes (1)
Principal payment	$	—	$	—	$	—	$	—	$	59,215
Interest payments	703		2,813		2,813		2,813		2,813
Unconditional purchase commitments	910		—		825		—		—

(1)  Our convertible notes also contain an optional redemption feature which allows us to redeem all or part of the convertible notes for cash under certain conditions any time on or after June 6, 2014.

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Segment, Geographic and Customer Information

9 Months Ended

Sep. 30, 2012

Segment, Geographic and Customer Information

Segment, Geographic and Customer Information

9.Segment, Geographic and Customer Information

The accounting principles guiding disclosures about segments of an enterprise and related information establishes standards for the reporting by business enterprises of information about operating segments, products and services, geographic areas, and major customers. The method of determining which information is reported is based on the way that management organizes the operating segments within the Company for making operational decisions and assessments of financial performance. The Company’s chief operating decision maker is considered to be the Company’s chief executive officer (CEO). The CEO reviews financial information presented on a consolidated basis for purposes of making operating decisions and assessing financial performance. By this definition, the Company operates in one business segment, which is the development, marketing and sale of enterprise software and related services.

The following table summarizes revenues for the three and nine months ended September 30, 2012 and 2011 by geographic areas (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
Americas	$	19,792	$	16,769	$	57,763	$	49,592
EMEA	2,484		2,813		7,919		8,385
Asia Pacific	1,650		1,477		4,038		3,248
	$	23,926	$	21,059	$	69,720	$	61,225

Substantially all of the Company’s long-lived assets are located in the United States. Long-lived assets located outside the United States are not significant.

During the three and nine months ended September 30, 2012 and 2011, no customer accounted for more than 10% of our total revenues.

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Stock-based Compensation

9 Months Ended

Sep. 30, 2012

Stock-based Compensation

Stock-based Compensation

11.Stock-based Compensation

Expense Summary

The table below sets forth a summary of stock-based compensation expenses for the three and nine months ended September 30, 2012 and 2011 (in thousands).

	Three Months Ended September 30,					Nine Months Ended September 30,
	2012			2011		2012		2011
Stock-based compensation:
Stock Options	$	143		$	217	$	713	$	922
Restricted Stock Units
Performance Awards	(60		)	192		387		472
Non-performance Awards	3,119			2,378		9,281		7,337
ESPP	220			25		536		121
Actek Acquisition Compensation	—			—		—		42
Total stock-based compensation	$	3,422		$	2,812	$	10,917	$	8,894

As of September 30, 2012, there was $0.9 million, $18.5 million and $0.7 million of total unrecognized compensation expense related to stock options, restricted stock units and the ESPP, respectively. The expenses related to stock options, restricted stock units and ESPP are expected to be recognized over a weighted average period of 1.98 years, 1.52 years and 0.61 years, respectively.

The table below sets forth the functional classification of stock-based compensation expense for the three and nine months ended September 30, 2012 and 2011 (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
Stock-based compensation:
Cost of recurring revenues	$	351	$	731	$	1,280	$	2,523
Cost of services and other revenues	573		370		1,623		1,054
Sales and marketing	997		502		2,937		1,320
Research and development	477		366		1,376		1,090
General and administrative	1,024		843		3,701		2,907
Total stock-based compensation	$	3,422	$	2,812	$	10,917	$	8,894

Determination of Fair Value

The fair value of each restricted stock unit, relating to both performance and non-performance awards, is estimated based on the market value of the Company’s stock on the date of grant. The fair value of the performance award assumes that performance goals will be achieved.  If such goals are not met, no compensation cost is recognized and any recognized compensation cost is reversed.  The fair value of each stock option is estimated on the date of grant and the fair value of each ESPP share is estimated on the beginning date of the offering period using the Black-Scholes-Merton valuation model and the assumptions noted in the following table.

	Three Months Ended September 30,		Nine Months Ended September 30,
	2012	2011	2012	2011
Stock Option Plans
Expected life (in years)	—	3.5	5.0 to 6.0	2.5 to 3.5
Risk-free interest rate	—	0.52%	0.72% to 1.33%	0.50% to 1.12%
Volatility	—	68%	60% to 65%	60% to 69%
Dividend Yield	—	—	—	—
Employee Stock Purchase Plan
Expected life (in years)	0.5 to 1.0	0.5 to 1.0	0.5 to 1.0	0.5 to 1.0
Risk-free interest rate	0.14% to 0.20%	0.07% to 0.12%	0.13% to 0.20%	0.07% to 0.29%
Volatility	61% to 62%	47% to 54%	56% to 62%	39% to 54%
Dividend Yield	—	—	—	—

No stock options were granted during the three months ended September 30, 2012.

