Back in January, I wrote about how I was finally warming up to Callidus Software (NASDAQ:CALD). I liked the new management team and market opportunity. Since then, the stock has gone from $7 to nearly $10 per share, and I still think there's upside.
Callidus develops software to help manage incentive compensation, quotas, territories, and so on. Its customers include Nokia (NYSE:NOK), Amgen (NASDAQ:AMGN), Sybase (NYSE:SY), and Wachovia (NYSE:WB).
Late last week, the company reported its second-quarter results. Revenues surged 50% to $26.5 million and license revenues were up 23% to $7.3 million.
But there was a net loss of $2.8 million, or $0.10 per share, which includes $1.5 million in stock-based compensation charges.
So why the strong top-line growth? Over the past couple of years, Callidus took the necessary steps to develop an on-demand version of its software. Because it is delivered via the Net, there is seamless integration as well as generally lower costs.
Yet Callidus has kept its on-premise version, which is still attractive to major companies that want to maintain control over their data.
Another growth driver: More companies realize that they need better approaches to managing their sales forces. With the tough regulations of Sarbanes-Oxley, it's risky to use a hodgepodge of spreadsheets, for example.
My main concern about Callidus is the persistent lack of profitability. Then again, management says its revenue forecast for Q3 is $25 million to $26.5 million, which would represent a year-over-year increase of 44% to 52%, respectively. So long as the company can keep up this kind of growth, profitability should be a natural.
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Fool contributor Tom Taulli, author of The Complete M&A Handbook, does not own shares mentioned in this article. He is currently ranked 1,590 out of more than 60,000 participants in Motley Fool CAPS.
