"Our focus on innovations that unleash the full potential of people as mission critical assets continued to earn strong market validation this quarter," said Bobby Yazdani, Chairman and CEO of Saba. "In the quarter, IBM selected Saba Succession Planning and Saba Workforce Planning to complement its Saba Learning deployment across its global employee population. This win, in addition to other recent successes in selling our Saba People Management suite to global enterprises like Cisco, Hewlett-Packard and Baker Hughes, underscores our momentum in supporting the complete range of people management needs for organizations with advanced requirements. Our year-to-date results reflect continuing profitable growth and we expect our investments in innovative technologies and outstanding people to drive double digit growth in fiscal 2011."

Financial Results

• Total revenues for the quarter ended February 28, 2010 increased to $26.7 million, or 2.0%, from $26.1 million in the same period of the prior year. Year to date revenues increased 3.5% to $80.0 million from $77.3 million during the first three quarters of fiscal 2009.
• License revenue increased 16.7% to $5.5 million in the third quarter compared to $4.7 million in the third quarter of the prior fiscal year, and increased 65% to $17.6 million in the first three quarters of fiscal year 2010 from $10.7 million in the same period of the prior year.
• Saba Performance, Saba Succession, and Saba Workforce Planning product bookings accounted for 17% of total product bookings during the third quarter and 14% of total product bookings during the first three quarters of fiscal year 2010.
• Subscription revenue, which includes license updates and product support revenue, and OnDemand revenue, increased 3.7% to $14.3 million in the third quarter from $13.8 million in the third quarter of the prior fiscal year. During the first three quarters of fiscal year 2010, subscription revenue increased 2.4% to $42.5 million from $41.5 million during the first three quarters of fiscal year 2009.
• Professional services revenue decreased to $6.8 million in the third quarter from $7.6 million in the same period of the prior year, and to $19.9 million during the first three quarters of fiscal year 2010 from $25.1 million in the first three quarters of fiscal year 2009. An increase in sales of Saba products through indirect channels negatively impacted professional services revenue as services related to these sales are increasingly provided by our channel partners.
• Gross margin increased to 63.9% in the third quarter of fiscal year 2010 from 61.6% in the same period of the prior year and 64.8% in the first three quarters of fiscal 2010 compared to 59.2% in the first three months of fiscal year 2009.
• Net income for the quarter ended February 28, 2010 was $430,000, or $0.01 per share on a fully diluted basis, compared to $1.3 million, or $0.05 per share, for the same period last year. For the first three quarters of fiscal 2010, net income increased to $2.1 million, or $0.07 per share on a fully diluted basis, from a net loss of $1.2 million, or $0.04 per share, for the same period in the prior year.
• Non-GAAP net income for the quarter ended February 28, 2010 was $2.1 million, or $0.07 per share on a fully diluted basis, compared to non-GAAP net income of $3.2 million, or $0.11 per share on a fully diluted basis, for the same period of the prior year. For the first three quarters of fiscal 2010, non-GAAP net income increased to $6.4 million, or $0.22 per share on a fully diluted basis, from $4.2 million, or $0.15 per share on a fully diluted basis, for the same period in the prior year. Non GAAP net income excludes non-cash amortization of intangibles, charges related to stock-based compensation, non-operating restructuring costs and income tax expense related to acquired NOL usage.
• Cash flow generated from operations for the nine months ended February 28, 2010 was $4.6 million. Cash at the end of the quarter was $24.8 million, up $1.9 million from the prior quarter.

Customers

• Strengthened our base of enterprise customers with 22 new customers, bringing total new customers up to 72 during the first three quarters of Fiscal 2010, compared to 63 new customers in first three quarters of fiscal 2009.
• Growth in new customers and expanded existing relationships with organizations around the world included AstraZeneca Pharma, Colorado Springs Utilities, Dimension Data, E Trade Financial, GE Security, Government of Canada, FedEx, Novartis, Orebro Ians landsting, Origin Energy, Pharmaceutical Research Associates, SunCorp, Trillium Health Centre, UBS Financial Services, Union Bank, Universidad de Israel, Volkswagen of South Africa, and Westinghouse Electric.
• IBM extended its Saba Learning deployment to include Saba Succession and Workforce Planning for deployment across its global enterprise, joining a growing group of marquis customers, including Hewlett-Packard, Cisco, and Baker Hughes who are deploying multiple applications within the Saba Collaborative People Management suite.

• Announced the general availability of Saba Compensation, broadening the Saba People Management Suite to include functionality for learning, performance, succession planning, workforce planning, collaboration and compensation.
• Delivered Saba Centra for iPhone available through Apple iTunes; and Saba Centra Web Access to make it easy and cost effective for mobile workers to access web conferences and virtual training from their iPhone or from any browser, anywhere.
• Saba Cloud solutions reached a user base of over 4 million users, with greater customer adoption at enterprises including Banco Galicia, E Trade Financial, Brinker International, Gfk Retail and Technology, and Komatsu.

The following statements are based on current expectations as of the date of this release. These statements are forward-looking, and actual results may differ materially. Saba does not undertake to update these forward-looking statements in any way or for any reason.

