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Executives

Bob Calderoni - Chairman, Chief Executive Officer and Member of Equity Incentive Committee

Ahmed Rubaie - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

John Duncan - Director of IR and Corporate Finance

Analysts

Peter L. Goldmacher - Cowen and Company, LLC, Research Division

Stan Zlotsky - Deutsche Bank AG, Research Division

Saurabh Paranjape

Lauren Choi

Steven R. Koenig - Longbow Research LLC

Richard T. Williams - Cross Research LLC

Ariba (ARBA) Q4 2011 Earnings Call October 27, 2011 5:00 PM ET

Operator

Greetings, and welcome to the Ariba Fourth Quarter and Full-Year 2011 Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. John Duncan, Head of Investor Relations. Thank you, Mr. Duncan, you may begin.

John Duncan

Good afternoon, and welcome everyone to Ariba's conference call to discuss the results for the fourth quarter and full-year, fiscal year, 2011.

In today's call, we'll make reference to supplemental presentation slides with our prepared remarks. To access these slides, please log on to the Investor Relations section of our website at www.ariba.com.

Our speakers for the call today are Bob Calderoni, our Chairman and Chief Executive Officer; and Ahmed Rubaie, our Chief Financial Officer.

For those on the call accessing the supplemental presentation, please now advance to Slide 2.

Before we begin, I will read the Safe Harbor statement. Statements that may be made on this call on the supplemental slides that are not historical facts may be forward-looking statements, including statements regarding the company's or management's intentions, hopes, beliefs, plans, expectations or strategies for the future.

These statements are subject to various risks and uncertainties and actual results could differ materially from the company's current expectations. These risks and uncertainties are discussed in the company's SEC filings, including our most recent quarterly report on Form 10-Q filed on August 5, 2011 for the quarter ended June 30, 2011.

During the course of this call, we will reference historical non-GAAP financial measures. The management reviews non-GAAP financial information in evaluating Ariba's historical and projected financial performance and believes that it may assist investors in assessing its ongoing operations.

The presentation of this additional information is not meant to be considered in isolation or as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. For a reconciliation of historical non-GAAP to GAAP financial measures, please see the earnings press release and supplemental analysis on the Investor Relations section of our website at www.ariba.com or our Form 8-K filed this afternoon.

In addition, we will reference certain forward-looking non-GAAP financial information, including fiscal year 2011 revenues, expenses and net income. Sorry that's 2012 revenue, expenses and net income.

We are unable to reconcile this forward-looking non-GAAP financial information to corresponding forward-looking GAAP measures because we are unable to estimate without unreasonable efforts certain forward-looking GAAP revenue, expense and other income items.

At this time, I would like to turn the call over to Ahmed Rubaie to review the financial highlights for the quarter.

Ahmed Rubaie

Thanks, John. Good afternoon, everyone, and thank you for joining us today. I am pleased to report Ariba has delivered a very strong finish to the year in all fronts, not to mention a solid foundation for a tremendous growth journey yet to come.

We exceeded the top end of our expectations, both for the quarter and the full year on revenue, EPS and operating cash flow for our annualized and TCR subscription backlog, as well as network volumes and participation rose strongly.

Three years ago, I used to tell you that we will someday cross the bridge from an applications business with a network to a network business with applications. Today, I declare that we have crossed the bridge, and equally as important, we are now operating with a much simpler business model that is poised for continued growth momentum.

Our recent acquisition of b-process, together with Quadrem expands the reach and global capabilities of Ariba's network and solidifies our position, as the world's largest and fastest growing trading community.

Let me recap the fiscal year. Our Subscription Software revenue grew to $275.7 million, which was above the top end of our guidance, up 58% year-over-year and up 27% organically. Since our call, a year ago today, we focused on execution and kept raising the number each quarter. From start to finish, we increased total sub software revenue by $25 million organically. Of course the impressive part of the journey is that network revenue was $119.7 million, up 192% year-over-year and up 622% organically.

Non-GAAP EPS for the year was $0.81, again above the top end of our guidance and this is after incremental investments of approximately $0.25. As a reminder, these investments have been focused primarily on the front-end of the business and innovation. We expect to continue bearing fruit of top-line acceleration as you will see in a few minutes when we talk about Q1 and fiscal year '12.

For the year, we generated approximately $97.4 million of operating cash flow which was also above the top end of our guidance range. This translates into an operating cash flow margin of approximately 22% for the year. Including lease loss of $18.3 million, which is 15 months from expiration, our fiscal year net operating cash flow was $79.1 million.

As I said in our Analyst Day in early September, we are very pleased with our progress in simplifying our business model and growing our network, both organically and inorganically. As we exit the year, our high-margin subscription revenue has increased to approximately 66% of the mix and on its way to reaching 70%.

