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IPO Story
Reed Taussig, Callidus Software Reed Taussig has been involved in the tech industry for over 25 years. He has worked for such companies as Gupta Corporation (now Centura Software Corporation) and Unify Corporation. Since October of 1997 he has been the president and CEO of Callidus Software (Nasdaq: CALD), which is a leader in the emerging market known as enterprise incentive management software. He led the company in its successful IPO last November. Callidus�s products allow companies to align and fully manage the compensation and commissions process for captive and independent sales forces. No doubt, the company is showing a tremendous amount of momentum. Revenues grew by 176% in the fourth quarter to $22.3 million. Net income was $700,000. In all, the company generated $71.7 million in revenues for 2003. Customers include such majors as America Online, Auto Club Insurance Association, BMC Software, SBC Communications and Wachovia Securities.
As an executive, you were involved in the Gupta IPO in 1993. Now, as a CEO, you took Callidus public. Any major changes when comparing the two?
The Callidus IPO was very different from the IPO 10 years ago. There are now many new regulations and rules, such as Regulation FD and Sarbanes Oxley.
For example, ten years ago you would have meetings with an investment bank and the analysts. This is no longer the case. The investment bankers are not allowed to talk to the analysts. So, now you need two different meetings at separate times. There is a lot more effort on the part of the company.
Additionally, analyst coverage used to be assured. Despite all of the claims to the contrary I don�t believe that the analysts ever promised positive coverage or impartial coverage but they did promise coverage. That is not the case now. So any company going public today needs to have a strong and open relationship with the analyst.
Another factor is the fact that there are fewer analysts on the Street. I think the number has declined by more than 50% since the boom.
That�s why we went public in 2003. By doing this, we stood a better chance of getting notice from analysts. If IPOs pick-up in 2004, it would have been much tougher.
What was the process like? Grueling?
When IPOs were hot, there was not much in the way of analysis by Wall Street. There was not enough time. I am sure you have heard the stories of 50 limo�s lined up waiting to pitch.
But, with the Callidus offering, we got a lot of attention. Analysts and investment bankers certainly did their homework. They looked at our business, the competition, trends.
On the road show, analysts would take out a copy of their S-1s and it would be full of red marks and questions.
Even though you�ve timed the IPO right, it is still difficult for smaller companies to get attention. Do you have an investors relations component?
We do not have an independent IR function. Ron Fior, our CFO and I directly handle the investor relations functions. When planning our IPO, I made a commitment that I would spend at least one week every quarter meeting with the buy-side. True, because of Rule FD, I cannot really say anything new. However, it is important to have face time with the buy side. It shows your commitment to the investor community.
Despite the costs, what are the advantages of being a public company?
The first thing to keep in mind is that when being a CEO of a public company, there is an awesome amount of responsibility. It is very sobering.
The way I look at it is that a public company is a three-legged stool. You need to make sure each leg is balanced right.
The legs include: shareholder value, employees, and customers.
For shareholders, an IPO gives them liquidity. They can realize something for their investment.
The employees can also realize liquidity. All of our employees are shareholders. But, the IPO is a validation of their achievements, as well.
Finally, our customers like the fact that they have transparency into our financials. After all, purchasing our software can easily exceed $1 million. So, customers want to make sure we�ll be around. And, our software deals with something very critical: a company�s payroll. There is no forgiveness for failure.
How did you get involved in the company?
In 1997, I was available for hire and Onset Ventures asked me if I would be interested in a small company called Tally-Up Software. We changed the name to Callidus Software in 1998. It was still at the idea stage. Their plan was to use someone with my background in sales to lead the company.
Actually, I thought this product was focused more for a VP of Finance. Despite this, they brought me on board.
One thing that attracted me to the company was that the product is horizontal. That is, it applies across industries. This was very important. If our product was mostly for tech companies, we would have had problems.
We started in manufacturing and technology. Then we went into telecom, retail banking, insurance and so on.
Most incentive compensation systems are managed on the desktop , usually in a inefficient manner, using Excel or Access. This is the cause of a lot of errors and a company can�t really provide useful reporting.
Something else that is attractive is that our customers get real hard dollar returns on their investment. It�s not uncommon to have a 5% to 10% overpayment rate on compensation. If you pay out $500 million, that comes out to $25 million. If the company spends $7 million on the software install, it is a quick payback.
Also, with Sarbanes-Oxley, companies will be required to provide much more standardization with their internal controls. We have spent over $65 million in R&D; dollars to build our product. It is specifically geared for dealing with the complexities of managing compensation systems.
What about the competition?
There are different levels of competition. But our competitors do not have the specialization we have. SAP looks at it in terms of ERP. Siebel looks at it in terms of SFA (sales force automation). Oracle looks at in terms of databases. PeopleSoft looks at it in terms of HR.
Our system is highly scalable for big organizations. We also provide flexibility for our customers through our rules based architecture. And, as mentioned, we have spent twice as much on our technology than any of our competitors.
Thanks very much. And congratulations on the good work and IPO.
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