Chordiant Software Announces Financial Results for the First Quarter Fiscal Year 2009 Ended December 31, 2008

Chordiant Software, Inc. (Nasdaq: CHRD), the leading provider of Customer Experience (Cx™) software and services, today announced its financial results for the first quarter of fiscal year 2009 ended December 31, 2008, and filed its Quarterly Report on Form 10-Q with the Securities and Exchange Commission.

First Quarter Fiscal Year 2009 Financial Highlights

• Total revenues of $23.4 million;
• License revenues of $7.9 million;
• Generally Accepted Accounting Principles ("GAAP”) net loss of $2.7 million, or $0.09 per basic share;
• Non-GAAP net income of $0.6 million, or $0.02 per fully diluted share;
• Bookings of $13.6 million;
• Ending backlog of $55.6 million; and
• Ending cash, cash equivalents and restricted cash of $53.9 million.

First Quarter 2009 Business Highlights

• Signed one new license transaction over $1 million and two support and maintenance renewals each over $1 million;
• Received two orders under the current commitment from Vodafone, also in excess of $1 million each;
• Chordiant Cx Visual Business Director (CxVBD) and Chordiant Collections Manager 2.0 awarded Product of Year designation by Customer Interaction Solutions magazine; and
• Ranked 186 in Software Magazine’s 26^th Annual Software 500 ranking of the world’s largest software and services providers, up from 191 in 2007, 205 in 2006 and 221 in 2005.

"Although market conditions remain exceptionally challenging, I am pleased that Chordiant was able to post its eighth consecutive quarter of non-GAAP profitability,” said Steve Springsteel, Chairman, President and Chief Executive Officer. "I believe this is a testament to our large blue chip installed base, market leading products and our strong operational discipline. We will continue to manage our business to ensure that we continue to deliver excellent products that deliver a high degree of value to our customers.”

First Quarter Fiscal Year 2009 Financial Results

Total revenues for the first quarter of fiscal year 2009 were $23.4 million, down from $28.4 million in the prior quarter and down from $29.1 million for the first quarter of fiscal year 2008.

License revenues for the first quarter of fiscal year 2009 were $7.9 million, down from the $9.5 million reported in the prior quarter and $8.8 million in the first quarter of fiscal year 2008. Service revenues for the first quarter of fiscal year 2009 were $15.4 million, compared to $18.9 million in the prior quarter and $20.3 million reported for the same period of fiscal year 2008.

Chordiant reported a GAAP net loss of $2.7 million, or GAAP loss per basic share of $0.09, for the first quarter of fiscal year 2009 compared to GAAP net income of $0.2 million, or fully diluted GAAP net income per share of $0.01, for the same period of fiscal year 2008. Included in the GAAP results for the first quarter of fiscal 2009 were a net $0.8 million restructuring expense and a $1.3 million deferred tax expense.

Chordiant reported first quarter fiscal year 2009 non-GAAP net income of $0.6 million, or fully diluted non-GAAP earnings per share of $0.02, compared to non-GAAP net income of $1.7 million, or fully-diluted non-GAAP earnings per share of $0.05, for the first quarter of fiscal year 2008. Non-GAAP net income excludes stock-based compensation expense, the amortization of purchased intangible assets, the non-cash tax expense relating to net operating loss carryforwards and restructuring charges.

Deferred Revenue

Deferred revenue at the end of the first quarter was $43.1 million, a decrease of $3.2 million as compared to the ending balance of $46.3 million at September 30, 2008. Deferred revenue does not include future amounts due under the Vodafone transaction that was closed in the first quarter of fiscal year 2008.

Bookings

Bookings were $13.6 million for the first quarter, compared to $14.4 million in the prior quarter and $49.8 million in the same period last year. In the first quarter of fiscal 2008, Chordiant signed a transaction valued at $26.1 million (at the time of signing) with Vodafone, a leading telecom solutions provider; the largest single transaction in the Company’s history.

Backlog of Business

At December 31, 2008, Chordiant's backlog, which includes deferred revenue, decreased to $55.6 million from $70.1 million at the end of the prior quarter. The primary reasons for the decrease during the period were 1) the adverse impact of foreign exchange rates on our non-U.S. Dollar denominated backlog; 2) the recognition of license revenues associated with Vodafone and license revenue taken on previously signed longer term contracts; 3) the recognition of service revenue for hourly work completed; and 4) the expiration of unutilized Statements of Work during the quarter. Backlog includes $6.0 million of remaining commitments related to the Vodafone transaction that was closed in the first quarter of fiscal year 2008.

Cash Position

Chordiant’s cash, cash equivalents, restricted cash and marketable securities position decreased by approximately $1.7 million during the quarter to $53.9 million at December 31, 2008, as compared to $55.6 million at September 30, 2008. The decline in the cash balance was primarily due to the impact of retranslating the Company’s international currency positions into U.S. dollars. On a constant currency basis using exchange rates as of September 30, 2008, Chordiant’s cash balance would have increased to approximately $59 million.