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Financial Instruments (Details) (USD $)	3 Months Ended		9 Months Ended												12 Months Ended							12 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011	Dec. 31, 2010	Sep. 30, 2012 Cash	Dec. 31, 2011 Cash	Sep. 30, 2012 Cash equivalents	Dec. 31, 2011 Cash equivalents	Sep. 30, 2012 Money market funds	Dec. 31, 2011 Money market funds	Sep. 30, 2012 Cash and cash equivalents	Dec. 31, 2011 Cash and cash equivalents	Dec. 31, 2011 Short-term investments	Sep. 30, 2012 Short-term investments	Sep. 30, 2012 Commercial paper	Sep. 30, 2012 U.S. government and agency obligations	Dec. 31, 2011 U.S. government and agency obligations	Sep. 30, 2012 Corporate notes and obligations	Dec. 31, 2011 Corporate notes and obligations	Dec. 31, 2011 Publicly traded securities security
Financial instruments
Cash and cash equivalents	$ 6,697,000	$ 16,153,000	$ 6,697,000	$ 16,153,000	$ 17,383,000	$ 12,830,000	$ 4,540,000	$ 7,300,000	$ 2,157,000	$ 10,083,000	$ 2,157,000	$ 10,083,000	$ 6,697,000	$ 17,383,000
Estimated Fair Value							4,540,000	7,300,000	2,157,000	10,083,000	2,157,000	10,083,000	6,697,000	17,383,000
Amortized Cost															35,798,000	19,838,000	1,000,000	7,699,000	23,178,000	11,139,000	12,245,000	375,000
Gross Unrealized Gains															6,000	18,000		1,000	3,000	17,000	3,000
Gross Unrealized Losses															(23,000)				(11,000)		(12,000)
Other Than Temporary Impairment															(375,000)							(375,000)
Estimated Fair Value															35,406,000	19,856,000	1,000,000	7,700,000	23,170,000	11,156,000	12,236,000
Contractual maturity, Amortized Cost
Less than 1 year	10,834,000		10,834,000
Between 1 and 2 years	9,004,000		9,004,000
Total	19,838,000		19,838,000
Contractual maturity, Estimated Fair value
Less than 1 year	10,845,000		10,845,000
Between 1 and 2 years	9,011,000		9,011,000
Total	19,856,000		19,856,000
Other disclosures pertaining to available-for-sale securities
Proceeds from maturities and sales of investments	5,700,000	12,500,000	31,800,000	22,600,000
Reclassification of previously recognized unrealized losses from other comprehensive losses to earnings																						260,000
Number of securities																						1
Additional impairment of the remaining carrying value																						$ 115,000

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Goodwill and Intangible Assets (Tables)

9 Months Ended

Sep. 30, 2012

Goodwill and Intangible Assets

Schedule of changes in the carrying amount of goodwill

Balance as of December 31, 2011	$	24,416
Acquisitions	6,797
Impairment losses	—
Balance as of September 30, 2012	$	31,213

Schedule of intangible assets

												Weighted
												Average
	December 31,		December 31,							September 30,		Amortization
	2011		2011				Amortization			2012		Period
	Cost		Net		Additions		Expense			Net		(Years)
Developed technology	$	15,179	$	10,630	$	5,286	$	(2,744	)	$	13,172	5.3
Customer relationships	6,884		4,540		1,271		(640		)	5,171		6.1
Tradenames	1,202		942		320		(165		)	1,097		6.1
Favorable lease	40		13		—		(10		)	3		0.3
Patents and licenses	1,525		1,522		1,534		(223		)	2,833		8.7
Other	142		122		—		(36		)	86		1.8
Total	$	24,972	$	17,769	$	8,411	$	(3,818	)	$	22,362

Schedule of future expected amortization

	Developed		Customer				Favorable		Patents
	Technology		Relationships		Tradenames		Lease		and licenses		Other
Quarter Ending September 30:
Remainder of 2012	$	820	$	219	$	56	$	3	$	88	$	12
2013	2,806		876		213		—		352		47
2014	2,403		876		179		—		349		27
2015	2,122		876		179		—		344		—
2016	2,122		876		151		—		344		—
2017	1,815		767		143		—		344		—
2018 and beyond	1,084		681		176		—		1,012		—
Total expected amortization expense	$	13,172	$	5,171	$	1,097	$	3	$	2,833	$	86

