10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2013

OR

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

For the transition period from          to          .

Commission file number: 000-50463

Callidus Software Inc.

(Exact name of registrant as specified in its charter)

Delaware	77-0438629
(State or Other Jurisdiction of	(I.R.S. Employer
Incorporation or Organization)	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 38,018,069 shares of the registrant’s common stock, par value $0.001, outstanding on August 2, 2013, 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	17
Item 3. Quantitative and Qualitative Disclosures About Market Risk	26
Item 4. Controls and Procedures	26
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	27
Item 1A. Risk Factors	27
Item 6. Exhibits	28
Signatures	29
Exhibit Index	30
EXHIBIT 10.1
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)

	June 30, 2013			December 31, 2012
ASSETS
Current assets:
Cash and cash equivalents	$	18,299		$	16,400
Short-term investments	8,898			12,771
Accounts receivable, net of allowances of $409 and $485 at June 30, 2013 and December 31, 2012, respectively	22,167			22,567
Deferred income taxes	40			40
Prepaid and other current assets	6,990			6,718
Total current assets	56,394			58,496
Noncurrent assets:
Property and equipment, net	13,018			10,580
Goodwill	31,207			31,207
Intangible assets, net	19,020			21,196
Deferred income taxes, noncurrent	392			392
Deposits and other assets	3,076			2,872
Total assets	$	123,107		$	124,743
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,280		$	4,705
Accrued payroll and related expenses	4,864			5,854
Accrued expenses	6,035			8,164
Deferred income taxes	944			944
Deferred revenue	38,996			35,483
Capital lease obligations	1,470			921
Total current liabilities	53,589			56,071
Noncurrent liabilities:
Deferred revenue, noncurrent	8,392			3,702
Deferred income taxes, noncurrent	278			160
Other liabilities	1,997			2,159
Capital lease obligations, noncurrent	1,884			8
Convertible notes	59,215			59,215
Total liabilities	125,355			121,315
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; 40,261 and 38,538 shares issued and 37,922 and 36,199 shares outstanding at June 30, 2013 and December 31, 2012, respectively	34			34
Additional paid-in capital	262,810			255,331
Treasury stock; 2,339 shares at June 30, 2013 and December 31, 2012	(14,430		)	(14,430		)
Accumulated other comprehensive income	102			239
Accumulated deficit	(250,764		)	(237,746		)
Total stockholders’ equity	(2,248		)	3,428
Total liabilities and stockholders’ equity	$	123,107		$	124,743

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 June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
Revenues:
Recurring	$	19,616		$	18,027		$	39,240		$	34,913
Services and other	6,314			5,754			12,232			10,881
Total revenues	25,930			23,781			51,472			45,794
Cost of revenues:
Recurring	6,931			7,896			14,384			15,445
Services and other	4,739			4,808			9,961			9,188
Total cost of revenues	11,670			12,704			24,345			24,633
Gross profit	14,260			11,077			27,127			21,161
Operating expenses:
Sales and marketing	7,891			8,293			15,535			15,222
Research and development	4,409			4,072			8,838			8,090
General and administrative	5,946			4,849			11,132			9,854
Acquisition-related contingent consideration	—			(1,837		)	—			(1,837		)
Restructuring	315			172			1,558			614
Total operating expenses	18,561			15,549			37,063			31,943
Operating loss	(4,301		)	(4,472		)	(9,936		)	(10,782		)
Interest income and other income (expense), net	(131		)	(79		)	(121		)	(5		)
Interest expense	(864		)	(865		)	(1,718		)	(1,734		)
Loss before provision for (benefit from) for income taxes	(5,296		)	(5,416		)	(11,775		)	(12,521		)
Provision for (benefit from) for income taxes	1,119			(109		)	1,243			(231		)
Net loss	$	(6,415	)	$	(5,307	)	$	(13,018	)	$	(12,290	)
Net loss per share - basic and diluted
Net loss per share	$	(0.17	)	$	(0.15	)	$	(0.35	)	$	(0.35	)
Shares used in basic and diluted per share computation	37,813			35,235			37,478			34,674
										34674
Comprehensive loss
Net Loss	$	(6,415	)	$	(5,307	)	$	(13,018	)	$	(12,290	)
Unrealized gains on available-for-sale securities	6			2			11			13
Amounts reclassified from comprehensive loss for realized gains on available-for-sale securities	—			—			—			—
Foreign currency translation adjustments	(98		)	(38		)	(148		)	5
Comprehensive loss	$	(6,507	)	$	(5,343	)	$	(13,155	)	$	(12,272	)

See accompanying notes to unaudited condensed consolidated financial statements.

4

CALLIDUS SOFTWARE INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Six Months Ended June 30,
	2013			2012
Cash flows from operating activities:
Net loss	$	(13,018	)	$	(12,290	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation expense	2,109			1,490
Amortization of intangible assets	2,414			2,558
Provision for doubtful accounts and service remediation reserves	314			52
Stock-based compensation	5,801			7,495
Release of valuation allowance	—			(224		)
(Loss) gain on disposal of property and equipment	3			(5		)
Amortization of convertible notes issuance cost	268			268
Net amortization on investments	46			231
Acquisition-related contingent consideration	—			(1,837		)
Changes in operating assets and liabilities:
Accounts receivable	86			(6,712		)
Prepaid and other current assets	(272		)	(637		)
Other noncurrent assets	(472		)	548
Accounts payable	(3,201		)	118
Accrued expenses	986			(374		)
Accrued payroll and related expenses	(431		)	(379		)
Accrued restructuring	(578		)	230
Deferred revenue	8,203			1,270
Deferred income taxes	118			(54		)
Net cash provided by (used in) operating activities	2,376			(8,252		)
Cash flows from investing activities:
Purchases of investments	(5,634		)	(16,536		)
Proceeds from maturities and sale of investments	9,450			26,111
Purchases of property and equipment	(1,356		)	(1,714		)
Proceeds from disposal of property and equipment	—			5
Purchases of intangible assets	(364		)	(4,485		)
Acquisitions, net of cash acquired	—			(7,721		)
Net cash provided by (used in) investing activities	2,096			(4,340		)
Cash flows from financing activities:
Proceeds from issuance of common stock	2,168			4,295
Repurchase of common stock from employees for payment of taxes on vesting of restricted stock units	(490		)	(1,829		)
Payment of consideration related to acquisitions	(3,078		)	(723		)
Repayment of debt assumed through acquisition	—			(30		)
Payment of principal under capital leases	(1,047		)	(587		)
Net cash (used in) provided by financing activities	(2,447		)	1,126
Effect of exchange rates on cash and cash equivalents	(126		)	5
Net increase (decrease) in cash and cash equivalents	1,899			(11,461		)
Cash and cash equivalents at beginning of period	16,400			17,383
Cash and cash equivalents at end of period	$	18,299		$	5,922
Supplemental disclosures of cash flow information:
Cash paid for interest on convertible debt	$	1,406		$	1,406
Cash paid for interest on capital leases	44			60
Non-cash financing of fixed assets acquired under capital lease	2,627			—

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 June 30, 2013 and the three and six months ended June 30, 2013 and 2012 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, 2012. 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, 2013.

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, Malaysia, Serbia, Singapore, and the United Kingdom. All intercompany transactions and balances have been eliminated upon consolidation.

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, uncertain tax liabilities, allowances for doubtful accounts, the useful lives of fixed assets and intangible assets, goodwill and intangible asset impairments, stock-based compensation forfeiture rates, accrued liabilities, the allocation of the value of purchase consideration for business acquisitions, 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.

Recent Accounting Pronouncements

In July 2013 the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2013-11 (ASU 2013-11), Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. ASU 2013-11 requires an entity to present unrecognized tax benefits as a reduction of a deferred tax asset, except in certain circumstances. ASU 2013-11 is effective for fiscal years and interim periods beginning after December 31, 2013, and early adoption is permitted. Based upon a preliminary review of the guidance, the Company does not anticipate adoption will have a significant impact on the Company’s condensed consolidated financial statements.

In February 2013 the FASB issued Accounting Standards Update 2013-02 (ASU 2013-02), Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. ASU 2013-02 requires an entity to present either on the face of the statement where comprehensive income is presented or in the notes to the financial statements, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income. The adoption of ASU

6

2013-02, which involves presentation and disclosures only, did not impact the Company’s condensed consolidated financial statements.

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 in our condensed consolidated statements of comprehensive loss. The Company incurred restructuring expense of $0.3 million and $0.2 million during the three months ended June 30, 2013 and 2012, respectively, and $1.6 million and $0.6 million during the six months ended June 30, 2013 and 2012, respectively.

The following table sets forth a summary of accrued restructuring expenses for the six months ended June 30, 2013 and 2012, respectively (in thousands):

	December 31, 2012		Cash Payments			Additions		Adjustments			June 30, 2013
Severance and termination-related costs	$	589	$	(2,115	)	$	1,566	$	(8	)	$	32
Facilities related costs	289		(20		)	—		—			269
Total accrued restructuring expenses	$	878	$	(2,135	)	$	1,566	$	(8	)	$	301

	December 31, 2011		Cash Payments			Additions		Adjustments		June 30, 2012
Severance and termination-related costs	$	—	$	(228	)	$	510	$	—	$	282
Facilities related costs	443		(156		)	104		—		391
Total accrued restructuring expenses	$	443	$	(384	)	$	614	$	—	$	673

3.Acquisitions

6FigureJobs.com

On May 4, 2012, the Company acquired 6FigureJobs.com (“6FigureJobs”), a premier job advertisement placement, recruitment media services and other career-related services provider to extend Hiring Cloud offerings. 6FigureJobs, a wholly-owned subsidiary of Workstream, Inc., a Canadian corporation, was purchased in exchange for $1.0 million in cash, which included an indemnity holdback of $0.3 million that was settled during the three months ended June 30, 2013.

LeadFormix, Inc.

On January 3, 2012, the Company acquired Leadformix, Inc., a leader in next-generation marketing automation and sales enablement, headquartered in the United States with operations in India, for $9.0 million in cash, which included an indemnity holdback of $1.5 million. In January 2013, $1.3 million of the indemnity holdback was paid and the remainder of the indemnity holdback was settled.

Webcom, Inc.

On October 3, 2011, the Company acquired Webcom, Inc. (Webcom), a U.S.-based company with operations in Serbia, a leader in Software-as-a-Service ("SaaS") based product configuration, pricing, quoting and proposal management. The total purchase price for Webcom was $10.8 million in cash, including a $1.6 million indemnity holdback and a $1.8 million earn-out condition. As of June 30, 2013, $0.9 million of the indemnity holdback remains accrued for potential indemnification items. As of June 30, 2013, the timing of any potential indemnification items under the holdback is unknown. The full remaining balance of the earn-out condition of $1.8 million was paid in February 2013.

The Company’s business combinations completed above did not have a material impact on the Company’s consolidated financial statements, and therefore pro forma disclosures have not been presented.

7

4.Goodwill and Intangible Assets

Management has determined no changes in the $31.2 million carrying amount of goodwill were necessary during the second quarter of 2013. Intangible assets consisted of the following as of June 30, 2013 and December 31, 2012 (in thousands):

	December 31, 2012 Cost		December 31, 2012 Net		Additions		Amortization Expense			June 30, 2013 Net		Weighted Average Amortization Period (Years)
Developed technology	$	15,179	$	12,384	$	225	$	(1,666	)	$	10,943	4.7
Customer relationships	6,884		4,952		—		(433		)	4,519		5.4
Tradenames	1,202		1,040		—		(111		)	929		5.6
Patents and licenses	1,525		2,744		—		(174		)	2,570		8.0
Other	182		76		13		(30		)	59		1.0
Total	$	24,972	$	21,196	$	238	$	(2,414	)	$	19,020

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 $1.3 million for the three months ended June 30, 2013 and 2012, respectively, and $2.4 million and $2.6 million for the six months ended June 30, 2013 and 2012, respectively. Amortization expense related to intangible assets was included within cost of revenues for developed technology and patents and licenses, sales and marketing expense for customer relationships and trade names, and general and administrative expense for the favorable lease and other. 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 Technology		Customer Relationships		Tradenames		Patents and licenses		Other
Quarter Ending June 30:
Remainder of 2013	$	1,430	$	440	$	102	$	177	$	31
2014	2,372		874		178		348		28
2015	2,117		874		178		343		—
2016	2,123		876		151		344		—
2017	1,812		768		142		343		—
2018	1,081		502		101		313		—
2019 and beyond	8		185		77		702		—
Total expected amortization expense	$	10,943	$	4,519	$	929	$	2,570	$	59

5.Financial Instruments

As of June 30, 2013 and December 31, 2012, all debt 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 as 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.

Realized gains and losses are calculated using the specific identification method. As of June 30, 2013 and December 31, 2012, the Company had no short-term investments in a material unrealized loss position with maturities of greater than 12 months.

8

The components of the Company’s cash, cash equivalents and investments classified as available-for-sale were as follows at June 30, 2013 and December 31, 2012 (in thousands):

June 30, 2013	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Other Than Temporary Impairment		Estimated Fair value
Cash	$	13,046	$	—	$	—		$	—	$	13,046
Cash equivalents:
Money market funds	5,253		—		—			—		5,253
Total cash equivalents	5,253		—		—			—		5,253
Total cash and cash equivalents	$	18,299	$	—	$	—		$	—	$	18,299
Short-term investments:
U.S. government and agency obligations	5,628		—		(6		)	—		5,622
Corporate notes and obligations	3,271		5		—			—		3,276
Total short-term investments	$	8,899	$	5	$	(6	)	$	—	$	8,898

December 31, 2012	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Other Than Temporary Impairment		Estimated Fair value
Cash	$	13,062	$	—	$	—	$	—	$	13,062
Cash equivalents:
Money market funds	3,338		—		—		—		3,338
Total cash equivalents	3,338		—		—		—		3,338
Total cash and cash equivalents	$	16,400	$	—	$	—	$	—	$	16,400
Short-term investments:
U.S. government and agency obligations	6,700		—		—		—		6,700
Corporate notes and obligations	6,061		10		—		—		6,071
Total short-term investments	$	12,761	$	10	$	—	$	—	$	12,771

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 June 30, 2013 were as follows (in thousands):

Contractual maturity	Amortized Cost		Estimated Fair value
Less than 1 year	$	5,584	$	5,588
Between 1 and 2 years	3,315		3,310
Total	$	8,899	$	8,898

At June 30, 2013, the Company had $6,000 in unrealized losses related to U.S. government and agency securities.

