eGain Corp (EGAN) 2010 Q3 法說會逐字稿

Good day, ladies and gentlemen and welcome to the quarter three 2010 conference call. At this time, participants are in a listen-only mode. (Operator Instructions). As a reminder, this conference is being recorded. I'd now like to the turn call over to your host, Eric Smit. Mr. Smit, you may begin.

Thank you, operator. Good afternoon, ladies and gentlemen and thank you for joining us for eGain's conference call. Today, eGain will discuss the results for the third fiscal quarter ended March 31st, 2010. Please note that this call is being recorded and will be available for replay from the Investor Relations section of our website at www.eGain.com, for seven days following this call. I'll start with the Safe Harbor statement. All statements on this call that involve eGain's plans, forecasts, beliefs, projections, expectations, strategies and intentions, including but not limited to our allocation of resources, future financial performance, and the effect of global currency exchange rates on our business, are forward-looking statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements, which are based on information available to eGain at the time of this call, are not guarantees of future results. Rather, they are subject to risks and uncertainties that may cause actual results to differ materially from those set forth on this call. These risks include, but are not limited to, the uncertainty of demand for eGain products including our guidance regarding bookings and revenue, the actual mix in new business between hosting and licensed transactions when compared with management's projections, volatility of the value of certain currencies in relation to the US dollar, particularly the UK pound, Indian rupee and Euro, the increased complexity of certain transactions, and the timing of revenue recognition on such transactions and other risks detailed from time to time in the Company's filings with the Securities and Exchange Commission. Including the Company's annual report on Form 10-K filed on September 28th, 2009, and the Company's quarterly reports on Form 10-Q.

EGain assumes no obligation to update these forward-looking statements. With me today is Ashu Roy, Chairman and Chief Executive Officer of eGain Communications. To begin management's discussion, I would now like to turn the call over to Ashu Roy.

Thank you Eric. Let's start out with our business performance for the quarter. This was a seasonally cyclical with a steady growth bias. Our quarterly bookings grew 18% year-over-year. Our quarterly recurring services revenue grew 15% year-over-year. Within this bucket, hosting revenues grew by 31% year-over-year. We have also strengthened our cash position steadily through this fiscal year. In the first nine months of this fiscal year, we generated over $4 million of cash in comparison to generating about $2 million in cash during the same nine month period last fiscal year.

Two quick comments on the significant decrease in quarterly professional services revenue on a year-over-year basis. First, there is a large portion of revenue related to our fiscal OEM partnership, which prior to the agreement extension and modification at the beginning of this fiscal year, used to be recorded as professional services revenue, but is now being recorded as license revenue during this fiscal year. Second, we have made a strategic decision to migrate more of our professional services work to our partners and we are focusing more on enabling and training these partners with our professional services team, offering specialized services where needed to complement our partners. While this may impact our short-term professional services revenue, we expect this leveraged approach to yield greater market reach and higher margin bookings for our business in the medium term.

Turning to our products, we continue to consolidate our leadership position in the Customer Interaction Hub or CIH market. Gartner's most recent Magic Quadrant report noted eGain and the vendor with the most complete E-service offering on the market. Our goal now is to increase this leadership versus competitors who broadly fall in two categories. One, competitors who offer a wide solution footprint but shallow product capabilities and the other, competitors who offer point products.

Our strategy here in product development is to invest in building out our open CIH platform, to enhance the rich set of open services that help manage customer interactions, knowledge basis, business process capabilities, multi media communications and analytics. We are also investing in further improving the reliability, availability and scalability of our platforms to distance ourselves from competition. Finally, our platform enables us to rapidly develop innovative robust applications in response to partner and client need. Our flexibility and agility in delivering new solutions on our platform is seen as a true competitive advantage by our clients and partners.

Turning to demand generation, worldwide demand for customer interaction software continues to grow as businesses seek robust solutions to help retain customers and expand wallet share, with personalized, consistent and efficient multi-channel customer interactions and at this stage of market evolution, clients no longer want to invest in point products that lead to fragmented customer experience and high total cost of ownership. Instead, they're looking for a robust, rich, scalable platform on which applications can be rapidly deployed in a modular fashion, either in the cloud or on-premise. And as you know, we offer both. In response to increasing demand, we are expanding our direct sales force, in specific verticals, new geographies and the mid market.

