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Executives

Bobby Yazdani - Founder, Chairman of the Board and Chief Executive Officer

Roy Lobo - Investor Relations

William Slater - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Analysts

Scott Berg - Feltl and Company, Inc.

Chad Bennett - Northland Securities Inc.

Kevin Liu - B. Riley & Co., LLC

Ryan Bergan - Craig-Hallum Capital Group LLC

Unknown Analyst -

Saba Software (OTCPK:SABA) Q4 2011 Earnings Call July 20, 2011 5:00 PM ET

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Saba Fourth Quarter and Fiscal 2011 Earnings Call. [Operator Instructions] As a reminder, the conference is being recorded. And I'd now like to turn the conference over to our host, Mr. Roy Lobo, Vice President of Investor Relations. Please begin.

Roy Lobo

Thank you. Good afternoon, everyone. Welcome and thank you for attending Saba's Fourth Quarter and Fiscal Year 2011 Conference Call. With me on the call today is Chairman and Chief Executive Officer, Bobby Yazdani; and our Chief Financial Officer, Bill Slater.

If you have not received today's earnings release, you may download a copy of the press release from our website at investors.saba.com. Before I turn the call over to our executives, I would like to remind everyone that during the course of this conference, we will be making forward-looking statements regarding our business outlook, future performance 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 these forward-looking statements, we encourage you to review our annual report on Form 10-K for the year ended May 31, 2010, and subsequent Saba periodic reports, 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 obligations to publicly update or revise any forward-looking statements. In addition, we intend to discuss both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP results is included with the financial statements accompanying our earnings release.

With that, let me turn the call over to Bobby Yazdani, our Chairman and CEO at Saba. Bobby?

Bobby Yazdani

Thank you, Roy. Good afternoon, everyone. In today's call, I will highlight our Q4 and fiscal year financial results and review the major accomplishments we achieved in fiscal year '11 and highlight our roadmap and strategy for fiscal year '12.

Fiscal year '11 was characterized by 3 major dynamics: First, our customers accelerated their preference for our Cloud offerings. Second, our customers purchased additional modules of our Talents Management suite other than just Learning. And third, our customers used Saba for a broader set of business solutions beyond corporate training and compliance.

These 3 dynamics help drive higher adoption and higher average selling price for our solutions. This is why 4 out of the 5 largest transactions in the company's history were all signed in fiscal year '11. And just to point out, all 4 customers elected to run their applications on the Saba People Cloud.

We now have one of the fastest growing SaaS businesses among public companies. Let's review the results. We recorded total non-GAAP revenues of $30 million in the quarter and $116.7 million in fiscal year '11, up 7% from fiscal year '10. Our SaaS revenues, which are part of our subscription revenues, grew 59% in the quarter and 33% for the year.

In fact, we have seen a steady increase in the year-over-year quarterly growth of our SaaS revenues from 8% in Q1 to 19% in Q2, 42% in Q3 and ending the year at 59%.

Our annual contract value for new SaaS bookings grew 276% year-over-year and grew 210% in fiscal year '11 over fiscal year '10.

We saw 153 new enterprise customers in fiscal year '11 and 40 new customers in the quarter. Total deferred revenue grew to a record $45.8 million, up 24% year-over-year and 8% sequentially. Total bookings in the quarter were $33.3 million, up 9% year-over-year.

This quarter, we consciously accelerated our investments in a number of key areas to support our fiscal year 2012 growth initiatives. First, we invested in expanding our sales force to add country managers in Canada, India and China, and we continued our expansion of sales capacity and management in existing and new markets.

We remain on target to end this year with over 70 quarter [ph] carrying account executives. Second, we invested in expanding internationally by launching our operations in China and growing our operations in Latin America and Asia Pacific.

Third, we invested in our global cloud operations in preparation for the major release of our new People Cloud Applications, which we plan to debut in the Fall. We also invested in number of new technological innovations, such as Try & Buy, which allow customers to come to saba.com, discover our solutions, try our solutions and subscribe to the solution of choice.

We are aggressively building out this technology so that by year end, all of our solutions will be available in this fashion. This, we believe, is truly how a SaaS company should operate.