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Net Loss Per Share (Tables)

9 Months Ended

Sep. 30, 2012

Net Loss Per Share

Schedule of potential weighted average common shares excluded from computation of diluted net loss per share

	Three Months Ended September 30,		Nine Months Ended September 30,
	2012	2011	2012	2011
Restricted stock	3,441	3,625	3,701	3,590
Stock options	3,076	4,407	3,381	4,762
ESPP	32	162	11	113
Convertible notes	7,680	9,184	7,680	4,548
Total	14,229	17,378	14,773	13,013

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Segment, Geographic and Customer Information (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012 segment	Sep. 30, 2011
Segment, Geographic and Customer Information
Number of operating segments			1
Revenues by geographic area
Revenues	$ 23,926	$ 21,059	$ 69,720	$ 61,225
Americas
Revenues by geographic area
Revenues	19,792	16,769	57,763	49,592
EMEA
Revenues by geographic area
Revenues	2,484	2,813	7,919	8,385
Asia Pacific
Revenues by geographic area
Revenues	$ 1,650	$ 1,477	$ 4,038	$ 3,248

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Cash flows from operating activities:
Net loss	$ (18,648)	$ (11,742)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation expense	2,184	2,338
Amortization of intangible assets	3,818	2,284
Provision for doubtful accounts and service remediation reserves	188	88
Stock-based compensation	10,917	8,852
Stock-based compensation related to acquisition		42
Release of valuation allowance	(350)
Gain on disposal of property and equipment	(6)
Impairment of investments		375
Amortization of convertibles note issuance cost	402	217
Gain on extinguishment of convertible notes		(904)
Net amortization on investments	310	351
Acquisition-related contingent consideration	(1,787)
Changes in operating assets and liabilities:
Accounts receivable	(7,627)	(593)
Prepaid and other current assets	(1,809)	1,594
Other assets	322	(2,923)
Accounts payable	(129)	(302)
Accrued expenses	741	(257)
Accrued payroll and related expenses	(267)	313
Accrued restructuring	37	(251)
Deferred revenue	1,635	(1,648)
Deferred income taxes	111	144
Net cash used in operating activities	(9,958)	(2,022)
Cash flows from investing activities:
Purchases of investments	(16,536)	(47,864)
Proceeds from maturities and sale of investments	31,811	22,595
Purchases of property and equipment	(4,927)	(1,827)
Proceeds from disposal of property and equipment	6
Purchases of intangible assets	(4,485)	(1,381)
Acquisitions, net of cash acquired	(7,721)	(12,237)
Net cash used in investing activities	(1,852)	(40,714)
Cash flows from financing activities:
Proceeds from issuance of common stock	5,222	5,424
Repurchases of common stock		(14,430)
Repurchase of common stock from employees for payment of taxes on vesting of restricted stock units	(2,079)	(1,046)
Payment of consideration related to acquisitions	(1,160)	(1,175)
Proceeds from issuance of convertible notes, net of issuance costs		77,369
Repurchase of convertible notes		(19,188)
Repayment of debt assumed through acquisition	(30)
Payment of principal under capital leases	(887)	(896)
Net cash provided by financing activities	1,066	46,058
Effect of exchange rates on cash and cash equivalents	58	1
Net increase (decrease) in cash and cash equivalents	(10,686)	3,323
Cash and cash equivalents at beginning of period	17,383	12,830
Cash and cash equivalents at end of period	6,697	16,153
Supplemental disclosures of cash flow information:
Cash paid for interest on convertible debt	2,110
Cash paid for interest on capital leases	$ 83	$ 138

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Financial Instruments

9 Months Ended

Sep. 30, 2012

Financial Instruments

Financial Instruments

5.Financial Instruments

As of September 30, 2012 and December 31, 2011, all debt and marketable equity securities are classified as available-for-sale and carried at estimated fair value, which is determined based on the inputs discussed below.

The Company classifies all highly liquid instruments with an original maturity on the date of purchase of three months or less as cash and cash equivalents.  The Company classifies available-for-sale securities that have a maturity date longer than three months to be short-term investments, including those investments with a maturity date of longer than one year that are highly liquid and for which the Company does not have a positive intent to hold to maturity.

Interest income is included within interest income and other income (expense), net in the accompanying condensed consolidated financial statements. Realized gains and losses are calculated using the specific identification method. As of September 30, 2012 and December 31, 2011, the Company had no short-term investments in an unrealized loss position with maturities of greater than 12 months.