Non-GAAP Financial Measurements

This press release and the accompanying tables include non-GAAP financial measures. For a description of these non-GAAP financial measures, including the reasons management uses each measure, and reconciliations of these non-GAAP financial measures to the most directly comparable financial measures prepared in accordance with GAAP, please see the section of the accompanying tables titled "Non-GAAP Financial Measures" as well as the related Table C which follows it.

Updated Fiscal Year 2009 Financial Guidance

As a consequence of the continued challenging economic environment, and the lack of clear visibility in the current market environment, we are suspending guidance for fiscal year 2009. The Company expects to resume the practice of providing forward-looking guidance once market conditions stabilize.

Although the Company is not providing specific bookings, revenue, cash flow or EPS guidance, it is providing the following basic parameters for its financial performance in fiscal 2009. We expect:

• to recognize approximately $9.5 million in total license revenues in fiscal year 2009 associated with the contractual commitments under the Vodafone transaction that was closed in the first quarter of fiscal year 2008;
• to recognize several million dollars of the remaining $9.5 million in license revenue backlog, exclusive of Vodafone, over the next three quarters of fiscal year 2009;
• to continue to close new business, though the amount and timing are difficult to predict;
• to continue to renew our existing support and maintenance contracts at rates in line with our historical experience. For the trailing 12-month period ended December 31, 2008, support and maintenance revenues averaged approximately $9.9 million per quarter;
• our average quarterly professional services revenues for fiscal year 2009 to approximate our total professional services revenue of $6.4 million for the first quarter of fiscal year 2009; and
• to remain profitable on a non-GAAP basis for fiscal year 2009.

Conference Call and Webcast Information

Chordiant will host a conference call and webcast to discuss its financial results for the first quarter fiscal year 2009 ended December 31, 2008 today, Thursday, January 29, 2009 at 2:00 p.m. (PT), 5:00 p.m. (ET) and 10:00 pm (GMT). A live audio webcast will be available to investors and the public from the following website: http://www.veracast.com/webcasts/chordiant2/86121124.cfm

Alternatively, you may prefer to access Chordiant’s website at http://www.chordiant.com, where you will see the event listed on the homepage. Access is also possible from Chordiant’s Investor Relations website.

The webcast will be archived on the Chordiant website. In addition, a telephone replay will be available on Thursday, January 29, 2009, beginning at approximately 4:00 p.m. Pacific Time, 7:00 p.m., Eastern Time, for seven days after the live call. The replay can be accessed by dialing (800) 405-2236, access code 11124802#.

About Chordiant Software, Inc.

Chordiant helps leading global brands with high-volume customer service needs deliver the best possible customer experience. Unlike traditional business applications, Chordiant Customer Experience (Cx) front-office solutions blend multi-channel interaction management with predictive desktop decisioning, enabling companies to capture and effectively anticipate and respond to customer behavior in all channels, in real-time. For global leaders in insurance/healthcare, telecommunications and financial services, this deeper understanding cultivates a lasting, one-to-one relationship that aligns the most appropriate value proposition to each consumer. With Chordiant Cx solutions, customer loyalty, operational productivity and profitability reach new levels of return. For more information, visit Chordiant at www.chordiant.com.

Cautionary Note Regarding Forward Looking Statements

This Press Release includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements regarding the Company’s expectation that it will provide forward-looking guidance once market conditions stabilize and predictability is more assured; its expectation that it will recognize approximately $9.5 million in total license revenues in fiscal year 2009 associated with the contractual commitments under the Vodafone transaction that was closed in the first quarter of fiscal year 2008; its expectation that it will recognize several million dollars of the remaining $9.5 million in license revenue backlog, exclusive of Vodafone, over the next three quarters of fiscal year 2009; its expectation that it will continue to close new business, though the amount and timing are difficult to predict; its expectation that it will continue to renew its existing support and maintenance contracts at rates in line with its historical experience; its expectation that it will average quarterly professional services revenues for fiscal year 2009 to approximate its total professional services revenue of $6.4 million for the first quarter of fiscal year 2009; and its expectation that it will remain profitable on a non-GAAP basis for fiscal year 2009. Forward-looking statements are generally identified by words such as "believes," ”expects," "guidance," and similar expressions. There are a number of important factors that could cause the results or outcomes discussed herein to differ materially from those indicated by these forward-looking statements. Such risks and uncertainties include, but are not limited to, whether the Company is able to close license and services transactions with new and existing customers and achieve its revenue targets; fluctuations in customer spending, particularly in the banking and insurance industries, due to consolidation, economic, geopolitical and other factors; and the Company’s dependence on a small number of customers for a substantial portion of its revenue. These and other risks are set forth in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2008. These filings are available on a website maintained by the Securities and Exchange Commission at http://www.sec.gov. The forward-looking statements and risks stated in this Press Release are based on information available to the Company today. The Company assumes no obligation to update them.