Now let me walk you through the highlights for the fourth quarter. Please turn to Slide 3. We had another strong bookings quarter in annualized Subscription Software backlog, increased to $194 million from $186 million last quarter. That's up 31% year-over-year.

We also grew our total backlog by $104 million year-over-year to $389 million. That is up 36% year-over-year. In any given quarter, there may be natural variations in total backlog, reflecting deal length and the timing of renewals, so we will continue to focus on annualized backlog quarterly, and only report total backlog annually. Having said that, it is abundantly clear that we have set records in both annualized and TCR backlogs, which justifies the investments we have made over the last couple of years and adds more to the stickiness and visibility of our business.

While I'm talking about records, our trailing 12-month network volume came in at $202 billion. And as you learned from the b-process release, we will soon reach $300 billion. Said differently, we were at the $100 billion mark a couple of years ago, just crossed the $200 billion mark and we expect to soon reach $300 billion. This strongly cements our lead as the world's largest and most global web-based trading community.

Please turn to Slide 4. Our Subscription Software revenue for the quarter was $81.5 million, up 75% year-over-year and up 28% organically, which was above the top end of our guidance. Within this number, network revenue was particularly strong at $40.2 million, up 259% year-over-year and up 71% organically. While the world was busy trying to figure out the macro this last quarter, we focused on more penetration and had another good quarter for chargeable relationships, which rose 4,600 sequentially to approximately 88,000 and is up 20% year-over-year.

On to the balance sheet, we generated $21 million of operating cash flow before lease loss. Including lease loss of $5.8 million, Q4 net cash flow was approximately $15.3 million.

Now, let me turn to more specific financial results for the September quarter. Please turn to Slide 6. Total revenue was $122.7 million for the fourth quarter ahead of our previous guidance range of $118 million to $120 million. Subscription of maintenance revenue was $95.4 million, beating our previous guidance of $92.5 million, plus or minus $1 million. Subscription Software revenue was $81.5 million, ahead of our guidance of approximately $79 million and up 75% year-over-year and 28% organically.

Q4 subscription revenue included approximately $1 million of one-time catch-up revenue. Maintenance revenue was $13.9 million, also ahead of our previous guidance of $13.5 million. Services and other revenue was $27.3 million, near the high end of our previous guidance of $26.5 million, plus or minus $1 million.

Turning to expenses, total expenses on a GAAP basis, including cost of revenue were $120.3 million. Included in these GAAP results were a $16.8 million charge of for stock-based compensation and $4.3 million charge for amortization of intangible assets. Excluding these items, non-GAAP expenses were $99.2 million for the quarter. As a result, GAAP net income for the fourth quarter for continuing operations was $2.4 million or $0.02 per share. On a non-GAAP basis, we had a net income of $23.5 million or $0.24 per share coming in above the high end of our EPS range of $0.21 to $0.23.

Moving on to the balance sheet, DSO was 25 days, lower than the 27 days last quarter. Our cash balance increased to $280.7 million from $266.6 million last quarter. And cash now represents approximately $2.87 per diluted share.

Another way to think of that cash is that we started the year with $250 million, sold a declining business, bought a growth business and built out a new office at Sunnyvale before the rates took off and still ended up with approximately $281 million in the bank.

Deferred revenue of $123.7 million was down $10.8 million sequentially as expected. As we have discussed over the years, this reflects the normal seasonal decline in maintenance and supplier fees due to the timing of renewals and cash collection on the strong Q4 bookings which will occur in Q1. Year-on-year deferred revenue was up $19.4 million.

Let's now look at our EBIT outlook for fiscal year 2012. Please turn to Slide 8. As we discussed with you back on Analyst Day, we believe the medium term growth rate for our Subscription Software business is 15% to 25%, with the network component of that growing at 20% to 30% CAGR. We also talked about the addressable spend market in the Global 2000 being approximately $12 trillion. Of which, $3 trillion is in our existing customer base. And as I said earlier, we just crossed $200 billion on our way to soon reach $300 billion.

Now specifically for fiscal year 2012, we expect the following: Total revenue to be approximately $525 million, plus or minus $5 million. We expect subscription revenue to be approximately $361 million, plus or minus $4 million, including roughly $7 million for b-process. This represents a 31% year-over-year growth or 19% organic growth. Breaking this down further, we expect our network revenue to be approximately $178 million to $182 million, with other applications revenue at $179 million to $183 million.

Continuing with the theme that we saw play out last year, we expect to convert more traditional maintenance revenue to network and other Subscription Software revenue. We therefore expect maintenance revenue to be approximately $49 million. Our outlook for services and other revenue is expected to be approximately $115 million, plus or minus $5 million, including roughly $4 million from b-process.