The Company had no realized gains or losses on sales of its investments for the three and six months ended June 30, 2013, and 2012. The Company had net proceeds of $3.8 million and $9.6 million from maturities and sales of investments during the six months ended June 30, 2013 and 2012, 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

9

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 June 30, 2013 or as of December 31, 2012 for which the fair value declined significantly below amortized cost and were considered other-than-temporary impairments.

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 June 30, 2013 (in thousands):

	Fair Value Measurements at Reporting Date Using
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
June 30, 2013	Total		(Level 1)		(Level 2)		(Level 3)
Assets:
Money market funds (1)	$	5,253	$	5,253	$	—	$	—
U.S. government and agency obligations (2)	5,622		—		5,622		—
Corporate notes and obligations (2)	3,276		—		3,276		—
Total	$	14,151	$	5,253	$	8,898	$	—

__________________________________________________

(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.

The table below presents the changes during the six months ended June 30, 2013 related to balances measured using significant unobservable inputs (Level 3) (in thousands):

	December 31, 2012		Additions		Payments			June 30, 2013
Liabilities:
Contingent consideration to Webcom	$	1,750	$	—	$	(1,750	)	$	—
Total	$	1,750	$	—	$	(1,750	)	$	—

During the first quarter of 2013, the Company paid earn-out consideration related to the acquisition of Webcom of $1.8 million.

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The estimated fair value of the Company’s financial assets was determined using the following inputs at December 31, 2012 (in thousands):

	Fair Value Measurements at Reporting Date Using
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
December 31, 2012	Total		(Level 1)		(Level 2)		(Level 3)
Assets:
Money market funds (1)	$	3,338	$	3,338	$	—	$	—
U.S. Treasury bills (2)	1,000		1,000		—		—
Corporate notes and obligations (2)	6,071		—		6,071		—
U.S. government and agency obligations (2)	5,700		—		5,700		—
Total	$	16,109	$	4,338	$	11,771	$	—
Liabilities:
Contingent consideration (3)	$	1,750	$	—	$	—	$	1,750
Total	$	1,750	$	—	$	—	$	1,750

__________________________________________________

(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.

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 bills, 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

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. As of June 30, 2013, the Company has no Level 3 liabilities.

7.Convertible Notes

As of June 30, 2013, the Company has an aggregate principal amount of $59.2 million of the 4.75% Convertible Senior Notes (the “Convertible Notes”) due in 2016 outstanding. Interest is payable on June 1 and December 1 of each year until the maturity date of June 1, 2016 unless the Convertible Notes are converted, redeemed or repurchased. The Convertible Notes are

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senior unsecured obligations of the Company. Based on market prices, the fair value of the Convertible Notes was $62.2 million and $58.0 million as of June 30, 2013 and December 31, 2012, respectively.

The Convertible Notes contain an optional redemption feature which allows the Company, any time on or 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 described 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.

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 June 30, 2013 and December 31, 2012, $0.5 million of the debt issuance costs are included in prepaid and other current assets, with the remaining amounts of $1.0 million and $1.3 million, respectively, recorded in deposits and other assets.

8.Commitments and Contingencies

The table below sets forth our contractual cash obligations at June 30, 2013.  Contractual cash obligations that are cancellable upon notice and without significant penalties are not included in the table.

	Payments due by Period (in thousands)
Contractual Obligations	Remainder of 2013		2014		2015		2016		2017		2018 and beyond		Total
Convertible notes (1)
Principal payment	$	—	$	—	$	—	$	59,215	$	—	$	—	$	59,215
Interest payments	1,407		2,813		2,813		1,172		—		—		8,205
Unconditional purchase commitments	2,533		3,019		2,379		517		—		—		8,448

__________________________________________________

(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 (See Note 7).

On March 26, 2013, we entered into an agreement for application server software licenses and related maintenance payable over three years in the amount of $2.6 million and $4.3 million, respectively.

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 incremental 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 material costs, nor has accrued any costs related to such indemnification provisions.

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Intellectual Property Litigation

On July 19, 2012, Versata Software, Inc. and Versata Development Group, Inc. (collectively, “Versata”) filed suit against Callidus in the United States District Court for the District of Delaware. The suit asserted that the Company infringes 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.  On May 30, 2013, we answered the complaint and filed a counterclaim against Versata in the United States District Court for the District of Delaware.  The Company's counterclaim asserted that Versata infringes U.S. Patent Nos. 6,269,355, 6,850,924 and 6,473,748. The Company is not in a position to assess whether any loss or adverse effect on the Company's financial condition is probable or remote or to estimate the range of potential loss, if any.

On August 31, 2012, the Company filed suit against Xactly Corporation (“Xactly”) in the United States District Court for the Central District of California. The suit alleges that Xactly infringes U.S. Patents 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. On January 28, 2013, the Company further amended its complaint to allege that Xactly also infringes U.S. Patent 6,473,748 and dismiss its intentional interference with contractual relations claim. On March 14, 2013, the case was transferred to the United States District Court in the Northern District of California.  On May 31, 2013, the Company and Xactly entered into a stipulated dismissal of the Company's trademark infringement claim whereby Xactly agreed that it will not use the Company's trademarks-in-suit in certain of Xactly's marketing and advertising activities going forward.  

On December 14, 2012, TQP Development, LLC filed suit against Callidus in the United States District Court for the Eastern District of Texas Marshall Division. The suit asserts that Callidus infringes U.S. Patent No. 5,412,730. The Company believes that the claim is without merit and intends to vigorously defend against the claim. The Company is not in a position to assess whether any loss or adverse effect on the Company's financial condition is probable or remote or to estimate the range of potential loss, if any.

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 June 30, 2013, the Company had 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.

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.

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The following table summarizes revenues for the three months ended June 30, 2013 and 2012 by geographic areas (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
United States	$	20,489	$	18,802	$	40,564	$	36,507
EMEA	2,984		3,303		6,177		5,435
Asia Pacific	1,451		1,325		2,510		2,388
Other	1,006		351		2,221		1,464
	$	25,930	$	23,781	$	51,472	$	45,794

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 six months ended June 30, 2013 and 2012, no customer accounted for more than 10% of our total revenues.

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 six months ended June 30, 2013 and 2012, 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 June 30,		Six Months Ended June 30,
	2013	2012	2013	2012
Restricted stock	2,008	3,868	2,122	3,832
Stock options	2,513	3,190	2,655	3,536
ESPP	155	88	115	136
Convertible notes	7,680	7,680	7,680	7,680
Total	12,356	14,826	12,572	15,184

The weighted average exercise price of stock options excluded for the three and six months ended June 30, 2013 was $4.04 and $4.02, respectively. The weighted average exercise price of stock options excluded for the three and six months ended June 30, 2012 was $3.71 and $4.05, respectively.

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

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11.Stock-based Compensation

Expense Summary

The table below sets forth a summary of stock-based compensation expense for the three and six months ended June 30, 2013 and 2012 (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
Stock-based compensation:
Stock Options	$	382	$	403	$	461	$	570
Performance-Based Restricted Stock	394		152		521		178
Restricted Stock Units	2,294		3,598		4,513		6,431
ESPP	140		141		306		316
Total stock-based compensation	$	3,210	$	4,294	$	5,801	$	7,495

As of June 30, 2013, there was $1.8 million, $1.2 million, $8.9 million and $0.1 million of total unrecognized compensation expense related to stock options, performance-based restricted stock, restricted stock units and the ESPP shares, respectively. The expenses related to stock options, performance-based restricted stock, restricted stock units and ESPP shares are expected to be recognized over a weighted average period of 3.4 years, 1.1 years, 1.6 years and 0.4 years, respectively.

The table below sets forth the functional classification of stock-based compensation expense for the three and six months ended June 30, 2013 and 2012 (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
Stock-based compensation:
Cost of recurring revenues	$	204	$	383	$	378	$	929
Cost of services and other revenues	236		573		642		1,050
Sales and marketing	582		1,165		1,155		1,940
Research and development	467		485		933		899
General and administrative	1,721		1,688		2,693		2,677
Total stock-based compensation	$	3,210	$	4,294	$	5,801	$	7,495

Performance-Based Restricted Stock

During the six months ended June 30, 2013, the Company granted performance-based restricted stock awards with vesting contingent on successful attainment of predetermined SaaS revenue growth and recurring revenue gross margin targets.

During 2012, the Company granted restricted stock units as compensation that were performance-based restricted stock. The pre-established goals were in two parts, measured against annual recurring revenue and operating income, respectively. The annual recurring revenue target for 2012 was met. As a result, 50% of those awards vested during the first quarter of 2013, with the remainder to vest quarterly through 2013. The operating income target was not met, and therefore, the shares related to this target were canceled and associated expense reversed.

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-based award assumes that performance goals will be achieved.  If such goals are not met, no compensation cost is recognized and any previously recognized compensation cost is reversed.  The fair value of each stock option is estimated on the date of grant using the Black-Scholes valuation model and the assumptions noted in the following table.

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	Three Months Ended June 30,		Six Months Ended June 30,
	2013	2012	2013	2012
Stock Option Plans
Expected life (in years)	5.0 to 6.0	5.0 to 6.0	5.0 to 6.0	5.0 to 6.0
Risk-free interest rate	1.41% to 1.69%	0.72% to 0.92%	1.41% to 1.69%	0.72% to 1.33%
Volatility	61% to 63%	60% to 65%	61% to 63%	60% to 65%
Dividend Yield	None	None	None	None

The fair value of each ESPP share is estimated on the subscription date of the offering period using the Black-Scholes valuation model and the assumptions noted in the following table.

	Six Months Ended June 30,
	2013	2012
Employee Stock Purchase Plan
Expected life (in years)	0.50 to 1.00	0.50 to 1.00
Risk-free interest rate	0.13% to 0.17%	0.07% to 0.29%
Volatility	52% to 62%	39% to 58%
Dividend Yield	None	None

12.Related Party Transactions

In June 2013, in the normal course of business, the Company entered into agreements with Lithium Technologies, Inc. (“Lithium”). The Chief Financial Officer of Lithium is a member of our Board of Directors. The Company purchased an annual subscription for Lithium's social media management solutions in the amount of $120,000.  In the same period, Lithium entered into a two year hosting agreement with the Company in the amount of $113,000 for which no revenue was recognized during 2013.

Webcom, one of the Company’s wholly-owned subsidiaries, 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 six months ended June 30, 2013, Callidus paid $38,000 and $74,000 respectively, to this vendor. For the three and six months ended June 30, 2012, Callidus paid $19,000 and $48,000 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 the year ended December 31, 2012 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 this 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 profits, operating expense levels, future operating results, the impact of quarterly fluctuations of revenue and operating results, staffing and expense levels, expected cash and investment balances and the impact of foreign exchange rates 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 risks and uncertainties are described in “Risk Factors” set forth in our Annual Report on Form 10-K for the year ended December 31, 2012 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, except as required by law.

Overview of the Results for the Three Months Ended June 30, 2013

Incorporated in Delaware in 1996, Callidus Software Inc. (NASDAQ:CALD), doing business as “CallidusCloud®” (referred to herein as “CallidusCloud”, “Callidus”, “we” and “our”), is a leading provider of sales and marketing effectiveness cloud software. CallidusCloud enables organizations to drive performance and productivity across their business with our Hiring, Learning, Marketing and Selling Clouds. From back office to the field, from desktop to mobile, we ensure organizations have the right tools to be more effective and perform better. We believe the combined power of our clouds, our people and our partners fuels growth, empowers the work force and delivers real value. CallidusCloud drives performance and productivity for over 1,900 leading organizations. Small, medium and large enterprises across multiple industries and geographies rely on CallidusCloud for quicker hiring, simpler learning, better marketing and smarter selling.

After the expansion of our offerings in recent years, we have a broad suite of solutions across the sales, marketing, hiring and learning product spectrum all focused primarily on improving the sales performance of our customers. Software-as-a-Service (“SaaS”) billings grew 31% during the current quarter, and we added 183 net new subscription customers. SaaS billings are defined as all monthly, quarterly, annual and multi-year billing pursuant to our on-demand subscription contracts.

Recurring revenues consist of SaaS revenues and recurring maintenance revenues. SaaS revenues are primarily made up of on-demand hosting revenues, sales operation services and term license revenues. Services and other revenue are comprised of perpetual license sales and our software consulting services. Our software consulting services provide customers with a full range of sales effectiveness solution implementations, system upgrades, strategic consulting, migration assistance, reporting and integration consulting and solution architecture services.

SaaS Revenue Growth and Customer Expansion

While we offer our customers a range of purchasing and deployment options, from on-demand subscription to on-premise term or perpetual license, our business and revenue model is focused on recurring revenues. From time to time the Company will invoice for overages to customers that have used payees and/or storage capacity in excess of the agreed upon contractual levels.  The actual overage revenue is recognized in SaaS revenue in the period of settlement.

SaaS revenue continued to drive the growth in recurring revenues and total revenues for the three months ended June 30, 2013. SaaS revenues grew to $15.8 million for the three months ended June 30, 2013 representing a $1.7 million or 12% increase over the same period in 2012. Total recurring revenues for the three months ended June 30, 2013 grew by 9% over the same period in 2012, reflecting the continued growth in SaaS revenues, partially offset by an expected decline in recurring maintenance revenues as more customers are choosing on demand services. Recurring revenues accounted for 76% of our total

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revenues and as we expand our on-demand business we expect this percentage to increase. Total revenues for the three months ended June 30, 2013 were $25.9 million, up $2.1 million or 9% from the same period in 2012.