The components of the Company’s debt and marketable equity securities classified as available-for-sale were as follows at September 30, 2012 and December 31, 2011 (in thousands):

			Gross		Gross		Other
	Amortized		Unrealized		Unrealized		Than Temporary		Estimated
September 30, 2012	Cost		Gains		Losses		Impairment		Fair value
Cash	$	4,540	$	—	$	—	$	—	$	4,540
Cash equivalents:
Money market funds	2,157		—		—		—		2,157
Total cash equivalents	2,157		—		—		—		2,157
Total cash and cash equivalents	$	6,697	$	—	$	—	$	—	$	6,697
Short-term investments:
Commercial paper	$	1,000	$	—	$	—	$	—	$	1,000
U.S. government and agency obligations	7,699		1		—		—		7,700
Corporate notes and obligations	11,139		17		—		—		11,156
Total short-term investments	$	19,838	$	18	$	—	$	—	$	19,856

			Gross		Gross			Other
	Amortized		Unrealized		Unrealized			Than Temporary			Estimated
December 31, 2011	Cost		Gains		Losses			Impairment			Fair value
Cash	$	7,300	$	—	$	—		$	—		$	7,300
Cash equivalents:
Money market funds	10,083		—		—			—			10,083
Total cash equivalents	10,083		—		—			—			10,083
Total cash and cash equivalents	$	17,383	$	—	$	—		$	—		$	17,383
Short-term investments:
U.S. government and agency obligations	23,178		3		(11		)	—			23,170
Corporate notes and obligations	12,245		3		(12		)	—			12,236
Publicly traded securities	375		—		—			(375		)	—
Total short-term investments	$	35,798	$	6	$	(23	)	$	(375	)	$	35,406

For investments in securities classified as available-for-sale, market value and the amortized cost of debt securities by contractual maturities of those securities as of September 30, 2012 were as follows (in thousands):

	Amortized		Estimated
Contractual maturity	Cost		Fair value
Less than 1 year	$	10,834	$	10,845
Between 1 and 2 years	9,004		9,011
Total	$	19,838	$	19,856

At September 30, 2012, the Company had no unrealized losses related to U.S. government and agency obligations, commercial paper, or corporate notes and obligations.

The Company had no realized gains or losses on sales of its investments for the three and nine months ended September 30, 2012, and 2011. The Company had proceeds of $5.7 million and $31.8 million from maturities and sales of investments during the three and nine months ended September 30, 2012, respectively. The Company had proceeds of $12.5 million and $22.6 million from maturities and sales of investments during the three and nine months ended September 30, 2011, respectively.

The short-term investments in government obligations or highly rated credit securities generally have minor to moderate fluctuations in the fair values from period to period. The Company monitors credit ratings, downgrades and significant events surrounding these securities so as to assess if any of the impairments will be considered other-than-temporary. The Company did not identify any government obligations or highly rated credit securities held as of September 30, 2012 or as of December 31, 2011 for which the fair value declined significantly below amortized cost and considered other-than-temporary impairment.

For publicly traded equity securities, the Company considers various factors in determining whether to recognize an impairment charge, including the length of time and extent to which the fair value has been less than the cost basis, the financial condition and near-term prospects of the issuer, and the Company’s intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value. During the year ended December 31, 2011, the Company reclassified $260,000 of previously recognized unrealized losses related to its investment in one publicly traded equity from accumulated other comprehensive loss to earnings. In addition, the Company recognized an additional impairment of the remaining carrying value of $115,000 resulting in an impairment of $375,000 in connection with their investment in Courtland Capital, Inc. During the year ended December 31, 2011, Courtland Capital, Inc. shares were suspended by the Alberta Securities Commission for failing to file annual audited financial statements for the year ended September 30, 2011. As the Company believes the likelihood of recovery to be remote, the Company considered the loss to be other-than-temporary at December 31, 2011.

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Stock-based Compensation (Tables)

9 Months Ended

Sep. 30, 2012

Stock-based Compensation

Summary of stock-based compensation expenses

	Three Months Ended September 30,					Nine Months Ended September 30,
	2012			2011		2012		2011
Stock-based compensation:
Stock Options	$	143		$	217	$	713	$	922
Restricted Stock Units
Performance Awards	(60		)	192		387		472
Non-performance Awards	3,119			2,378		9,281		7,337
ESPP	220			25		536		121
Actek Acquisition Compensation	—			—		—		42
Total stock-based compensation	$	3,422		$	2,812	$	10,917	$	8,894