We continue to run our business with operational discipline. And as discussed at Analyst Day early September, we targeted margin expansion of 100 to 200 basis points from scaling Quadrem's profitability in fiscal year '12.

Now even after absorbing the new acquisition of b-process, which negatively impacts operating margins by around 100 basis points, we still expect to be in the target range of 19% to 20% for fiscal year 2012. Our medium-term goal remains 20% to 25% operating margins.

As we also discussed at Analyst Day, our success in scaling Quadrem's top line and profitability translates to more taxes in countries like Brazil. And therefore, we estimate a charge for interest, tax and other of approximately $11 million in fiscal year '12.

In summary, we expect non-GAAP EPS to be in the range of $0.92 plus or minus $0.02 which incorporates a minus $0.03 impact from b-process, including the customary purchase accounting reductions to deferred revenue. This is based on approximately 99 million diluted shares outstanding.

We estimate fiscal year '12 operating cash flow before lease loss at $108 million, plus or minus $5 million, representing approximately 21% cash flow margin. This incorporates a negative $2 million cash flow impact from b-process. Additionally, of course, our cash position will reflect approximately $50 million outflow for the acquisition of b-process.

Turning to Q1, we expect the following: Total revenue in the range of $124 million, plus or minus $2 million, including roughly $2 million for b-process. Subscription in maintenance revenue of approximately $96 million, plus or minus $2 million, including roughly $83 million, plus or minus $2 million for Subscription Software and $30 million for maintenance. We expect services and other revenue of approximately $28 million, plus or minus $1 million.

With respect to the rest of the P&L, we expect total non-GAAP operating costs and expenses to be approximately $104 million. Contained within this are: Cost of revenue of approximately $39.5 million; R&D of roughly $14.5 million, sales and marketing of approximately $37 million; G&A of roughly $11 million; and in addition, we expect a net impact from interest, taxes and FX of approximately $2 million expense.

On a non-GAAP basis, we expect positive net income of roughly $20 million, plus or minus $1 million, or approximately $0.20, plus or minus $0.01, which incorporates an estimated minus $0.02 impact from b-process. This includes the customary purchase accounting reduction to deferred revenue, deal cost and certain investments to drive revenue synergies between Ariba and b-process. This is based on an estimated 98 million diluted shares outstanding.

In addition, we expect to record expenses of roughly $23.5 million for stock-based compensation and amortization of intangible assets, including Quadrem and b-process.

Like the last few quarters, I thought I would give you some additional color on our business and more background information that may help your models. As we talked about on Analyst Day, our sticky recurring revenue continues to increase with the likelihood of getting close to 70% of the mix this year. The exciting element is that the network is not the engine of our business model. And given our latest acquisitions, this means more transactional and global revenues than we have seen in the past. For our customers, we are now the largest B2B community, with complementary solutions that reach into every continent, except Antarctica, and particularly where there's robust economic growth in emerging markets.

For our business, this diversifies our economic exposure into emerging markets, which is new and financially rewarding for us. Both of Quadrem's customers are in the southern hemisphere. That generally run on a calendar year basis and actually start the year with their summer vacations in the January, February time frame.

So as I think about the fiscal year '12 numbers that I just gave you, I expect to graduate into the numbers with more uptick in the second half of the year and as every quarter goes by. Of course as our International business continues to grow, with Quadrem in emerging markets and now b-process in Europe, I expect more currency impact than what we have seen in the past. At a high level of the impact, up or down, would be more on reported revenues as opposed to the bottom line.

Our basket of currencies has moved since the last quarter and recently saw some improvement, including earlier today. I can't predict currency, but I can tell you, for sensitivity purposes only, that a 10% swing versus the U.S. dollar may translate to $12 million of revenue movement, with about $3 million of net income movement. By the way, the guidance I gave you for Q1 and the full year is based on today's rates. To give you a perspective using the rates from a couple of months ago, Q1 Sub Software revenue would have been approximately $2 million higher than what I just guided. To the extent meaningful, we will keep you abreast of our currency impact as the year goes on.

Moving on to the topic of integration, I'm very pleased to report that from a business perspective, Quadrem has fully integrated into the Ariba family and the postmortem from our customers, not to mention our own financial results is a job well done. While b-process was a small tuck in, our customers are very excited about adding the e-invoicing capability in Europe which is a promising growth market for tomorrow's economy.

In summary, I'm very pleased with the strong finish we delivered to our fiscal year and the continued growth momentum for years to come. We have a focused, simplified business model with a strong P&L and a strong balance sheet, which will continue to catalyze our organic and inorganic growth.

We are in the lead position to enable the world's largest and most global web-based trading community, with application solutions that will help enterprises navigate their needs and stay ahead of their competition. All of this translates the tremendous growth opportunity for us and I'm very pleased with how our journey continues to progress.

And with that, let me turn the call over to Bob.

