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Callidus Software, Inc. (NASDAQ:CALD)

Q4 2013 Earnings Conference Call

February 5, 2014 04:30 p.m. ET

Executives

Bob Corey – CFO

Leslie Stretch – President & CEO

Analysts

Chad Bennett – Craig Hallum

Scott Berg – Northland Capital Markets

Eric Martinuzzi – Lake Street Capital

Brian Schwartz – Oppenheimer

Kevin Liu – B. Riley, Inc.

Alex Zukin – Stephens

Operator

Good day ladies and gentlemen. We welcome to the Q4 2013 Callidus Cloud Software Inc. earnings conference call. My name is Whitney and I will be your operator for today. (Operator Instructions)

I would now like to turn the conference over to your host for today, Mr. Bob Corey, CFO. Please proceed sir.

Bob Corey

Okay, great. Thank you very much, operator. Welcome to CallidusCloud's fourth quarter 2013 financial results conference call. A more complete disclosure of our results can be found in our press release issued about a half an hour ago, as well as in our related Form 8-K furnished to the SEC earlier today. To access the press release and the financial details, please see the Investor Relations section of our website.

With me on the call today is Leslie Stretch, President and CEO of CallidusCloud. The primary purpose of today's call is to discuss our fourth quarter and year to date 2013 results. However, some of the information discussed during the call including any financial outlook we provide may constitute forward-looking statements within the meaning of the US Federal Securities laws. These statements are subject to risk, uncertainties and assumptions and are based on financial information available as of today. We disclaim any obligation to update any forward-looking statements to our outlook.

Forward-looking statements involve risk, uncertainties and assumptions. If any of the risk or uncertainties developed or any of the assumptions prove incorrect actual results could differ materially from those expressed or implied by the forward-looking statements we make. These risks and additional risks are also described in detail in our reports that we file from time to time with the SEC, including our most recent 10-K and 10-Q filings, which I encourage you to read.

With that said, I will now turn the call over to Leslie. Leslie?

Leslie Stretch

Thank you, Bob. Good afternoon everyone. I would like to begin by thanking each and every one of my colleagues for their efforts in delivering record Q4 revenue and a record full year of 2013. Today, I am going to talk about four key topics. Firstly, our performance in Q4 2013. Secondly, I want to outline the main catalysts as I see them for our business going forward. Thirdly, I will provide some comments on our outlook for 2014. And finally, I will bring you up to speed on our acquisition of the LeadRocket technology just announced today and how it fits in with our Lead to Money proposition.

In 2013, we had record Q4 revenues and maintained strong SaaS billings growth despite a tough comparative. We added over 200 net new subscription customers in the quarter, a record, and met or exceeded our cash and profit goals. Our channel business was stronger than ever with over 100 net new subscription deals versus 24 a year ago. We also signed an increased number of multi-product or suite deals. In several Q4 campaigns, the ability to provide additional solutions to customers proved decisive in beating out single product competitors. This is particularly true in the commission space.

When we bring to the table Commissions, Territory & Quota, Big Sales Data, Configure Price and Quote, SalesPortal, Marketing, Mobile Learning and our other solutions we have critical differentiators that our competitors simply cannot match. Our Lead to Money message is resonating with our customers and prospects.

Let me take you through our new Q4 signings in the selling cloud, marketing cloud and learning cloud to illustrate the industries and customers that joined our growing list of subscribers. In the quarter, new deals included Violin Memory, a pioneering flash storage company for Commissions, Sales Enablement, Sales Performance Manager, Configure Price and Quote, Litmos Mobile Learning and Marketing Automation, all in a suite.

John Hancock, a world leading life insurance company also signed for Commissions, Workflow and Sales Performance Manager. Seguros Monterrey New York Life Life in Mexico signed for Commissions, Litmos and Litmos [indiscernible].

BMC Software signed for Commissions, Workflow and our brand new Territory and Quota Manager solution. Edmunds.com, the leading automotive resource for the consumer signed for Commissions, Litmos and My Sales Gain. Vivint, a pioneering leader in security and home automation signed for Commissions, Litmos and Litmos Software.

Optimum Lightpath, a subsidiary of CableVision, BlueCross BlueShield of Arkansas, Tokyo Marine all signed for Commissions and ProVen Health signed for Configure Price and Quote.

In the Marketing Cloud, we signed TELLUS International [ph], commercial real estate leader, GeneWize, a leading genomics service company, Starclub [ph], an Australian social media solution provider, Domain Holdings Group, the premium domain name broker, Silicon Prime, an international IT services provider, and Polaris Financial Technology.

In the Mobile Learning Cloud, we were chosen by Hulu, the online video service, Reputation.com, the online reputation management provider, Admiral, the global retargeting leader, SunEdison, a leading global provider of renewable energy solutions, and AppNeta, an application performance management technology leader.

Our solutions are seeing increased usage across the board. Customers using industry’s leading cloud commissions platform processed over $890 billion of transactions in 2013, up 22% from a year ago. Configure Price and Quote customers generated more than 600,000 quotes in 2013 with an aggregate value of more than $65 billion, up over 100% from a year ago.

Using our Marketing Automation platform, our customers processed 67 million website visitors and identified more than 20 million of them which would otherwise remain anonymous. Also, customers nearly doubled the number of emails sent out on the platform in 2013 when compared to last year.

Litmos, our mobile learning platform had over 280,000 unique logins and over 770,000 courses were completed in 2013, both more than double that of 2012.

Before I turn to the catalysts for 2014, I want to update you on our services business. Our services leadership continues to make progress in establishing us as an expert consulting service, supporting our partners and customers through critical implementations. The business was strong again in Q4 with solid margin performance. I expect this business to show growth in 2014 off of the back of the strong Q4 backlog.

Now let me turn to the catalysts for our business in 2014. I believe our SaaS revenue growth will accelerate in the second half of the year. We have an improved comparative opportunity but more critically there are 60 catalysts at work.