We also invested in value engineering our solutions for our customers and prospects. What value engineering means, we have gathered data from hundreds of customers in best practice of the Talents and learning management suite and the benefits they receive from deploying the solution or solutions.

We have then segregated this data by industry, and we will look to share this data with our customers and prospects to provide them the best practice use of our Talent and learning management suite and ROI on the adoption of Saba solutions. Our belief is that this value engineering effort coupled with Try & Buy offering will increase our cross-sell and upsell opportunity, as well increase our ability to sell the entire suite of our Talents Management solutions.

These innovations and others would be released throughout the year. We also added key executives to run our Cloud business, including Shawn Farshchi as Executive Vice President and our Chief Operating Officer; and Daniel Lipkin, Vice President of Technology.

Last, we acquired Pedagogue Solutions and Comartis, 2 leading software companies in the testing and assessment market. These companies provide the foundation for a new testing and assessment offerings. The ability to test and assess skills levels and learning effectiveness is an essential element of any learning management system.

Now let me take a moment to discuss in more detail the major accomplishments we achieved in fiscal year '11. This past year, we talked about a number of growth drivers for the company, and I would like to update you on each one of them. First, we saw many of our customers, including some in the public sector, adopt our Saba's People Cloud Applications, including IBM [ph] company, Eli Lilly, Halliburton, Finning, Aflac, County of Santa Clara, State of Texas, Bose, Sony and Fiat/Chrysler.

Second, we saw a number of our customers convert to our cloud offering this quarter to take advantage of our scalable Saba People Cloud platform. W.W. Grainger converted to the Cloud to ensure that it adopts best practices by being on the latest release. Legal and general was a behind the firewall customer that converted to the Cloud for a more predictable cost structure.

In the midst of that conversion, they were able to successfully off-sell additional modules to legal and general. We see many more customers in our pipeline who looked to convert the implementation of Saba's application from behind the firewall to our Cloud platform.

Third, we saw many of our customers use our applications in contemporary ways. Alina Health purchased additional seats this year to support the 2x increase in adoption, driven by extended enterprise training. Hitachi Data Systems, Kaiser Permanente, Novartis, BMW and Standard Chartered Bank to name just a few, also purchased additional seats to train their extended enterprise.

We also talked about customers purchasing our solutions to enable their sales force. The technology company, Novale, [ph] who uses Saba to enable their sales force realized a 46% increase in annual bookings. Bose education certified their distributed sales force on the latest innovation, which is constantly evolving.

We have also seen customers purchase our products to develop and certify their customers. We saw Deere & Company sign on for this type of usage. And we have a number of very large customers in the pipeline who see the training and education of the consumer as the one they need for the growth of their business.

Another growth driver for the company has been our efforts in the mid-market. We created a dedicated mid-market sales team in Q1 of fiscal year '11, and their sole focus is to target organization between 2,000 and 7,000 employees and only sell our cloud solutions. Our contribution from the mid-market sales team has been excellent, and we look to grow this business and their contribution in fiscal year '12.

Our international geographies also contributed nicely to our growth for fiscal year 2011. We saw good growth in Germany, India and Latin America to just name a few.

Lastly, we made some major stride on our partner front. Our engagement with our partner community has clearly increased. We grew our partner community from 47 in fiscal year '10 to 107 in fiscal year '11, signing 36 new partners.

Our existing partner productivity is up 40% in fiscal year '11 or fiscal year '12. We will continue to work very closely with our partners to grow our business.

Let me now shift gears to discuss our fiscal year '12 strategy. In fiscal year '12, we plan to implement a number of initiatives to ensure our growth, scalability and successful transformation to the Cloud. For fiscal year '12, new customers will only be offered our solutions on the Cloud. Let me state that again. In fiscal year '12, new customers will only be offered our solutions on the Cloud. Last quarter, I spoke with you about the introduction of our Saba Social Learning product and our plans to enhance our entire Saba People Cloud application portfolio. After showcasing our Saba Social Learning at [indiscernible], we invited customers and prospects to beta our product. In one month alone, we had over 40 customers, prospects test drive our products. We[indiscernible] on June 21 and are pleased with the pipeline that is building for the product.