Bob Calderoni

Thanks, Ahmed, and thanks to all of you for joining us today. Like Ahmed, I'm very pleased with the financial results and the growth that we see in all aspects of the business, from revenues in Subscription Software bookings to network volumes. This was another strong quarter in what turned out to be an excellent fiscal year for Ariba and we exit the year with solid momentum going into fiscal year '12.

I believe this was a breakout year for us.

Our subscription revenues totaled $276 million and we exit with a run rate well over $320 million making us one of the largest cloud application providers in the market. I think a remarkable accomplishment, considering it all happened in just the past 5 years. And even more remarkable when you consider it required a transition from a traditional CD-based software business. I'm certainly proud of the work the team has done and I'm more confident in our future than ever before.

Beyond the impressive financial results for the past year, I'm even more excited about the fundamental shifts that we've made in our business. There are a number of moves that will position Ariba for its next wave of growth. I believe that when people look back at this time, they'll view 2011 as a watershed year for Ariba. A year in which Ariba not only drove high growth but, more importantly, a year where we transitioned from being a software company with a network to truly becoming a network company.

Network volumes have topped $200 billion and annualized network revenue is nearly $120 million. And we exit the year at a run rate of more than $160 million of network revenue. For the first time, our network revenues and other subscription revenues are equal. And during fiscal year '12, the network will move above 50% of our subscription revenues.

There were a number of moves that we made in fiscal year '11 that I believe help us continue this high net worth growth trajectory looking forward.

As you know, we divested our Sourcing Services business back in the first quarter of the year. This was an important move for us, as divesting it freed us to partner with large BPOs and other providers, many of which are now using Ariba's on-demand software and the Ariba network as part of their customer offerings. This also allows us to focus [ph] on our core applications and our network.

During the year, we then acquired Quadrem, one of the sector's largest web-based commerce networks behind Ariba. Quadrem expanded our global coverage. It not only gave us critical network mass in emerging markets, but also opened the market for Ariba applications above Quadrem customers, as well as new opportunities. And I'm pleased we've already landed several software deals in those regions which I find very encouraging.

Building on to theme of rounding out our global network of business commerce. Earlier this month, we added even more coverage and more volume to our network with the acquisition of b-process, the leading -- Europe's leading e-invoicing solution and one of the largest commerce networks still out there. The acquisition is going to help us continue our expansion in Europe. And with these 2 acquisitions, our global volume on a network will approach $300 billion in fiscal year '12.

In addition to these strategic moves, we saw excellent performance in our sales efforts, building on the investments we've made starting in fiscal year '10 in the front end of our business. We saw strong growth in our bookings evidenced by strong growth in the backlogs. And then 186 new logos we signed throughout fiscal year '11 which is up approximately 34% from the prior year. These new customers all represent new nodes in our network. And over time, they will bring more and more spend volume, as well as many new suppliers to our network. Our backlog, coupled with a very strong pipeline looking forward gives us excellent exit velocity for fiscal year '12.

Looking forward, we're going to continue to invest in the business. In fiscal year '12, we will complement the investments we made in sales capacity, with investments in our customer management organization. This group is not focused on selling the software. Instead, its primary purpose is customer satisfaction and driving more and more use of the applications that our customers are already subscribed to. The investments we're making this year and customer management will generate volume growth on a network later this year, fueling excellent revenue growth in fiscal year '13. The step we're taking represents an important step in our march towards a $1 trillion spend over the network that we talked about at Analyst Day and capturing the white space that exists within our existing customers is the greatest opportunity we have to do that.

Ariba currently has 2 strong legs to its business model today. A strong software business and, of course, network business. It is the strong network that's opening the door to a third leg where we leverage the community effect we have created with the millions of users and the hundreds of thousands of the suppliers we have in the Ariba ecosystem. In fiscal year '11, we introduced Ariba discovery. This is our first step in leveraging that community value. The site launched earlier this summer and we continue to see solid volume building on Ariba Discovery.

We're still experimenting with different pricing models right now. And while we're not targeting much revenue in the near term, we see this as a potential new source of revenue over the medium term.

In the near term, Discovery is proving to be a valuable buyer and seller acquisition channel, adding more than 1,000 new members to the Ariba community each week. This allows us to engage prospective customers quicker, prove our value to them faster and convert them into paying customers doing more processes and commerce with Ariba.

As we continue to build the network volume and increase the number and the types of interactions that are occurring on our network, we will continue to develop and introduce new capabilities like Discovery that will enable us to tap into that community and derive new revenue streams.

