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Executives

Roy Lobo – VP of IR

Shawn Farshchi – President and CEO

Mark Robinson – EVP, CFO

Analysts

Saba Software, Inc. (OTCPK:SABA) F3Q 2014 Business Update Conference Call April 2, 2014 5:00 PM ET

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Saba Business Update Conference Call. At this time all participants are in a listen-only mode.

(Operator Instructions) As a reminder this conference is being recorded.

I'd like to now turn the conference over to our host, VP of Investor Relations, Roy Lobo. Please go ahead.

Roy Lobo

Thank you, Deja [ph].

Good afternoon everyone. Welcome and thank you for joining us on today's conference call. With me on the call today are Shawn Farshchi, President and CEO, and Mark Robinson, EVP and CFO.

If you have not received today's press release, you may download a copy from our website at investor.saba.com.

Before I turn the call over to our executives, I would like to remind everyone that during the course of this conference call we will be making forward-looking statements regarding our business momentum, future performance, restatement of progress and objectives, anticipated date of regaining SEC compliance, and expectations of future events. These statements are based solely on information available to us today and are subject to risks and uncertainties.

For information concerning factors that could cause actual results to differ materially from those in the forward-looking statements, we encourage you to review our annual report on Form 10-K for the year ended May 31, 2011, and similar disclosures and subsequent reports filed with the SEC, which are available through the Investor Relations section of our website or through the SEC's website at sec.gov. We assume no duty or obligation to publicly update or revise any forward-looking statements.

Please keep in mind, we are still in the midst of completing our restatement and are limited in our disclosure. For this reason, we will not be taking any calls after our prepared remarks.

Our press release and the comments we make on today's call are very detailed and will be the extent to which we can elaborate regarding our business momentum, business metrics and restatement.

With that, I would now like to turn the call over to Mark Robinson, our CFO.

Mark Robinson

Thanks, Roy. In the first portion of this call I will focus on highlighting the progress we have achieved to complete the restatement. Shawn will provide a business update. And thereafter I will speak to the Q3 financial highlights.

As promised in our last call, we informed you that we would communicate a more precise timeline for finalizing the restatement. I'm pleased to announce that the substantial heavy lifting with the restatement effort is behind us and we anticipate regaining SEC compliance during the fourth calendar quarter of this year.

Fundamental to our efforts on the restatement and the determination of timing of revenue recognition was establishing project completion dates for consulting projects over the last seven years, and identifying related product and project linkages. The linkage analysis is important given any product or project tied to a product sale or project can be related and bundled together. The revenue of that combined bundled would be deferred until the last hour worked.

We have substantially completed determining completion dates and linkages. This effort required over 100,000 man-hours and included evaluating approximately 4,000 projects for completion dates and linkages between these projects and approximately 4,400 product sales. We are now focused on completing the financial audits necessary to regain SEC compliance.

With that, I will turn the call back -- over to Shawn and return later to discuss financial highlights.

Shawn Farshchi

Thanks, Mark. Good afternoon everyone.

I'm as equally thrilled as Mark that we have substantially completed the restatement efforts and that we can now see a clear path to completing the audits. I'm sure that many of you are also pleased to hear the news. Regaining SEC compliance will allow me and my team to focus 100% of our time on capturing the expanding market opportunity we have before us. I'm also looking forward to getting back on the road and meeting with the investors.

Turning to the business, this quarter was marked with a number of positive trends. We experienced a healthy uptick of our Workforce Planning module and observed a greater number of customers signing up for our comprehensive Saba Talent Package. Let me remind everyone that the Talent Package is the full suite version of our Saba Cloud platform and includes learning, performance, succession, workforce planning, social, mobile, and our latest innovation, recruiting. Saba Cloud also features TIM, our patent pending machine learning technology, which I will discuss in more detail later in this call.

In Q3, new SaaS bookings grew 24% year over year. While 24% is a respectable rate, it was below our expectation. We had few deals that slipped out of the quarter. We had good success in signing the majority of these slipped deals in the month of March. And had we closed them in time for Q3 that ended February 28, we would have reported new SaaS bookings growth north of 70% year over year.

We added 40 new logos in the third quarter, including Polycom, Toshiba, ALS Global, Guardian Life Insurance Company of America, Bank of Investment and Development in Vietnam, and Polish Ministry of Labor and Social Policy.

We also had a strong contribution from existing customers expanding their usage of Saba solutions either through the purchase of additional seats or additional products such as Workforce Planning and Saba Meeting. During the quarter, a number of our customers also converted from behind-the-firewall to the cloud and upgraded from their learning-only deployment to our full talent suite.

Our win rate against the competition continued to increase. Our worldwide win rate on both opportunity count and dollar basis for Q3 was the highest we have experienced of any quarter this year. We believe our win rate against the competition will continue to increase because of the clear competitiveness of the new Saba Cloud platform and our ability to recruit high-caliber sales executives with domain expertise in talent management. The comprehensive nature of the Saba Cloud platform coupled with the new sales and marketing talent we are attracting are already contributing to our ability to successfully sell beyond learning and into broad talent management use cases.

