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Callidus Software Inc. - Initiation Note

Callidus Software Inc.

BUY (CALD, $13.40)

Recurring Revenue Model Provides Steady Growth –Initiating With A BUY Rating & $18 PT

February 23, 2016

Ilya Grozovsky


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Investment Conclusion. We are initiating coverage of Callidus with a BUY rating and a $18 twelve month price target based on our belief that the company is exceedingly well positioned to benefit from the growth of sales performance management software to global enterprises. Currently, more than two-thirds of enterprises still use spreadsheets regularly despite the knowledge that reliance on spreadsheets makes it difficult to manage sales efficiently. The issues are exacerbated because sales is the lifeblood of any business and as a result using a less than optimal program can sacrifice accuracy, efficiency, and ultimately the all-important, revenues. Callidus software solves these problems and ultimately helps an enterprise accelerate revenues. Callidus has growth its recurring revenues greater than 20% for the past several years and we believe that this growth should continue with greater than 90% customer retention and the opportunity to upsell existing clients with additional software bundles (90% of Callidus’s customers only use one software module from the company). We are establishing 2016 and 2017 revenue and adjusted EBITDA estimates of $210 million and $19 million, and $253 million and $30 million, respectively. The shares of Callidus are undervalued given the company’s growth and high quality of its revenues. We believe that Callidus shares should trade essentially in line with the comparable company valuation of 32x multiple on 2017 EV/adjusted EBITDA resulting in a $18 twelve month price target (or 35% upside to the current share price).

CALDSource: Company Reports, National Securities Corporation Estimates

Company Profile

Callidus Software Inc., headquartered in Dublin CA, sells sales effectiveness and sales performance management (SPM) software and services. The company’s products provide solutions for all aspects of the SPM process, which includes: sales hiring, sales performance, mobile learning, sales and channel enablement, lead management, deal optimization (Configure / Price / Quote), fixed / variable incentive compensation management (ICM), and strategic incentives. The company has over 4,500 customers and over 900 employees as of December 2015....

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