Each of these moves, the strategic moves and the investments we've made in our core business. They're well-calculated related part of our stated strategy to become the world's preferred business commerce network. At Analyst Day, we set our targets at $1 trillion of network volume. And with the moves we've made to expand our reach globally, to acquire new customers and to help our customers capture more of this spend, we feel pretty confident we can get there and continue the revenue momentum we see in our business, for both the medium and the long term. There's a clear shift towards a preference for cloud-based applications and there's also the blurring line between enterprise applications and the communities or networks of trading partners. These megatrends supply the companies of all sizes and it's what's helping us drive the success that we see the market, which gives us confidence in our growth prospects, not only in fiscal year '12, but over the longer term.

A good example of how these trends are playing out in the market is evidenced in a deal we closed this quarter with American Express. Like many large enterprises, American Express was planning to consolidate all procurement and all accounts payable management systems onto its Oracle ERP system. They were actually pretty far along on these plans and they were just about to turn on the new system in a few months. But as they got closer and closer to that date, they started to see the challenge went far beyond just the application itself. They saw the benefits of having a single platform, an on-demand platform from Ariba that they can deploy globally. But more importantly, they saw the added benefits of the Ariba network and the need for a network like ours to expand their business processes to their trading partners. American Express will be rolling out Ariba's P2P and invoicing solutions across 15 markets globally, making Ariba, once fully rolled out, their second most used application behind their e-mail system.

I think wins like this one at American Express demonstrate that our competitive position is stronger than ever, as we're the only company with both a broad end-to-end cloud-based application suite, coupled with a global network and community of suppliers. I believe that's the reason we see an acceleration in the rate of new customer acquisition. And in fact, if you look at just this quarter alone, we had 59 new logos, an all-time high and almost twice as many as we had last year. I think fiscal year '11 is going to go down as a great year for Ariba. But I'm even more excited about what the future holds, and I'm more confident the moves that we've made this past year and some of the moves that we have in our plans will ensure that we execute against our vision to lead the market into this new networked economy, allowing us to continue to achieve superior financial results.

So with that, let me turn the call over to your questions and ask the operator to put on the first question.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Peter Goldmacher with Cowen and Company.

Peter L. Goldmacher - Cowen and Company, LLC, Research Division

Ahmed, I wanted to ask you 2 quick questions. Actually maybe one for you and the other one for Bob. When we go to the midpoint of your guidance, it looks like there is about 30 bps in margin improvement over the course of the year. At your Analyst Day, you said it would be reasonable to expect 100 bps to 200 bps. On this call, I thought I heard you say you expect the b-process deal to have 100 bps negative impact. So x b-process, the guidance is for 130 bps improvement, relative to the 100 to 200 you said on 3Q call and Analyst Day. Do I have that right?

Ahmed Rubaie

I think you're just looking at the first quarter, Peter. Is that what you're doing?

Peter L. Goldmacher - Cowen and Company, LLC, Research Division

No, for the full year.

Ahmed Rubaie

For the full year, I think you sticked to -- and we can walk through on that one-on-one. Here's the way to think about it. We actually -- we closed the plan at higher than 200 bps, minus 100, around 100 bps for b-process, and we expect to end the year still somewhere between 100 to 200. So when you workout the full year operating margins, you should be somewhere to be between 19% and 20%, and I can walk you through the math when we go through the one-on-one.

Peter L. Goldmacher - Cowen and Company, LLC, Research Division

Okay, I'll get it, we'll do it then. The other question was also around b-process. I wanted a little more detail. You talked about expecting b-process to add another $100 billion or so to the network. Yet the revenue guidance for the deal is still relatively small. Can you walk us through the math on that?

Ahmed Rubaie

Yes, I'll take that one, Peter. So b-process won't be $100 billion by itself. It's -- we're $200 billion now. We had b-process, we'll have some growth next year in the core business as well, so we'll approach or exceed $300 billion next year. I think b-process volumes right now were in the $70 billion to $80 billion range, and they have a very low yield out of that, in terms of revenues. And again, I think, their model is 2 things. Number one is predominantly a buyer-paid model and the little bit that they get from suppliers is not value-based, it's document-based. And one of the -- I think, Ariba has been a leader in the network and establishing a business model where we -- our pricing model is based on value, not on documents. So I think one of the opportunities for us over time, as we converge b-process to our core business, would be to get a better yield out of the volume that they have. And I think that's one of the opportunities that we see in b-process. b-process will give us that opportunity, plus it gives us a good -- much stronger footprint in Europe, which I think is going to aid us in our selling efforts in Europe as well.

Peter L. Goldmacher - Cowen and Company, LLC, Research Division

And thinking about integrating b-process, is it reasonable to assume that pricing model will change, maybe get a little more aggressive relative to what the install base has been used to?

