VISUALIZATION

Callidus Software, a leading provider of Enterprise Incentive Management (EIM) software, announced financial results for the third quarter ended September 30, 2006. Total third quarter revenues were $17.4 million, essentially flat compared to the third quarter 2005 and to the prior quarter. Third quarter license revenues were $5.8 million, equal to the third quarter 2005 and down slightly from the prior quarter. Third quarter maintenance and service revenues were $11.6 million, an increase of 3% compared to the third quarter 2005 and a slight decrease compared to the prior quarter. In addition, hosted on-demand bookings were $1.5 million in the third quarter compared to zero in the third quarter of 2005. License revenues plus hosted on-demand bookings in the quarter totaled $7.3M, an increase of 26% compared to the third quarter 2005. On a year-to-date basis, total revenues are up 18% from $44.2 million to $52.0 million compared to 2005. Year-to-date license revenues are up 76% from $10.6 million to $18.7 million compared to 2005. Year-to-date hosted on-demand bookings were $6.1 million, compared to zero in 2005. Year-to-date license revenues plus on-demand bookings totaled $24.8 million, an increase of 134% compared to the equivalent period in 2005. A significant development over the past six months has been the launch and growth of our hosted on-demand offering. Starting from zero, the company has sold multi-year contracts with a total value of $6.1 million over the past six months. These contracts are expected to generate annual recurring revenues of $2.3 million. Contractual terms are generally two to five years with the total value based on the non-cancellable period. Hosted on-demand revenues will be recognized ratably over the contract term in maintenance and service revenues, generally after an implementation is complete. We do not expect the impact of the revenue stream associated with the currently booked contracts to be fully realized until the first quarter of 2007. To date, hosted on-demand recognized revenues have been minimal. Third quarter net loss was $2.5 million, or ($0.09) per share (including $1.1 million of stock-based compensation expense). This compares to a net loss of $0.9 million, or ($0.03) per share, for the third quarter of 2005 (including $0.1 million of stock-based compensation expense) and a net loss of $3.2 million, or ($0.12) per share, for the prior quarter (including $1.4 million of stock-based compensation expense). Cash and investments totaled $53.2 million at September 30, 2006, a decrease of $3.5 million from June 30, 2006. "After a slow start, Q3 was a solid quarter where we continued to consolidate on progress made earlier in the year. Year-to-date total revenue growth was 18% and we continued to gain good traction with our hosted on-demand product offering. Our service revenues were limited by capacity rather than demand as we diverted service resources to our hosted on-demand business and were not able to backfill as quickly as we would have liked," said Robert Youngjohns, president and CEO. "We continue to see substantial market opportunity for our EIM and Sales Performance Management solutions, both in our traditional enterprise software model and through our new hosted on-demand offering," Mr. Youngjohns concluded. Recent Business Highlights -- Some of the customers purchasing Callidus solutions in the third quarter included, Discovery Communications, Health Net, Inc., Kronos, Mashreqbank PSC, Principal Financial Group, RVS Levensverzekering N.V. (an ING Group N.V. company), SanDisk, US Bank, and Vodafone Romania. -- Callidus announced SAP is now able to promote and market TrueComp(R) and TrueInformation(R) products in the United States and Canada. Callidus also announced its TrueComp and TrueInformation products achieved "Powered by SAP NetWeaver(R)" status. -- Callidus signed an agreement with Hyperion to sublicense part of its System 9 technology for Callidus' new Quota Management product. Callidus Quota Management, a soon to be announced product, is an application for revenue planning to create quota targets and quota planning and assignment to sales management and field representatives. -- Callidus received a "Positive" rating from Gartner, Inc. in the firm's MarketScope for Sales Incentive Compensation Management Software, 2006. In the report, Gartner evaluated ten sales incentive compensation management vendors. Callidus was one of three vendors to receive the highest rating given to vendors in the report, "Positive." Callidus was also highlighted in a June 2006 Forrester report on Incentive compensation characterizing Callidus as one that "leads the incentive compensation specialists in customer share." Also, Callidus won CRM Magazine's Rising Star Award. -- Callidus released a new customer Return on Investment (ROI) study which is available for download on our website. TELUS Communications Company, one of the largest telecommunications companies in Canada, realized an ROI of over 3,000% in the first two years from deployment of Callidus' TrueComp software. TELUS recouped its investment in less than six months, through increased revenues and increased cross-selling, a 60% reduction in overpayments, an 80% reduction in average time to resolve a dispute, and other efficiencies achieved with the TrueComp solution. Q4 2006 Financial Outlook -- Total revenues are expected to be between $19.5 million and $21.0 million. This would represent a 12% to 21% increase compared to third quarter total revenues of $17.4 million and includes only a partial effect of the currently booked hosted on-demand sales. The company has added capacity on the services side of the business and expects to grow both its license revenues and its maintenance and service revenues in the fourth quarter. -- Operating expenses, including stock-based compensation, are expected to be between $13.7 million and $14.2 million. -- Total stock-based compensation is expected to be approximately $1.1 million.