Further, we are increasing our investment in partner recruitment and training. These investments in people and programs kicked off toward the end of end of the third fiscal quarter. Hence, they will show up on your financial radar in the fourth fiscal quarter and beyond. We expect these field investments to begin showing top line results in the first half of fiscal 2011. And we look forward to sharing more details on this front with you in the coming quarters.

On that note, I'd like to ask Eric Smit, our Chief Financial Officer, to discuss in more detail our financial performance for the quarter. Eric?

Thank you, Ashu. Before I walk you through the key financial details, as a reminder, we define new hosting and license bookings as new contractual commitments that excludes renewals we receive for the purchase of product licenses and hosting services. Such contracts are not cancelable for convenience but may be subject to termination by our customers for cause of breach of contract by us.

Total new bookings for the quarter was $1.9 million, an increase of $282,000 or 18% from the comparable year-ago quarter. Of the total new hosting and license bookings in the quarter, 31% was from new hosting bookings, and 69% was from new license bookings. This compares to 55% for new hosting bookings and 45% for new bookings in the comparable year-ago quarter. Total bookings for the nine months was $10.3 million, a decrease of $437,000 or 4% from the same period last year. Of the total new bookings in the nine months, 37% was from new hosting bookings, and 63% was from new license bookings, compared to 30% from new hosting bookings, and 70% from new license bookings in the same period last year.

Now turning to our financial results. Total revenue for the quarter was $6.9 million, an increase of $362,000 or 6% from the comparable year-ago quarter. Total revenue for the nine months was $23.2 million, a decrease of $1.1 million or 4% from the same period last year. License revenue for the quarter was $1.4 million, an increase of $944,000 or 204% from the comparable year-ago quarter. License revenue was 20% of total revenue for the quarter, up from 7% in the comparable year-ago quarter. License revenue for the nine months was $5.9 million, an increase of $286,000 or 5% from the same period last year. This represents 25% of total revenue for the nine months, up from 23% in the same period last year.

Recurring services, that is, revenue from hosting and maintenance and support for the quarter was $4.3 million, an increase of $540,000 or 15% from the comparable year-ago quarter. This represents 61% of total revenue, up from 56% in the comparable year-ago quarter. Recurring services revenue for the nine months was $12.5 million, an increase of $1.1 million or 9% from the same period last year. This represents 54% of total revenue, up from 47 in the same period last year.

Looking at the details of our recurring revenue, hosting revenue for the quarter was up 31% from the comparable year-ago quarter, and for the nine months, hosting revenue was up 19% from the same period last year. Maintenance and support revenue for the quarter was up 3% from the comparable year-ago quarter, and for the nine months, maintenance and support revenue was up 2% from the same period last year. Professional services revenue for the quarter was $1.3 million, a decrease of $1.1 million or 47% from the comparable year-ago quarter. This represents 19% of total revenue for the quarter, down from 37% in the comparable year-ago quarter.

Professional services revenue for the nine months was $4.8 million, a decrease of $2.4 million or 34% from the same period last year. This represents 21% of total revenue, down from 30% in the comparable year-ago period. As Ashu mentioned, this reduction was primarily due to a decrease in services revenue from the Cisco OEM agreement. As previously disclosed, we signed an amendment to our Cisco OEM agreement in the first fiscal quarter and based upon certain changes in the amendment we are now recording royalties earned under this agreement as license revenue. For this quarter, there was no additional revenue recorded for the profit margin from the Cisco OEM agreement compared to $644,000 in the comparable year-ago quarter.

Looking at our gross margin and gross profits, gross profit for the quarter was $4.6 million, or a gross margin of 66%, compared to $4.1 million or a gross margin of 63% in the comparable year-ago quarter. Gross profit for the nine months was $15.8 million, or a gross margin of 68%, compared to $16.4 million or a gross margin of 68% in the same period last year. Turning to our operating costs, research and development expense for the quarter was $1.4 million, an increase of $24,000 or 2% from the comparable year-ago quarter. Total research and development expense as a percentage of total revenues was 20%, down from 21% in the comparable year-ago quarter. Research and development expense for the nine months was $3.9 million, a decrease of $446,000, or 10% from the same period last year. Total research and development expense as a percentage of total revenues was 16%, down from 18% in the same period last year.