For fiscal year ending May 31, 2010, Saba is increasing the lower end of prior guidance and anticipates GAAP net earnings per share to range from $0.08 to $0.11 on a fully diluted basis and non-GAAP net earnings per share to range from $0.28 to $0.30 on a fully diluted basis.

The fiscal year 2010 non-GAAP outlook excludes non-cash amortization of intangibles and charges related to stock-based compensation expenses.

Saba Software, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
		Three months ended								Nine months ended
		February 28, 2010				February 28, 2009				February 28, 2010				February 28, 2009
Revenues:
Subscription		$	14,333			$	13,827			$	42,469			$	41,484
License			5,515				4,725				17,579				10,654
Professional services			6,812				7,594				19,905				25,133
Total revenues			26,660				26,146				79,953				77,271
Cost of revenues:
Cost of subscription			4,103				4,060				12,266				13,134
Cost of license			163				178				597				622
Cost of professional services			5,070				5,509				14,420				16,900
Amortization of acquired developed technology			295				295				884				883
Total cost of revenues			9,631				10,042				28,167				31,539
Gross profit			17,029				16,104				51,786				45,732
Operating expenses:
Research and development			4,609				4,346				13,555				13,238
Sales and marketing			7,733				5,673				23,047				19,601
General and administrative			3,530				3,389				10,985				11,625
Restructurings			-				277				(38	)			252
Amortization of purchased intangible assets			634				634				1,903				1,903
Total operating expenses			16,506				14,319				49,452				46,619
Income (loss) from operations			523				1,785				2,334				(887	)
Interest income and other, net			(48	)			(29	)			(15	)			381
Interest expense			(1	)			(6	)			(6	)			(27	)
Income (loss) before provision for income taxes			474				1,750				2,313				(533	)
Provision for income taxes			44				415				197				701
Net income (loss)		$	430			$	1,335			$	2,116			$	(1,234	)
Basic net income (loss) per share		$	0.02			$	0.05			$	0.07			$	(0.04	)
Diluted net income (loss) per share		$	0.01			$	0.05			$	0.07			$	(0.04	)
Shares used in computing net income (loss) per share:
Basic			27,922				29,186				28,336				29,167
Diluted			29,043				29,247				29,308				29,167

Reconciliation of Non-GAAP Financial Measures
(in thousands, except per share data)
(unaudited)
The following table reflects Saba's non-GAAP results reconciled to GAAP results as included in this release.
		Three months ended							Nine months ended
		February 28, 2010			February 28, 2009				February 28, 2010				February 28, 2009
GAAP net income (loss)		$	430		$	1,335			$	2,116			$	(1,234	)
Plus:
Share-based compensation expense			531			495				1,267				1,578
Amortization of acquired developed technology and purchased intangible assets			929			929				2,787				2,787
Non-operating costs			242			-				242				672
Restructurings			-			277				(38	)			252
Income tax expense - acquired NOL usage			-			194				-				194
Non-GAAP net income		$	2,132		$	3,230			$	6,374			$	4,249
Net income (loss) per share:
GAAP net income (loss) per share		$	0.02		$	0.05			$	0.07			$	(0.04	)
Plus:
Share-based compensation expense			0.02		$	0.02				0.04				0.05
Amortization of acquired developed technology and purchased intangible assets			0.03		$	0.03				0.10				0.10
Non-operating costs			0.01		$	0.00				0.01				0.02
Restructurings			0.00		$	0.01				0.00				0.01
Income tax expense - acquired NOL usage			0.00		$	0.01				0.00				0.01
Non-GAAP net income per share		$	0.07		$	0.11			$	0.22			$	0.15
Shares used in computing net income (loss) per share:
Basic			27,922			29,186				28,336				29,167
Diluted			29,043			29,247				29,308				29,228

Non-GAAP Financial Information:

To supplement the company's condensed consolidated financial statements presented on a GAAP basis, Saba uses non-GAAP financial measures. These measures are the result of adjustments made to exclude certain charges and expenses for which the company believes that the disclosure of such non-GAAP financial measures is appropriate to enhance an overall understanding of its historical financial performance. The company believes that the inclusion of these non-GAAP financial measures provides consistency and comparability with its historical financial results. In addition, the presentation allows investors to see how management views the operating performance of the company. This non-GAAP information is subject to material limitations and is not intended to be used in isolation or as a substitute for results prepared in accordance with U.S. generally accepted accounting principles.

The adjustments and the basis for their exclusion are as follows:

Share-based Compensation Expense

The company's non-GAAP financial measures exclude share-based compensation expenses, which consist of expenses for grants of stock options, awards of restricted stock units and purchases of common stock under its Employee Stock Purchase Plan, which Saba began recording under ASC 718-10 (formerly SFAS 123(R)) in the first quarter of fiscal 2007. The Company excludes share-based compensation expenses from our non-GAAP financial measures because the company believes that the information is not a meaningful indicator of the company's operating performance. Weighted average dilutive shares is computed using the method required by ASC 718-10 (formerly SFAS 123(R)) for both GAAP and non-GAAP diluted net income per share.

