The Company and Significant Accounting Policies | The Company and Significant Accounting Policies Description of Business Callidus Software Inc. (referred to herein as "CallidusCloud", "Callidus", "we" and "our") is a provider of sales and marketing effectiveness software. The Company provides organizations with a complete suite of Lead-to-Money solutions that identify the right leads, ensure proper territory and quota distribution, train sales forces, automate quote and proposal generation, and streamline sales compensation. Principles of Consolidation The consolidated financial statements include the accounts of Callidus Software, Inc. and its wholly-owned subsidiaries (collectively, the Company), which include wholly-owned subsidiaries in Australia, Canada, Germany, Hong Kong, India, Malaysia, Mexico, Netherlands, New Zealand, Serbia, Singapore, Japan and the United Kingdom. All intercompany transactions and balances have been eliminated in the consolidation. Use of Estimates The consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles ("GAAP") as set forth in the Financial Accounting Standards Board’s ("FASB") Accounting Standards Codification ("ASC") and consider the various staff accounting bulletins and other applicable guidance issued by the U.S. Securities and Exchange Commission ("SEC"). These accounting principles require us to make certain estimates, judgments and assumptions. The Company believes that the estimates, judgments and assumptions upon which the Company relies are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. To the extent there are differences between these estimates, judgments or assumptions and actual results, the Company's consolidated financial statements will be affected. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application. There are also areas in which management’s judgment in selecting among available alternatives would not produce a materially different result. In addition, illiquid credit markets, volatile equity and foreign currency markets by companies have contributed to the increase in uncertainty in management estimates and assumptions. Also, future events, such as changes in economic environment, cannot be determined with precision, which would cause actual results to differ materially from management's estimates. Such changes in estimates will be reflected in the consolidated financial statements in future periods. Foreign Currency Translation The Company transacts business in various foreign currencies. In general, the functional currency of a foreign operation is the local country’s currency. Accordingly, the foreign currencies are translated into U.S. Dollars using exchange rates in effect at period end for assets and liabilities and average rates during each reporting period for the results of operations. Adjustments resulting from the translation of the financial statements of the foreign subsidiaries are reported as a separate component of accumulated other comprehensive income (loss). Foreign currency transaction gains and losses are included in interest and other income (expense), net in the accompanying consolidated statements of comprehensive loss. Cash and Cash Equivalents and Investments The Company considers all highly liquid instruments with an original maturity on the date of purchase of three months or less to be cash equivalents. Cash equivalents as of December 31, 2015 and 2014 consisted of money market funds. The Company determines the appropriate classification of investment securities at the time of purchase and re-evaluates such designation as of each balance sheet date. As of December 31, 2015 and 2014, all investment securities were designated as "available-for-sale". The Company considers available-for-sale securities that have an original maturity date longer than three months to be short-term investments, including those investments that have a maturity date of longer than one year that are highly liquid and for which the Company does not have a positive intent to hold to maturity. These securities are carried at estimated fair value based on quoted market prices or other readily available market information, with the unrealized gains and losses included in other comprehensive income (loss). Recognized gains and losses are included in the consolidated statement of comprehensive loss. When the Company has determined that an other-than-temporary decline in fair value has occurred, the amount of the decline is recognized in earnings. Gains and losses are determined using the specific identification method. Fair Value of Financial Instruments and Concentrations of Credit Risk The fair value of certain of the Company's financial instruments that are not measured at fair value, including accounts receivable and accounts payable, approximates the carrying amount due to their short maturity. See Note 5, Fair Value Measurements, for discussion regarding the valuation of the Company's investments. Financial instruments that potentially subject us to concentrations of credit risk are cash equivalents, short-term investments and trade receivables. The Company mitigates concentration of risk by monitoring the risk profiles of all bank counterparties on at least a quarterly basis. Based on the on-going assessment of counterparty risk, the Company will adjust its exposure to various counterparties. The Company's customer base consists of businesses throughout the Americas, Europe, Middle East, Africa and Asia-Pacific. The Company performs ongoing credit evaluations of its customers and generally does not require collateral on accounts receivable. As of December 31, 2015 and 2014, the Company had no customers comprising greater than 10% of net accounts receivable