Catalyst number one, we have added meaningly to our direct sales force and our partner ecosystem. Catalyst number two, in November we launched our Territory and Quota Manager that addresses the challenges facing companies when trying to accurately evaluate territory performance and sales capacity. This is the critical process that directly affects the company's ability to drive revenue. We have seen strong demand for our solution and have already signed our first customer. I believe this will be an important new solution for us in 2014. At the end of Q1, we will be launching our Contract Lifecycle Management solution.

Catalyst number three, we’re able to offer more functionality than almost any other sales and marketing vendor and in some of our Q4 competitive engagements, this has proved decisive in winning business. To this end, we have launched three product bundles to help our customers in the enterprise, small region business sectors to adopt our solutions and transform their sales results.

Catalyst number four, we have a bigger installed base than ever and this represents a significant cross-sell and upsell opportunity. Catalyst number five, the secular shift towards cloud is relentless and we see renewed interest from on-premises customers for our cloud services and expect some decent size conversion this year.

Catalyst number six, our pipeline activities. We were proud [ph] to sponsor DreamForce in San Francisco where we experienced record traffic, up nearly 200% from last year, from prior year. Also, during the quarter, we hosted our inaugural C3 conference in EMEA which was a sellout. We also sponsored Datelearn [ph] in Las Vegas and the SiriusDecisions Summit in London. These events helped set up a strong pipeline for 2014.

Looking ahead to 2014. I am excited about our growth prospects. In fact, we have already closed a seven-figure conversion to SaaS in January and we also booked our first large insurance customer in Japan, another seven-figure contract.

We are raising our guidance for the year and Bob will provide more color in his remarks. Our focus is on SaaS revenue growth for the full year. And this is reflected in our incentive plans for the executive team in 2014, 2015 and 2016. Our goal is to achieve 25% of the bulk [ph] SaaS revenue growth consistently over the next three years whilst maintaining profitability.

Now let me turn to the acquisition we just announced. Today after market closed, we announced the acquisition of LeadRocket. This is a small technical acquisition of a Silicon Valley business. The solution is intended to enable sales executives create one to one marketing campaign on the fly on any devices any time. It will be integrated with our marketing platform to further enhance the capabilities of that solution set and to underline our point of view that marketing automation needs to be integrated with sales execution. The acquisition brings with it some important intellectual property in the form of three key partners and also a valuable domain real estate.

I will now hand over to Bob to go through the financial picture in more detail.

Bob Corey

Okay, thanks, Leslie and good afternoon everyone. Before I begin my detailed comments on Q4 I want to thank each and every employee for their hardwork that has contributed to our success in Q4 and the full year. We would like to remind everyone that I will be referring to both GAAP and non-GAAP financial measures, the reconciliation of our GAAP to non-GAAP financial informations provided in our press release which is available on our website.

Additionally, in conjunction with the release of our earnings report, we have posted on our website at Calliduscloud.com under the investor relations tab, additional charts that trend identified performance metrics that we believe will aid in understanding and evaluating our performance over time. All the non-revenue and financial figures I will discuss are non-GAAP. Revenues are of course GAAP numbers.

During our fourth-quarter I am very pleased to report that we continued to build on the momentum established over the last few quarters. Total record Q4 revenue increased to a smidgy over 30 million, an increase of 20% year-over-year and record SaaS revenue of $17.2 million increased 18% over Q4 last year.

During the quarter we signed a record 200 plus net new subscription customers. Days sales outstanding came in at 78 days within our expected range. Despite the headwind we faced from the previously disclosed large customer loss that took full effect in our second quarter of last year, we were able to report SaaS billings growth of 30% for the quarter.

I do want to point out that a variety of factors influenced reported billings growth. Therefore quarter-to-quarter fluctuations in this method cannot necessarily be used as an indicator for changes in future revenue.

Commenting on full-year performance. We are reporting annual SaaS billings growth of 36% and SaaS revenue growth of 20% over fiscal 2012. Total record revenue of $112.3 million for the year represents an 18% increase over fiscal 2012. Additionally, I want to comment on the increase in the annual gross ACV bookings year-over-year. This is a metric we report only on an annual basis and I'm glad to report that our gross ACV bookings growth in 2013 was 29%.

Additionally, SaaS deferred revenue on the balance sheet at December was a record $42.4 million, an increase of 54% from the prior year.

Okay, let’s move on to some specific results for Q4, and unless I mention otherwise the percentage increases or decreases are as compared to the same period to the prior year.

Looking at the recurring business. Total recurring revenue for the quarter was $21.4 million, a 16% increase resulting from 18% growth in our SaaS revenue which totaled $17.2 million compared to $14.6 million for the same period last year. Overages during the quarter were approximately 4% of SaaS revenue and were down from 8% as reported in the prior quarter.

Overages are a result of customers’ expanding use and reliance on our cloud solutions. We anticipate that we will continue to have negotiated overages in future periods and the amounts will vary from quarter to quarter. Our SaaS revenue growth rate, when adjusted for the loss revenue from our previously disclosed customer loss, would have been in excess of 30%. The actual dollar loss in Q4 last year from the former customer was about $1.7 million and I only mention the adjusted rate to clarify the momentum we’re seeing in our business.

Maintenance revenue of $4.1 million was as expected and up a smidgy over the prior year as we closed several large license deals in recent quarters and we anticipate steady maintenance revenue over the next several quarters. During the quarter the mix of contracts with annual versus quarterly payment terms came in at 67% with annual terms compared to 77% with annual terms in Q3.

The shift this quarter was primarily due to an increase in volume products deals and an almost seven-figure enterprise deal with semiannual billing periods. Lastly our customer retention rate continued to be 90% plus.

I am delighted to report that our non-GAAP recurring revenue gross margin during the quarter was 70%, which was our stated goal at the start of fiscal 2013. This is up 5 percentage points from 65% reported in Q4 2012 and improved slightly from 69% reported in Q3 of this year.

