The name of educational software developer Saba
In the quarter, revenues surged 92% to $23.1 million. However, Saba's net loss was $3.5 million, or $0.12 per share, which was up from a net loss of $572,000, or $0.03 per share, in the same period a year ago.
The net loss resulted from the expenses and charges of Saba's acquisition of Centra. Saba also suffered a deterioration of gross profit margins -- from 70% to 66% -- because of the acquisition. That is, the cost of delivering Centra's contracts (in terms of software updates and support) increased materially.
Saba's software helps companies with human capital management (HCM). Basically, this is a fancy acronym that describes how companies can improve employee productivity and education. As for Saba, it has a comprehensive HCM solution, including online training, employee performance tracking and evaluation, and even succession planning (that is, planning for when key employees leave).
Since its founding in 1997, Saba has provided technology to more than 15 million users. Some of its customers include Cisco
Over the past few years -- because of the success of Salesforce.com
What's more, the business model is different. Traditional software requires large up-front payments to license the software -- and then annual maintenance fees (which range from 15%-20% of the initial up-front fee). But with the on-demand model, customers pay for software on a "rent to own" basis; that is, there is little or no upfront payment, but a company pays an ongoing fee based on the number of users.
In the case of Saba, its on-demand product line is seeing strong growth. However, the subscription business mode tends to have a drag on revenue growth in the short-run. That is, revenue is stretched out over time.
Also, despite the acquisition of Centra, Saba is still a small software company with a revenue run-rate of $100 million or so. And the company is still working out issues with the Centra acquisition. For the next quarter, Saba expects losses of $0.11 to $0.14 because of acquisition costs.
It'll take time for the on-demand model to strengthen and for acquisition costs thin out, but investors aren't known for their patience with small software companies. We'll see if they stick around for the next chapter in Saba's story.
Fool contributor Tom Taulli does not own shares of any company mentioned in this article.