or total revenue. Refer to Note 14, Segment, Geographic and Customer Information, for information regarding revenue by geographic areas. In May, 2014, the Company entered into a credit agreement with Wells Fargo Bank, National Association ("Wells Fargo"), under which Wells Fargo agreed to make a revolving loan ("Revolver") to the Company in an amount not to exceed $10.0 million , with an accordion feature that allows the Company to increase the maximum borrowing amount by not less than $5.0 million and not more than $10.0 million . In September 2014, the Company increased the maximum borrowing amount to $15.0 million . The Revolver matures in May 2019. In June 2015, the Company paid off the then outstanding amount of $10.5 million . As of December 31, 2015 the Company had no borrowings under the Revolver. Outstanding borrowings under the Revolver bear interest, at the Company's option, at a base rate plus an applicable margin. The applicable margin ranges between 0.75% and 2.25% depending on the Company's leverage ratio. Interest is payable every three months. Holdback Payable The Company estimates the fair value of an indemnity holdback payable, which relates to business combinations, based on the contract value. The terms of the holdback payable include standard representations and warranties. Contingent Consideration The Company estimates the fair value of the contingent consideration issued in business combinations using a probability-based income approach. The fair value of the Company liability-classified contingent consideration is remeasured at each reporting period, with any changes in the fair value recorded as income or expense. Contingent acquisition consideration payable is included in accrued liabilities on the Company's consolidated balance sheets. Allowance for Doubtful Accounts The Company reduces gross trade accounts receivable with its allowance for doubtful accounts. The allowance for doubtful accounts is the Company's estimate of the amount of probable credit losses in existing accounts receivable. Management analyzes accounts receivable and historical bad debt experience, customer creditworthiness, current economic trends and changes in customer payment history when evaluating the adequacy of the allowance for doubtful accounts. Provisions to the allowance for doubtful accounts are recorded in general and administrative expenses in the Company's consolidated statements of comprehensive loss. Below is a summary of the changes in the Company's allowance for doubtful accounts for 2015 , 2014 and 2013 (in thousands): Balance at Beginning of Year Additions Deductions Balance at End of Year Allowance for doubtful accounts Year ended December 31, 2015 $ 1,063 $ 912 $ (665 ) $ 1,310 Year ended December 31, 2014 650 996 (583 ) 1,063 Year Ended December 31, 2013 481 830 (661 ) 650 Prepaid and Other Current Assets and Deposits and Other Assets Included in prepaid and other current assets and in deposits and other assets in the consolidated balance sheets at December 31, 2015 and 2014 is restricted cash totaling $0.3 million and $0.2 million , respectively, primarily related to security deposits on leases of the Company's facilities. The restricted cash represents investments in certificates of deposit required by landlords to meet security deposit requirements for the leased facilities. Restricted cash is included in prepaid and other current assets and in deposits and other assets based on the contractual term for the release of the restriction. Property and Equipment, net Property and equipment, net is stated at cost, net of accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the respective assets, generally three to five years . Leasehold improvements are amortized over the lesser of the assets' estimated useful lives or the related lease terms. Expenditures for maintenance and repairs are expensed as incurred. Cost and accumulated depreciation of assets sold or retired are removed from the respective property accounts and any resulting gain or loss is reflected in the consolidated statements of comprehensive loss. Goodwill, Intangible Assets, Long-Lived Assets and Impairment Assessments Goodwill represents the excess of the purchase price over the fair value of net assets acquired in connection with business combinations. Goodwill is not amortized, but instead goodwill is required to be tested for impairment annually and more frequently under certain circumstances. The Company performs such testing of goodwill in the fourth quarter of each year, and earlier if events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The Company conducts a two-step test for impairment of goodwill. The first step of the test for goodwill impairment compares the fair value of the applicable reporting unit with its carrying value. If the fair value of a reporting unit is less than the reporting unit's carrying value, the Company will perform the second step of the test for impairment of goodwill. During the second step of the test for impairment of goodwill, the Company will compare the implied fair value of the reporting unit's goodwill with the carrying value of that goodwill. If the carrying value of the goodwill exceeds the calculated implied fair value, the excess amount will be recognized as an impairment loss. The Company has one reporting unit and evaluates goodwill for impairment at the entity level. Based upon the results of the step one testing, the Company concluded that no impairment existed as of December 31, 2015 , and did not perform the second step of the goodwill impairment test. Intangible assets with finite lives are amortized over their estimated useful lives of one to nine years . Generally, amortization is based