Let’s turn to our services and other business. Services and other revenue, including licenses, for the quarter was $8.8 million, an increase of $2 million or 30% growth in the prior year. Professional service revenue was $6.2 million in Q4, an increase of 8% over last year, reflecting increased implementation services resulting from the momentum in our SaaS billings and recent license deals.

Separately, we closed one seven-figure on-premise license deal in the quarter and the total license revenue for the quarter was $2.6 million, representing a 151% increase over last year. The seven-figure deal closed in Q4 was in the U.S. financial services vertical.

During the quarter we closed a total of six license deals, of these two are in the U.S. and four were in international markets with two of the deals being an upgrade by existing customers to more seats. We anticipate to continue closing a small number of on-premise license contracts in future quarters based upon customer needs.

Non-GAAP services and other gross margin was 50%, and improved by 30 percentage points from 20% reported in Q4 last year. Significant increase in services and other revenue gross margin is primarily attributable to an increase in the license revenue and improved gross margin contribution for professional services coming in at 29% for the quarter. This is in contrast to the normalized gross margin for professional services in Q3 of about 24%.

The improved gross margin is primarily based on higher billable utilization in our professional services organization. We anticipate that the gross margin on professional services to trend between 20% to 25% in upcoming quarters, and as we enter 2014 we have the highest contracted backlog for professional services ever.

Shifting to overall gross margin. Our overall gross margin for Q4 was 64% and we expect our overall non-GAAP gross margin will continue to improve during 2014, reflecting the targeted improvements in our recurring revenue and professional services gross margin.

Under operating expenses. Our non-GAAP operating expenses were $17.7 million, an increase of 12% from last year. This exceeded the high side of our internal expectations for the quarter, primarily due to marketing costs associated with conference attendance and accrual for sales tax expense, higher than planned commissions due to volume and bonus accruals.

Sales and marketing expenses were $9.7 million or 32% of revenue, an increase of $1.9 million from Q4 of last year when the percentage of revenue was 31%. The increase from last year primarily reflects the additional costs associated with our attendance at Dreamforce, hosting our first ever C3 EMEA conference and increased commissions.

Research and development expense was $3.7 million for the quarter, a decrease of 5% over Q4 last year but represented 12% of Q4 revenue compared to 15% of revenue in prior year. The decrease reflects the benefits of integrating our recent acquisitions. We do anticipate R&D expense to remain around 12% to 14% of total revenue.

G&A expense was $4.8 million or 16% of revenue in the fourth quarter, an increase of about $690,000 from last year. The increase was primarily driven by sales tax expense, which was unplanned and unfavorable by around $600,000 as we accrued for uncollected sales taxes due in various states where we have nexus, along with increased legal expenses of about $260,000. These increased expenses were partially offset by approximately $250,000 of lower bad debt expense as compared to last year.

Separately, total operating expense benefited by the collection of a payment of $500,000 related to the recent settlement of IP litigation. The settlement called for a total payment of $2 million for infringement to be paid in four annual instalments of $500,000 through 2016. These payments are recorded as a reduction to total operating expense in the period received.

Our non-GAAP operating income for the quarter was a positive $1.8 million, a substantial improvement as compared to the operating loss of $2.4 million last year. Also, adjusted EBITDA for the quarter was $2.8 million, again representing a substantial improvement from the $2.8 million negative EBITDA in the same period last year.

Our non-GAAP net income for the quarter was $1.7 million or $0.04 per fully diluted share compared to the prior quarter loss of $2.7 million or $0.07 loss per share. Our Q4 EPS on the high side of our guidance of $0.03 to $0.04 per share. Q4 2013 non-GAAP income per share is calculated based on approximately 49 million of diluted weighted average shares outstanding.

Turning to the balance sheet and cash flow cash. Cash investments increased to $36.2 million at quarter end. This is an increase of $2.1 million from the prior quarter reflecting continued positive cash flow from operations of $6.1 million.

During the quarter we negotiated early conversion of a significant amount of our outstanding convertible bonds. As a result, the noteholders converted approximately 45 million of bonds into approximately 5.8 million shares of our common stock at the conversion rate stated in the existing agreement.

In conjunction, we paid approximately $4.3 million in cash referred to as an inducement payment as an incentive for the bondholder to convert early. The inducement payment represented a negotiated market based premium to the trading value of the bonds and the savings from future interest payments through maturity net of inducement payment is positive. As a result of these actions, our total bond debt has been reduced to $14 million and our net cash position has improved from a negative $25 million at the end of Q3 to a positive $22 million at year end.

We believe the early conversion provided certainty, strengthened our balance sheet and represented prudent use of available cash. Days sales outstanding increased from 67 days in the prior quarter to 78 days in Q4. The adjusted DSOs was $7 million growth in deferred revenue in the quarter, also referred to as net DSO. Net DSOs increased from 59 days to 64 days over the same period, well within our goal of less than 80 days.

Total deferred revenue, including both short and long-term, increased by $7 million to a record $56.7 million. SaaS deferred revenue was $42.4 million, an increase of $5.3 million sequentially with the balance relating to maintenance and services. SaaS deferred revenue balance has increased by 59% year-over-year.

Turing to our employees, primarily as a result of investing in sales and marketing headcount has increased from 590 employees in Q3 to a total headcount at December 31 of 612. We will continue to prudently add sales capacity in North America, EMEA and in SaaS operations and professional services to support the growth in our customer base. As a result, we anticipate that our headcount will increase during the first quarter of 2014.

Before I get into the guidance, I would like to comment on the announcement earlier today that we have acquired LeadRocket Inc. The acquisition is consistent with our earlier acquisitions as it is focused on best-of-breed products. We now will be able to offer an innovative social engagement and digital marketing platform that integrates with our existing marketing automation platform.