We now have over 2,000 customers on annual subscription plans. Our recurring revenue customer retention rates over the past twelve months were over 90%. We believe our rapid customer growth and high retention rates are indicators of the quality of our products and the strength of our customer base.

Gross Margin Improvement

Recurring revenue gross profits increased $2.6 million, or 25% during the three months ended June 30, 2013 compared to the same period in 2012, and increased $5.4 million, or 28%, during the six months ended compared to the same period in 2012. The recurring revenue gross margin percentage for the three months ended June 30, 2013 was 65%, compared to 56% in the same period of 2012, and was 63% for the six months ended June 30, 2013 compared to 56% in the same period in 2012. The increase in recurring revenue gross profit drives the increase in total gross margin to 55% compared to 47% over the same period. These increases reflect execution of key components of our 2013 strategic initiatives of SaaS revenue growth and margin improvement.

Cash Improvement

Cash and short-term investments increased $4.3 million or 19% to $27.2 million, from $22.9 million in the first quarter of 2013, primarily due to continued improvement in days sales outstanding ("DSO") and billings received early in the quarter and collected by June 30, 2013 . Net cash provided by operations was $2.4 million during the six months ended June 30, 2013.

Operating Expense Results

Operating expenses increased $3.0 million, or 19% to $18.6 million from $15.5 million in the second quarter of 2012. The increase in operating expenses was primarily due to higher costs associated with our annual C3 conference, increased litigation costs, costs associated with the departure of our CFO, and increased investment in product development.

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 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 address the needs of our customers, and at the same time, provide more predictable revenue streams. For customers that prefer to purchase software on a perpetual basis, we continue to offer such licenses, and in the three and six months ended June 30, 2013, we generated $1.1 million and $2.2 million, respectively, in perpetual license revenues.  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 in 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 the prioritization with prospective customers of purchasing and implementing our solutions over competing products. As part of our effort to address this challenge, we have set goals that include expanding our sales efforts, promoting our on-demand products and continuing to develop new products and enhancements to our suite of products. During 2011 and 2012, we completed eight acquisitions to expand our product offerings and customer base. In addition, in 2012 we invested in the expansion of our sales force to better exploit the opportunities presented by our solutions. We also invested in our infrastructure and are in the process of consolidating and upgrading existing data centers to better serve our incoming customer base. These investments have affected our current operating results with respect to our cash balance and headcount costs; however, we have taken steps to rationalize the additional costs generated by these investments, and we expect to begin realizing the benefits of these investments in 2013. Our long term success will depend in part on our ability to realize return on these investments through increased revenues.

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 Annual Report on Form 10-K for the year ended December 31, 2012.

Application of Critical Accounting Policies and Use of Estimates

The discussion and analysis of our financial condition and results of operations which follows are based upon our condensed consolidated financial statements prepared in accordance with the generally accepted accounting principles in the

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United States of America ("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. We evaluate our assumptions, judgments and estimates on a regular basis. 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, 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 condensed 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 and six months ended June 30, 2013 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, 2012.

Recent Accounting Pronouncements

In July 2013 the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update 2013-11 (ASU 2013-11), Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. ASU 2013-11 requires an entity to present unrecognized tax benefits as a reduction of a deferred tax asset, except in certain circumstances. ASU 2013-11 is effective for fiscal years and interim periods beginning after December 31. 2013, and early adoption is permitted. Based upon a preliminary review of the guidance, the Company does not anticipate adoption will have an impact on the Company’s condensed consolidated financial statements.

In February 2013 the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2013-02 (ASU 2013-02), Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. ASU 2013-02 requires an entity to present either on the face of the statement where comprehensive income is presented or in the notes to the financial statements, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income. The adoption of ASU 2013-02, which involves presentation and disclosures only, did not impact the Company’s condensed consolidated financial statements.

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Results of Operations

Comparison of the Three and Six Months Ended June 30, 2013 and 2012

Revenues, Cost of Revenues and Gross Profit

The following tables set forth the changes in revenues, cost of revenues and gross profit for the three and six months ended June 30, 2013, compared to same periods in 2012 (in thousands, except for percentage data):

	Three Months Ended June 30, 2013		Percentage of Revenues	Three Months Ended June 30, 2012		Percentage of Revenues	Increase (Decrease)			Percentage Change
Revenues:
Recurring	$	19,616	76%	$	18,027	76%	$	1,589		9%
Services and other	6,314		24%	5,754		24%	560			10%
Total revenues	$	25,930	100%	$	23,781	100%	$	2,149		9%
Cost of revenues:
Recurring	$	6,931	35%	$	7,896	44%	$	(965	)	(12)%
Services and other	4,739		75%	4,808		84%	(69		)	(1)%
Total cost of revenues	$	11,670	45%	$	12,704	53%	$	(1,034	)	(8)%
Gross profit:
Recurring	$	12,685	65%	$	10,131	56%	$	2,554		25%
Services and other	1,575		25%	946		16%	629			66%
Total gross profit	$	14,260	55%	$	11,077	47%	$	3,183		29%

	Six Months Ended June 30, 2013		Percentage of Revenues	Six Months Ended June 30, 2012		Percentage of Revenues	Increase (Decrease)			Percentage Change
Revenues:
Recurring	$	39,240	76%	$	34,913	76%	$	4,327		12%
Services and other	12,232		24%	10,881		24%	1,351			12%
Total revenues	$	51,472	100%	$	45,794	100%	$	5,678		12%
Cost of revenues:
Recurring	$	14,384	37%	$	15,445	44%	$	(1,061	)	(7)%
Services and other	9,961		81%	9,188		84%	773			8%
Total cost of revenues	$	24,345	47%	$	24,633	54%	$	(288	)	(1)%
Gross profit:
Recurring	$	24,856	63%	$	19,468	56%	$	5,388		28%
Services and other	2,271		19%	1,693		16%	578			34%
Total gross profit	$	27,127	53%	$	21,161	46%	$	5,966		28%

Total Revenues.  Total revenues for the three months ended June 30, 2013 were $25.9 million, an increase of 9% compared to the same period in 2012. Total revenues for the six months ended June 30, 2013 were $51.5 million, an increase of 12% compared to the same period in 2012. The increases during both the three months and six months ended June 30, 2013 were primarily due to higher recurring revenue generated by our SaaS business driven by our continued focus including the

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expansion of our sales force, as well as the impact of our broadened suite of solutions, the expansion of which has contributed to overall revenue growth.

Recurring Revenues.  Recurring revenues, which consist of on-demand subscription revenues, term license revenues, and maintenance revenues, increased $1.6 million or 9%, to $19.6 million in the three months ended June 30, 2013 compared to $18.0 million in the same period of 2012. Recurring revenues increased $4.3 million or 12%, to $39.2 million in the six months ended June 30, 2013 from $34.9 million in the previous year period. The increase during the three and six months ended June 30, 2013 was primarily attributable to revenue realized from record SaaS bookings in the second half of 2012, offset by anticipated declines in our maintenance revenues related to perpetual license customers as we continue our focus on SaaS products.

Services and Other Revenues.  Services and other revenues, which consist of integration and configuration services, training and perpetual licenses, increased $0.6 million or 10% to $6.3 million in the second quarter of 2013 from $5.8 million in the second quarter of 2012. Services and other revenues increased $1.4 million or 12% to $12.2 million in the six month ended June 30, 2013 from $10.9 million previous year period. The increase in both the three and six months ended was primarily due to $0.6 million and $1.1 million additional license revenue, respectively.

Cost of Revenues and Gross Profit

Cost of Recurring Revenues.  Cost of recurring revenues decreased $1.0 million or 12% to $6.9 million in the three months ended June 30, 2013 from $7.9 million in the same period in 2012, and decreased $1.1 million or 7% to $14.4 million during the six months ended June 30, 2013 from $15.4 million in the previous year period, primarily due to a $0.5 million decrease in contract specific amortization costs and $0.5 million in in-sourcing costs incurred in the six months ended June 30, 2012 which did not reoccur in the current period .

Cost of Services and Other Revenues.  Cost of services and other revenues were flat during the three months ended June 30, 2013, consistent with the same period in 2012. Cost of services and other revenues increased $0.8 million or 8% to $10.0 million during the six months ended June 30, 2013 compared to $9.2 million in the previous year period, primarily due to $0.5 million in additional subcontractor fees to deliver services to customers.

Gross Margin.  Overall gross margin percentage was 55% for the three months ended June 30, 2013, compared to 47% during the same period in 2012. Overall gross margin percentage was 53% for the six months ended June 30, 2013, compared to 46% during the same period in 2012. Our gross margin percentage continues to improve primarily as a result of scaling our on-demand infrastructure and the continued growth of our higher margin SaaS business.

Our recurring revenue gross margin percentage increased to 65% for the three months ended June 30, 2013, compared to 56% in the same period in 2012. Recurring revenue gross margin percentage was 63% for the six months ended June 30, 2013, compared to 56% in the previous year period. The improvement in our recurring revenue gross margin percentage is primarily due to the scaling of our on-demand infrastructure and increased SaaS revenue.

Services and other revenue gross margin percentage was 25% for the three months ended June 30, 2013, compared to 16% in the same period of 2012. Services and other revenue gross margin percentage was 19% for the six months ended June 30, 2013, consistent with the same period of 2012. The increase in gross margin percentage for both the three and six month periods was primarily due to higher perpetual license revenues while the expenses remained relatively flat year over year, as well as improvement in service margins due to higher billable utilization in our professional services organization.

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Operating Expense

The following tables outline the changes in operating expenses for the three and six months ended June 30, 2013, compared to the same periods in 2012 (in thousands, except percentage data):

	Three Months Ended June 30, 2013		Percentage of Total Revenues	Three Months Ended June 30, 2012			Percentage of Total Revenues	Increase (Decrease)			Percentage Change
Operating expenses:
Sales and marketing	$	7,891	30%	$	8,293		35%	$	(402	)	(5)%
Research and development	4,409		17%	4,072			17%	337			8%
General and administrative	5,946		23%	4,849			20%	1,097			23%
Acquisition-related contingent consideration	—		—%	(1,837		)	(8)%	1,837			(100)%
Restructuring expenses	315		1%	172			1%	143			83%
Total operating expenses	$	18,561	72%	$	15,549		65%	$	3,012		19%

	Six Months Ended June 30, 2013		Percentage of Total Revenues	Six Months Ended June 30, 2012			Percentage of Total Revenues	Increase (Decrease)		Percentage Change
Operating expenses:
Sales and marketing	$	15,535	30%	$	15,222		33%	$	313	2%
Research and development	8,838		17%	8,090			18%	748		9%
General and administrative	11,132		22%	9,854			22%	1,278		13%
Acquisition-related contingent consideration	—		—%	(1,837		)	(4)%	1,837		(100)%
Restructuring expenses	1,558		3%	614			1%	944		154%
Total operating expenses	37,063		72%	31,943			70%	5,120		16%

Sales and Marketing.  Sales and marketing expenses decreased $0.4 million or 5%, in the three months ended June 30, 2013 compared to the same period in 2012. The decreases were primarily driven by $0.6 million in lower stock-based compensation expense due to planned lower headcount in the current period. Sales and marketing expenses increased $0.3 million or 2% in the six months ended June 30, 2013 compared to the prior year period. The increase was primarily due to $0.3 million in higher costs for our annual C3 conference and other marketing events, partially offset by lower personnel costs due to planned headcount reductions.

Research and Development.  Research and development expenses increased $0.3 million or 8% for the three months ended June 30, 2013 compared to the same period in 2012. The increase is driven by $0.2 million in increased consulting fees that resulted from investment in product development to enhance and update our product suite and $0.1 million in increased training costs. Research and development expenses increased $0.7 million or 9% during the six months ended June 30, 2013 compared to the prior year period, primarily due to $0.6 million in additional personnel and equipment investment costs and $0.1 million in additional stock-based compensation expense due to higher research and development headcount.

General and Administrative.  General and administrative expenses increased $1.1 million or 23% during the three months ended June 30, 2013 compared to the same period in 2012. The increase was primarily due to $0.6 million related to the severance and recruiting costs associated with the departure and subsequent replacement of our Chief Financial Officer position and higher patent litigation related legal fees of $0.3 million.

General and administrative expenses increased $1.3 million or 13% during the six months ended June 30, 2013 compared to the prior year period primarily due to $0.6 million in severance charges related to the departure and subsequent replacement of our Chief Financial Officer position, higher patent litigation related legal fees of $0.7 million and $0.3 million of additional bad debt expense, partially offset by $0.6 million of acquisition-related costs incurred in 2012 that did not recur in 2013.

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Restructuring.  Restructuring expenses increased by $0.1 million or 83% during the three months ended June 30, 2013 as compared to the same period in 2012 due to actions to align our organization, integrate acquisitions and consolidate locations that began in the second half of 2012, which have continued through the current quarter. Restructuring expenses increased $0.9 million or 154% during the six months ended June 30, 2013 compared to the prior year period, primarily due to a $0.5 million one-time severance charge related to the departure of our General Counsel , as well as activities to align our organization. We currently do not intend to replace the role of General Counsel.

Stock-Based Compensation

The following tables set forth a summary of our stock-based compensation expenses for the three and six months ended June 30, 2013, compared to the same period in 2012 (in thousands, except percentage data):

	Three Months Ended June 30, 2013		Three Months Ended June 30, 2012		Increase (Decrease)			Percentage Change
Stock-based compensation:
Cost of recurring revenues	$	204	$	383	$	(179	)	(47)%
Cost of services revenues	236		573		(337		)	(59)%
Sales and marketing	582		1,165		(583		)	(50)%
Research and development	467		485		(18		)	(4)%
General and administrative	1,721		1,688		33			2%
Total stock-based compensation	$	3,210	$	4,294	$	(1,084	)	(25)%

	Six Months Ended June 30, 2013		Six Months Ended June 30, 2012		Increase (Decrease)			Percentage Change
Stock-based compensation:
Cost of recurring revenues	$	378	$	929	$	(551	)	(59)%
Cost of services revenues	642		1,050		(408		)	(39)%
Sales and marketing	1,155		1,940		(785		)	(40)%
Research and development	933		899		34			4%
General and administrative	2,693		2,677		16			1%
Total stock-based compensation	$	5,801	$	7,495	$	(1,694	)	(23)%

Total stock-based compensation expenses decreased $1.1 million or 25% during the three months ended June 30, 2013, and $1.7 million or 23% during the six months ended June 30, 2013 compared to the same periods in 2012. The decreases in stock-based compensation were primarily due to the timing of restricted stock award grants and increased forfeitures due to restructuring activities in 2013 periods compared to the prior year periods.