on the higher of a straight-line method or the pattern in which the economic benefits of the intangible asset will be consumed. In 2015, we recorded impairment expense of $0.3 million and in 2014 and 2013 there was no impairment expense related to intangible assets. The Company also evaluates the recoverability of its long-lived assets for possible impairment whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable. If such review indicates that the carrying amount of long-lived assets is not recoverable, the carrying amount of such assets is reduced to fair value. There were no other impairment charges recorded during the years ended December 31, 2015 , 2014 and 2013 . Business Combinations The Company recognizes assets acquired, liabilities assumed, and contingent consideration at their fair value on the acquisition date. The Company’s estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the fair value of assets acquired and liabilities assumed, with a corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the Company's consolidated statements of comprehensive loss. See Note 2 to the Company's consolidated financial statements, for a discussion of the Company's acquisitions during 2015 and 2014. In addition, uncertainties in income tax and tax related valuation allowances assumed in connection with a business combination are initially estimated as of the acquisition date. The Company continues to gather information and evaluate these items and records any adjustments to the preliminary estimates to goodwill when the estimates are within the measurement period. Subsequent to the measurement period, changes to these income tax uncertainties and tax related valuation allowances will affect the Company's provision for income taxes in its consolidated statements of comprehensive loss. Revenue Recognition The Company generates revenue by providing software applications as a service ("SaaS") through an on-demand subscription, on-premise perpetual and term licenses and related software maintenance, and professional services. Amounts that have been invoiced are recorded in accounts receivable and in deferred revenue or revenue, depending on whether the revenue recognition criteria have been met. Recurring Revenue. Recurring revenue, which includes software-as-a-service revenue and maintenance revenue, is recognized ratably over the stated contractual period. SaaS revenue consists of subscription fees from customers accessing our cloud-based service offerings. Maintenance revenue consists of fees from customers purchasing licenses and receiving support for such on-premise solutions. The Company also recognizes SaaS and maintenance revenue associated with customers using its products in excess of contracted usage ("Overages"). Overages are primarily attributed to SaaS products and such Overages are recorded in SaaS revenue in the period incurred. Revenue related to Overages was immaterial during the years ended December 31, 2015, 2014 and 2013. Service and License Revenue. Service and license revenue primarily consist of training, integration and configuration services. Generally, the Company's professional services arrangements are on a time-and-materials basis. Time and material services are recognized as the services are rendered based on inputs to the project, such as billable hours incurred. For fixed-fee professional service arrangements, the Company recognizes revenue under the proportional performance method of accounting and estimates the proportional performance on a monthly basis, utilizing hours incurred to date as a percentage of total estimated hours to complete the project. If the Company does not have a sufficient basis to measure progress toward completion, revenue is recognized upon completion. Service and license revenue also includes revenue from perpetual licenses, which is recognized upon delivery of the product, using the residual method, assuming all the other conditions for revenue recognition have been met. In a limited number of arrangements with non-standard acceptance criteria, the Company defers the revenue until the acceptance criteria is satisfied. Reimbursements, including those related to travel and out-of-pocket expenses, are included in services and license revenue, and an equivalent amount of reimbursable expenses is included in cost of services and license revenue. In general, recurring revenue agreements are entered into for 12 to 36 months, and the professional services are performed within nine months of entering into a contract with the customer, depending on the size of integration. SaaS agreements provide specified service level commitments, excluding scheduled maintenance. The failure to meet this level of service availability may require the Company to credit qualifying customers a portion of their subscription and support fees. Based on the Company's historical experience meeting its service level commitments, the Company does not currently have any liabilities on its balance sheet for these commitments. The Company recognizes revenue when all of the following conditions are met: • Persuasive evidence of an arrangement exists; • Delivery has occurred or services have been rendered; • The fees are fixed or determinable; and • Collection of the fees is reasonably assured. If the Company determines that any one of the four criteria is not met, it will defer recognition of revenue until all the criteria are met. Multiple-deliverable arrangements with on-demand subscription. For on-demand subscription agreements with multiple-deliverables, the Company evaluates each element to determine whether it represents a separate unit of accounting. The Company determines the best estimated selling price