Bob Calderoni

Yes, I would not assume that's going to happen in fiscal year '12. Changing business models is something that we do. We've done it here at Ariba. We are very careful about doing that, and very careful when we do it. So I'm not going to rush into it. So I'm not going to anticipate doing that in fiscal year '12. But if I take a date off of it and I just look forward, there will be a point in time when there's only one pricing model regardless of whether you're a customer that came to b-process or Ariba and that pricing model will probably look more like the current Ariba pricing model.

Operator

.

Our next question comes from the line of Jeff Van Rhee with Craig-Hallum.

Saurabh Paranjape

This is Saurabh dialing in for Jeff. Just 2 quick questions. First of all, now that a price increase in the network is annualized, can you give us a sense of what the renewals have looked like versus prior price increases that you've done? And then I had a follow-up.

Bob Calderoni

Yes, I think the overall renewal rate on the network last year was north of 95%. So it was very, very strong. It was at least as high as we had seen in prior years without any model change. In fact, it might actually be a point higher.

Ahmed Rubaie

It's about a point higher.

Bob Calderoni

A point higher than in the year when we didn't have a model change. So I would say that we were cautious on that this time last year. And now that it has anniversary-ed and it's all behind us, I would say it's been very successful.

Saurabh Paranjape

Okay. And then as far as the b-process goes, just in terms of sensitivity, can you give us a sense of had this $80 billion in spend been on the ASN, what kind of revenues would that spend have driven for Ariba? So just to give you a sense of what the model will look like when all of these customers have transitioned over.

Bob Calderoni

Yes, I think, Jeff(sic) [Saurabh], I think it's a little too soon to speculate on that right now. It's not a simple price calculation. It's a complicated one because we have basis points with floors and ceilings and it really matters. You've got to look at it almost customer by customer, supplier by supplier. So that's something we haven't -- we don't have a firm figure on yet.

Operator

.

[Operator Instructions] Our next question comes from the line of Richard Williams with Cross Research.

Richard T. Williams - Cross Research LLC

I wonder if you could give me a rundown on the geographic selling conditions by sector.

Bob Calderoni

Yes, let me take that, Ahmed. It was -- this past quarter was a very strong quarter and that was on the heels of a surprisingly strong June quarter as well. And we saw our strength across the board in terms of regions, and we're strong in North America, Europe and also in Asia. I would say Asia was particularly strong. North America was quite strong as well and then Europe, sort of in that order. But I put all 3 in a good category out there. And I think that's true in terms of bookings, and I think it's also true when we look at our pipeline. We see a good solid opportunity continuing in front of us. And from a sort of a selling interaction with customers, there is no -- really, we didn't see any kind of change in buying patterns out there this past quarter either. So despite a lot of the headlines on the macro, I think our sales team really didn't run it to any resistance in the field.

Ahmed Rubaie

Yes, if I just -- if I can cap that for you, Richard. At the end of the day, the Q4, and you see it in the backlog slide, was a record quarter. So whether sequential or year-over-year, it was an excellent quarter, into Bob's point, across all geographies and sector-agnostic.

Richard T. Williams - Cross Research LLC

Last question is about the one-time auction business. Not currently a big item, but is that something you're looking to get into?

Ahmed Rubaie

What is the one-time auction?

Richard T. Williams - Cross Research LLC

Where they have like an annual auction event rather than like having ongoing series. I'd understood that a number of the large procurement events tend to be one-time affairs.

Bob Calderoni

Well, I mean, I think, there's 2 types of sourcing events. I'd say you have the very, very big categories of spend, which tend to be episodic strategic sourcing events. They -- for most categories, they generally would occur once a year. But one of the trends now as the technology -- some of our sourcing technology, particularly something like Ariba Discovery. As that's starting to get pushed further, further into an organization, you're finding some users actually, individual users not sourcing organizations, individual users utilizing that technology to do what I would call a really quick sourcing event. So rather than buying something from somebody, they would use something like Ariba Discovery to do a quick 2 bids or 3 bids and a buy kind of process and that's getting pushed. What we're seeing Discovery being used is, it's actually going after smaller purchases and getting pushed out onto the types of spend that typically would not have gone through any kind of the sourcing process before. So tools like that are being used much like in the consumer world where people are leveraging tools they never had before. In the business community, it's getting pushed all the way down into some pretty small purchases, which we think is a good thing for our customers. It's a good thing for us because it's increasing the community value that we talk about. And Ariba Discovery is becoming a place where suppliers can find new business.

Operator

.

Our next question comes from the line of Lauren Choi.

Lauren Choi

Just had a question around, I guess, your guidance. I guess, based on your high end and low end, just wanted to understand what you're factoring there, in terms of macro? In '09, I see you guys do about 23% network growth. 2010, it was around, I think, 28% or so. Just kind of wanted to see if things were going bad? Much of that is included. Things are good? What's your high end?