During the three and six months ended June 30, 2013, the Company granted performance-based restricted stock awards with vesting contingent on successful attainment of pre-determined SaaS revenue growth and recurring revenue gross profit targets. The 2013 performance based awards are partially in lieu of restricted stock awards historically granted as compensation, and we do not anticipate an increase in stock-based compensation expense as a result of the performance based restricted stock grants.

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Other Items

The following tables set forth the changes in other items for the three and six months ended June 30, 2013, compared to the same period in 2012 (in thousands, except percentage data):

	Three Months Ended June 30, 2013			Three Months Ended June 30, 2012			Increase (Decrease)			Percentage Change
Other income (expense), net
Interest income and other income (expense), net	$	(131	)	$	(79	)	$	(52	)	66%
Interest expense	(864		)	(865		)	1			—%
	$	(995	)	$	(944	)	$	(51	)	5%
Provision (benefit) for income taxes	$	1,119		(109		)	1,228			n.m.

	Six Months Ended June 30, 2013			Six Months Ended June 30, 2012			Increase (Decrease)			Percentage Change
Other income (expense), net
Interest income and other income (expense), net	$	(121	)	$	(5	)	$	(116	)	n.m.
Interest expense	(1,718		)	(1,734		)	16			(1)%
	$	(1,839	)	$	(1,739	)	$	(100	)	6%
Provision (benefit) for income taxes	$	1,243		(231		)	1,474			(638)%

Interest Income and Other Income (Expense), Net

Interest income and other income (expense), net decreased by $0.1 million during the three and six months ended June 30, 2013 compared to the same periods in 2012. The decreases were primarily driven by higher losses on foreign exchange transactions in the current periods.

Interest Expense

Interest expense was consistent in the three months ended June 30, 2013 and decreased by $16,000 in the six months ended June 30, 2013 compared to the same period in 2012. The decrease was primarily due to lower interest rates on capital lease obligations incurred in 2013, which resulted in lower interest expense.

Provision (Benefit) for Income Taxes

Provision for income tax for the three and six months ended June 30, 2013 was $1.1 million and $1.2 million, compared to an income tax benefit of $0.1 million and $0.2 million for the same periods in 2012.  The tax provision for the three and six months ended June 30, 2013 was primarily related to withholding taxes in foreign jurisdictions.

Liquidity and Capital Resources

As of June 30, 2013, our principal sources of liquidity were cash and cash equivalents and short-term investments totaling $27.2 million, as well as accounts receivable of $22.2 million, compared to $29.2 million and $22.6 million at December 31, 2012, respectively.

Cash provided by operating activities during the six months ended June 30, 2013 improved significantly compared to cash used by operating activities during the previous year period, primarily due to a significant increase in deferred revenue commensurate with SaaS billings and revenue growth, as well as increased collections and decreasing DSO. We continue to emphasize collections to minimize DSO and are committed to maintaining our focus on cash management. During the six

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months ended June 30, 2013, we paid $3.1 million related to indemnity holdback and earn-out provisions related to our 2011 and 2012 acquisitions.

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

	Six Months Ended June 30,
	2013			2012
Net cash provided by (used in) operating activities	$	2,376		$	(8,252	)
Net cash provided by (used in) investing activities	2,096			(4,340		)
Net cash (used in) provided by financing activities	(2,447		)	1,126

Cash Flows During the Six Months Ended June 30, 2013

Net cash provided by operating activities was $2.4 million in the six month period ended June 30, 2013

compared to $8.3 million used in the previous period. Net loss of $13.0 million in the six months ended June 30, 2013

was partially offset by non-cash items of $5.8 million in stock-based compensation and $2.4 million in depreciation and amortization expense.  Changes in working capital provided $4.4 million in cash during the six month period, primarily driven by $8.2 million in cash from increases in deferred revenue, partially offset by a decrease in accounts payable of $3.2 million

Net cash provided by investing activities was $2.1 million during the six months ended June 30, 2013, compared to $4.3 million used by investing activities in the previous period. The net cash provided by investing activities is primarily due to $3.8 million in net proceeds from maturities and sale of investments, partially offset by $1.7 million in purchases of capital assets.

Net cash used in financing activities was $2.4 million during the six months ended June 30, 2013, compared to $1.1 million cash provided by financing activities in the previous period. The net cash used in financing activities was primarily due to $3.1 million of acquisition related holdback and earn-out payments, partially offset by $2.2 million in proceeds from the issuance of common stock.

Forward Looking Cash Commitments

Our future capital requirements depend on many factors, including the amount of revenues we generate, the timing and extent of spending to support product development efforts, the expansion of sales and marketing activities, the timing of new product introductions and enhancements to existing products, our ability to offer SaaS service on a consistently profitable basis, the continuing market acceptance of our products and future acquisitions or other capital expenditures we may make. However, based upon our current business plan and revenue projections, we believe that our current working capital and anticipated cash flows from operations will be adequate to meet our cash needs for daily operations and capital expenditures for at least the next twelve months, and we intend to continue to manage our cash in a manner designed to ensure that we have adequate cash and cash equivalents to fund our operations as well as future commitments, including debt service on the $59.2 million principal balance of our outstanding Convertible Notes, which is expected to be repaid no later than June 1, 2016. Cash commitments in the near term include $1.4 million in interest on our Convertible Notes which is due semi-annually in June and December. In addition, the departure of our prior Chief Financial Officer, announced on March 14, 2013, is expected to occur during the third quarter of 2013 and we expect to pay $0.6 million in executive severance related to this departure. In addition, in the first quarter of 2013, we entered into an agreement for application server software licenses and related maintenance payable over three years in the amount of $2.6 million and $4.3 million, respectively.

Contractual Obligations and Commitments

Refer to Note 8 of our notes to condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q for further information. For additional information on existing unconditional purchase commitments, please refer to our Annual Report on Form 10-K for the year ended December 31, 2012.

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.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

During the three and six months ended June 30, 2013, there were no significant changes to our quantitative and qualitative disclosures about market risk. Please refer to Part II, Item 7A. Quantitative and Qualitative Disclosures About Market Risk included in our Annual Report on Form 10-K for the year ended December 31, 2012 for a more complete discussion on the market risks we encounter.

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 and six months ended June 30, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

On July 19, 2012, Versata Software, Inc. and Versata Development Group, Inc. (collectively, “Versata”) filed suit against Callidus in the United States District Court for the District of Delaware. The suit asserted that the Company infringes 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.  On May 30, 2013, we answered the complaint and filed a counterclaim against Versata in the United States District Court for the District of Delaware.  The Company's counterclaim asserted that Versata infringes U.S. Patent Nos. 6,269,355, 6,850,924 and 6,473,748. The Company is not in a position to assess whether any loss or adverse effect on the Company's financial condition is probable or remote or to estimate the range of potential loss, if any.

On August 31, 2012, the Company filed suit against Xactly Corporation (“Xactly”) in the United States District Court for the Central District of California. The suit alleges that Xactly infringes U.S. Patents 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. On January 28, 2013, the Company further amended its complaint to allege that Xactly also infringes U.S. Patent 6,473,748 and dismiss its intentional interference with contractual relations claim. On March 14, 2013, the case was transferred to the United States District Court in the Northern District of California.  On May 31, 2013, the Company and Xactly entered into a stipulated dismissal of the Company's trademark infringement claim whereby Xactly agreed that it will not use the Company's trademarks-in-suit in certain of Xactly's marketing and advertising activities going forward.  

On December 14, 2012, TQP Development, LLC filed suit against Callidus in the United States District Court for the Eastern District of Texas Marshall Division. The suit asserts that Callidus infringes U.S. Patent No. 5,412,730. The Company believes that the claim is without merit and intends to vigorously defend against the claim. The Company is not in a position to assess whether any loss or adverse effect on the Company's financial condition is probable or remote or to estimate the range of potential loss, if any.

We are, from time to time, a party to other various litigation and customer disputes 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, 2012.  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, 2012, 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.

27

Item 6. Exhibits

See the Exhibit Index following the signature page to this Quarterly Report on Form 10-Q for a list of exhibits filed or furnished with this report, which Exhibit Index is incorporated herein by reference.

28

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 August 7, 2013.

CALLIDUS SOFTWARE INC.
By:	/s/ BOB L. COREY
	Bob L. Corey
	Chief Financial Officer,
	Senior Vice President, Finance and Operations

29

EXHIBIT INDEX

TO

CALLIDUS SOFTWARE INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, 2013

Exhibit Number	Description
10.1	2013 Stock Incentive Plan and foms of award agreements (incorporated by reference to Exhibit 5.1 to the Registrant's Form S-8 filed with the Commission on June 18, 2013)
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 June 30, 2013 and December 31, 2012, (ii) Condensed Consolidated Statements of Comprehensive Loss for the three and six months ended June 30, 2013 and 2012, (iii) Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2013 and 2012 and (iv) Notes to Condensed Consolidated Financial Statements

30

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. 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

(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.

6.

Date: August 7, 2013
	/s/ LESLIE J. STRETCH
	Leslie J. Stretch
	President and Chief Executive Officer

I, Bob L. Corey, 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. 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

(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: August 7, 2013
	/s/ BOB L. COREY
	Bob L. Corey
	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 Bob L. Corey, 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: August 7, 2013
	/s/ LESLIE J. STRETCH
	Leslie J. Stretch
	President and Chief Executive Officer
	/s/ BOB L. COREY
	Bob L. Corey
	Chief Financial Officer,
	Senior Vice President, Finance and Operations

XML

Related Party Transactions

6 Months Ended

Jun. 30, 2013

Related Party Transactions [Abstract]

Related Party Transactions

Related Party Transactions

In June 2013, in the normal course of business, the Company entered into agreements with Lithium Technologies, Inc. (“Lithium”). The Chief Financial Officer of Lithium is a member of our Board of Directors. The Company purchased an annual subscription for Lithium's social media management solutions in the amount of $120,000.  In the same period, Lithium entered into a two year hosting agreement with the Company in the amount of $113,000 for which no revenue was recognized during 2013.

Webcom, one of the Company’s wholly-owned subsidiaries, 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 six months ended June 30, 2013, Callidus paid $38,000 and $74,000 respectively, to this vendor. For the three and six months ended June 30, 2012, Callidus paid $19,000 and $48,000 respectively, to this vendor.

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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Revenues:
Recurring	$ 19,616	$ 18,027	$ 39,240	$ 34,913
Services and other	6,314	5,754	12,232	10,881
Total revenues	25,930	23,781	51,472	45,794
Cost of revenues:
Recurring	6,931	7,896	14,384	15,445
Services and other	4,739	4,808	9,961	9,188
Total cost of revenues	11,670	12,704	24,345	24,633
Gross profit	14,260	11,077	27,127	21,161
Operating expenses:
Sales and marketing	7,891	8,293	15,535	15,222
Research and development	4,409	4,072	8,838	8,090
General and administrative	5,946	4,849	11,132	9,854
Acquisition-related contingent consideration	0	(1,837)	0	(1,837)
Restructuring	315	172	1,558	614
Total operating expenses	18,561	15,549	37,063	31,943
Operating loss	(4,301)	(4,472)	(9,936)	(10,782)
Interest income and other income (expense), net	(131)	(79)	(121)	(5)
Interest expense	(864)	(865)	(1,718)	(1,734)
Loss before provision for (benefit from) for income taxes	(5,296)	(5,416)	(11,775)	(12,521)
Provision for (benefit from) for income taxes	1,119	(109)	1,243	(231)
Net loss	(6,415)	(5,307)	(13,018)	(12,290)
Net loss per share - basic and diluted
Net loss per share (in dollars per share)	$ (0.17)	$ (0.15)	$ (0.35)	$ (0.35)
Shares used in basic and diluted per share computation (in shares)	37,813	35,235	37,478	34,674
Comprehensive loss
Net Loss	(6,415)	(5,307)	(13,018)	(12,290)
Unrealized gains on available-for-sale securities	6	2	11	13
Amounts reclassified from comprehensive loss for realized gains on available-for-sale securities	0		0	0
Foreign currency translation adjustments	(98)	(38)	(148)	5
Comprehensive loss	$ (6,507)	$ (5,343)	$ (13,155)	$ (12,272)

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Financial Instruments

6 Months Ended

Jun. 30, 2013

Financial Instruments

Financial Instruments

Financial Instruments

As of June 30, 2013 and December 31, 2012, all debt 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 as 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.

Realized gains and losses are calculated using the specific identification method. As of June 30, 2013 and December 31, 2012, the Company had no short-term investments in a material unrealized loss position with maturities of greater than 12 months.

The components of the Company’s cash, cash equivalents and investments classified as available-for-sale were as follows at June 30, 2013 and December 31, 2012 (in thousands):

June 30, 2013	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Other Than Temporary Impairment		Estimated Fair value
Cash	$	13,046	$	—	$	—		$	—	$	13,046
Cash equivalents:
Money market funds	5,253		—		—			—		5,253
Total cash equivalents	5,253		—		—			—		5,253
Total cash and cash equivalents	$	18,299	$	—	$	—		$	—	$	18,299
Short-term investments:
U.S. government and agency obligations	5,628		—		(6		)	—		5,622
Corporate notes and obligations	3,271		5		—			—		3,276
Total short-term investments	$	8,899	$	5	$	(6	)	$	—	$	8,898

December 31, 2012	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Other Than Temporary Impairment		Estimated Fair value
Cash	$	13,062	$	—	$	—	$	—	$	13,062
Cash equivalents:
Money market funds	3,338		—		—		—		3,338
Total cash equivalents	3,338		—		—		—		3,338
Total cash and cash equivalents	$	16,400	$	—	$	—	$	—	$	16,400
Short-term investments:
U.S. government and agency obligations	6,700		—		—		—		6,700
Corporate notes and obligations	6,061		10		—		—		6,071
Total short-term investments	$	12,761	$	10	$	—	$	—	$	12,771

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 June 30, 2013 were as follows (in thousands):

Contractual maturity	Amortized Cost		Estimated Fair value
Less than 1 year	$	5,584	$	5,588
Between 1 and 2 years	3,315		3,310
Total	$	8,899	$	8,898

At June 30, 2013, the Company had $6,000 in unrealized losses related to U.S. government and agency securities.

