eGain Corp (EGAN) 2010 Q4 法說會逐字稿

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the eGain's earnings for the fourth quarter and fiscal year end of June 30, 2010. At this time all participants are in a listen only mode. (Operator Instructions). As a reminder, this conference may be recorded, and now I'll turn the program over to Eric Smit.

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 fourth quarter and fiscal year ended June 30, 2010. Please note that 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 by reading a Safe Harbor statement. All statements on this call that involve eGain's plans, forecasts, including stated guidance, beliefs, projections, expectations, strategies and intentions, including but not limited to our allocation of resources, future financial performance and business plans and projections, 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, our ability to invest resources to improve our products and to continue to innovate, the anticipated customer benefits from our products, our partnership with Cisco, 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 28, 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'd now like to turn the call over to Ashu.

Thank you, Eric. Our fiscal 2010 top line results were less than what we expected. This was primarily due to our hybrid business model, driven by our deployment flexibility. Our clients value our proven deployment flexibility across cloud and on premise, so we are happy to provide it.

Specifically in this case, last quarter a very significant license transaction slipped. The good news is, this deal, which is worth over $5 million, closed in August 2010, so we are off to an excellent start for the fiscal year 2011. Top line disappointment notwithstanding, I'm pleased with our team's execution for the year. In fiscal year 2010, we saw healthy growth in our recurring service revenue, and generated $2.5 million of operating cash, even while we invested in smart customer-centric initiatives in a tough market.

Since we have always run our business with long term view, we are not to worry about limited deal slippage as long as one quarter's angst is next quarter's joy. We are, however, absolutely focused on expanding the strategic deployment of our software for clients. The large deal we mentioned was with one of the largest telecommunication providers in the world. We see this as a landmark deal in our growing success in the global telecommunications vertical. When it comes to multi-channel care and knowledge management solutions for telecommunication providers, we are increasingly the one to beat.

Nothing pleases me more than our customers telling us how much they value our product and services. Recently we got such kudos from one of our top clients, a large insurance company. Brands, as you know, are built on promises kept, and our team is doing a better job than ever before, living up to our tag line, Trusted By Leaders. Judging from our pipeline of expansion opportunities among existing clients, they are voting with their wallet. In fact, 36% of our new bookings in fiscal year 2010 came from existing clients compared to 34% of our new bookings in fiscal year 2009.

This doesn't mean that new customer acquisition is less important. In late 2009, we began to build a telephone based sales team in North America. Within six months, we have generated positive contribution from this investment. Now, we are scaling the inside sales team significantly. Thanks to this new channel, our flexible deployment proposition, and our growing partner network, new customer acquisition grew by 64% in fiscal year 2010 over the prior year.

New client acquisition is a leading indicator of our business health so we are pleased with this trend. Notable customer acquisitions in fiscal year 2010 include one of the nation's largest energy companies, one of the nation's largest health insurers, a world leading mobile telecommunications company, one of the world's leading providers of integrated mobile services, a leading global provider of comprehensive testing services, leading global beauty company, a premier online luxury fashion retailer, and one of Europe's largest customer management outsourcing company.

The second leg of our distribution strategy is our OEM partnership with Cisco. This year, we extended our multi-year relationship with Cisco to be their OEM supplier for e-mail management and web collaboration product as part of their Cisco Contact Center suite. Cisco's focus on product quality and scalable business practices helps eGain scale. Conversely, Cisco benefits from our agile innovation and proven product leadership.

In addition to our direct sales and OEM channels, our value-added partner network is the third leg of our distribution strategy. We have had an active and growing partner program in EMEA for some time. In fiscal year 2010, we focused our North America partner development as well. We believe the eGain multi-channel proposition offers a compelling cross-sell opportunity for value-added resellers who have traditionally sold 11 centric contact center technologies. In fiscal year 2010 we signed up nine new value-added resellers. We look forward to developing and supporting this channel in the coming years.

During tough times, research and development investment is a matter of considerable debate in many companies. There is always a reasonable argument for reducing research and development to preserve operating margins in the face of pricing pressure or slow growth. At eGain, we see research and development as our raison d'etre. Our clients value eGain for innovative products and excellent service, so we never compromise on these investments. In fact, we continue to extend our leadership with sustained research and development investment.