Bob Calderoni

Ahmed can give the specifics of it but I think sort of like a census. At the beginning of the year, I think we tend to look forward and we set good targets for ourselves, but we also set them so that hopefully business gets better during the year, not worse. So there's an overhang of macro environment out there, particularly in the North American and European economies. So people might spend less money next year than they did in 2010 or 2011, so we're kind of factoring a little bit of that into our thinking here. And if it plays out that way, I think we'll still have a good year as evidenced by the guidance. If the economy picks up, then I think we'll do even better. So I think conceptually, that's how we're thinking about it.

Ahmed Rubaie

I think that's exactly right, Lauren, and we can walk you through for more details in the one-on-one. But I think the way to think about it is in the world's worst recession, we did 23%, and we're effectively guiding a starting position for the year, 24% and 19%, for the overall Sub Software and incorporating where we are today from an FX perspective. So it is a conservative start, and it is the start of the year that we feel very good about our trajectory and where we're headed. And we can walk you through for more color as we go through the one-on-one, line item by line item.

Lauren Choi

Okay. Yes, no problem. Next question is I just wanted to see in your 2012 guidance, is there any Quadrem stuff -- or not Quadrem, Discovery stuff in there?

Bob Calderoni

Nothing. I mean, if there's anything in there, it's very, very, very small. We don't have any. But we're purposely not trying to push the revenue in 2012.

Ahmed Rubaie

Lauren, just on that point, remember we're going to continue to tweak the pricing model on Discovery. It's kind of like the way we started the network journey 5, 6 years ago. And so akin to what we said on Analyst Day, I wouldn't expect very much in the current year. To the extent it evolves, we'll obviously tell you. But for now, I think, we stick to what we said back in September.

Lauren Choi

Okay. Just last question. It looks like maintenance -- the maintenance guide of $49 million is about 18% down year-over-year. Just kind of curious. Are you seeing more people kind of transition from CD to on-demand more so than maybe a couple of quarters ago? Because I think you mentioned, I think, last quarter that it might just be more than expected in that one quarter, but doesn't seem like a trend.

Bob Calderoni

I think in absolute dollars, I think, last year maintenance came down about $8 million, and I think the guidance that Ahmed gave is down $9 million or $10 million. So in absolute dollar amount, it's not really any different than this past year. But as that number gets smaller and smaller, obviously $10 million a year is a bigger percent. So I would say it's a normal trend that we see. We have seen -- around the middle of this year, we started to see more of our CD customers talk to us about converting to on-demand. So we've seen a little uptick in that. Not a significant uptick of actual conversions, but an uptick in the number of discussions and dialogue that we're having. I think that's a positive. The guidance we have assumes that some of that will happen, and that's why the maintenance is coming down $9 million or $10 million. But we'll see how the year plays out. AmEx, I think, is a good example. AmEx was a customer that used our CD platform, and now they're going to convert to on-demand. And when they convert to on-demand, they will actually be deploying it into markets that they never deployed the CD because it was never economical to do that in the past. So I think that's an example where it will be a win-win. It will be -- the customer will see lower costs. They'll get greater usage. And Ariba will see even more revenue once that's rolled out to market. So you never learn before, and we'll see more supplier volume and revenues. So I think that's all a positive trend.

Ahmed Rubaie

And Lauren, very much like last year. And as I mentioned in my commentary, we continued to increase Sub Software number, and that was -- part of that was conversion. And so we're doing the same thing. So if you're looking to do back of the envelope, 5% to 6% is a normal attrition you see on that line, and we've done a pretty good job of converting even within that range. So it's probably best to look at it from an absolute dollar and not the percentage. And again, we take that into our guidance, which we're setting now at the beginning of the year with these numbers.

Operator

.

Our next question comes from the line of Tom Ernst with Deutsche Bank.

Stan Zlotsky - Deutsche Bank AG, Research Division

It's Stan Zlotsky actually sitting in for Tom. So very quickly, the b-process acquisition, how was their spend growing prior to acquisition?

Bob Calderoni

I don't know the growth rate of the spend off the top of my head. But their revenues were growing in the low to mid-20% range, and there, so that would -- that's one indication of the growth they had. I don't know, I don't have the trended volume numbers on the volume side.

Stan Zlotsky - Deutsche Bank AG, Research Division

So theoretically, if you guys increased the yield that you're receiving on that spend, you should be able to increase that revenue growth?

Bob Calderoni

Yes. That's right. Absolutely, absolutely.

Ahmed Rubaie

Well, what we were saying earlier, Stan is we just bought it. So we need time to figure out what we're going to do. And as you know, we've done it before, and to Bob's earlier point, when we did our own business model change last year, we renewed quite well. So just give us time to get into the business and figure out where we're going.

Stan Zlotsky - Deutsche Bank AG, Research Division

What have you guys been doing for 2 weeks? Unbelievable.