Amortization of Acquired Developed Technology and Purchased Intangible Assets

As a result of various acquisitions of companies and technologies, the company has incurred charges for amortization of acquired developed technology and purchased intangible assets. Management excludes these items from our non-GAAP financial measures when evaluating its operating performance because it believes that it provides for better comparability between periods and provides results that are more reflective of the operating performance of the business. Additionally, management believes that excluding these items facilitates comparisons to the results of other companies in our industry, which have their own unique acquisition histories.

Non-Operating Costs

During the third quarter of fiscal year 2010, the company incurred non-operating severance costs related primarily to reorganization in our Marketing and R&D functions. During the first quarter of fiscal year 2009, the company incurred non-operating costs primarily related to legal and accounting fees associated with the evaluation of strategic transactions. These costs relate to events which, in the company's view, are not incurred in the ordinary course of operations. These costs include the legal and accounting fees as well as other costs incurred in connection with the evaluation of strategic transactions. The company's management excludes these costs when evaluating its ongoing performance and/or predicting its earning trends, and therefore excludes these costs when presenting non-GAAP financial measures.

Restructurings

During the third quarter of fiscal year 2009, the company implemented a restructuring program to reduce headcount by approximately 5%. During the first quarter of fiscal year 2010, the company adjusted its estimates related to severance costs. The adjustment is classified as restructuring expense in the statement of operations. Management excludes these items from our non-GAAP financial measures when evaluating its operating performance because it believes that it provides for better comparability between periods and provides results that are more reflective of the operating performance of the business.

Income Tax Expense - Acquired NOL Usage

As a result of prior acquisitions, the company has acquired net operating loss (NOL) carryforwards which were not included in the purchase accounting for each applicable transaction. Use of these NOL's during fiscal year 2009 resulted in a reclassification of goodwill to a non-cash charge to provision for income taxes. Management excludes this charge from our non-GAAP financial measures when evaluating operational performance because it believes that it provides for better comparability between periods and provides results that are more reflective of that performance.

Saba Software, Inc.
Condensed Consolidated Balance Sheets
(in thousands)
					February 28, 2010				May 31, 2009
					(unaudited)
ASSETS
	Current assets:
		Cash and cash equivalents			$	24,797			$	25,978
		Restricted cash				118				100
		Accounts receivable, net				24,818				20,010
		Prepaid expenses and other current assets				2,329				2,245
			Total current assets			52,062				48,333
	Property and equipment, net					3,583				4,755
	Goodwill					36,095				36,095
	Purchased intangible assets, net					5,956				8,743
	Restricted cash					260				260
	Other assets					1,444				1,537
			Total assets		$	99,400			$	99,723
LIABILITIES AND STOCKHOLDERS' EQUITY
	Current liabilities:
		Accounts payable			$	3,047			$	2,620
		Accrued compensation and related expenses				6,378				5,867
		Accrued expenses				2,979				3,137
		Deferred revenue				33,234				32,611
		Lease obligations				433				630
			Total current liabilities			46,071				44,865
	Deferred revenue					2,738				2,728
	Other long-term liabilities					1,356				1,354
	Accrued rent					1,896				2,211
			Total liabilities			52,061				51,158
	Stockholders' equity:
		Common stock				28				30
		Additional paid-in capital				254,659				258,128
		Treasury stock				(232	)			(232	)
		Accumulated deficit				(207,113	)			(209,230	)
		Accumulated other comprehensive loss				(3	)			(131	)
			Total stockholders' equity			47,339				48,565
			Total liabilities and stockholders' equity		$	99,400			$	99,723

Saba Software, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
		Nine months ended
		February 28, 2010				February 28, 2009
Operating activities:
Net income (loss)		$	2,116			$	(1,234	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization			1,821				1,852
Amortization of purchased intangible assets			2,787				2,786
Share-based compensation expense			1,267				1,578
Changes in operating assets and liabilities:
Accounts receivable			(5,058	)			(1,641	)
Prepaid expense and other current assets			(76	)			604
Other assets			87				262
Accounts payable			409				(267	)
Accrued compensation and related expenses			613				(263	)
Accrued expenses			(4	)			(702	)
Deferred rent			(437	)			(104	)
Deferred revenue			1,031				4,648
Net cash provided by operating activities			4,556				7,519
Investing activities:
Purchases of property and equipment			(653	)			(2,030	)
Net purchases of investments			(20	)			-
Net cash used in investing activities			(673	)			(2,030	)
Financing activities:
Proceeds from issuance of common stock under stock plans			248				150
Repurchase of common stock			(4,847	)			-
Payment of employee withholding tax in lieu of issuing common stock upon vesting of restricted stock units			(140	)			-
Repayments on borrowings under credit facility			(232	)			(298	)
Repayments on note payable			(22	)			(43	)
Net cash used in financing activities			(4,993	)			(191	)
Effect of exchange rate changes on cash			(71	)			(1,894	)
(Decrease) increase in cash and equivalents			(1,181	)			3,404
Cash and cash equivalents, beginning of period			25,978				16,624
Cash and cash equivalents, end of period		$	24,797			$	20,028

SOURCE: Saba Software, Inc.