We will continue to execute a number of initiatives to grow the business in fiscal year '12, including expanding internationally, extending our reach into the mid-market and doubling our channel of business globally. With that, let me briefly touch on the guidance. We are forecasting total bookings to grow approximately 16% to 18% for fiscal year '12 over fiscal year '11, and SaaS bookings growth in excess of 110%.

In conclusion, our plans is to transform to a SaaS company and it's progressing ahead of our expectation. It looks to improve on our success achieved in fiscal year '11 and believe fiscal year '12 will be characterized by Saba's continued rapid migration to the SaaS business model, product innovation and accelerating top line growth.

With that, I'll turn the call over to Bill to review the financial results.

William Slater

Thanks, Bobby. I will focus my review on our non-GAAP financial results and year-over-year growth rates unless otherwise stated.

Total revenues in the fourth quarter was $30 million, an increase of 1% compared to $29.6 million in the same quarter last year. This brings our total revenue for fiscal year 2011 to $116.7 million, an increase of 7% over fiscal year 2010. The quarter and year include the impact of 08-01, which allows us to recognize professional service revenue as the services are delivered rather than over the life of the related SaaS contract. See the reconciliation attached to the earnings release for the adjustments.

Subscription revenues, which include our cloud offerings and our update in product support offerings grew 17% to $17.3 million in the fourth quarter. Our subscription revenue for FY '11 grew to $64.6 million, an increase of 13% over FY '10. Our SaaS revenues grew 59% in the quarter and 33% for the year. Renewal rates on our subscription business was 88% for the quarter and 89% for the year.

Our total deferred revenue on a GAAP basis grew a record $45.8 million, increasing 24% year-over-year. Professional service revenue was $8.7 million in the quarter and $33.9 million in fiscal year '11, an increase of 12% and 22%, respectively, over the same period in the prior year.

Professional service revenue increased by approximately $800,000 in the quarter and $2.7 million in fiscal year '11 due to the adoption of 08-01. Professional service revenue in the quarter were below our expectations due to some revenue deferment into FY '12 and lower utilization from our EMEA region as a result of a management transition.

License revenues for the third quarter were $3.9 million, 44% lower than the same period in the prior year. License revenue for FY '11 was $18.2 million, $26 million lower than the prior year and accounted for 16% of total revenues. The decline in license revenue is attributable to the company's shift to SaaS.

New SaaS bookings grew 276% in the fourth quarter of fiscal year 2011 and grew 210% for the full fiscal year 2011. Total bookings for the quarter, which we defined as total revenue plus the change in deferred revenue, increased 9% to $33 million. Total bookings for FY '11 grew 13% to $125.5 million.

During the quarter, we had 40 new customers, bringing our total number of new customers for the year to 153 customers, a growth of 35% over the 113 customers added in FY '10.

We also grew the dollar value of our average deal size on a total contract value basis by 30% for the quarter and the full year. Gross margins were 61.9% in the quarter and 64.2% for the year versus 68.2% and 66.7% for the prior periods, respectively. The decline in gross margin was due to the lower license revenue contribution, coupled with lower professional service revenue, which I commented on earlier.

We plan to return to our goal of 25% plus gross margins and professional services for FY '12. The decline was partially offset by steady improvement in our SaaS gross margins throughout fiscal 2011.

Operating expenses were $21.1 million in the quarter and $74.2 million for the year compared to $17.5 million in the fourth quarter of the prior year and $63.9 million for fiscal year '10.

The results reflected accelerated an investment of $2 million in support of our 2012 growth initiative that Bobby highlighted earlier. Net loss for the fourth quarter was $2.9 million or $0.10 per share. Net loss for the year was $497,000 or a loss of $0.02 per share.

We ended the fourth quarter with approximately $26 million in cash compared to $32 million at the end of last quarter. Cash decreased due to the acquisitions of Pedagogue and Comartis for which we paid a cash outlay of $7.1 million on a total purchase price of up to $12.3 million.

Cash flow from operations was $2.5 million in the quarter and $4.1 million in fiscal year '11. The decline in cash flow from operations in fiscal year '11 over fiscal year '10 was due to the increased adoption of our SaaS offerings over license transactions, coupled with our accelerated investments we highlighted earlier.