The acquisition was completed on February 4 and the purchase price consisted of $2.5 million with the hold back of $500,000 all cash. We do not expect the acquisition to have a dilutive effect on non-GAAP financial performance for Q1.

Moving onto guidance. I would like to move on to forward-looking financial outlook and I want to remind you of the safe harbor language provided at the beginning of the call. For Q1 we’re anticipating total revenue to be between $29 million and $30 million, representing an increase of 14% to 18% compared to the first quarter of 2013. Again, our total growth rate when adjusted for the lost revenue for the previously disclosed customer would be 22% to 26%.

Non-GAAP operating income for Q1 is expected to be between $1.5 million and $2 million. The non-GAAP expense for Q1 is projected to include the costs associated with additional headcount primarily in sales and professional services and the impact of employer payroll taxes as we begin the new year.

We are guiding non-GAAP fully diluted earnings per share of $0.02 to $0.04 per share for Q1. Lastly, we are projecting cash flow from operations for the upcoming quarter to remain slightly positive.

Turning to guidance for the full year 2014. We are increasing our earlier total revenue guidance by $125 million to $130 million and are projecting our full-year revenue to be between our $126 million and $131 million. This represents 12% to 17% total revenue growth over last year. We are protecting SaaS revenue growth at 25% plus.

As previously noted, our goal is to remain slightly positive on income and cash flow while allowing prudent investments in expanding our sales and marketing operations in an effort to stimulate SaaS revenue growth.

Consequently our guidance for our non-GAAP operating income is $7 million to $9 million for the year and we are guiding non-GAAP fully diluted earnings per share of $0.12 to $0.16 per share. We are committed to generating positive cash flow from operations and positive cash flow for the full-year.

I would now like to open the Q&A session. Operator, please pass for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Chad Bennett with Craig Hallum.

Chad Bennett – Craig Hallum

Hey guys, good afternoon.

Bob Corey

Hi Chad.

Chad Bennett – Craig Hallum

Congrats on another great bookings quarter, billings quarter. I guess Bob, on the SaaS revenue in the quarter, it looks like it was kind of flattish sequentially, considering the strength in billings and bookings for a number of quarters now, was there anything that we’re missing there -- was there any attrition or anything that came out of there?

Bob Corey

Yes, Chad, thanks for the questions. There are a couple elements that are impacting the sequential SaaS revenue from Q3 to Q4. First of all, as we previously reported Q3 had overages, in Q3 that represented about 8% of SaaS revenue. And we've indicated that overages are hard to predict, they’re going to be bumpy quarter to quarter and in Q4 the overages were 4% of SaaS revenue. So that represented a headwind going from Q3 to Q4.

Second implication was, Q3 was a record quarter for us and linearity was stronger than normal quarters. And as a result we’re able to recognize some of the current booking revenue within the quarter and that in itself blunts the slope of the line going into the sequential quarter of Q4. So those were two major impacts. Again overages declined from 8% of SaaS revenues to 4% and linearity was so good we were able to recognize more current quarter bookings and revenue than what we would traditionally be able to do.

Chad Bennett – Craig Hallum

So there wasn't anything meaningful on the attrition side that was above normal?

Bob Corey

No, the retention continues to be, what, 90% plus.

Chad Bennett – Craig Hallum

And how should we think about – or how are you guys more importantly thinking about overages going into this year and how material they will be, or won’t be?

Bob Corey

Well, like I said before they are really hard to forecast and really it’s a good news challenge to be honest with you because it represents that our customers more broadly using our product, right. And so when we do our reports and we contact the customer say, you are using more pay, you use more storage or whatever the metric is, then basically you negotiate with the customer settlement of that and the overage revenue would then take concurrently in the quarter that makes the settlement with.

Always there's a negotiated step-up in the contract payments on a go forward basis. So they are hard to predict and 8% I think was the pinnacle for 2013 in Q3 and it came down to 4% of SaaS revenues in Q4.

Chad Bennett – Craig Hallum

Do you have a pipeline of overage deals that that's pretty healthy going into this year that you’re looking at?

Bob Corey

I really wouldn’t want to comment on the pipeline but we do current routine reviews and reports of utilization of all customers on our multi-tenancy platform. We try to communicate with the customer when they are starting to create an overage and talk to them about it and try and make a settlement and move on.

Chad Bennett – Craig Hallum

A couple last ones from me -- Bob, the seven-figure enterprise deal that you talked about that's going to be billed semiannually, did they receive a billing – did you receive six months of billing this quarter on that?

Bob Corey

Yes.

Chad Bennett – Craig Hallum

So the other half was obviously not reflected in the deferred line.

Bob Corey

That’s correct.

Chad Bennett – Craig Hallum

And I don’t know if you want to quantify this but the mix change in the annual versus quarterly billings, I think it is a meaningful number from Q3 77% to 67% in fourth quarter, is there a way to think about that in a dollar figure because you guys obviously don't give us your bookings dollar numbers. Is it a meaningful shift from a dollar standpoint?

Bob Corey

Well I think if you look at it just discreetly Q3 to Q4, the shift is what – 77 to 67%, reality is Q3 was the anomaly, not so much Q4, because Q3 was a record quarter in which we had four seven-figure deals that we closed in the quarter. And there was -- two of those that were in the SaaS platform and two were in the licensing on premise side of the business. So we had really strong performance annual ACV and ACV in Q3. So we would expect a normal shift coming up in Q4 to where it’s little less strong in the relationship of annual to quarterly. We are thinking we’re going to be trending somewhere in that 70-30% range on a normalized basis going forward unless we have a great seller [ph] quarter like we did in Q3.

Chad Bennett – Craig Hallum

Okay. Last one from me. Bob, were there any multi-year deals, billing deals in the quarter that you benefited from a deferred revenue standpoint?

Bob Corey

We did, we had really one multilayer billings in the quarter.

