Who's Calling on Callidus?

Jun. 3.10 | About: Callidus Software, (CALD)

By Brenon Daly

Annual shareholder meetings are typically uneventful affairs, mixing equal parts of corporate glad-handing and self-congratulatory pabulum. The few bits of business that do get done are generally little more than corporate housekeeping, such as electing board members and signing off on auditing firms. And while that’s probably how the annual meeting for Callidus Software (NASDAQ:CALD) will go next Tuesday, we have picked up on some rumblings of discontent from the shareholder base of the sales performance management (SPM) vendor.

Shares of Callidus have basically been changing hands in the $2.50-3.50 range for the past year and a half. (On Friday afternoon, the stock traded at $3.10.) After going public at $14 in November 2003, the stock spent the next four months at around that level before dropping into the single digits, where it has remained ever since. At current prices, the company sports a market cap of nearly $100m.

With shares having been basically dead money, even as the market rebounded, investors are growing impatient with Callidus’ still-incomplete switch from a license-based software vendor to an on-demand model. Undeniably, the company has made progress in that difficult transition, but it has come up short in both its emerging SaaS business and its old-line business, particularly services.

That inconsistency hasn’t won it many fans on Wall Street, which is reflected in Callidus’ valuation. On a back-of-the-envelope basis, the company is trading at basically a $70m enterprise value, or just 1.4 times its 2010 recurring revenue (roughly $50m total, with $20m maintenance fees and $30m subscription revenue). It seems we aren’t the only ones struck by the rock-bottom valuation of Callidus. Several market sources have indicated recently that at least one would-be suitor has approached Callidus about a deal.

Our understanding is that Callidus has retained a banker and is still in the early stages of an initial market canvass. Obviously, that’s a long way from a completed transaction, which is the outcome many Callidus shareholders are hoping for. It’s also worth remembering that the company itself has a spotty track record in M&A. In late 2008, Callidus was lead bidder for SPM startup Centive, and stood to substantially accelerate its transition to SaaS with the acquisition. Instead, Xactly – a startup that’s run by a number of former Callidus executives – snatched away Centive in early 2009.