In 2009, we were again rated a leader by Gartner in the magic quadrant for e-service suite and in 2010, just hot off the press, we achieved a rare threepeat when we further improved our standing in the leader quadrant in the 2010 Gartner magic quadrant for web customer service, renamed from e-service. Our team is justifiably proud of this accomplishment. They've earned it.

A quick word about our global operating model. Most product software companies of eGain's size do not have a global operating model, much less a proven one. eGain bet on the global operating model ten years ago, and we are stuck with it. We defined it, improved it, reshaped it, as a result, we now have a competitive advantage when it comes to serving global clients. We've followed this on capability as our agile technology teams on three continents build, implement and support our products. We intend to further capitalize on this advantage as we expand our presence in global companies.

We are optimistic about our prospects for fiscal year 2011. Beyond the obvious running start, the one we got from the large (inaudible) deal from last quarter, we see growing market interest in our products. Over the next few years, we plan to invest a significant portion of our anticipated top line growth back into growing our distribution capability. The fact is, now we have a profitable business model, the best product, and a strong brand supported by e-partners. Despite economic headwinds, business has continued to buy robust comprehensive and cost effective solutions for efficient multi-channel service. The opportunity is ours to lose.

When you shoot elephants for a living, you have to be prepared for the occasional feast and famine. We are prepared to handle this lumpy enterprise license business model. By offering clients choice instead of forcing them down just one deployment path, we enjoy a competitive advantage. 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 license and hosting bookings as new contracts and commitments, excluding 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 or breach of contract by us. Total new hosting and license bookings for the quarter were $2.8 million, a decrease of $1.7 million or 38% from the comparable year-ago quarter. Of the total new hosting and license bookings in the quarter, 61% were from new hosting bookings and 39% from new license bookings, compared to 28 from new hosting bookings and 72% from new license bookings in the comparable year-ago quarter.

Total new hosting and license bookings for the fiscal year were $13.1 million, a decrease of $2.1 million or 14% from the prior year. Of the total new hosting and license bookings in the fiscal year, 42% were from new hosting bookings and 58% were from new license bookings, compared to 29% for new hosting bookings and 71% for new license bookings in the prior year. Now turning to our financial results. Total revenue for the quarter was $6.6 million, a decrease of $2.3 million or 25% from the comparable year-ago quarter. Total revenue for the fiscal year was $29.9 million, a decrease of $3.3 million or 10% from the prior year.

License revenue for the quarter was $1.5 million, a decrease of $1.5 million or 50% from the comparable year-ago quarter, and license revenue was 23% of total revenue for the quarter, down from 34% in the comparable year-ago quarter. License revenue for the fiscal year was $7.4 million, a decrease of $1.2 million or 14% from the prior year. This represents 25% of total revenue for the fiscal year, down from 26% in the prior year.

Recurring services revenue, that is revenue from hosting and maintenance and support for the quarter was $4.1 million, an increase of $167,000 or 4% from the comparable year-ago quarter. This represents 61% of total revenue, up from 44% in the comparable year-ago quarter. Recurring services revenue for the fiscal year was $16.6 million, an increase of $1.2 million or 8% from the prior year. This represents 55% of total revenue, up from 56% from the prior year.

Looking at the details of our recurring revenue, hosting revenue for the quarter was up 5% from the comparable year-ago quarter, and for the fiscal year, hosting revenue was up 15% from the prior year. Maintenance and support revenue for the quarter was up 5% from the comparable year-ago quarter and up 3% from the prior year. Professional services revenue for the quarter was $1 million, a decrease of $920,000 or 47% from the comparable year-ago quarter. This represents 16% of total revenue for the quarter, down from 22% in the comparable year-ago quarter. Professional services revenue for the fiscal year was $5.9 million, a decrease of $3.4 million, or 36% from the prior year. This represents 20% of total revenue, down from 28% in the prior year.

Looking at our gross profit and gross margins, gross profit for the quarter was $4.3 million or a gross margin of 65%, compared to $6.1 million, or a gross margin of 68% in the comparable year-ago quarter. Gross profit for the fiscal year was $20.2 million, or a gross margin of 68%, compared to $22.5 million or a gross margin of 68% in the prior year.