Total SaaS bookings declined 11% in the quarter over the third quarter last year, driven by the shortfall in new SaaS bookings growth that I discussed earlier and weaker-than-expected renewals in the quarter. While the number of customers did not -- that did not renew was small in number, they had greater impact on our booking growth. We had one strategic customer continue to deploy our learning solution to their hundreds of thousands of employees but decided to use their internal-developed product instead of renewing their Saba Meeting contract. Another customer was acquired and mandated to use their new company's talent management suite.

Turning my focus to product innovations, over the last 12 months Saba has innovated at a breathtaking pace. With additional -- traditional talent management solutions we've built for the imperatives of a different management era and mainly focused on solving the tracking needs of HR administrators, Saba's intelligent talent management suite is focused on both empowering end-users and the line managers as well as transforming the HR organizations into an enabler of workforce productivity. As a result, we believe Saba Cloud has become the most engaging and intelligent talent management platform in the industry and the standard for the next generation of talent management solution.

A sample of our innovations include the introduction of TIM, which leverages machine learning to provide intelligent and predictive recommendations across the entire platform; Recruiting@Work, a collaborative and predictive hiring solution, and a mobile-first design philosophy with native applications. All of these innovations run on a single, secure, scalable, extensible platform which is our major differentiator.

Let me spend a moment and dive in to TIM a bit more as it's descriptive of the great work that our product teams are continuously delivering. TIM, which stands for The Intelligent Mentor, uses a patent pending machine learning algorithm to dramatically increase the value proposition of each component of the talent management suite.

For example, in our new recruiting module, TIM uses a set of algorithms to provide intelligent recruiting assistance for the active and passive sourcing of candidates to help companies recruit their perfect person. TIM automatically assigns a fit score to each candidate, both internal and external, which helps hiring managers quickly and easily identify the best candidate. We believe that we have refined the state of the art in recruiting and leapfrogged the competition.

A learning module, TIM recommends mentors user-generated content including MOOC content and both formal and informal courses. In our collaboration module, TIM actively monitors individual contributors and influencers and factors that information when making recommendations about people to follow, groups to join, and content to consume. As engagement increases, TIM constantly profiles the skills, interest and network of people across the organization, and uses its talent graph to make even more intelligent recommendations. In our performance module, TIM will automatically create a personalized career ladder.

The examples I just highlighted showcase that TIM is not only an invaluable assistant for employees as they plan their career, but also for those responsible for the key talent planning and resource decisions within an organization. It is also an illustration of the innovative culture we have at Saba.

Let me switch to customer satisfaction. Customer satisfaction is an ongoing focus at Saba, and I'm pleased to welcome Paige Newcombe to Saba as our Chief Customer Officer. Paige, who will report to me directly, will be responsible for our global customer success teams and for ensuring that we have the most successful and most delighted customers in our industry.

Paige is coming to us from IBM where was responsible for SaaS client success, in addition to other duties. Paige has tremendous experience in delivering world-class customer outcomes in fast-moving cloud environments. Our focus on making our customer experience a major differentiator, I'm so excited to add Paige to the team.

In summary, the speed of our technological innovation, our focus on delivering a world-class customer experience, and our success in hiring the best possible talent in our industry would enable us to achieve our number one objective: grow the business faster than the industry and faster than the competition.

We had very solid new SaaS bookings growth in Q2 of this fiscal year, respectable new SaaS bookings growth in Q3, and very solid new SaaS booking growth in the month of March. In fact, our new SaaS bookings in the month of March was the strongest March in our company's history.

With that, let me turn the call back to Mark.

Mark Robinson

Thanks, Shawn. Let me walk you through some of the selected Q3 financial metrics. Please keep in mind that because we are in the midst of restatement we are limited in our disclosure of financial information and metrics.

As Shawn mentioned earlier, new SaaS bookings grew 24% year over year in the quarter. The company continues to enjoy strong growth in its core business. Our legacy hosting business continues a planned decline, which for the third quarter was down 65% over the prior period year -- over the prior period.

This resulted in total cloud bookings, which include SaaS plus hosting bookings, declining 14% in the third quarter. As a result of our success in selling our multi-tenant Saba Cloud offering, we believe we will continue to experience steep declines in our new hosting business. For this reason, going forward, our cloud bookings metric will only include results from SaaS bookings.

We ended the third quarter with $23 million in cash, and this does not reflect the payments in the quarter of approximately $3 million associated with the accounting review and restatement, and approximately $2 million associated with non-recurring and specified items. Total debt at the end of February 28, 2014 was approximately $63 million.

Cash flow from operations was a positive $5 million in the quarter, excluding costs associated with the restatement and non-recurring and specified items.

I will now turn the call over to Roy.

Roy Lobo

Thank you, Mark.

This concludes our prepared remarks, and I will turn the call back to the operator.

Operator?

Operator

Are you ready for the replay?

Ladies and gentlemen, this conference is available for replay after 4:00 p.m. Pacific today through May 2, 2014. You may access AT&T Executive Replay System at any time by dialing 1-800-475-6701 and entering the access code 321490. International participants, dial 320-365-3844. Those numbers again are 1-800-475-6701 and 320-365-3844, access code 321490.

You can also access this conference from the web by going to the Investor Relations section at investors.saba.com.

That does conclude our conference for today. Thank you for your participation and using AT&T Executive Teleconference. You may now disconnect.

Question-and-Answer Session

[No Q&A session for this event]

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