Callidus Software provides Enterprise Incentive Management software that enables large businesses to plan model and manage pay-for-performance compensation programs designed to align employee sales and channel tactics with targeted business objectives. Callidus Software Inc. has a market cap of $77.9 million; its shares were traded at around $2.6 with and P/S ratio of 0.8.
Highlight of Business Operations:We ended the second quarter with $25.0 million in on-demand cumulative annual contract value (ACV). While we closed significant on-demand business early in the quarter and ended with sixteen customers increasing their annual recurring commitment by a total of $1.9 million, we unfortunately also experienced attrition, coming from five customers. Two of the five customers cancelled their on-demand contracts with us completely while the other three decreased their annual contracts by reducing their level of business operations services. Business Operations is a recurring supplement to both our on-demand and on-premise offerings. It is important to note that these three customers continue to pay us an aggregate of over $3.5 million annually for maintenance and Technical Operations, which is our core on-demand offering. The ACV attrition that resulted from these cancellations and reductions totaled $3.4 million. As a result of this attrition, combined with the addition of $1.9 million, our cumulative ACV for the quarter decreased by $1.5 million.
2009 by 17% to $11.8 million compared to $10.0 million in the second quarter of 2008. Recurring revenues increased 28% to $23.5 million in the six months ended June 30, 2009 as compared to $18.3 million in the same period of 2008. The increase in recurring revenues reflects the shift in business focus and strategy to emphasize our on-demand offering. Recurring revenues accounted for 53% of our total revenues in the second quarter of 2009 compared to 43% in the second quarter of 2008. Recurring revenues accounted for 49% of our total revenues in the six months ended June 30, 2009 compared to 36% in the same period of 2008.
On a consecutive quarter basis, our recurring revenue of $11.8 million in the second quarter of 2009 was essentially flat with recurring revenues of $11.7 million in the first quarter of 2009. As a result of the decline in cumulative ACV noted above, we expect recurring revenues in the third quarter of 2009 to be slightly lower than in the second quarter of 2009.
Services revenues decreased by $2.1 million, or 18%, in the three months ended June 30, 2009 compared to the three months ended June 30, 2008. Services revenues decreased by $6.8 million, or 25%, in the six months ended June 30, 2009 compared to the six months ended June 30, 2008. The decreases were due to the shift in our business model to on-demand, which results in quicker implementation times, several customers finishing their implementations and going live not being offset with new projects, and customer project delays due to budget constraints. In the near term we continue to see downward pressure on our services revenue as a few of our larger customers with phased rollouts have suspended part of their projects until next year.
During the second quarter of 2009 we continued to make progress streamlining our cost model. These efforts led to continued improvement in our services margin and further decreases to our operating costs. Services margin improved to 18% for both the three and six months ended June 30, 2009. This compares to our second quarter 2008 services margin of 5% and the 2008 full year services margin of 10%. Operating expenses decreased both on a year on year and consecutive quarter basis. Operating expenses decreased by $1.6 million, or 11%, in the second quarter of 2009 compared to the second quarter of 2008 and decreased by $1.0 million, or 7%, in the second quarter of 2009 compared to the first quarter of 2009.
As a result of our business model change and the lower associated revenues in the short term, the Company took significant additional action in July to reduce expenses. We anticipate the annual cost savings from this action and the action taken in the second quarter of 2009 to be more than $10.0 million. Approximately $2.5 million of the reduction will come from cost of sales and the remaining amount will be realized in lower operating expenses. Given the timing of these actions we will only realize a portion of these savings in the third quarter of 2009.
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