Chad Bennett – Craig Hallum

You really quantify it or – sounds good, good job guys I’ll jump after let someone else ask questions.

Bob Corey

Thank you Chad.

Leslie Stretch

Thank you.

Operator

Our next question comes from the line of Scott Berg with Northland Capital Markets, please proceed.

Scott Berg – Northland Capital Markets

Hey Leslie and Bob congrats on what appears to be another strong sales quarter, I guess let’s start with the SaaS growth this year at least your guidance for 25%, your SaaS billing is growing at a 30% clip the last four quarters 25% obviously not quite at that that 30% level. In your mind, try to help us kind of understand maybe the delta in light of that, that will be closer to 30 for 2014?

Bob Corey

Sure, Scott, it’s Bob. You know the basis for the SaaS billings calculation, right and it’s impacted by several factors. One of them is multiyear billings which you were just talking about. So your billings rate gets the benefit of multiyear billings but the current SaaS revenue doesn’t benefit from that. The other is the mix of annual versus quarterly billings like we talked about as well. Going forward we are going to be emphasizing SaaS revenue growth because of the vagaries of the calculation when you do the calculated billings growth number. So we are comfortable with the relationship that we see in SaaS billings growth versus SaaS revenue as we are moving forward.

Scott Berg – Northland Capital Markets

And Leslie, can you talk about the acquisition a little bit more in terms of how you are going to match the products with the existing set. Now I assume that there is some potential hook in maybe with your LeadFormix products. I am trying to understand how you will I guess one, integrate it but then how do you sell a value proposition relative to what else you currently have?

Leslie Stretch

So this is a technical acquisition, a tuck-in really very small but it’s a piece of unique new technology that allows us to have sales people, give sales people the ability to kick off campaigns themselves. And so what we find in the small to medium sector, the traditional what I call the lumbering enterprise marketing automation solutions that are out there, they’re not to serve the SMB market very well, they are expensive and they require dedicated and trained marketing staff.

LeadRocket isn’t about that. LeadRocket is about untrained, inexpert salesperson from a marketing perspective being able to campaign to his territory very quickly. So to set up campaigns, set up email marketing campaigns and fire them off from his mobile device if he needs to, but if it’s a new piece of news about an industry or a product, you can get on the LeadRocket and start firing those off.

So if you like, it sits at the front end, or the top of our marketing automation platform, that provides that capability. Similarly an SMB business, as you go off [ph] sales professionals and marketing teams, they are very small. This is about automating, a lot of stuff that they would need to do and mainly it’s about small businesses and sales people helping themselves. The enterprise play the same thing, it’s about the divisional groups, and sales groups being able to help themselves and access the power of marketing automations without being marketing automation or marketing experts. Great piece of technology and love to show it to you next time we meet.

Also it’s got a much improved and exciting integration associated with it. So we can kick off campaigns into all the social media pool that you think about. So we are very excited about it, nothing on the revenue at the moment. It’s really IP and product [indiscernible] but we think we’ve caught it early and really pleased to be able to add it on to the portfolio.

Scott Berg – Northland Capital Markets

Any sense on what ASPs for this product might look like, obviously I don’t expect to see as large as incentive comp deal, but should we about them in line with maybe the LeadFormix or something like Litmos ASP or maybe somewhere in between?

Leslie Stretch

I think it’s actually might be more like a Litmos ASP because it’s really an add on. It’s a very strong feature function set but it's really an add on, it’s a small acquisition. But it could prove decisive in some of our campaigns.

Scott Berg – Northland Capital Markets

And then lastly – apologize if you talked about this in your other remarks, Leslie. The new Territory and Quota product that you released in the quarter, any comments on what you see in the pipeline in terms of interest or demand on those, I know it’s early but at least customers I spoke to spoke highly about it while I was there?

Leslie Stretch

As you know we have had a couple of lighthouse [ph] customers using the product [indiscernible] over the last couple of quarters. We went out and signed our first life customer, I’d say a fairly large user in Q4. If I look at the Commissions pipeline, I see Territory and Quota in just about every single deal but it isn’t in there, it’s probably a good reason for it. It’s not such – it’s so applicable in every vertical, it’s not something that we position at the front of the campaign in insurance for example and then just about every other vertical we think there is a burning need for the solution. So I think it’s just about every one of our proposals, it’s a good standalone pipe as well as – some people who are just interested in buying the Territory and Quota solution on its own.

Scott Berg – Northland Capital Markets

Fantastic, thanks for taking questions. Thank you.

Operator

Your next question comes from the line of Alex Zukin with Stephens. Please proceed.

Alex Zukin – Stephens

Hey guys congratulations on a great earnings quarter.

Leslie Stretch

Thank you.

Scott Berg – Northland Capital Markets

I wanted to ask about these overage rates what are your – what are the implied overage rates for fiscal ‘14 in your SaaS revenue growth guidance for 25%?

Leslie Stretch

Maybe I will just say a few words and let Bob chime in, Alex. So overages for us is a new phenomenon, it’s like three four quarters old. If you go back to in the prepared remarks I talked about the amount of commissions that we now see grow in the online environment, for example, just in the commissions only, overages do not affect other product line is what I should say. We expect, I expect in 2014 to see increased usage, obviously we have signed a lot more customers as well. But I don’t think it’s really predictable, it’s bounced around 3%, 4%, 8%, it’s really not that predictable, it’s a delicate area as well when customers over use. Particularly we find customers are often ahead of us, they are saying, we’re adding seats, or we are adding transactions or adding storage. So we do have a pipeline and we do look at it, but I think it’s significant enough to build anything into our forecast, I think a few percentage points maybe –

Alex Zukin – Stephens

The other question, this one might be more for Bob, but – Bob if you normalize the billings terms for this quarter and for ‘4Q last year are you able to give us a normalized SaaS billings growth rate?

Bob Corey

I think I commented on that in the prepared remarks, so if we normalize SaaS billings – are you saying SaaS billings or SaaS revenue?