Chordiant and the Chordiant logo are registered trademarks of Chordiant Software, Inc. The Customer Experience Company and Cx are trademarks of Chordiant Software, Inc. All other trademarks and registered trademarks are the properties of their respective owners.

NON-GAAP FINANCIAL MEASURES

The accompanying press release dated January 29, 2009 contains non-GAAP financial measures. Table C reconciles the non-GAAP financial measures contained in the press release to the most directly comparable financial measures prepared in accordance with GAAP. These non-GAAP financial measures include non-GAAP total cost of revenue, non-GAAP gross profit, non-GAAP income from operations, non-GAAP net income and basic and diluted non-GAAP net income per share.

Chordiant continues to provide all information required in accordance with GAAP and does not suggest or believe non-GAAP financial measures should be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. Chordiant believes that these non-GAAP financial measures provide meaningful supplemental information regarding its operating results primarily because they exclude amounts Chordiant does not consider part of ongoing operating results when assessing the performance of certain functions, certain geographies or certain members of senior management.

The operating budgets of functional managers do not include stock-based compensation expenses, acquisition-related costs, restructuring costs, non-cash tax expense or benefit and certain other excluded items that may impact their functions’ profitability, and accordingly, we exclude these amounts from our measures of functional performance. We also exclude these amounts from our internal planning and forecasting process. We believe that our non-GAAP financial measures also facilitate the comparison of results for current periods and guidance for future periods with results for past periods. We exclude the following items from our non-GAAP financial measures:

Stock-based compensation expense. Our non-GAAP financial measures exclude stock-based compensation expenses, which consist of expenses for stock options, restricted stock and restricted stock units. Additionally, recent comparative periods in certain prior years also included stock-based compensation for certain stock options that were subject to variable accounting. Under variable accounting, movements in the market value of our stock caused significant unpredictable charges or benefits from period to period. The operating budgets of functional or geographic managers do not include stock-based compensation expenses impacting their function’s income (loss) and, accordingly, we exclude stock-based compensation expenses from our measures of functional or geographic performance. While stock-based compensation is a significant expense affecting our results of operations, management excludes stock-based compensation from our budget and planning process. We exclude stock-based compensation expenses from our non-GAAP financial measures for these reasons and the other reasons stated above. We compute weighted average dilutive shares using the method required by Statement of Financial Accounting Standard No. 128 for both GAAP and non-GAAP diluted net income (loss) per share.

Amortization of purchased intangible assets. In accordance with GAAP, amortization of purchased intangible assets in cost of revenue includes amortization of software and other technology assets related to acquisitions and acquisition-related charges, and in operating expenses includes amortization of other purchased intangible assets such as customer lists and covenants not to compete. Acquisition activities are managed on a corporate-wide basis and the operating budgets of functional or geographic managers do not include acquisition-related costs impacting their function’s income (loss). We exclude these amounts from our budget and planning process. We exclude amortization of intangible assets from our non-GAAP financial measures for these reasons and the other reasons stated above.

Restructuring expense and infrequent charges. Restructuring expense consists of expenses for excess facilities, lease termination costs, and expenses for severance charges related to reductions in our workforce. Infrequent charges primarily relate to severance expense associated with senior executive management. The operating budgets of functional or geographic managers do not include restructuring expenses and infrequent charges or the financial impact to their functions or geographies income (loss). Accordingly, we exclude restructuring expenses and infrequent charges from measures of functional or geographic performance. We also exclude these expenses in non-GAAP financial measures for these reasons and the other reasons stated.

Non-cash tax expense or benefit relating to Net Operating Loss carryforwards. Our non-GAAP financial measures exclude non-cash tax expenses or benefits. These amounts include (i) the income tax benefit in fiscal 2008 (and expense in fiscal 2009) attributable to the release of the valuation allowance on certain post-acquisition net operating losses and (ii) the impact of the utilization of pre- and post-acquisition net operating losses to offset certain income tax expenses expected to arise in future periods directly as a result of the release of the valuation allowance. We exclude these expenses or benefits because they are non-cash expenses or benefits that we believe are not reflective of how we view our operating performance.

Chordiant refers to these non-GAAP financial measures in evaluating and measuring the performance of our ongoing operations and for planning and forecasting in future periods. These non-GAAP financial measures also facilitate our internal comparisons to historical operating results. Historically, we have reported similar non-GAAP financial measures and believe that the inclusion of comparative numbers provides consistency in our financial reporting. We compute non-GAAP financial measures using the same consistent method from quarter-to-quarter and year-to-year.

Chordiant believes that non-GAAP measures have significant limitations in that they do not reflect all of the amounts associated with Chordiant's financial results as determined in accordance with GAAP and that these measures should only be used to evaluate Chordiant's financial results in conjunction with the corresponding GAAP measures. Because of these limitations, Chordiant qualifies the use of non-GAAP financial information in a statement when non-GAAP information is presented. In addition, the exclusion of the charges and expenses indicated above from the non-GAAP financial measures presented does not indicate an expectation by Chordiant management that similar charges and expenses will not be incurred in subsequent periods.