of each deliverable in an arrangement based on a selling price hierarchy of methods contained in FASB Accounting Standards Update (“ASU”) No. 2009-13, Revenue Recognition (Accounting Standards Codification (“ASC”) Topic 605)- Multiple-Deliverable Revenue Arrangements. The best estimated selling price for a deliverable is based on its vendor-specific objective evidence (“VSOE”), if available, third-party evidence (“TPE”), if VSOE is not available, or estimated selling price (“ESP”), if neither VSOE nor TPE is available. Total arrangement fees are allocated to each element using the relative selling price method. The Company has currently established VSOE for most deliverables, except for fixed fee service arrangements and on-premise software licenses. The Company considered all of the following factors to establish the ESP for fixed fee service arrangements when sold with its on-demand services: the weighted average actual sales prices of professional services sold on a stand-alone basis for on-demand services; average billing rates for fixed fee service agreements when sold with on-demand services, cost plus a reasonable mark-up and other factors such as gross margin objectives, pricing practices and growth strategy. The Company is currently using cost plus a reasonable mark-up to establish ESP for fixed fee service arrangements. Multiple-deliverable arrangements with on-premise license. For arrangements with multiple-deliverables, including license, professional services and maintenance, the Company recognizes license revenue using the residual method of accounting pursuant to the requirements of the guidance contained in ASC 985-605, Software Revenue Recognition. Under the residual method, revenue is recognized when VSOE for fair value exists for all of the undelivered elements in the arrangement, but does not exist for one or more of the delivered elements in the arrangement. If evidence of fair value cannot be established for the undelivered elements, all of the revenue is deferred until evidence of fair value can be established, or until the items for which evidence of fair value cannot be established are delivered. For maintenance and certain professional services, the Company has established VSOE as a high number of stand-alone sales of this deliverable have been priced within a reasonably narrow range. The Company's revenue arrangements do not include a general right of return relative to the delivered products. Generally, for the Company's term-based licenses, if the only undelivered element is maintenance, the entire amount of revenue is recognized ratably, over the maintenance period. Sales and other taxes collected from customers to be remitted to government authorities are excluded from revenue. Deferred Revenue Deferred revenue consists of invoicing and payments received in advance of revenue recognition and is recognized as the revenue recognition criteria are met. The Company invoices its customers annually, quarterly, or in monthly installments. Deferred revenue that will be recognized during the succeeding twelve-month period is recorded as current deferred revenue, and the remaining portion is recorded as non-current deferred revenue. Cost of Revenue Cost of recurring revenue consists primarily of salaries, benefits, allocated overhead costs related to on-demand operations and technical support personnel, as well as allocated amortization of purchased technology. Cost of services revenue consists primarily of salaries, benefits, travel and allocated overhead costs related to consulting, training and other professional services personnel, including cost of services provided by third-party consultants engaged by the Company. Cost of license revenue consists primarily of amortization of purchased technology. Deferred Commissions The asset balance for deferred commissions on the Company's consolidated balance sheets totaled $ 7.1 million and $5.6 million at December 31, 2015 and December 31, 2014, respectively. As of December 31, 2015 and 2014 $ 6.0 million and $4.2 million respectively, deferred commissions are included in prepaid and other current assets in short-term assets, with the remaining amounts included in deposits and other assets in long-term assets in the consolidated balance sheets. The deferred costs mainly represent commission payments to the Company's direct sales force for on-demand subscription and maintenance agreements, which the Company amortizes as sales and marketing expense over the non-cancellable term of the contract as the related revenue is recognized. The commission payments are a direct and incremental cost of the revenue arrangements. Restructuring and Other Expenses Restructuring and other expenses are comprised primarily of employee termination costs related to headcount reductions, costs related to properties abandoned in connection with facilities consolidation including estimated losses related to excess facilities based upon the Company's contractual obligations, net of estimated sublease income and related write-downs of leasehold improvements and impairment of intangible assets. The Company reassess the liability for excess facilities periodically based on market conditions. Research and Development The Company expenses the cost of research and development as incurred. Research and development expenses consist primarily of expenses for research and development staff, the cost of certain third-party service providers and allocated overhead. Stock-Based Compensation The Company measures and recognizes compensation expense for stock-based awards made to employees and directors including employee stock options and employee stock purchases under the Company's Employee Stock Purchase Plan ("ESPP") based on estimated fair values on the date of grant using the Black-Scholes option pricing model. Stock-based compensation expense for restricted stock units, relating to both performance and time-based awards, is estimated based on the market value of the Company's stock on the date of grant. The Company granted performance-based restricted stock units ("PSUs") to select executives and other key employees. Vesting of the Company's PSUs is based on achievement of specified company or other goals. In 2015, the Company granted PSUs with vesting contingent on its absolute SaaS revenue growth over the three-year period from July 1, 2015 through June 30, 2018. In 2014, the Company granted PSUs with vesting contingent on its absolute SaaS revenue growth over the three-year period from January 1, 2014 through December 31, 2016, and on the Company's relative total shareholder return over the same three-year period compared to an index of 17 SaaS companies. The fair value of the performance awards is calculated using a Monte Carlo simulation model that estimates the potential outcomes of grants of performance awards based on a simulated future index of peer companies. PSU awards based on SaaS revenue growth will, to the extent the performance criteria are achieved, vest on the third anniversary of the grant date. PSU awards based on total shareholder return is recognized as compensation costs over the requisite service period, if rendered, even if the market condition is never satisfied. In determining the fair value of PSUs based on total shareholder return the Company considered the achievement of the market condition in the estimated fair value. Income Taxes The Company is subject to income and foreign withholding taxes in both the United States and foreign jurisdictions and the Company uses estimates in determining its provision for income taxes. This process involves estimating actual current tax assets and liabilities together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are recorded on the consolidated balance sheets. Net deferred tax assets are recorded to the extent the Company believes that it is more-likely-than-not realized. In making such determination, all available positive and negative evidence is considered, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations. With the exception of the net deferred tax assets of three of the Company's foreign subsidiaries, it maintained a full valuation allowance against its net deferred tax assets at December 31, 2015 because the Company believes that it is not more-likely-than-not that the gross deferred tax assets will be realized. While the Company has considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance, in the event the Company was able to determine that it would be able to realize the deferred tax assets in the future, an adjustment to the deferred tax assets would increase net income in the period such determination was made. The Company regularly reviews its tax positions and benefits to be realized. The Company recognizes tax liabilities based upon its estimate of whether, and the extent to which, additional taxes will be due when such estimates are more-likely-than-not to be sustained. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. The Company recognizes interest and penalties related to income tax matters as income tax expense. In 2015 , 2014 and 2013 , the Company incurred $35,000 , $24,000 and $27,000 , respectively, for interest or penalties associated with unrecognized tax benefits. Advertising Costs The Company expenses advertising costs in the period incurred. Advertising expense was $2.1 million , $1.2 million , and $0.2 million for 2015 , 2014 and 2013 , respectively. Comprehensive Income (Loss) Comprehensive income (loss) is the total of net income (loss), unrealized gains and losses on investments and foreign currency translation adjustments. Unrealized gains and losses on investments and foreign currency translation adjustment amounts are excluded from net loss and are reported in accumulated other comprehensive income (loss) in the accompanying consolidated financial statements. Recent Accounting Pronouncements In November 2015, the FASB issued ASU No. 2015-17 (ASU 2015-17), “Balance Sheet Classification of Deferred Taxes,” which simplifies the presentation of deferred income taxes. This ASU requires that deferred tax assets and liabilities be classified as non-current in a statement of financial position. The ASU is effective for reporting periods beginning after December 15, 2016, with early adoption permitted. The Company early adopted ASU 2015-17 effective December 31, 2015 on a prospective basis. Adoption of this ASU resulted in a reclassification of the Company's net current deferred tax liabilities to net non-current deferred tax liabilities in its consolidated balance sheets as of December 31, 2015. No prior periods were adjusted retrospectively. In May 2014, the FASB issued ASU No. 2014-09 (ASU 2014-09) "Revenue from Contracts with Customers." ASU 2014-09 supersedes the revenue recognition requirements in “Revenue Recognition (Topic 605),” and requires entities to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. ASU 2014-09 may also impact how the Company accounts for certain direct costs associated with its revenues. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is permitted one year earlier. ASU 2014-09 permits the use of either the retrospective or cumulative effect transition method. The Company has not elected a transition method and is currently in the process of evaluating the impact of the adoption of ASU 2014-09 on the consolidated financial statements and does not plan to early adopt this standard. |