Sales and marketing expense for the quarter was $2.5 million, an increase of $360,000 or 17% from the comparable year-ago quarter. Total sales and marketing expense as a percentage of total revenues was 35%, up from 32% in the comparable year-ago quarter. Sales and marketing expense for the nine months was $7.2 million, a decrease of $489,000 or 6% from the same period last year. This represents 31% of total revenue, down from 32% for the same period last year.

General and administrative expense for the quarter was $755,000, an increase of $139,000 or 23% from the comparable year-ago quarter. Total general and administrative expense as a percentage of total revenue was 11%, up from 9% in the comparable year-ago quarter. General and administrative expense for the nine months was $2.3 million, a decrease of $264,000 or 10% from the same period last year. This represents 10% of total revenue, unchanged from the same period last year. Included in the total costs and expenses was stock-based compensation expense for the quarter of $59,000, up from $50,000 in the comparable year-ago quarter. Stock-based compensation expense for the nine months was $191,000, compared to $222,000 in the same period last year.

Looking at other income and expense, other expense for the quarter was $5,000, compared to other income of $130,000 in the comparable year-ago quarter. Other income for the nine months was $25,000, compared to income of $495,000 in the same period last year. Interest expense for the quarter was $282,000, a decrease of $36,000 or 11% from the comparable year-ago quarter. Interest expense for the nine months was $837,000, a decrease of $301,000 or 26% from the same period last year.

Our GAAP loss from operations for the quarter, that is, before interest, tax, and other nonoperating income and expenses, was $5,000, compared to an income from operations of $30,000 in the comparable year-ago quarter. GAAP income from operations for the nine months was $2.5 million, compared to an income from operations of $1.8 million in the same period last year. Net loss for the quarter was $318,000, or $0.01 per share, compared to a net loss of $196,000 or $0.01 per share for the comparable year-ago quarter. Net income for the nine months was $1.5 million, or $0.07 per share on a basic and diluted basis, compared to net income of $1.3 million or $0.06 per share on a basic and diluted basis for the same period last year.

I would now like to turn to our balance sheet and cash flows. Total cash and cash equivalents were $7.6 million at March 31st, 2010, compared to $7.5 million at June 30th, 2010. During fiscal 2010, we repaid approximately $3.1 million in bank borrowings that were outstanding at June 30th, 2009. Cash provided by operations was $4.1 million for the nine months of fiscal year 2010, compared to $2 million for the same period last year. Total net accounts receivable was $2.7 million at March 31st, 2010, down from $4.3 million at June 30th, 2009.

Days sales outstanding and receivables for the third quarter were 35 days, compared to 50 days for the comparable year-ago quarter. Adjusted working capital, that is current assets, less current liabilities, excluding deferred revenue, was $6.3 million at March 31st, 2010, up from $3.5 million at June 30th, 2009. Total stockholders' deficit was $2.5 million at March 31st, 2010, compared to a deficit of $4.1 million at June 30th, 2009. Total deferred revenue was $6.3 million at March 31st, 2010, compared to $5.5 million at June 30th, 2009.

So in closing, revenue and bookings increased when compared to the same quarter a year ago. Our recurring revenue base continues to build nicely and accounted for more than 60% of total revenue this quarter. Our year-to-date cash flow has more than doubled when compared to the first nine months of last fiscal year. And our cash balance net of any short-term debt obligations is the highest it's been in several years. In response to our increasing demand that we are seeing, we are expanding our direct sales force in specific verticals, new geographies and the mid-market.

We are also increasing our investments in partner equipment and training. As Ashu mentioned, these investments in people and programs kicked off toward the end of the third fiscal quarter, and we expect these field investments to begin to show top line results in the first half of fiscal 2011. We look forward to providing an update on our progress on future calls. Thank you and this ends the conference call for eGain's third quarter of fiscal 2010 financial results.

Thank you for your participation in today's call. You may all disconnect. Have a wonderful day.