Alex Zukin – Stephens

SaaS billings, if you normalize the billings terms for 4Q on both this quarter and this year and the prior year what is the SaaS billings growth rate?

Bob Corey

It’s over 40% if we normalize versus Q4 last year for SaaS billings.

Alex Zukin – Stephens

Just for normalizing for billings terms, so and multiyear billings –

Bob Corey

We haven’t done that.

Alex Zukin – Stephens

Of the 200 customers you guys added how may – can you kind of parse that a little bit by core commissions and CPQ versus Litmos and Marketing Automation customer?

Leslie Stretch

Litmos had a fantastic quarter in terms of number of new signings but I rather talked on the prepared remarks a number sales cloud, selling cloud suite deals that had commissions at the core, big dollars comes from the selling cloud still but Litmos had a really good quarter in terms of number of new signings. LeadFormix really good quarter in terms of new signings, CPQ also, and the start of this year – in January was the record trial month for Litmos, and we are approaching 900 trials in January. It’s just off the chart for us, not to say that – but so that’s the kind of inflection.

Alex Zukin – Stephens

With respect to Litmos in particular, are you starting to also more of that kind of Litmos first and then following on with core products that you have seen in the past, is that type of activity accelerating?

Leslie Stretch

I am not sure about that but Litmos itself is doing extremely well and I expect it to have a great year in 2014. We are seeing existing selling cloud customers adopting the Mobile Learning philosophy, and adopting the technology and you can see it within a number of suite deals that I mentioned at the start of my prepared remarks. So it’s more of the selling cloud, we will bring it Litmos but we have sold Litmos to customers [indiscernible] Commissions and other products. It’s a good business and I think we are also seeing opportunities to potentially increase the size of deals this year and see some enterprise deployments in the mobile learning environment. And we’re serious about that.

Alex Zukin – Stephens

The last question I will ask is just about the pipeline for kind of the large seven figure transactions for 2014. How does it look versus the way – versus your first look at 2013, how do you feel about it and in particular what are partners helping you with that pipeline as well?

Leslie Stretch

So I see this time last year, I see more large deals in the pipeline I did this time last year, having quantified the multiple of that, I see quite a lot more – we will have to prosecute them through the year, bigger deals take longer to prosecute, more complicated, more buying implicit goal but I am very encouraged by what I see in the pipeline. I’m excited about it.

Alex Zukin – Stephens

All right guys, thanks for getting us.

Leslie Stretch

Thank you.

Operator

Your next question comes from the line of Eric Martinuzzi with Lake Street. Please proceed.

Eric Martinuzzi – Lake Street Capital

Got a housekeeping question on the share count. I was scribbling as fast as I could, the 49 million share count, was that all of 2014 or was that used that in Q1?

Bob Corey

49 million I referenced was for calculation for the non-GAAP EPS in Q4. If we just what all in Eric, we have, what, another 1 million to 2 million shares on the debentures, we have 48 million outstanding. So all in would be about 50 million shares as you look out through 2014.

Eric Martinuzzi – Lake Street Capital

And then the increase to the revenue you went from 20 14 revenue range bumped up by a million bucks at the low-end, a high end, is that all LeadRocket?

Leslie Stretch

No, we made no considerations for LeadRocket goals. That’s just our standard business --

Eric Martinuzzi – Lake Street Capital

You talked about a new Contract Lifecycle Management product coming at the end of Q1, certainly not the first one to hit the market, wondering how Callidus is going to be doing Contract Lifecycle Management different and what is it that that helps you, is it pretty much going to be, hey, go after the install based or is it something that right out of the gate you could take somebody in a new customer in CLM?

Leslie Stretch

I think that’s a great question for the reasons that we decide to build our own, we did look at options to buy is because we really wanted to build on a modern SaaS platform, so we wanted to build a modern, simple, easy to use, best in class cloud product and that’s what we are doing. And so you see obviously our CPQ customers are install base’s targets for that and then we see products out there that we finally think we can be in terms of the feature function. But when we combine our solution with CPQ we have a very disruptive price point. Partners are selling it all the time, the customers want to see integration of these capabilities. They don’t want to see discreet separate philosophy to have Configure Price and Quote world and the Contract Lifecycle Management world.

In terms of the way we do it – it’s going to all be about ease of use, mobile ready capability, modern SasS. In terms of the functionality itself we initially will release the sales capability, so the ability to issue sales contract at the end of the cycle and then we will get into full Q 60 degree Contract Lifecycle Management, revenue management, procuring revenue management and so on, modern up to date cloud, price point is going to be disruptive.

Eric Martinuzzi – Lake Street Capital

Understood. Thank you.

Operator

Your next question comes from the line of Kevin Liu with B. Riley, Inc. Please proceed.

Kevin Liu – B. Riley, Inc.

Hi, good afternoon guys. First question here,last year I guess at the midpoint of the year you guys were seeing pretty strong traction, had a number of your sales folks seeing quotas pretty early, I am just curious as to what sort of impact that had as you did your planning for this year and then also whether you would expect any sort of normalization in the number of folks or kind of incentive comp paid out as it relates to accelerators during 2014?

Leslie Stretch

That’s pretty good, that’s kind of normal but I think we look at it, we increased the sales capacity, we’ve also increased a little bit of sales channel capacity and we’ve also increased a little bit of marketing capacity. And so we look very closely at the quota structure and the commission rate structure. I am pleased with the way we’ve managed that, I think it provided the right balance of exciting incentives for the field and also we hope look at the cost model to make sure that we can expand our goal is on expanding capacity, not just paying for runs and over performance. We also hope struck a regime around linearity with the sales force as well. So we are looking for people for – big incentives for people to book business earlier. The quota on annual contract value, we don’t give any quota for licenses, people will not make their kickers and goals on license sales, they typically come from existing customers upgrades. And so they are all focused around ACV.