The company repurchased approximately 243,000 shares of our stock during the fourth quarter for $2.3 million. Approximately $4.5 million remains on our repurchase authorization. With regard to guidance for fiscal year '12, we are forecasting total GAAP revenues in the range of $130 million to $133 million. We are forecasting total bookings to grow approximately 16% to 18% in fiscal year 2012 over fiscal year 2011, with SaaS bookings to grow in excess of 110% in fiscal year 2012 over fiscal year 2011.

We expect the license contribution to be in the range of 7% to 9% of total revenues in fiscal year 2012. We expect our operating income in fiscal year 2012 to be impacted by our recent success in selling multi-hundred thousand user subscribers on the Cloud. As part of the adoption of Financial Accounting Standards Board standard for multiple element revenue arrangements, ASU 2009-13 for certain transactions, we are required to recognize a portion of the respective professional service revenue ratably over the life of the contract while incurring the professional service expense upfront. We estimate this to negatively impact our earnings per share by $0.06 to $0.08 in fiscal year 2012.

As such, we are forecasting a GAAP net loss to range from $0.39 to $0.45 per share and a non-GAAP net loss to range from $0.17 to $0.23 per share.

We expect to incur greater losses in the first half of the year returning to profitability by the end of the year. We anticipate cash flow from operations to be positive for the year.

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

Roy Lobo

Thank you, Bill. This concludes our prepared remarks. And we'll be happy to take questions from the audience. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] And our first question from the line of Scott Berg with Feltl & Co.

Scott Berg - Feltl and Company, Inc.

A couple of quick questions here. Let's start with the acquisitions. Tell us a little bit more about what these acquisitions are going to do for the product offering long term. I looked at both of them briefly and look like testing and assessment companies are not on the pre-hire side, more for existing type of employees and, I guess, along the right line or what else should we read it?

Bobby Yazdani

That's correct. I mean, first of all, we have this company's suite. Both of these companies, they were installed around the technology. Pedagogue in North America and highly focused in life sciences industry and the compliance in the life sciences industry. Comartis, installed on a number of our customers. Crédit Suisse, mainly, and a number of our German customers in Europe. This essentially extends the capabilities on all our learning management solution. It's, let's say, a [indiscernible] set of technologies that we can offer in our Cloud going forward and then upsell to our existing learning management customers.

Scott Berg - Feltl and Company, Inc.

And will these products long term just get kind of folded into the learning management suite? Or I know they can be upsold as additional modules? But is that how we should kind of look at the product long term?

Bobby Yazdani

That's correct. You can look at it that. It could be purchased as stand-alone or a stand-alone service on the cloud. But it's really in the context of a implementation of our learning management system that these systems are typically purchased.

Scott Berg - Feltl and Company, Inc.

Can I get an answer on the financials of the transactions? What was the kind of profile of these companies over the last 12 months in terms of revenue, profitability? And then how much are they contributing towards your fiscal year '12 guidance?

Bobby Yazdani

Correct. We purchased them roughly about north of 2x their revenue. And the majority of the revenue was Software as a Service revenue. And they said they were of a technology acquisition. In both of these cases, they were both either profitable or slightly profitable.

Scott Berg - Feltl and Company, Inc.

Okay. Very good. And I guess question for Bill here. And you spoke about in your comments the negative impact on ASU 013 over the next 12 months, negative impact, $0.68. In my experience with that, there tends to be a positive bump up, like it appears that there was for you in this fiscal year. But for about in 18 to maybe 21-month period, are we seeing the flip side of that starting to decelerate now in the back end as the prior services revenue that was recognized ratably is declining or am I missing that?

William Slater

This is actually a different issue. When we work with our best estimated selling price, we lump all of our transactions and come up with sort of the center of the best estimated price. We have a few very, very large transactions that fall out of that pricing band. And as a result, we have to carve out professional services into the SaaS transaction, but we still recognize the professional service expenses upfront. So we're estimating that approximately $2 million in revenue that we would have recognized in professional services because we don't have a best estimated selling price midyear will get deferred over the SaaS contract period. Now as we add more customers in this multi-hundred thousand user band, that may go away. So this is sort of an unusual thing because the center of our pricing takes into account hundreds of transactions that are mid-market. But at the very, very end, the very, very high end of our sales, we have a different pricing structure. And because we have so few transactions, we can't set up a band yet.