The Company had no realized gains or losses on sales of its investments for the three and six months ended June 30, 2013, and 2012. The Company had net proceeds of $3.8 million and $9.6 million from maturities and sales of investments during the six months ended June 30, 2013 and 2012, 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 June 30, 2013 or as of December 31, 2012 for which the fair value declined significantly below amortized cost and were considered other-than-temporary impairments.

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Segment, Geographic and Customer Information (Tables)

6 Months Ended

Jun. 30, 2013

Segment Reporting [Abstract]

Summary of revenues by geographic areas

The following table summarizes revenues for the three months ended June 30, 2013 and 2012 by geographic areas (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
United States	$	20,489	$	18,802	$	40,564	$	36,507
EMEA	2,984		3,303		6,177		5,435
Asia Pacific	1,451		1,325		2,510		2,388
Other	1,006		351		2,221		1,464
	$	25,930	$	23,781	$	51,472	$	45,794

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Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2013

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of Presentation and Summary of Accounting Policies

Basis of Presentation and Summary of Accounting Policies

All amounts included herein related to the condensed consolidated financial statements as of June 30, 2013 and the three and six months ended June 30, 2013 and 2012 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, 2012. 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, 2013.

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, Malaysia, Serbia, Singapore, and the United Kingdom. All intercompany transactions and balances have been eliminated upon consolidation.

Use of Estimates

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, uncertain tax liabilities, allowances for doubtful accounts, the useful lives of fixed assets and intangible assets, goodwill and intangible asset impairments, stock-based compensation forfeiture rates, accrued liabilities, the allocation of the value of purchase consideration for business acquisitions, 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.

Recently Adopted Accounting Pronouncements

Recent Accounting Pronouncements

In July 2013 the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2013-11 (ASU 2013-11), Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. ASU 2013-11 requires an entity to present unrecognized tax benefits as a reduction of a deferred tax asset, except in certain circumstances. ASU 2013-11 is effective for fiscal years and interim periods beginning after December 31, 2013, and early adoption is permitted. Based upon a preliminary review of the guidance, the Company does not anticipate adoption will have a significant impact on the Company’s condensed consolidated financial statements.

In February 2013 the FASB issued Accounting Standards Update 2013-02 (ASU 2013-02), Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. ASU 2013-02 requires an entity to present either on the face of the statement where comprehensive income is presented or in the notes to the financial statements, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income. The adoption of ASU 2013-02, which involves presentation and disclosures only, did not impact the Company’s condensed consolidated financial statements.

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Net Loss Per Share (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Net Loss Per Share
Anti-dilutive securities excluded from computation of diluted net loss per share (in shares)	12,356	14,826	12,572	15,184
4.75 % Convertible Senior Notes due in 2016
Net Loss Per Share
Conversion price (in dollars per share)	$ 7.71		$ 7.71
Restricted stock
Net Loss Per Share
Anti-dilutive securities excluded from computation of diluted net loss per share (in shares)	2,008	3,868	2,122	3,832
Stock options
Net Loss Per Share
Anti-dilutive securities excluded from computation of diluted net loss per share (in shares)	2,513	3,190	2,655	3,536
Weighted average exercise price (in dollars per share)	$ 4.04	$ 3.71	$ 4.02	$ 4.05
ESPP
Net Loss Per Share
Anti-dilutive securities excluded from computation of diluted net loss per share (in shares)	155	88	115	136
Convertible notes
Net Loss Per Share
Anti-dilutive securities excluded from computation of diluted net loss per share (in shares)	7,680	7,680	7,680	7,680

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Restructuring (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Restructuring and Related Activities [Abstract]
Restructuring expenses	$ 315	$ 172	$ 1,558	$ 614
Changes in restructuring reserve
Balance at the beginning of the period			878	443
Cash Payments			2,135	(384)
Additions			1,566	614
Adjustments			8
Balance at the end of the period	301	673	301	673
Severance and termination-related costs
Changes in restructuring reserve
Balance at the beginning of the period			589
Cash Payments			2,115	(228)
Additions			1,566	510
Adjustments			8
Balance at the end of the period	32	282	32	282
Facilities related costs
Changes in restructuring reserve
Balance at the beginning of the period			289	443
Cash Payments			20	(156)
Additions			0	104
Adjustments			0
Balance at the end of the period	$ 269	$ 391	$ 269	$ 391

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Stock-based Compensation (Tables)

6 Months Ended

Jun. 30, 2013

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Summary of stock-based compensation expenses

The table below sets forth a summary of stock-based compensation expense for the three and six months ended June 30, 2013 and 2012 (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
Stock-based compensation:
Stock Options	$	382	$	403	$	461	$	570
Performance-Based Restricted Stock	394		152		521		178
Restricted Stock Units	2,294		3,598		4,513		6,431
ESPP	140		141		306		316
Total stock-based compensation	$	3,210	$	4,294	$	5,801	$	7,495

Schedule of functional classification of stock-based compensation expense

The table below sets forth the functional classification of stock-based compensation expense for the three and six months ended June 30, 2013 and 2012 (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
Stock-based compensation:
Cost of recurring revenues	$	204	$	383	$	378	$	929
Cost of services and other revenues	236		573		642		1,050
Sales and marketing	582		1,165		1,155		1,940
Research and development	467		485		933		899
General and administrative	1,721		1,688		2,693		2,677
Total stock-based compensation	$	3,210	$	4,294	$	5,801	$	7,495

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

	Three Months Ended June 30,		Six Months Ended June 30,
	2013	2012	2013	2012
Stock Option Plans
Expected life (in years)	5.0 to 6.0	5.0 to 6.0	5.0 to 6.0	5.0 to 6.0
Risk-free interest rate	1.41% to 1.69%	0.72% to 0.92%	1.41% to 1.69%	0.72% to 1.33%
Volatility	61% to 63%	60% to 65%	61% to 63%	60% to 65%
Dividend Yield	None	None	None	None

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Fair Value Measurements (Details 2) (USD $)	1 Months Ended	3 Months Ended	6 Months Ended
	Feb. 28, 2013	Mar. 31, 2013	Jun. 30, 2013
Liabilities:
Balance at the beginning of the period		$ 1,750,000	$ 1,750,000
Additions			0
Payments			1,750,000
Balance at the end of the period			0
Webcom
Liabilities:
Contingent consideration paid	1,800,000	1,800,000	1,800,000
Contingent consideration
Liabilities:
Balance at the beginning of the period		1,750,000	1,750,000
Additions			0
Payments			1,750,000
Balance at the end of the period			$ 0

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Stock-based Compensation (Details 2) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Classification of stock-based compensation expense
Stock-based compensation expense	$ 3,210,000	$ 4,294,000	$ 5,801,000	$ 7,495,000
Cost of recurring revenues
Classification of stock-based compensation expense
Stock-based compensation expense	204,000	383,000	378,000	929,000
Cost of services and other revenues
Classification of stock-based compensation expense
Stock-based compensation expense	236,000	573,000	642,000	1,050,000
Sales and marketing
Classification of stock-based compensation expense
Stock-based compensation expense	582,000	1,165,000	1,155,000	1,940,000
Research and development
Classification of stock-based compensation expense
Stock-based compensation expense	467,000	485,000	933,000	899,000
General and administrative
Classification of stock-based compensation expense
Stock-based compensation expense	1,721,000	1,688,000	2,693,000	2,677,000
Restricted Stock Units Performance Awards [Member]
Classification of stock-based compensation expense
Employee Service Share-based Compensation, Nonvested Awards, Total Compensation Cost Not yet Recognized, Share-based Awards Other than Options	1,200,000		1,200,000
Stock-based compensation expense	$ 394,000	$ 152,000	$ 521,000	$ 178,000
Employee Service Share-based Compensation, Nonvested Awards, Total Compensation Cost Not yet Recognized, Period for Recognition			1 year 1 month 6 days

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Financial Instruments (Details) (USD $)	6 Months Ended				6 Months Ended	12 Months Ended	6 Months Ended	12 Months Ended	6 Months Ended	12 Months Ended	6 Months Ended	12 Months Ended	6 Months Ended	12 Months Ended	6 Months Ended	12 Months Ended	6 Months Ended	12 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Dec. 31, 2012	Dec. 31, 2011	Jun. 30, 2013 Cash	Dec. 31, 2012 Cash	Jun. 30, 2013 Cash equivalents	Dec. 31, 2012 Cash equivalents	Jun. 30, 2013 Money market funds	Dec. 31, 2012 Money market funds	Jun. 30, 2013 Cash and cash equivalents	Dec. 31, 2012 Cash and cash equivalents	Jun. 30, 2013 Short-term investments	Dec. 31, 2012 Short-term investments	Jun. 30, 2013 U.S. government and agency obligations	Dec. 31, 2012 U.S. government and agency obligations	Jun. 30, 2013 Corporate notes and obligations	Dec. 31, 2012 Corporate notes and obligations
Financial instruments
Proceeds from Sale and Maturity of Available-for-sale Securities	$ 3,800,000	$ 9,600,000
Cash and cash equivalents	18,299,000	5,922,000	16,400,000	17,383,000	13,046,000	13,062,000	5,253,000	3,338,000	5,253,000	3,338,000	18,299,000	16,400,000
Amortized Cost													8,899,000	12,761,000	5,628,000	6,700,000	3,271,000	6,061,000
Gross Unrealized Gains					0	0	0	0	0	0	0	0	5,000	10,000	0	0	5,000	10,000
Gross Unrealized Losses					0	0	0	0	0	0	0	0	6,000	0	6,000	0	0	0
Other Than Temporary Impairment					0	0	0	0	0	0	0	0	0	0	0	0	0	0
Estimated Fair Value, Cash and Cash Equivalents					13,046,000	13,062,000	5,253,000	3,338,000	5,253,000	3,338,000	18,299,000	16,400,000
Estimated FV, Available for Sale Securities													$ 8,898,000	$ 12,771,000	$ 5,622,000	$ 6,700,000	$ 3,276,000	$ 6,071,000

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Net Loss Per Share (Tables)

6 Months Ended

Jun. 30, 2013

Earnings Per Share [Abstract]

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

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 June 30,		Six Months Ended June 30,
	2013	2012	2013	2012
Restricted stock	2,008	3,868	2,122	3,832
Stock options	2,513	3,190	2,655	3,536
ESPP	155	88	115	136
Convertible notes	7,680	7,680	7,680	7,680
Total	12,356	14,826	12,572	15,184

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Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2013

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Summary of Significant Accounting Policies

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 June 30, 2013 and the three and six months ended June 30, 2013 and 2012 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, 2012. 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, 2013.

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, Malaysia, Serbia, Singapore, and the United Kingdom. All intercompany transactions and balances have been eliminated upon consolidation.

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, uncertain tax liabilities, allowances for doubtful accounts, the useful lives of fixed assets and intangible assets, goodwill and intangible asset impairments, stock-based compensation forfeiture rates, accrued liabilities, the allocation of the value of purchase consideration for business acquisitions, 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.

Recent Accounting Pronouncements

In July 2013 the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2013-11 (ASU 2013-11), Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. ASU 2013-11 requires an entity to present unrecognized tax benefits as a reduction of a deferred tax asset, except in certain circumstances. ASU 2013-11 is effective for fiscal years and interim periods beginning after December 31, 2013, and early adoption is permitted. Based upon a preliminary review of the guidance, the Company does not anticipate adoption will have a significant impact on the Company’s condensed consolidated financial statements.

In February 2013 the FASB issued Accounting Standards Update 2013-02 (ASU 2013-02), Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. ASU 2013-02 requires an entity to present either on the face of the statement where comprehensive income is presented or in the notes to the financial statements, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income. The adoption of ASU 2013-02, which involves presentation and disclosures only, did not impact the Company’s condensed consolidated financial statements.

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Acquisitions

6 Months Ended

Jun. 30, 2013

Business Combinations [Abstract]

Acquisitions

Acquisitions

6FigureJobs.com

On May 4, 2012, the Company acquired 6FigureJobs.com (“6FigureJobs”), a premier job advertisement placement, recruitment media services and other career-related services provider to extend Hiring Cloud offerings. 6FigureJobs, a wholly-owned subsidiary of Workstream, Inc., a Canadian corporation, was purchased in exchange for $1.0 million in cash, which included an indemnity holdback of $0.3 million that was settled during the three months ended June 30, 2013.

LeadFormix, Inc.

On January 3, 2012, the Company acquired Leadformix, Inc., a leader in next-generation marketing automation and sales enablement, headquartered in the United States with operations in India, for $9.0 million in cash, which included an indemnity holdback of $1.5 million. In January 2013, $1.3 million of the indemnity holdback was paid and the remainder of the indemnity holdback was settled.

Webcom, Inc.

On October 3, 2011, the Company acquired Webcom, Inc. (Webcom), a U.S.-based company with operations in Serbia, a leader in Software-as-a-Service ("SaaS") based product configuration, pricing, quoting and proposal management. The total purchase price for Webcom was $10.8 million in cash, including a $1.6 million indemnity holdback and a $1.8 million earn-out condition. As of June 30, 2013, $0.9 million of the indemnity holdback remains accrued for potential indemnification items. As of June 30, 2013, the timing of any potential indemnification items under the holdback is unknown. The full remaining balance of the earn-out condition of $1.8 million was paid in February 2013.

The Company’s business combinations completed above did not have a material impact on the Company’s consolidated financial statements, and therefore pro forma disclosures have not been presented.

