Callidus Software reports second quarter 2004 reports Q2 Revenues $13.2 million

San Jose, Calif, ó Callidus Software Inc. (Nasdaq: CALD), a leader in Enterprise Incentive Management (EIM), today announced financial results for the second quarter ended June 30, 2004.

Total second quarter revenues declined 20% to $13.2 million compared to $16.6 million in the second quarter of 2003. Second quarter net loss was $13.6 million, or ($0.56) per share, compared to net income of $0.5 million, or $0.03 per share, for the second quarter of 2003.

Non-GAAP net loss for the second quarter was $5.6 million, or ($0.23) per share, as compared to non-GAAP net income of $0.8 million, or $0.04 per share in the second quarter of 2003. A reconciliation between GAAP and non-GAAP information is contained in the attached tables.

ìSecond quarter maintenance and service revenues met our expectations; however, product revenues were substantially below our initial expectations for the quarter. We continued to experience longer selling cycles and delays in closing transactions during the quarter,î said David Pratt, president and CEO of Callidus Software.

ìDuring my short tenure, I have worked closely with the executive team and met with many of our employees, customers, prospective customers and partners. My assessment is that Callidus has great products, happy customers, strong partnerships and a good employee base. Our focus in the near term will be on sales execution efforts and on reducing our cost structure to lower our break-even point,î continued Pratt.

Callidus also announced the discontinuance of its TruePerformance product. In connection with this decision, Callidus recorded impairment charges totaling $3.8 million on intangible assets in the second quarter.

ìWe believe the TrueComp suite of products has greater return on investment potential than the TruePerformance product. Accordingly, the discontinued investment in TruePerformance will result in quarterly cost savings of approximately $800,000, excluding related shut down costs, while not negatively impacting anticipated 2004 revenues,î said Pratt. The TrueComp suite, including TrueResolutionô, TrueReferralô, and TrueInformationô, has constituted the vast majority of product revenues since the inception of Callidus.

In addition to discontinuing TruePerformance, Callidus expects to implement other cost savings actions and closely monitor discretionary spending. These actions are anticipated to result in additional quarterly cost savings of approximately $1.2 million. The impact of the combined cost savings actions will be partially realized in the third quarter. Accordingly, management anticipates operating expenses for the third quarter of 2004, excluding stock-based compensation and charges related to the cost savings actions, to be between $9.5 million and $10.5 million.

Maintenance and service revenues for the third quarter are expected to be between $10.0 million and $11.0 million with a contributing margin of 28% to 30%.

Q2 2004 Financial Summary
License revenues were $1.9 million, declining 79% year-over-year.
Maintenance and service revenues were $11.3 million; increasing 46% year-over-year. Excluding an accrual for a TruePerformance related claim, maintenance and service revenues were $12.1 million; increasing 56% year-over-year.
Operating expenses were $16.7 million. Excluding stock-based compensation, amortization and impairment of intangibles and legal settlements, operating expenses were $11.4 million in Q2 2004, an increase of $2.4 million from Q2 2003. The increase is the result of added investments in all areas of the business and the costs of being a public company.
Cash and investments totaled $70.0 million on June 30, 2004.
Days Sales Outstanding (DSO) in accounts receivable at the end of the quarter was 66 days, unchanged from the end of the first quarter of 2004.