Scott Berg - Feltl and Company, Inc.

So essentially, you're just unable to establish the SOE.

William Slater

Exactly.

Scott Berg - Feltl and Company, Inc.

Okay, fair enough. On the 4 large transactions in the quarter, were those deals for both learning and performance? Is that the implication on the "people cloud"?

Bobby Yazdani

Yes. We have had a number of suite transaction and multiproduct transaction. And, of course, one of them was a very large learning management transaction as well.

Scott Berg - Feltl and Company, Inc.

Fair enough. And last thing before I go, a bit of housekeeping. 40 enterprise customers this quarter, what was it in fourth quarter '10? I don't have that with me.

William Slater

I have to get back to you. It was about the same number around that.

Bobby Yazdani

It was year-over-year.

Scott Berg - Feltl and Company, Inc.

That's fine. I can get it from the other.

Bobby Yazdani

That is roughly, is 40. The tilt is tilted over to the SaaS -- a number of SaaS deals. For the year, it was up 163 over 113.

Operator

Our next question from the line of Chad Bennett with Northland Capital Markets.

Chad Bennett - Northland Securities Inc.

I guess a couple of questions related to acquisition on Scott's stuff. I guess, you talked about paying 2x revenue. Is that 2x the $7 million purchase price or $12 million?

Bobby Yazdani

We paid 2x roughly $6 million revenue, and that comes out to about $12 million. The $7 million was an initial cash outlay. There's payments in the future as well regarding this transaction.

Chad Bennett - Northland Securities Inc.

Okay. So earn outs or something like that?

William Slater

Something like that. Yes.

Chad Bennett - Northland Securities Inc.

Okay. When were these acquisitions completed in the quarter?

Bobby Yazdani

Roughly last week of the quarter...

William Slater

Yes, within the last 2 weeks.

Chad Bennett - Northland Securities Inc.

So no contribution really to the quarter?

William Slater

No. The revenue was de minimis. We did pick up about $200,000 in expenses but no real revenue. We show the GAAP to non-GAAP reconciliation in the tables.

Chad Bennett - Northland Securities Inc.

Did we feel like -- qualitatively, did we feel like the acquisitions weren't meaningful enough to announce them when they were actually completed?

Bobby Yazdani

No. They were really -- these are technology acquisitions. The customer base is not significant. I think we will make it a significant contribution by having access to that technology because we can't sell it. We felt that it was the end of the quarter, last week of the quarter. We didn't want to distract the organization, as they were closing business, as you can imagine. And it was not meaningful work in terms of the revenue or expenses during the quarter. It's going to be clearly meaningful for the current fiscal year, the new fiscal year, but nothing meaningful for last year.

Chad Bennett - Northland Securities Inc.

Got it. And so what's the -- you paid $7 million at least right now in cash this quarter for acquisitions. You bought back a couple million in stock. We're going into a greater loss situation this year than we had last year. $25 million in cash, it sounds like you're going to be cash flow positive. What's our appetite for additional acquisitions and/or buybacks, considering we're not in as profitable a situation going into this year as we were last.

Bobby Yazdani

As Bill guided, we've been cash flow positive for the past many years, 4 or 5 years. And our plan is to again -- our plan is to be clearly cash flow positive for the new year. And in terms of doing more acquisitions, we did also announce the line that we signed up with Wells Fargo that we have access to $40 million of essentially borrowing capital. That's available to us. And we're going to be very opportunistic. We're going to be very disciplined in terms of buying companies who are generating cash, profitable and their multiples have to be at a level that we can digest comfortably.

Chad Bennett - Northland Securities Inc.

Okay. And from a currency standpoint, you'd rather use cash at this level?

Bobby Yazdani

Absolutely.

Chad Bennett - Northland Securities Inc.

Okay, good. So let me hit on fiscal '12 as much as I can. So, Bill, or Bobby, for that matter. So when we look at kind of revenue breakdown kind of below the overall revenue that you gave, professional services was a little bit below where we were at, at least for the quarter and it sounds like where you guys were at.