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Fair Value Measurements

6 Months Ended

Jun. 30, 2013

Fair Value Disclosures [Abstract]

Fair Value Measurements

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 June 30, 2013 (in thousands):

	Fair Value Measurements at Reporting Date Using
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
June 30, 2013	Total		(Level 1)		(Level 2)		(Level 3)
Assets:
Money market funds (1)	$	5,253	$	5,253	$	—	$	—
U.S. government and agency obligations (2)	5,622		—		5,622		—
Corporate notes and obligations (2)	3,276		—		3,276		—
Total	$	14,151	$	5,253	$	8,898	$	—

__________________________________________________

(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.

The table below presents the changes during the six months ended June 30, 2013 related to balances measured using significant unobservable inputs (Level 3) (in thousands):

	December 31, 2012		Additions		Payments			June 30, 2013
Liabilities:
Contingent consideration to Webcom	$	1,750	$	—	$	(1,750	)	$	—
Total	$	1,750	$	—	$	(1,750	)	$	—

During the first quarter of 2013, the Company paid earn-out consideration related to the acquisition of Webcom of $1.8 million.

The estimated fair value of the Company’s financial assets was determined using the following inputs at December 31, 2012 (in thousands):

	Fair Value Measurements at Reporting Date Using
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
December 31, 2012	Total		(Level 1)		(Level 2)		(Level 3)
Assets:
Money market funds (1)	$	3,338	$	3,338	$	—	$	—
U.S. Treasury bills (2)	1,000		1,000		—		—
Corporate notes and obligations (2)	6,071		—		6,071		—
U.S. government and agency obligations (2)	5,700		—		5,700		—
Total	$	16,109	$	4,338	$	11,771	$	—
Liabilities:
Contingent consideration (3)	$	1,750	$	—	$	—	$	1,750
Total	$	1,750	$	—	$	—	$	1,750

__________________________________________________

(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.

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 bills, 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

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. As of June 30, 2013, the Company has no Level 3 liabilities.

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Goodwill and Intangible Assets

6 Months Ended

Jun. 30, 2013

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Intangible Assets

Goodwill and Intangible Assets

Management has determined no changes in the $31.2 million carrying amount of goodwill were necessary during the second quarter of 2013. Intangible assets consisted of the following as of June 30, 2013 and December 31, 2012 (in thousands):

	December 31, 2012 Cost		December 31, 2012 Net		Additions		Amortization Expense			June 30, 2013 Net		Weighted Average Amortization Period (Years)
Developed technology	$	15,179	$	12,384	$	225	$	(1,666	)	$	10,943	4.7
Customer relationships	6,884		4,952		—		(433		)	4,519		5.4
Tradenames	1,202		1,040		—		(111		)	929		5.6
Patents and licenses	1,525		2,744		—		(174		)	2,570		8.0
Other	182		76		13		(30		)	59		1.0
Total	$	24,972	$	21,196	$	238	$	(2,414	)	$	19,020

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 $1.3 million for the three months ended June 30, 2013 and 2012, respectively, and $2.4 million and $2.6 million for the six months ended June 30, 2013 and 2012, respectively. Amortization expense related to intangible assets was included within cost of revenues for developed technology and patents and licenses, sales and marketing expense for customer relationships and trade names, and general and administrative expense for the favorable lease and other. 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 Technology		Customer Relationships		Tradenames		Patents and licenses		Other
Quarter Ending June 30:
Remainder of 2013	$	1,430	$	440	$	102	$	177	$	31
2014	2,372		874		178		348		28
2015	2,117		874		178		343		—
2016	2,123		876		151		344		—
2017	1,812		768		142		343		—
2018	1,081		502		101		313		—
2019 and beyond	8		185		77		702		—
Total expected amortization expense	$	10,943	$	4,519	$	929	$	2,570	$	59

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Stock-based Compensation (Details 3)	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Minimum
Fair value assumptions using the Black-Scholes-Merton valuation model
Expected life (in years)			6 months	6 months
Risk-free interest rate, minimum (as a percent)			0.13%	0.07%
Volatility, minimum (as a percent)			52.00%	39.00%
Maximum
Fair value assumptions using the Black-Scholes-Merton valuation model
Expected life (in years)			1 year	1 year
Risk-free interest rate, maximum (as a percent)			0.17%	0.29%
Volatility, maximum (as a percent)			62.00%	58.00%
ESPP
Fair value assumptions using the Black-Scholes-Merton valuation model
Dividend Yield (as a percent)			0.00%
Stock options
Fair value assumptions using the Black-Scholes-Merton valuation model
Dividend Yield (as a percent)	0.00%	0.00%	0.00%	0.00%
Stock options | Minimum
Fair value assumptions using the Black-Scholes-Merton valuation model
Expected life (in years)	5 years	5 years	5 years	5 years
Risk-free interest rate, minimum (as a percent)	1.41%	0.72%	1.41%	0.72%
Volatility, minimum (as a percent)	61.00%	60.00%	61.00%	60.00%
Stock options | Maximum
Fair value assumptions using the Black-Scholes-Merton valuation model
Expected life (in years)	6 years	6 years	6 years	6 years
Risk-free interest rate, maximum (as a percent)	1.69%	0.92%	1.69%	1.33%
Volatility, maximum (as a percent)	63.00%	65.00%	63.00%	65.00%

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Acquisitions (Details) (USD $) In Millions, unless otherwise specified	1 Months Ended		3 Months Ended		1 Months Ended	3 Months Ended	6 Months Ended
	Jan. 31, 2013 Leadformix, Inc	Jan. 03, 2012 Leadformix, Inc	Jun. 30, 2013 6FigureJobs.com, Inc.	May 04, 2012 6FigureJobs.com, Inc.	Feb. 28, 2013 Webcom	Mar. 31, 2013 Webcom	Jun. 30, 2013 Webcom	Oct. 03, 2011 Webcom
Acquisitions
Cash paid for the acquisition		$ 9.0		$ 1.0
Indemnity holdback		1.5						1.6
Indemnity holdback paid and settled	1.3		0.3
Earn-out related contingent consideration								1.8
Purchase Consideration								10.8
Indemnity holdback accrued							0.9
Contingent consideration paid					$ 1.8	$ 1.8	$ 1.8

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Financial Instruments (Details 2) (USD $)	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Dec. 31, 2012
Contractual maturity, Amortized Cost
Less than 1 year	$ 5,584,000
Between 1 and 2 years	3,315,000
Total	8,899,000
Contractual maturity, Estimated Fair value
Less than 1 year	5,588,000
Between 1 and 2 years	3,310,000
Total	8,898,000
Other disclosures pertaining to available-for-sale securities
Short-term investments in a material unrealized loss position with maturities of greater than 12 months	0		0
Realized gains or losses on sales of investments	0	0
Proceeds from Sale and Maturity of Available-for-sale Securities	$ 3,800,000	$ 9,600,000

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Segment, Geographic and Customer Information (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013 customer segment	Jun. 30, 2012 customer
Segment Reporting [Abstract]
Number of operating segments			1
Revenues by geographic area
Revenues	$ 25,930	$ 23,781	$ 51,472	$ 45,794
Number of customers accounted for more than 10% of total revenues			0	0
United States
Revenues by geographic area
Revenues	20,489	18,802	40,564	36,507
EMEA
Revenues by geographic area
Revenues	2,984	3,303	6,177	5,435
Asia Pacific
Revenues by geographic area
Revenues	1,451	1,325	2,510	2,388
Other
Revenues by geographic area
Revenues	$ 1,006	$ 351	$ 2,221	$ 1,464

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CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $) In Thousands, except Per Share data, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Statement of Financial Position [Abstract]
Accounts receivable, allowances (in dollars)	$ 409	$ 485
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	40,261	38,538
Common stock, shares outstanding	37,922	36,199
Treasury stock, shares	2,339	2,339

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Segment, Geographic and Customer Information

6 Months Ended

Jun. 30, 2013

Segment Reporting [Abstract]

Segment, Geographic and Customer Information

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 months ended June 30, 2013 and 2012 by geographic areas (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
United States	$	20,489	$	18,802	$	40,564	$	36,507
EMEA	2,984		3,303		6,177		5,435
Asia Pacific	1,451		1,325		2,510		2,388
Other	1,006		351		2,221		1,464
	$	25,930	$	23,781	$	51,472	$	45,794

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 six months ended June 30, 2013 and 2012, no customer accounted for more than 10% of our total revenues.

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012
Cash flows from operating activities:
Net loss	$ (13,018)	$ (12,290)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation expense	2,109	1,490
Amortization of intangible assets	2,414	2,558
Provision for doubtful accounts and service remediation reserves	314	52
Stock-based compensation	5,801	7,495
Release of valuation allowance		(224)
(Loss) gain on disposal of property and equipment	3	(5)
Amortization of convertible notes issuance cost	268	268
Net amortization on investments	46	231
Acquisition-related contingent consideration	0	(1,837)
Changes in operating assets and liabilities:
Accounts receivable	86	(6,712)
Prepaid and other current assets	(272)	(637)
Other assets	(472)	548
Accounts payable	(3,201)	118
Accrued expenses	986	(374)
Accrued payroll and related expenses	(431)	(379)
Accrued restructuring	(578)	230
Deferred revenue	8,203	1,270
Deferred income taxes	118	(54)
Net cash used in operating activities	2,376	(8,252)
Cash flows from investing activities:
Purchases of investments	(5,634)	(16,536)
Proceeds from maturities and sale of investments	9,450	26,111
Purchases of property and equipment	(1,356)	(1,714)
Proceeds from disposal of property and equipment		5
Purchases of intangible assets	(364)	(4,485)
Acquisitions, net of cash acquired		(7,721)
Net cash provided by (used in) investing activities	2,096	(4,340)
Cash flows from financing activities:
Proceeds from issuance of common stock	2,168	4,295
Repurchase of common stock from employees for payment of taxes on vesting of restricted stock units	(490)	(1,829)
Payment of consideration related to acquisitions	(3,078)	(723)
Repayment of debt assumed through acquisition		(30)
Payment of principal under capital leases	(1,047)	(587)
Net cash (used in) provided by financing activities	(2,447)	1,126
Effect of exchange rates on cash and cash equivalents	(126)	5
Net (decrease) increase in cash and cash equivalents	1,899	(11,461)
Cash and cash equivalents at beginning of period	16,400	17,383
Cash and cash equivalents at end of period	18,299	5,922
Supplemental disclosures of cash flow information:
Cash paid for interest on convertible debt	1,406	1,406
Cash paid for interest on capital leases	44	60
Non-cash financing of fixed assets acquired under capital lease	$ 2,627

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CONDENSED CONSOLIDATED BALANCE SHEETS (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Current assets:
Cash and cash equivalents	$ 18,299	$ 16,400
Short-term investments	8,898	12,771
Accounts receivable, net of allowances of $409 and $485 at June 30, 2013 and December 31, 2012, respectively	22,167	22,567
Deferred income taxes	40	40
Prepaid and other current assets	6,990	6,718
Total current assets	56,394	58,496
Property and equipment, net	13,018	10,580
Goodwill	31,207	31,207
Intangible assets, net	19,020	21,196
Deferred income taxes, noncurrent	392	392
Deposits and other assets	3,076	2,872
Total assets	123,107	124,743
Current liabilities:
Accounts payable	1,280	4,705
Accrued payroll and related expenses	4,864	5,854
Accrued expenses	6,035	8,164
Deferred income taxes	944	944
Deferred revenue	38,996	35,483
Capital lease obligations	1,470	921
Total current liabilities	53,589	56,071
Deferred revenue, noncurrent	8,392	3,702
Deferred income taxes, noncurrent	278	160
Other liabilities	1,997	2,159
Capital lease obligations, noncurrent	1,884	8
Convertible notes	59,215	59,215
Total liabilities	125,355	121,315
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; 40,261 and 38,538 shares issued and 37,922 and 36,199 shares outstanding at June 30, 2013 and December 31, 2012, respectively	34	34
Additional paid-in capital	262,810	255,331
Treasury stock; 2,339 shares at June 30, 2013 and December 31, 2012	(14,430)	(14,430)
Accumulated other comprehensive income	102	239
Accumulated deficit	(250,764)	(237,746)
Total stockholders' equity	(2,248)	3,428
Total liabilities and stockholders' equity	$ 123,107	$ 124,743

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Goodwill and Intangible Assets (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012	Dec. 31, 2012
Goodwill and Intangible Assets Disclosure [Abstract]
Goodwill	$ 31,207		$ 31,207		$ 31,207
Changes in intangible assets during the year
Cost					24,972
Balance at the beginning of the period, net			21,196
Additions			238
Amortization Expense	(1,200)	(1,300)	(2,414)	(2,558)
Balance at the end of the period, net	19,020		19,020
Developed technology
Changes in intangible assets during the year
Cost					15,179
Balance at the beginning of the period, net			12,384
Additions			225
Amortization Expense			(1,666)
Balance at the end of the period, net	10,943		10,943
Developed technology | Weighted average
Changes in intangible assets during the year
Amortization period			4 years 8 months 12 days
Customer relationships
Changes in intangible assets during the year
Cost					6,884
Balance at the beginning of the period, net			4,952
Additions			0
Amortization Expense			(433)
Balance at the end of the period, net	4,519		4,519
Customer relationships | Weighted average
Changes in intangible assets during the year
Amortization period			5 years 4 months 24 days
Tradenames
Changes in intangible assets during the year
Cost					1,202
Balance at the beginning of the period, net			1,040
Additions			0
Amortization Expense			(111)
Balance at the end of the period, net	929		929
Tradenames | Weighted average
Changes in intangible assets during the year
Amortization period			5 years 7 months 6 days
Patents and licenses
Changes in intangible assets during the year
Cost					1,525
Balance at the beginning of the period, net			2,744
Additions			0
Amortization Expense			(174)
Balance at the end of the period, net	2,570		2,570
Patents and licenses | Weighted average
Changes in intangible assets during the year
Amortization period			8 years
Other
Changes in intangible assets during the year
Cost					182
Balance at the beginning of the period, net			76
Additions			13
Amortization Expense			(30)
Balance at the end of the period, net	$ 59		$ 59
Other | Weighted average
Changes in intangible assets during the year
Amortization period			1 year

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Commitments and Contingencies (Tables)

6 Months Ended

Jun. 30, 2013

Commitments and Contingencies Disclosure [Abstract]

Schedule of contractual cash obligations

The table below sets forth our contractual cash obligations at June 30, 2013.  Contractual cash obligations that are cancellable upon notice and without significant penalties are not included in the table.