Bob Calderoni

We're ready to go on it. We just don't want our introductory meeting with customers to be a change of model. That's why I said we'll probably not do anything in the first calendar year for that reason. You've got to establish relations. We have to establish relationships with those customers. We need to demonstrate the value before we change pricing, and it's something we know how to do. We've changed the pricing model on our own 3x in the last 6 years, but we also take it very cautiously because we know it's an important thing. And we want to get it done right. And a good example is how we did it this past year. We had a 96-or-so percent retention rate. That's the objective: change the model and have a high retention rate and benefit down the road from the higher pricing.

Stan Zlotsky - Deutsche Bank AG, Research Division

Okay. So moving on Quadrem. I know Quadrem is essentially organic at this point. Is the core Quadrem, is that growing faster than Ariba? And is that being aided by cross-selling of services between the 2 different customer bases?

Bob Calderoni

The core Quadrem business, if we look back over time grew 15% to 25%. And next year, the core Quadrem business will still be in that range. The area where we could enhance that, I think, is as we've moved into markets we weren't in before, we have the opportunity to sell Ariba applications to those customers, as well as new enterprises in those markets. So if -- whether you put it in the Quadrem bucket or if you put it in the core Ariba bucket, it doesn't matter. We think, combined, we could get more growth in that as Quadrem being part of Ariba because we have applications they did not have that we can sell in those markets.

Stan Zlotsky - Deutsche Bank AG, Research Division

Okay. And then last question. I know the price increase is essentially annualized. But are all the -- have all the suppliers renewed on the price increase outside of the just regular attrition? Or are there still some stragglers that you guys are looking to pick up in the current quarter or even in the first quarter?

Bob Calderoni

I think it's all right. With the anniversary of it, I think, the full year is in. It's at 96-ish percent, in terms of renewal rate. And that's a pretty high rate, a consistent rate of renewal. If there's any stragglers, it's a straggler at that point, there's not that much of an opportunity left, to be honest.

Operator

.

Our next question comes from the line of Steve Koenig with Longbow Research.

Steven R. Koenig - Longbow Research LLC

Just one question and then one follow-up here, if you don't mind. What I'd like to ask about on the network, your guidance calls for approximately 50% growth, of which you said about 24% is organic. What I'd like to figure out is, can you help me with -- basically, what are your volume growth assumptions? Because I'd like to sort out the lagging impact of the price increase to that revenue growth. And so I think that maybe the volumes will be the best way to understand what your organic assumptions are less the pricing, less the lagging effects of the price increase.

Ahmed Rubaie

Steve, maybe we can handle this in the one-on-one because the volumes is just one aspect. You've got chargeable relationships that have also been a true measure of how revenue has been going up. So why don't we leave it to the one-on-one. I can actually walk you through how to get to the number. But there are multiple components. Pricing is only one of them. The chargeable relations, that's what we monetize at the end of the day, and that number has gone up pretty significantly year-over-year at 20%. So I have to walk you through that.

Steven R. Koenig - Longbow Research LLC

That would be great. And then just my last -- my second question here, do you have any sort of metrics or proof points on the value-added services on your network that you're trying to develop to differentiate your network and increase stickiness. You've talk a lot about Ariba Discovery. What about the financing offering, how is that coming? And any metrics or proof points on that?

Ahmed Rubaie

Yes, that's coming along. I think the combination of we've got some supply chain finance pilots that are out there. But I would put it in pilot-type of a discussion. Dynamic discounting is one that I think we see a little more traction on. I think it's interesting opportunity that we see, and we see some good early traction on that. But not anything that is moving the needle, in terms of revenue yet. We believe that in order to build those businesses, we have to build a stronger invoicing business. The invoicing market is sort of in its early stages right now. But many of the financing and the payment types of opportunities that we look down the road on our network is opportunities to monetize. We think they're going to lag behind the growth of the invoicing market. So b-process plus the core Ariba invoicing business that we had, we think that's an important prerequisite. We're pushing that very aggressively. We're growing market share. Our win rates are higher now than they were in the past and that's how we're building the foundation. And the revenue will come from these financing offerings. Probably, I would think, they're 3 years out before you see any kind of revenue from them. We need a bit more of invoicing business before we can turn that into revenue.

Operator

.

Mr. Calderoni, there are no further questions at this time. I would like to turn the floor back over to you for closing comments.

Bob Calderoni

Okay, thank you. Well, thanks, everyone, for joining us today. We're very pleased with, not only the quarter, but we are obviously very pleased with the end of our fiscal year here. It was an excellent year. We are looking to build upon the momentum that we have in our business coming out of the year, so we can continue to build on that going into fiscal year '12 and look forward to another good year, as well as looking forward to seeing many of you over the coming months. Thanks, again, and talk to you soon.

Operator

.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

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