Now turning to our operating costs. Research and development expense for the quarter was $1.7 million, an increase of $475,000 or 40% from the comparable year-ago quarter. Total research and development expense as a percentage of total revenue was 25%, up from 13% in the comparable year-ago quarter. Research and development expense for the fiscal year was $5.5 million, an increase of $29,000 or 1% from the prior year. Total research and development expense as a percentage of total revenues was 18% for the year, up from 16% in the prior year.

Sales and marketing expense for the quarter was $3 million, an increase of $250,000 or 9% from the comparable year-ago quarter. Total sales and marketing expense as a percentage of total revenue was 45%, up from 31% in the comparable year-ago quarter. Sales and marketing expense for the fiscal year was $10.2 million, a decrease of $239,000 or 2% from the prior year. This represents 34% of total revenue, up from 32% in the prior year. General and administrative expense for the quarter was $939,000, an increase of $204,000 or 28% from the comparable year-ago quarter. Total general and administrative expense as a percentage of total revenue was 14%, up from 8% in the comparable year-ago quarter. General and administrative expense for the fiscal year was $3.2 million, a decrease of $60,000 or 2% from the prior year. This represents 12% of total revenue, up from 10% in the prior year.

Included in the total costs and expenses was stock based compensation expense for the quarter of $53,000, up from $19,000 in the comparable year-ago quarter. Stock based compensation expense for the fiscal year was $244,000 up from $241,000 in the prior year. Looking at our other income and expense, other expense for the quarter was $92,000 compared to other expense of $265,000 in the comparable year-ago quarter. Other expense for the fiscal year was $67,000 compared to other income of $230,000 in the prior year. Interest expense for the quarter was $285,000, a decrease of 12%, $12,000 or 4% from the comparable year-ago quarter. Interest expense for the fiscal year was $1.1 million, a decrease of $312,000 or 22% from the prior year.

GAAP loss from operations for the quarter, that is before interest, taxes and other non-operating income and expenses was $1.2 million, compared to an income from operations of $1.4 million in the comparable year-ago quarter. GAAP income from operations for the fiscal year was $1.2 million compared to an income from operations of $3.3 million in the prior year. Net loss for the fourth quarter was $1.7 million or $0.07 per share compared to a net income of $929,000 or $0.04 per share on a basic and diluted basis for the comparable year-ago quarter. Net loss for the fiscal year was $127,000 or $0.01 per share compared to a net income of $2.2 million or $0.11 per share on a basic and diluted basis for the prior year.

I would now like to turn to our balance sheet and cash flows. Total cash and cash equivalents were $5.7 million at June 30, 2010, compared to $7.5 million at June 30, 2009. During fiscal 2010, we repaid approximately $3.1 million in bank borrowings that was outstanding at June 30, 2009. Cash provided by operations was $2.5 million for the fiscal year, compared to $3.7 million in the prior year. Total net accounts receivable were $3.3 million at June 30, 2010, down from $4.3 million at June 30, 2009.

Day sales outstanding and receivables for the fourth quarter was 40 days compared to 44 days for the comparable year-ago quarter. Adjusted working capital, that is current assets less current liabilities excluding deferred revenue, was $3.9 million at June 30, 2010, up from $3.5 million at June 30, 2009. Total stockholders deficit was $4.2 million at June 30, 2010, compared to a deficit of $4.1 million on June 30, 2009. Total deferred revenue was $5.1 million at June 30, 2010, compared to $5.5 million at June 30, 2009.

In closing, we are optimistic about our prospects for fiscal year 2011. We see growing market interest in our recently launched products and in response, we are increasing our investment in direct sales and partner development. For fiscal year 2011, we currently expect an increase in total revenue of 20%, when compared to fiscal year 2010. In addition, we currently expect to generate positive cash flows from operations in fiscal year 2011, while planning to invest a significant portion of our anticipated top line growth back into growing our distribution capability.

This ends the conference call for eGain fourth quarter and fiscal year ended June 30, 2010. Thanks for listening.

Again, ladies and gentlemen, this does conclude today's program. Thank you for your participation and have a wonderful day. Attendees, you may now disconnect.