Bobby Yazdani

Yes.

Chad Bennett - Northland Securities Inc.

How does that look going forward as much as you can say in to next year? And in not only revenue but how does the considering utilizations and I'm assuming if we're at the same revenue level, you kind of rightsize staffing there? But how should we look at gross margins also?

William Slater

The bookings and professional service in the fourth quarter were actually very, very good. So from that standpoint, we're very, very comfortable that professional services are going to grow. And if you look at the history of the company, we've typically been a 30% plus gross margin if you go back to '08, '09, '10 -- sorry fiscal '10. Fiscal '11, we made some investments and we had some headaches honestly in the fourth quarter on utilization. Now this $1.8 million, $2 million impact I have for implementing a new accounting standard will probably get us north of 25% into the mid -- into the high 20s. And if we took out the impact, it would probably be back to 30% where we've traditionally been. So we feel comfortable with professional services. Good bookings quarter. We've had a couple of good bookings quarters. We just missed on execution and a couple of missed handoffs.

Chad Bennett - Northland Securities Inc.

Okay. So we feel like professional services will be a double-digit growth business next year?

William Slater

Yes. That's true.

Chad Bennett - Northland Securities Inc.

Okay. And then again, Bill, last one for me and I'll jump off. But on OpEx, this quarter, just trying to get a sense of based on what your -- it sounds like you accelerated some investments there. How much of this quarter's OpEx was -- is kind of fixed structural OpEx versus end-of-year kind of variable comp bonus stuff that maybe just, it doesn't happen next quarter?

William Slater

So our fourth quarter, we typically have our highest commission quarter. So it typically spikes up. We've had some earlier hires, higher recruiting expenses and a little bit higher marketing program in the fourth quarter. Again, on purpose to accelerate our advance into fiscal '12.

Chad Bennett - Northland Securities Inc.

So is there kind of, I mean, we can obviously back into based on your bottom line pro forma. But is there -- I mean, how does that look kind of sequentially going into the August quarter? I imagine it comes down a bit?

Bobby Yazdani

No, actually we're going to have a full year impact, the full quarter impact of the acquisitions. So OpEx will actually go up from here. And, of course, we've done some hiring that's been accelerated. So we're going to see OpEx move up a bit and then flatten out for the next couple of quarters in fiscal '12.

Chad Bennett - Northland Securities Inc.

Okay. And then, sorry, I lied. Last question for me. It sounds like your bookings for the quarter were around $33 million, and I think last quarter, if I have the numbers right, they're around $37 million?

William Slater

Yes, correct, yes.

Bobby Yazdani

So, I guess, considering this is your fourth quarter and I'm clearly new to the name, I guess is it seasonally bookings typically trend down in the May quarter? I don't think that is the opposite but maybe I'm wrong.

William Slater

Our strongest quarter historically with the exception of a blip in fiscal '10 has been our third quarter. So we've typically seen very strong third quarters that bridge December and January, so there's old funding and new funding in that quarter. So it's typically been strong again with the exception of fiscal year '10 where we had a very good fourth quarter.

Chad Bennett - Northland Securities Inc.

Okay. Fair enough.

Bobby Yazdani

Most renewals takes place December and January. So that's why you see big blip that period.

Chad Bennett - Northland Securities Inc.

Got it.

Operator

And have a question from the line of Ryan Bergan with Craig-Hallum Capital Group.

Ryan Bergan - Craig-Hallum Capital Group LLC

You talked about how you're not going to be offering license deals to new customers going forward. I want to get an idea what kind of license revenue run rate do you expect long term? And when do you expect to achieve that? I guess I'm assuming that you're going to have the installed base that will want to continue to do license deals and not want to move to the SaaS.

William Slater

We're guiding that our license revenues will be approximately half of what they were. They're around 16% of revenue in fiscal '11 and I think we've guided 7% to 9% in fiscal '12. So we've seen it tick down sequentially quarter-over-quarter for the last 4 quarters as SaaS has moved up. And we expect, as Bobby indicated, we expect that all of our new customers will come on to SaaS starting immediately. So we're going to expect that -- you should see that trend in the first quarter where license revenues get roughly cut in half from what you've seen previously.