	Payments due by Period (in thousands)
Contractual Obligations	Remainder of 2013		2014		2015		2016		2017		2018 and beyond		Total
Convertible notes (1)
Principal payment	$	—	$	—	$	—	$	59,215	$	—	$	—	$	59,215
Interest payments	1,407		2,813		2,813		1,172		—		—		8,205
Unconditional purchase commitments	2,533		3,019		2,379		517		—		—		8,448

__________________________________________________

(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 (See Note 7).

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Stock-based Compensation (Details) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Stock-based compensation
Stock-based compensation expense	$ 3,210,000	$ 4,294,000	$ 5,801,000	$ 7,495,000
Options
Stock-based compensation
Stock-based compensation expense	382,000	403,000	461,000	570,000
Unrecognized compensation expense, stock options	1,800,000		1,800,000
Employee Service Share-based Compensation, Nonvested Awards, Total Compensation Cost Not yet Recognized, Period for Recognition			3 years 4 months 24 days
Restricted Stock Units Performance Awards [Member]
Stock-based compensation
Stock-based compensation expense	394,000	152,000	521,000	178,000
Employee Service Share-based Compensation, Nonvested Awards, Total Compensation Cost Not yet Recognized, Share-based Awards Other than Options	1,200,000		1,200,000
Employee Service Share-based Compensation, Nonvested Awards, Total Compensation Cost Not yet Recognized, Period for Recognition			1 year 1 month 6 days
Percentage of grants vested during period			50.00%
Restricted Stock Units
Stock-based compensation
Stock-based compensation expense	2,294,000	3,598,000	4,513,000	6,431,000
Employee Service Share-based Compensation, Nonvested Awards, Total Compensation Cost Not yet Recognized, Share-based Awards Other than Options	8,900,000		8,900,000
Employee Service Share-based Compensation, Nonvested Awards, Total Compensation Cost Not yet Recognized, Period for Recognition			1 year 7 months 6 days
ESPP
Stock-based compensation
Stock-based compensation expense	140,000	141,000	306,000	316,000
Employee Service Share-based Compensation, Nonvested Awards, Total Compensation Cost Not yet Recognized, Share-based Awards Other than Options	$ 100,000		$ 100,000
Employee Service Share-based Compensation, Nonvested Awards, Total Compensation Cost Not yet Recognized, Period for Recognition			4 months 24 days

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Convertible Notes (Details) (USD $)	6 Months Ended
	Jun. 30, 2013 item	Dec. 31, 2012
Convertible Notes
Aggregate principal amount of debt outstanding	$ 59,215,000	$ 59,215,000
Convertible notes
Convertible Notes
Aggregate principal amount of debt outstanding	59,200,000
Convertible Senior Notes due 2016, interest rate (as a percent)	4.75%
Fair value	62,200,000	58,000,000
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
Convertible debt issuance costs, current portion	500,000	500,000
Debt issuance costs, recorded in deposits and other assets	$ 1,000,000	$ 1,300,000

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Commitments and Contingencies (Details) (USD $) In Thousands, unless otherwise specified							0 Months Ended
	Jun. 30, 2013 Convertible notes, Principal		Jun. 30, 2013 Convertible notes, Interest		Jun. 30, 2013 Unconditional purchase commitments		Mar. 26, 2013 Application server software licenses obligations	Mar. 26, 2013 Application server software licenses related maintenance obligations
Contractual cash obligations
Remainder of 2013		[1]	$ 1,407	[1]	$ 2,533	[1]
2014		[1]	2,813	[1]	3,019	[1]
2015		[1]	2,813	[1]	2,379	[1]
2016	59,215	[1]	1,172	[1]	517	[1]
Total	$ 59,215	[1]	$ 8,205	[1]	$ 8,448	[1]	$ 2,600	$ 4,300
Contractual Obligation Term							3 years	3 years

[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 (See Note 7).

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Commitments and Contingencies

6 Months Ended

Jun. 30, 2013

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Commitments and Contingencies

The table below sets forth our contractual cash obligations at June 30, 2013.  Contractual cash obligations that are cancellable upon notice and without significant penalties are not included in the table.

	Payments due by Period (in thousands)
Contractual Obligations	Remainder of 2013		2014		2015		2016		2017		2018 and beyond		Total
Convertible notes (1)
Principal payment	$	—	$	—	$	—	$	59,215	$	—	$	—	$	59,215
Interest payments	1,407		2,813		2,813		1,172		—		—		8,205
Unconditional purchase commitments	2,533		3,019		2,379		517		—		—		8,448

__________________________________________________

(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 (See Note 7).

On March 26, 2013, we entered into an agreement for application server software licenses and related maintenance payable over three years in the amount of $2.6 million and $4.3 million, respectively.

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 incremental 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 material costs, nor has accrued any costs related to such indemnification provisions.

Intellectual Property Litigation

On July 19, 2012, Versata Software, Inc. and Versata Development Group, Inc. (collectively, “Versata”) filed suit against Callidus in the United States District Court for the District of Delaware. The suit asserted that the Company infringes 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.  On May 30, 2013, we answered the complaint and filed a counterclaim against Versata in the United States District Court for the District of Delaware.  The Company's counterclaim asserted that Versata infringes U.S. Patent Nos. 6,269,355, 6,850,924 and 6,473,748. The Company is not in a position to assess whether any loss or adverse effect on the Company's financial condition is probable or remote or to estimate the range of potential loss, if any.

On August 31, 2012, the Company filed suit against Xactly Corporation (“Xactly”) in the United States District Court for the Central District of California. The suit alleges that Xactly infringes U.S. Patents 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. On January 28, 2013, the Company further amended its complaint to allege that Xactly also infringes U.S. Patent 6,473,748 and dismiss its intentional interference with contractual relations claim. On March 14, 2013, the case was transferred to the United States District Court in the Northern District of California.  On May 31, 2013, the Company and Xactly entered into a stipulated dismissal of the Company's trademark infringement claim whereby Xactly agreed that it will not use the Company's trademarks-in-suit in certain of Xactly's marketing and advertising activities going forward.  

On December 14, 2012, TQP Development, LLC filed suit against Callidus in the United States District Court for the Eastern District of Texas Marshall Division. The suit asserts that Callidus infringes U.S. Patent No. 5,412,730. The Company believes that the claim is without merit and intends to vigorously defend against the claim. The Company is not in a position to assess whether any loss or adverse effect on the Company's financial condition is probable or remote or to estimate the range of potential loss, if any.

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 June 30, 2013, the Company had 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.

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Goodwill and Intangible Assets (Details 2) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2013
Minimum
Intangible assets
Estimated useful life	1 year
Maximum
Intangible assets
Estimated useful life	12 years
Technology
Future expected amortization expense
Remainder of 2013	$ 1,430
2014	2,372
2015	2,117
2016	2,123
2017	1,812
2018	1,081
2019 and beyond	8
Total expected amortization expense	10,943
Relationships
Future expected amortization expense
Remainder of 2013	440
2014	874
2015	874
2016	876
2017	768
2018	502
2019 and beyond	185
Total expected amortization expense	4,519
Tradenames
Future expected amortization expense
Remainder of 2013	102
2014	178
2015	178
2016	151
2017	142
2018	101
2019 and beyond	77
Total expected amortization expense	929
Patents and licenses
Future expected amortization expense
Remainder of 2013	177
2014	348
2015	343
2016	344
2017	343
2018	313
2019 and beyond	702
Total expected amortization expense	2,570
Other
Future expected amortization expense
Remainder of 2013	31
2014	28
2015	0
2016	0
2017	0
2018	0
2019 and beyond	0
Total expected amortization expense	$ 59

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Related Party Transactions (Details) (USD $) In Thousands, unless otherwise specified	1 Months Ended	3 Months Ended		6 Months Ended
	Jun. 30, 2013 Lithium [Member]	Jun. 30, 2013 Webcom	Jun. 30, 2012 Webcom	Jun. 30, 2013 Webcom	Jun. 30, 2012 Webcom
Related party transactions
Related Party Transaction, Expenses from Transactions with Related Party	$ 120
Related Party Transaction, Purchases from Related Party	113
Product modeling and maintenance of certain equipment		$ 38	$ 19	$ 74	$ 48

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Stock-based Compensation

6 Months Ended

Jun. 30, 2013

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock-based Compensation

Stock-based Compensation

Expense Summary

The table below sets forth a summary of stock-based compensation expense for the three and six months ended June 30, 2013 and 2012 (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
Stock-based compensation:
Stock Options	$	382	$	403	$	461	$	570
Performance-Based Restricted Stock	394		152		521		178
Restricted Stock Units	2,294		3,598		4,513		6,431
ESPP	140		141		306		316
Total stock-based compensation	$	3,210	$	4,294	$	5,801	$	7,495

As of June 30, 2013, there was $1.8 million, $1.2 million, $8.9 million and $0.1 million of total unrecognized compensation expense related to stock options, performance-based restricted stock, restricted stock units and the ESPP shares, respectively. The expenses related to stock options, performance-based restricted stock, restricted stock units and ESPP shares are expected to be recognized over a weighted average period of 3.4 years, 1.1 years, 1.6 years and 0.4 years, respectively.

The table below sets forth the functional classification of stock-based compensation expense for the three and six months ended June 30, 2013 and 2012 (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
Stock-based compensation:
Cost of recurring revenues	$	204	$	383	$	378	$	929
Cost of services and other revenues	236		573		642		1,050
Sales and marketing	582		1,165		1,155		1,940
Research and development	467		485		933		899
General and administrative	1,721		1,688		2,693		2,677
Total stock-based compensation	$	3,210	$	4,294	$	5,801	$	7,495

Performance-Based Restricted Stock

During the six months ended June 30, 2013, the Company granted performance-based restricted stock awards with vesting contingent on successful attainment of predetermined SaaS revenue growth and recurring revenue gross margin targets.

During 2012, the Company granted restricted stock units as compensation that were performance-based restricted stock. The pre-established goals were in two parts, measured against annual recurring revenue and operating income, respectively. The annual recurring revenue target for 2012 was met. As a result, 50% of those awards vested during the first quarter of 2013, with the remainder to vest quarterly through 2013. The operating income target was not met, and therefore, the shares related to this target were canceled and associated expense reversed.

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-based award assumes that performance goals will be achieved.  If such goals are not met, no compensation cost is recognized and any previously recognized compensation cost is reversed.  The fair value of each stock option is estimated on the date of grant using the Black-Scholes valuation model and the assumptions noted in the following table.

	Three Months Ended June 30,		Six Months Ended June 30,
	2013	2012	2013	2012
Stock Option Plans
Expected life (in years)	5.0 to 6.0	5.0 to 6.0	5.0 to 6.0	5.0 to 6.0
Risk-free interest rate	1.41% to 1.69%	0.72% to 0.92%	1.41% to 1.69%	0.72% to 1.33%
Volatility	61% to 63%	60% to 65%	61% to 63%	60% to 65%
Dividend Yield	None	None	None	None

The fair value of each ESPP share is estimated on the subscription date of the offering period using the Black-Scholes valuation model and the assumptions noted in the following table.

	Six Months Ended June 30,
	2013	2012
Employee Stock Purchase Plan
Expected life (in years)	0.50 to 1.00	0.50 to 1.00
Risk-free interest rate	0.13% to 0.17%	0.07% to 0.29%
Volatility	52% to 62%	39% to 58%
Dividend Yield	None	None

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Convertible Notes

6 Months Ended

Jun. 30, 2013

Debt Disclosure [Abstract]

Convertible Notes

Convertible Notes

As of June 30, 2013, the Company has an aggregate principal amount of $59.2 million of the 4.75% Convertible Senior Notes (the “Convertible Notes”) due in 2016 outstanding. Interest is payable on June 1 and December 1 of each year until the maturity date of June 1, 2016 unless the Convertible Notes are converted, redeemed or repurchased. The Convertible Notes are senior unsecured obligations of the Company. Based on market prices, the fair value of the Convertible Notes was $62.2 million and $58.0 million as of June 30, 2013 and December 31, 2012, respectively.

The Convertible Notes contain an optional redemption feature which allows the Company, any time on or 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 described 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.

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 June 30, 2013 and December 31, 2012, $0.5 million of the debt issuance costs are included in prepaid and other current assets, with the remaining amounts of $1.0 million and $1.3 million, respectively, recorded in deposits and other assets.

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Restructuring

6 Months Ended

Jun. 30, 2013

Restructuring and Related Activities [Abstract]

Restructuring

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 in our condensed consolidated statements of comprehensive loss. The Company incurred restructuring expense of $0.3 million and $0.2 million during the three months ended June 30, 2013 and 2012, respectively, and $1.6 million and $0.6 million during the six months ended June 30, 2013 and 2012, respectively.

The following table sets forth a summary of accrued restructuring expenses for the six months ended June 30, 2013 and 2012, respectively (in thousands):

	December 31, 2012		Cash Payments			Additions		Adjustments			June 30, 2013
Severance and termination-related costs	$	589	$	(2,115	)	$	1,566	$	(8	)	$	32
Facilities related costs	289		(20		)	—		—			269
Total accrued restructuring expenses	$	878	$	(2,135	)	$	1,566	$	(8	)	$	301

	December 31, 2011		Cash Payments			Additions		Adjustments		June 30, 2012
Severance and termination-related costs	$	—	$	(228	)	$	510	$	—	$	282
Facilities related costs	443		(156		)	104		—		391
Total accrued restructuring expenses	$	443	$	(384	)	$	614	$	—	$	673

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Fair Value Measurements (Details) (USD $)
In Thousands, unless otherwise specified

6 Months Ended

Jun. 30, 2013

Dec. 31, 2012

Fair value of financial assets and liabilities

Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis [Table Text Block]

The estimated fair value of the Company’s financial assets was determined using the following inputs at June 30, 2013 (in thousands):

	Fair Value Measurements at Reporting Date Using
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
June 30, 2013	Total		(Level 1)		(Level 2)		(Level 3)
Assets:
Money market funds (1)	$	5,253	$	5,253	$	—	$	—
U.S. government and agency obligations (2)	5,622		—		5,622		—
Corporate notes and obligations (2)	3,276		—		3,276		—
Total	$	14,151	$	5,253	$	8,898	$	—

__________________________________________________

(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.