Kevin Liu – B. Riley, Inc.

As relates to large two deals you already announced for this quarter – just wanted to clarify whether those were seven figures on an annual basis or whether they were total annual contract value?

Leslie Stretch

Annual basis.

Kevin Liu – B. Riley, Inc.

Bob, do you have the total license revenue in the quarter, I think referenced one 2.6 million deal – six deals in total?

Bob Corey

That’s correct. Total was $2.6 million, one of those was a seven figure license deal.

Kevin Liu – B. Riley, Inc.

Wanted to get a better understanding with the acquisition of LeadRocket and kind of capabilities of which you had already with LeadFormix, how does your marketing solutions compare with the other automation solutions out there and are they actually complementary to what those folks offer or do you see that as a completely different solution, different buyer for the product?

Leslie Stretch

We are actually focused on competing marketing automation space with our core LeadFormix, CallidusCloud marketing automation platform. We replaced our flagship company’s product internally with that, we’re much happy with it, with a much better marketing regime as a result. LeadRocket is different, LeadRocket is about helping what we see in traditional marketing automation environment, is the sales users – they’re really based off of the marketing automation solution and where we are coming from is giving the sales user an ability to viral campaign and sell within certain control limits. And today marketing automation environment, so they made a marketing department expensive, anyway marketing department, reality as you go mobile sales people, all over the world running their own territories and their own small business. They need to be able to kick off marketing campaigns quickly. They need to be able to kick off the marketing campaign on Twitter, or LinkedIn or Facebook without being a super marketing specialist, without having specialist skills. It’s about simplifying that activity for the sales guy, for the lone entrepreneur, and that works for small businesses right away through the enterprise.

Operator

Your next question comes from the line of Brian Schwartz with Oppenheimer. Please proceed.

Brian Schwartz – Oppenheimer

Yes, hi. My congratulations on strong bookings quarter. First question, I have got a couple questions here. Was wondering if you could talk a little bit how the revenue visibility is changing with the model. If I look at the year you just finished, you ended up beating up the top line, your top line guidance here at the last three years and the growth rate for the business in 2013 end up finishing 250 bps higher than the initial target. So we’re starting to see a much more consistent execution coming from the company than we have seen in the past. From your end how much visibility do you have right now into that 2014 top line target you’re giving to that?

Bob Corey

I think clearly as the recurring revenue becomes a bigger percentage of the business, visibility is certainly improves, total revenue in 2013 did benefit from some solid license on premise deals. I would say that at the onset of year we target we will hopefully do 25% SaaS revenue growth and came around 20% and largely that was impacted by the loss of that large customer. If you normalize for that, we would have been higher on the SaaS revenue growth year-over-year, so in a nutshell visibility is improving and as the recurring revenue becomes a bigger part of the business.

Brian Schwartz – Oppenheimer

And then Leslie, have a strategic question, more of a philosophical question, clearly the business right now has a lot of momentum, it is clearly accelerating by the metrics you are reporting to that as well as the guidance. So given the current momentum and the opportunity that you have ahead of you I am wondering why the management team is deciding to stick I guess this is my words with the balance growth and profitability stance you know you’re guiding for your earnings to double here in 2014 versus say keeping your margin more flattish in the year ahead and driving towards faster revenue growth and share gains?

Leslie Stretch

The thing is we’ve got a chance to grow here, you go back to my catalysts in the script, I laid out six catalysts and I think you probably know right now I firmly believe having feet on the street there is absolutely best sure fire way to make your numbers. We invested a fair bit in the sales force, channel sales force, we invested quite a lot more on marketing, particularly in the back half of the year that we had too. However I don’t think it’s kind of for us to go – back to the revenue growth.

If I were to look at other models that we admire, we really admire the ultimate model, we like the concurrent model, but we also would like to grow a bit faster, on a 25% SaaS revenue growth in the year, that’s okay, we like to go a little bit faster. We know we get an improvement on a bit of a tailwind in Q2 from what was the headwind of that customer loss, but we got a bit of a tailwind and so on. And we like to grow a bit faster primarily because the deals are there and even though we are – 70 quota bearing sales guys now, that’s not exactly an army. We like to expand it a little bit more but we do want to make money as we do. We think it’s fair, there is leverage in the model, and I think the other thing is we, Bob talked about to take our R&D line for example, we are actually building more products, but the customer have done because we have been steadily and sensitively rationalizing integration and that’s what we – that job isn’t done, we still got data centers that we want to move out, services consolidation and we do want to get further 75 points of recurring revenue margin at the exit point of the year again.

That’s an important goal for us. So we will increase our spending in sales and marketing but we do – I think need the others as everybody as we make money as we go along.

Brian Schwartz – Oppenheimer

If I could just ask you one other question, on the environment out there, just wondering if you can update us at all on your perspective of the competitive landscape. There's clearly been quite a bit of competitor dislocation in some of your core markets over the last year and wondering if you think the business is benefiting at all from this dislocation?

Leslie Stretch

I think what we’re seeing this more pronounced in the SMB market is that you go to a customer with 50 or 100 sales people and you also run a small marketing department – and you offer them a Marketing Automation solution and then someone else comes in and offers them a Configure Price Quote solution, someone else offers them the Commission solutions, someone else offers them an Enablement solution, start to look at their OpEx, it’s actually unbearable. Our solution and our price point in the SMB is very disruptive and in my prepared remarks I listed just a few of the multi product deals that we did in Q4 where our bundling capability is really powerful and very disruptive and I actually don’t think we are anywhere near the potential of that business yet. If you go to our website, there you will see some new combinations of solutions out there and we are targeting every level of enterprise, but the SMB particularly resonates, I think a company of a certain size or 100 sales people or 500 person to 1000 company has no business buying 5, 6, 7 solutions from different vendors, different service level agreements, different price points, different user experience and then they become integrated. So, our mission is to be integrated at the R&D level and provide a really disruptive price points as much of that suite as we can.