Ryan Bergan - Craig-Hallum Capital Group LLC

Can I then assume that you will have installed base customers that will not want to move away from the license deals?

William Slater

Yes. We'll let those customers continue to expand their licenses. So that goes without saying that we intend to fully support all of our exiting customers, but new customers coming on and indeed our pipeline as well shows a propensity, a move toward SaaS. That's what we've been leading with in all of our quote and our key responses.

Ryan Bergan - Craig-Hallum Capital Group LLC

And then talk about the competitive environment as you move more toward SaaS. Do you feel like you're able to win more competitive displacements because you're offering more SaaS? What's that environment like today versus maybe a year ago or 2 years ago when you were more license heavy?

Bobby Yazdani

The delivery model is clearly different. I think this is less about us, and it's more about the customers. The market has shifted rapidly towards -- demanding the SaaS solution from us. So it's more about the customer than us. And I think we have -- we've, over the past 2 years, as we have essentially transformed the business, we have a very competitive line of products and applications in the SaaS offerings. We can't implement these solutions very rapidly. We have had excellent SaaS service in terms of the availability of our solution, a bit of our solution and continuously delivering innovation essentially to our customers. So we have now very good track records and we have hundreds of customers on our SaaS offerings. And our sales organization clearly know how to take this product out of the market and win. So the market has shifted and I think our timing was excellent where we had good solutions available for all of our social organizations to sell it to the market.

Ryan Bergan - Craig-Hallum Capital Group LLC

Okay. I'll circle back around to the cash flow. you expect -- it sounds like you're going to have -- the earnings impact will be harder hit in the first of the year. Do you expect the similar drawdown in free cash flow in the August quarter similar to the magnitude you had?

William Slater

Yes. I think the cash flow is going to follow earnings. We're going to see a trough as we go through this transition. The large license transactions come down significantly. And then as we get to the second half, you'll see cash flow and earnings get better. Now typically, as you look at our cash flow for a couple of years, historically, you'll see that the second half is typically when we generate our cash flow anyway because we have stronger renewals for the second half of the year.

Ryan Bergan - Craig-Hallum Capital Group LLC

But do you expect to have the same trend year-over-year in fiscal '12 than you did in fiscal '11?

William Slater

Yes, pretty close, pretty close.

Ryan Bergan - Craig-Hallum Capital Group LLC

Okay. And then finally, I just want to circle back to the acquisitions. Are there -- are your competitors have similar testing and assessment test products as the one you've just picked up?.

Bobby Yazdani

No, they don't.

Operator

And we have a question from the line of Kevin Liu with B. Riley & Co.

Kevin Liu - B. Riley & Co., LLC

On the acquisition. I just wanted to get a better sense of that $6 million in revenues. How much of that is actually embedded in your GAAP revenue guidance to the year? And what sort of assumptions should we make on the non-GAAP side if you're going to have that right down on deferred?

William Slater

The non-GAAP increase is minimal. It's going to be little less than $1 million impact on revenues. So not significant and I think for the time being, we're looking at keeping this business, integrating it and building from here. So we bought 2 relatively small private businesses. We expect to do good things with them, but we're not being overly optimistic in this forecast.

Kevin Liu - B. Riley & Co., LLC

Okay. So the non-GAAP is about $1 million, then all the rest of these come traditionally from GAAP...

William Slater

Yes, less than $1 million.

Kevin Liu - B. Riley & Co., LLC

Okay. And then another about $200,000 in expenses from the acquisition during the quarter that just ended. I'm curious as to how much more incremental there is once you guys have a full quarter of expenses in there?

William Slater

We do not, at this point, and again, we're in the midst of integrating both of these acquisitions. So I think it will be premature to talk about that.

Kevin Liu - B. Riley & Co., LLC

All right. Your sales and marketing certainly up significantly in Q4. I understand investments are being made in a number of areas here. But the bookings guidance is still fairly similar, slightly a couple points higher that what you guys did in the prior year. So maybe talk a little bit about why your bookings guidance isn't in a much higher number?