The estimated fair value of the Company’s financial assets was determined using the following inputs at December 31, 2012 (in thousands):

	Fair Value Measurements at Reporting Date Using
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
December 31, 2012	Total		(Level 1)		(Level 2)		(Level 3)
Assets:
Money market funds (1)	$	3,338	$	3,338	$	—	$	—
U.S. Treasury bills (2)	1,000		1,000		—		—
Corporate notes and obligations (2)	6,071		—		6,071		—
U.S. government and agency obligations (2)	5,700		—		5,700		—
Total	$	16,109	$	4,338	$	11,771	$	—
Liabilities:
Contingent consideration (3)	$	1,750	$	—	$	—	$	1,750
Total	$	1,750	$	—	$	—	$	1,750

__________________________________________________

(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.

Fair Value, Measurement with Unobservable Inputs Reconciliations, Recurring Basis, Liability Value

$ 0

$ 1,750

Contingent consideration

Fair value of financial assets and liabilities

Fair Value, Measurement with Unobservable Inputs Reconciliations, Recurring Basis, Liability Value

0

1,750

Ongoing basis

Fair value of financial assets and liabilities

Fair Value, Measurement with Unobservable Inputs Reconciliations, Recurring Basis, Liability Value

1,750

Ongoing basis | Contingent consideration

Fair value of financial assets and liabilities

Fair Value, Measurement with Unobservable Inputs Reconciliations, Recurring Basis, Liability Value

1,750

Ongoing basis | Total

Fair value of financial assets and liabilities

Assets, Fair Value Disclosure

14,151

16,109

Ongoing basis | Total | Money market funds

Fair value of financial assets and liabilities

Assets, Fair Value Disclosure

5,253

^[1]

3,338

^[2]

Ongoing basis | Total | U.S. Treasury bills

Fair value of financial assets and liabilities

Assets, Fair Value Disclosure

1,000

^[3]

Ongoing basis | Total | U.S. government and agency obligations

Fair value of financial assets and liabilities

Assets, Fair Value Disclosure

5,622

^[4]

5,700

^[3]

Ongoing basis | Total | Corporate notes and obligations

Fair value of financial assets and liabilities

Assets, Fair Value Disclosure

3,276

^[4]

6,071

^[3]

Ongoing basis | Quoted Prices in Active Markets for Identical Assets (Level 1)

Fair value of financial assets and liabilities

Assets, Fair Value Disclosure

5,253

4,338

Fair Value, Measurement with Unobservable Inputs Reconciliations, Recurring Basis, Liability Value

0

Ongoing basis | Quoted Prices in Active Markets for Identical Assets (Level 1) | Contingent consideration

Fair value of financial assets and liabilities

Fair Value, Measurement with Unobservable Inputs Reconciliations, Recurring Basis, Liability Value

0

Ongoing basis | Quoted Prices in Active Markets for Identical Assets (Level 1) | Money market funds

Fair value of financial assets and liabilities

Assets, Fair Value Disclosure

5,253

^[1]

3,338

^[2]

Ongoing basis | Quoted Prices in Active Markets for Identical Assets (Level 1) | U.S. Treasury bills

Fair value of financial assets and liabilities

Assets, Fair Value Disclosure

1,000

^[3]

Ongoing basis | Quoted Prices in Active Markets for Identical Assets (Level 1) | U.S. government and agency obligations

Fair value of financial assets and liabilities

Assets, Fair Value Disclosure

0

^[4]

0

^[3]

Ongoing basis | Quoted Prices in Active Markets for Identical Assets (Level 1) | Corporate notes and obligations

Fair value of financial assets and liabilities

Assets, Fair Value Disclosure

0

^[4]

0

^[3]

Ongoing basis | Significant Other Observable Inputs (Level 2)

Fair value of financial assets and liabilities

Assets, Fair Value Disclosure

8,898

11,771

Fair Value, Measurement with Unobservable Inputs Reconciliations, Recurring Basis, Liability Value

0

Ongoing basis | Significant Other Observable Inputs (Level 2) | Contingent consideration

Fair value of financial assets and liabilities

Fair Value, Measurement with Unobservable Inputs Reconciliations, Recurring Basis, Liability Value

0

Ongoing basis | Significant Other Observable Inputs (Level 2) | Money market funds

Fair value of financial assets and liabilities

Assets, Fair Value Disclosure

0

^[1]

0

^[2]

Ongoing basis | Significant Other Observable Inputs (Level 2) | U.S. Treasury bills

Fair value of financial assets and liabilities

Assets, Fair Value Disclosure

0

^[3]

Ongoing basis | Significant Other Observable Inputs (Level 2) | U.S. government and agency obligations

Fair value of financial assets and liabilities

Assets, Fair Value Disclosure

5,622

^[4]

5,700

^[3]

Ongoing basis | Significant Other Observable Inputs (Level 2) | Corporate notes and obligations

Fair value of financial assets and liabilities

Assets, Fair Value Disclosure

3,276

^[4]

6,071

^[3]

Ongoing basis | Significant Unobservable Inputs (Level 3)

Fair value of financial assets and liabilities

Assets, Fair Value Disclosure

0

0

Fair Value, Measurement with Unobservable Inputs Reconciliations, Recurring Basis, Liability Value

1,750

Ongoing basis | Significant Unobservable Inputs (Level 3) | Contingent consideration

Fair value of financial assets and liabilities

Fair Value, Measurement with Unobservable Inputs Reconciliations, Recurring Basis, Liability Value

1,750

Ongoing basis | Significant Unobservable Inputs (Level 3) | Money market funds

Fair value of financial assets and liabilities

Assets, Fair Value Disclosure

0

^[1]

0

^[2]

Ongoing basis | Significant Unobservable Inputs (Level 3) | U.S. Treasury bills

Fair value of financial assets and liabilities

Assets, Fair Value Disclosure

0

^[3]

Ongoing basis | Significant Unobservable Inputs (Level 3) | U.S. government and agency obligations

Fair value of financial assets and liabilities

Assets, Fair Value Disclosure

0

^[4]

0

^[3]

Ongoing basis | Significant Unobservable Inputs (Level 3) | Corporate notes and obligations

Fair value of financial assets and liabilities

Assets, Fair Value Disclosure

$ 0

^[4]

$ 0

^[3]

[1] Included in cash and cash equivalents on the condensed consolidated balance sheet.

[2] Included in cash and cash equivalents on the consolidated balance sheet.

[3] Included in short-term investments on the consolidated balance sheet.

[4] Included in short-term investments on the condensed consolidated balance sheet.

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Restructuring (Tables)

6 Months Ended

Jun. 30, 2013

Restructuring and Related Activities [Abstract]

Summary of accrued restructuring expenses

The following table sets forth a summary of accrued restructuring expenses for the six months ended June 30, 2013 and 2012, respectively (in thousands):

	December 31, 2012		Cash Payments			Additions		Adjustments			June 30, 2013
Severance and termination-related costs	$	589	$	(2,115	)	$	1,566	$	(8	)	$	32
Facilities related costs	289		(20		)	—		—			269
Total accrued restructuring expenses	$	878	$	(2,135	)	$	1,566	$	(8	)	$	301

	December 31, 2011		Cash Payments			Additions		Adjustments		June 30, 2012
Severance and termination-related costs	$	—	$	(228	)	$	510	$	—	$	282
Facilities related costs	443		(156		)	104		—		391
Total accrued restructuring expenses	$	443	$	(384	)	$	614	$	—	$	673

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Net Loss Per Share

6 Months Ended

Jun. 30, 2013

Earnings Per Share [Abstract]

Net Loss Per Share

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 six months ended June 30, 2013 and 2012, 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 June 30,		Six Months Ended June 30,
	2013	2012	2013	2012
Restricted stock	2,008	3,868	2,122	3,832
Stock options	2,513	3,190	2,655	3,536
ESPP	155	88	115	136
Convertible notes	7,680	7,680	7,680	7,680
Total	12,356	14,826	12,572	15,184

The weighted average exercise price of stock options excluded for the three and six months ended June 30, 2013 was $4.04 and $4.02, respectively. The weighted average exercise price of stock options excluded for the three and six months ended June 30, 2012 was $3.71 and $4.05, respectively.

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

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Fair Value Measurements (Tables)

6 Months Ended

Jun. 30, 2013

Fair Value Disclosures [Abstract]

Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis [Table Text Block]

The estimated fair value of the Company’s financial assets was determined using the following inputs at June 30, 2013 (in thousands):

	Fair Value Measurements at Reporting Date Using
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
June 30, 2013	Total		(Level 1)		(Level 2)		(Level 3)
Assets:
Money market funds (1)	$	5,253	$	5,253	$	—	$	—
U.S. government and agency obligations (2)	5,622		—		5,622		—
Corporate notes and obligations (2)	3,276		—		3,276		—
Total	$	14,151	$	5,253	$	8,898	$	—

__________________________________________________

(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.

The estimated fair value of the Company’s financial assets was determined using the following inputs at December 31, 2012 (in thousands):

	Fair Value Measurements at Reporting Date Using
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
December 31, 2012	Total		(Level 1)		(Level 2)		(Level 3)
Assets:
Money market funds (1)	$	3,338	$	3,338	$	—	$	—
U.S. Treasury bills (2)	1,000		1,000		—		—
Corporate notes and obligations (2)	6,071		—		6,071		—
U.S. government and agency obligations (2)	5,700		—		5,700		—
Total	$	16,109	$	4,338	$	11,771	$	—
Liabilities:
Contingent consideration (3)	$	1,750	$	—	$	—	$	1,750
Total	$	1,750	$	—	$	—	$	1,750

__________________________________________________

(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)

The table below presents the changes during the six months ended June 30, 2013 related to balances measured using significant unobservable inputs (Level 3) (in thousands):

	December 31, 2012		Additions		Payments			June 30, 2013
Liabilities:
Contingent consideration to Webcom	$	1,750	$	—	$	(1,750	)	$	—
Total	$	1,750	$	—	$	(1,750	)	$	—

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Goodwill and Intangible Assets (Tables)

6 Months Ended

Jun. 30, 2013

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of intangible assets

Intangible assets consisted of the following as of June 30, 2013 and December 31, 2012 (in thousands):

	December 31, 2012 Cost		December 31, 2012 Net		Additions		Amortization Expense			June 30, 2013 Net		Weighted Average Amortization Period (Years)
Developed technology	$	15,179	$	12,384	$	225	$	(1,666	)	$	10,943	4.7
Customer relationships	6,884		4,952		—		(433		)	4,519		5.4
Tradenames	1,202		1,040		—		(111		)	929		5.6
Patents and licenses	1,525		2,744		—		(174		)	2,570		8.0
Other	182		76		13		(30		)	59		1.0
Total	$	24,972	$	21,196	$	238	$	(2,414	)	$	19,020

Schedule of future expected amortization

Total future expected amortization is as follows (in thousands):

	Developed Technology		Customer Relationships		Tradenames		Patents and licenses		Other
Quarter Ending June 30:
Remainder of 2013	$	1,430	$	440	$	102	$	177	$	31
2014	2,372		874		178		348		28
2015	2,117		874		178		343		—
2016	2,123		876		151		344		—
2017	1,812		768		142		343		—
2018	1,081		502		101		313		—
2019 and beyond	8		185		77		702		—
Total expected amortization expense	$	10,943	$	4,519	$	929	$	2,570	$	59

XML

Document and Entity Information	6 Months Ended
	Jun. 30, 2013	Aug. 02, 2013
Document and Entity Information
Entity Registrant Name	CALLIDUS SOFTWARE INC
Entity Central Index Key	0001035748
Document Type	10-Q
Document Period End Date	Jun. 30, 2013
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		38,018,069
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q2

XML

Financial Instruments (Tables)

6 Months Ended

Jun. 30, 2013

Financial Instruments

Summary of cash, cash equivalents and investments classified as available-for-sale

The components of the Company’s cash, cash equivalents and investments classified as available-for-sale were as follows at June 30, 2013 and December 31, 2012 (in thousands):

June 30, 2013	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Other Than Temporary Impairment		Estimated Fair value
Cash	$	13,046	$	—	$	—		$	—	$	13,046
Cash equivalents:
Money market funds	5,253		—		—			—		5,253
Total cash equivalents	5,253		—		—			—		5,253
Total cash and cash equivalents	$	18,299	$	—	$	—		$	—	$	18,299
Short-term investments:
U.S. government and agency obligations	5,628		—		(6		)	—		5,622
Corporate notes and obligations	3,271		5		—			—		3,276
Total short-term investments	$	8,899	$	5	$	(6	)	$	—	$	8,898

December 31, 2012	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Other Than Temporary Impairment		Estimated Fair value
Cash	$	13,062	$	—	$	—	$	—	$	13,062
Cash equivalents:
Money market funds	3,338		—		—		—		3,338
Total cash equivalents	3,338		—		—		—		3,338
Total cash and cash equivalents	$	16,400	$	—	$	—	$	—	$	16,400
Short-term investments:
U.S. government and agency obligations	6,700		—		—		—		6,700
Corporate notes and obligations	6,061		10		—		—		6,071
Total short-term investments	$	12,761	$	10	$	—	$	—	$	12,771

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

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 June 30, 2013 were as follows (in thousands):

Contractual maturity	Amortized Cost		Estimated Fair value
Less than 1 year	$	5,584	$	5,588
Between 1 and 2 years	3,315		3,310
Total	$	8,899	$	8,898