Brian Schwartz – Oppenheimer

Thank you for taking my questions.

Operator

Your next question comes from the line of Richard Baldry with Roth Capital Partners. Please proceed.

Richard Baldry – Roth Capital Partners

Thanks. [Indiscernible] As we look back as far as whole 11, quarterly cost has been hanging around $12 million a quarter very steadily, sets a three-year period where revenue top line has grown almost 50% and costs have held essentially flat. As you go forward at some point clearly that stresses some of the infrastructure – can you talk about the factors that held that flat and what you think about going into 14’ should that line start to grow finally?.

Bob Corey

I think we are driving efficiencies through consolidation of the data centers, some of the recent acquisitions. The company also manages our own data center internally. And we have substantially upgraded the nature of the equipment, like for example we upgraded the storage driver to a solid-state recently sometime early in 2013. We’ve also migrated most of all our customers on a multi-tenancy platform which drives certain efficiencies and improve cost on our benefit. We do look at the deployment of people on the SaaS operations to manage that quite well and the multi-tenancy helps us drive efficiencies on the personnel related costs as well.

We will continue to look for ways to consolidate and drive efficiencies through our multi-tenancy platform, so those costs will creep up over a period of time but within some relevant range, we are going to drive the efficiencies and take the benefit to the gross margin.

Richard Baldry – Roth Capital Partners

And I am not sure if you can answer this, but do you have any expectations internally or goals for converting the rest of the preferred, outstanding credit convertible that is outstanding? And then given the easing of the leverage point on the balance sheet do you think that has any applications to change or accelerate your acquisition strategy or the scale of acquisitions that we have seen recently? Thanks.

Bob Corey

Right. Let me kind of paraphrase the question. So those de-levering the balance sheet change our strategy for acquiring [ph] companies? Is that it? Yes. Certainly one of the first goals Leslie challenged me with is a new CFO, looks for ways to deal with the convertible debentures, because it’s been out there for a while, the investor base had some concerns on it. As March -- November timeframe last year the stock price actually first got to a range where we could consider talking about early conversion. So, we did that, strengthens our balance sheet, it certainly gives us much more flexibility to pursue tuck-ins if we see the appropriate product and the timing. For example, LeadRocket is a technology acquisition basically. It does – a lot of people. We are spending 2.5 maybe 3 million on it and there is going to be no dilution. So, we are going to continue look for ways to be selective and sell the leverage and strengthen the balance sheet as it continues to improve.

Richard Baldry – Roth Capital Partners

Great. Congrats on the quarter.

Leslie Stretch

Thank you.

Bob Corey

Thank you.

Operator

Your final question comes from the line of Michael Nemeroff with Credit Suisse. Please proceed.

Mike Anderson – Credit Suisse

Hi guys, it’s Mike Anderson on behalf of Michael. Congrats on the quarter.

Leslie Stretch

Hey, how are you doing?

Mike Anderson – Credit Suisse

So just a quick question Leslie, I think you commented that you are starting to see a renewed interest in your on premise installed base. Looking again at the SaaS solution and can you just put into context for us how -- what is driving that conversation and in addition with the deal that you recently converted here in January I believe, a large 7 digit convert. Can you just comment on what the attach rate may be of your new modules are relative to just the core commission that they may have only had?

Leslie Stretch

That is a great question, but not particular. I think there was three modules for one, if my memory serves me correctly. I think we got roughly 3x on maintenance and that’s what we typically modelled. And – very pleased with that. In terms of –if I look at the pipe line, I see more on-premises customers really looking very seriously at the economics of the cloud. And if you think about all the components – I think our sales force – general marketing, they get to be answered much faster in terms of network costs, server cost, storage cost, app server, web server, database, people to run it. If we start to add all that up, people will begin to realize and we’ve now got a great reference base of cloud users, across the portfolio but a really strong commissions’ reference base of cloud.

So we have partners who are recommending us consistently, especially the enterprise level. I think we are going to see more conversion I think in this year. We haven’t followed up the attention on it, we haven’t put any program yet at this stage, incentivize people to do it, it’s just they realize the benefits of moving to the cloud. So I am really encouraged by what I see in the conversion pipeline.

Mike Anderson – Credit Suisse

Thanks and then just one housekeeping and I’ll let you go. With respect to – you said you ended the year with 70 full-time direct quota carrying sales, can you just give us an idea of what the split was between your enterprise and volume sales and what the hiring growth plans you’re modelling in this year for 2014?

Leslie Stretch

I think bulk of the people are on the enterprise today they subscribe about 55% to 60% of our enterprise roughly, approximately. We are actually just [Indiscernible] 70 at the moment because end of the year we do our normal review and the attrition cycle where we take out the bottom 10% of our performance in the sales which is normal for us. So that’s where we are right now.

In terms of the mix going forward probably roughly the same, right now, we would like to add a little bit to those volumes and to the enterprise businesses here. We see the opportunities there, we got a vertical orientation in the leadership of the enterprise sales force. We’ve also got international to think about. I think we are going to see improved performance in the international business, we just signed our first real Japanese customer upscale, very large insurer, that commissions to the market, we are going to sign more. It looks like more [Indiscernible] I think we have added a couple of heads to Latin America and I expect the return from them this year. It was previously a partner led business where we have very, very good traction there. So with international aspect –where we roughly added the same portion going forward, 60% on the enterprise side and then the rest on the volume.

Mike Anderson – Credit Suisse

Thanks again and congratulations on the quarter.

Leslie Stretch

Thanks Mike.

Bob Corey

Thank you.

Operator

That concludes the Q&A. I will now turn the call back over to Leslie for closing remarks.

Leslie Stretch

Thank you, very much for joining us this afternoon. I look forward to speaking to you again next quarter.

Operator

Ladies and gentlemen that concludes today’s conference. Thank you for your participation. You may now disconnect. Have a great day.

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