Schedule of functional classification of stock-based compensation expense

	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
Stock-based compensation:
Cost of recurring revenues	$	351	$	731	$	1,280	$	2,523
Cost of services and other revenues	573		370		1,623		1,054
Sales and marketing	997		502		2,937		1,320
Research and development	477		366		1,376		1,090
General and administrative	1,024		843		3,701		2,907
Total stock-based compensation	$	3,422	$	2,812	$	10,917	$	8,894

Schedule of valuation assumptions for determining the fair value of stock options and employee stock purchase plans

	Three Months Ended September 30,		Nine Months Ended September 30,
	2012	2011	2012	2011
Stock Option Plans
Expected life (in years)	—	3.5	5.0 to 6.0	2.5 to 3.5
Risk-free interest rate	—	0.52%	0.72% to 1.33%	0.50% to 1.12%
Volatility	—	68%	60% to 65%	60% to 69%
Dividend Yield	—	—	—	—
Employee Stock Purchase Plan
Expected life (in years)	0.5 to 1.0	0.5 to 1.0	0.5 to 1.0	0.5 to 1.0
Risk-free interest rate	0.14% to 0.20%	0.07% to 0.12%	0.13% to 0.20%	0.07% to 0.29%
Volatility	61% to 62%	47% to 54%	56% to 62%	39% to 54%
Dividend Yield	—	—	—	—

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Convertible Notes (Details) (USD $)	3 Months Ended	9 Months Ended			1 Months Ended	9 Months Ended	12 Months Ended
	Sep. 30, 2011	Sep. 30, 2011	Sep. 30, 2012	Dec. 31, 2011	May 31, 2011 4.75 % Convertible Senior Notes due in 2016	Sep. 30, 2012 4.75 % Convertible Senior Notes due in 2016	Dec. 31, 2011 4.75 % Convertible Senior Notes due in 2016
Convertible notes
Principal amount of debt sold					$ 80,500,000
Interest rate (as a percent)					4.75%
Proceeds from sale of the convertible notes, net of fees and expenses		77,369,000			76,900,000
Fees and expenses					3,600,000		105,000
Net proceeds of the offering used to repurchase shares of common stock		14,430,000			14,400,000
Repurchase of common stock (in shares)					2,338,797
Repurchase of common stock, share price (in dollars per share)					$ 6.17
Percentage of the conversion price that the closing price of the entity's common stock must exceed in order for the notes to be convertible						130.00%
Number of days within 30 consecutive trading days in which the closing price of the entity's common stock must exceed the conversion price for the notes to be redeemable						20 days
Number of consecutive trading days during which the closing price of the entity's common stock must exceed the conversion price for at least 20 days in order for the notes to be redeemable						30 days
Number of trading days prior to the date on which the entity provides notice of redemption						5 days
Redemption price as percentage of principal amount of notes, plus accrued and unpaid interest						100.00%
Conversion rate of common stock per $1000 of principal amount of convertible notes (in shares)						129.6596
Principal amount used for computation of conversion ratio						1,000
Conversion price (in dollars per share)						$ 7.71
Principal amount of debt repurchased							21,300,000
Notes repurchased in cash		19,188,000					19,400,000
Gain recognized on extinguishment of debt							1,800,000
Write-off of unamortized debt issuance costs							900,000
Net gain on extinguishment of debt	904,000	904,000					900,000
Aggregate principal amount of debt outstanding			59,215,000	59,215,000		59,200,000	59,200,000
Fair value						58,700,000	61,200,000
Debt issuance costs, included in prepaid and other current assets						536,000	536,000
Debt issuance costs, recorded in deposits and other assets						$ 1,400,000	$ 1,800,000

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Acquisitions (Tables)

9 Months Ended

Sep. 30, 2012

Acquisitions

Schedule of allocation of total purchase price for each acquisition

	Purchase Consideration		Net Tangible Assets Acquired/(liabilities assumed)			Identifiable Intangible Assets		Goodwill		Goodwill deductible for tax purposes	Acquisition related expenses
Leadformix	$	8,521	$	(760	)	$	2,800	$	6,481	Not deductible	$	270
6FigureJobs	1,031		(195		)	910		316		Not deductible	119
	$	9,552	$	(955	)	$	3,710	$	6,797

Schedule of each component of identifiable intangible assets acquired in connection with the acquisitions

							Weighted
							Average
							Estimated
							Useful
	Leadformix		6FigureJobs		Total		Life
Customer relationships	$	640	$	630	$	1,270	6.01
Developed technology	1,900		220		2,120		6.79
Tradename	260		60		320		6.63
	$	2,800	$	910	$	3,710