Bobby Yazdani

I think, you have to understand, we give you 16% to 18%. That includes somewhere between $35 million and $40 million in maintenance revenue that's not growing at all. So I think when we talk about SaaS-only bookings growing 110%, that's really the focus that we have. The maintenance revenue is holding down our numbers because it's basically flat lined at this point in time.

Kevin Liu - B. Riley & Co., LLC

And when you look at that SaaS guidance number, I mean how much of that is coming from assumptions on conversions from traditional to SaaS versus...

William Slater

Very, very small. I mean, right now we're seeing 1 or 2 deals a quarter. We think there's more in the pipeline but our focus is really on new business right now.

Kevin Liu - B. Riley & Co., LLC

All right. One of your primary competitors in this space was recently acquired. I'm wondering if you could talk little bit about opportunities that you see to go after that installed base?

Bobby Yazdani

Yes. We have had number of inquiries. We have had opportunities that we are selling into it. And, of course, the consolidation in the market, Kevin, really help us in terms of picking up excellent talent across the board. So that's why you saw a jump in hiring because we have a significant opportunity, a number of territories to pick up great talent because of the consolidation in the market.

Kevin Liu - B. Riley & Co., LLC

All right. And last one for me, certainly last quarter, you've ready talked about this transition to the SaaS model in this quarter. You've already communicated you're not going to be selling any more licenses. Has that changed the discussion or maybe delayed any sort of deals that were sitting within the pipeline as customers now come to terms with the delivery model going forward?

Bobby Yazdani

There could be few exceptions but the majority of case, honestly, we're not seeing it. The places that I think we want to be very careful about is essentially in the public sector, the segments within public sector that we are very cautious about. And we would enable our partners, very large partners who do outsourcing in the public sector that we need to handle a bit differently. So other than that, no. The commercial private market is shifting rapidly to SaaS. We are seeing it globally: Europe, North America even Asia. They're very comfortable adopting the SaaS as long as the data are being a real operationalized, global cloud offering so that European customers, their data would be residing in the EU territory, and the Canadian customers, their data would be residing in the Canadian territory, what-have-you. No, we are seeing very good feedback and a very positive adoption of this new message and the new positioning.

Operator

[Operator Instructions] We'll go to Mark Schappel with Benchmark.

Unknown Analyst -

Bill, I'll start off with you. With respect to the revenue guidance of $130 million to $133 million, I guess it's fair to assume that $6 million of that will be for the acquisitions?

William Slater

Roughly $5 million to $6 million, yes.

Unknown Analyst -

And also is it fair to assume that most of the revenue from the acquisitions will be on the subscription line?

William Slater

Yes. I think it will be split between subscriptions and some professional services, but yes, most will be on the subscription line.

Unknown Analyst -

Okay. And then, Bobby, moving over to you. In the past, you've talked about displacing some competitors in the enterprise learning market. I just want to get a better understanding if that trend continued in the quarter.

Bobby Yazdani

Yes. We have had number of competitive displacements. I am comfortable to say that in the enterprise, large enterprise market, we are gaining very good market share, displacing a number of our competitors. And also as customers are looking at moving to the cloud we are getting engaged with also a number of customers who have deployed to other solutions, not only in the learning management market but also in the performance management and the talent management market, we are being invited to show them our offerings.

Unknown Analyst -

Okay. And then, go back to last question. Was there much of a foreign currency impact to the top line this quarter?

William Slater

Not really. Not really. We do business around the world in different currencies. I think there were some offset. I think in our operating income, though, we had some translation, was unfavorable by about $200,000, so we lost about $0.01 translating balance sheets.

Operator

[Operator Instructions] We have no further questions. I'll turn it back to Roy Lobo for any closing remarks.

Roy Lobo

Thank you, operator. We want to thank everyone for joining this call. And we'd like to also inform you that a telephone replay of this conference call can be accessed by dialing 1 (800) 553-0326. The access code will be 207272. You can also access the replay of this call by going to the Investor Relations section of our website at investor.saba.com. And the replay will be available through August 20, 2011. Thank you again, everyone, for joining us today's and I'll turn the call back to the operator for closing remarks.

Operator

Okay. Thanks, ladies and gentlemen. This concludes our conference. We thank you for using the AT&T Executive Teleconference Service. You may now disconnect. And speakers, you can remain on the line.

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