eGain Corp (EGAN) 2011 Q3 法說會逐字稿

Good day, ladies and gentlemen, and thank you for your patience. You've joined the eGain Third Quarter Fiscal 2011 Financial Results Conference Call. At this time all participants are in a listen-only mode. Later we will conduct a question and answer session and instructions will be given at that time. As a reminder, this conference may be recorded.

I would now like to turn the call over to the CFO of eGain, Mr. Eric Smit. Sir, you may begin.

Thank you, operator. Good afternoon, ladies and gentlemen, and thank you for joining us today for eGain's conference call to discuss results for the third fiscal quarter ended March 31st, 2011. Please note 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.

Before I begin, I would like to remind all listeners that all statements on this call that involve eGain's forecasts including the stated guidance, beliefs, projections, expectations, including but not limited to our financial performance and guidance, plans to invest in our business, plans for addressing our related party debt and expectations regarding our ability to introduce new products, 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 the demand for eGain products, including our guidance regarding bookings and revenue, our expectations related to our operations, our ability to invest resources to improve our products and continue to innovate, our partnerships, our future markets and other risks detailed from time to time in eGain's filings with the Securities and Exchange Commission, including eGain's annual report on Form 10-K filed on September 23, 2010 and eGain'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. To begin management's discussion I would now like to turn the call over to Ashu Roy.

Thank you, Eric, and good afternoon, everyone. Thank you for joining us. We are pleased with our financial performance this quarter. While our fiscal third quarter has historically been a slower quarter for us, we saw a nice year-over-year increase in our quarterly bookings and revenue.

We generated $3.7 million in new hosting and license bookings in the quarter, up 96% from the comparable year ago quarter. More than 90% of our new bookings in this quarter came from customers with greater than $250 million in annual revenue, which is consistent with our current enterprise [centric] market focus.

Our total revenue increased to $8.9 million, up 28% from comparable year ago quarter. Our recurring revenue increased to $5.2 million, up 22% from comparable year ago quarter, and our operating income for the quarter was $757,000, an operating margin of 8% compared to a breakeven quarter last year.

Looking at the business, as we look at market trends in our sector, the need for multichannel customer interaction solutions is at all time high. Consumer centric enterprises are increasingly investing in business software to improve customer experience, while reducing cost of service. They prefer to work with proven platform vendors, who can meet their business need today while giving them the comfort of adding more functionality down the road. At the same time, they do not want to compromise on innovative features that help them differentiate their customer experience.

The reason is simple. Customer expectations continue to change rapidly. So consumer centric brands must stay on or ahead of the experience innovation curve or risk compromising their brand. There are very few providers like eGain, who can address this enterprise need for functional breadth and innovation feature depth in the area of customer interaction management.

As a result, eGain has a unique opportunity. We have an enviable platform for multichannel customer interaction management that offers both breadth and depth. We have a proven delivery model with blue chip client successes and we have an exciting product pipeline.

What we still lack is adequate distribution, both direct and channel, so my field leadership team comprising Chuck Jepson, our Head of Business Development; Tom Hresko, our Head of North America Field Operations; and Andrew Mennie, our GM of EMEA, is labor focused on scaling distribution by recruiting quality sales management and sales reps and developing strong distribution partnerships.

Looking at some of our customer wins this quarter, a few noteworthy ones; for instance, we won a significant deal with a top 10 utility in U.S. Their business goal was to improve customer experience, reduce cost of service and ensure compliance. To accomplish that they needed in phase one a knowledge management product for contact centers and web sales service. And in phase two they were looking for multichannel interaction management tools to replace currently deployed point products.

So they chose eGain after an extensive evaluation, where we beat out two other contenders, one was a niche knowledge management vendor and the other a mid-market customer experience solution provider. The clients saw eGain as the leader in knowledge management with unmatched functional breadth and depth plus proven expertise in delivering business success.

Our recently launched eGain Multisearch capability was a key differentiator. It helped deliver a differentiated simple user experience, while reducing knowledge maintenance cost.

Currently the client is deploying 1,000 seats of knowledge management. They will look to deploy another 2,000 seats over the next two years, plus they intend to add interaction management applications, like email and chat, from the eGain suite to better serve their customers.

The next opportunity I want to talk about is one that we have with and we are in a pilot with, a Fortune 500 financial services provider. Their business goal is to deliver a consistent experience for real-time customer assistance across online interaction channels, spanning multiple product business units sharing the same corporate brand.

They need a comprehensive, click-to-collaborate suite, including chat bar capability, proactive and reactive chat, click-to-call and true call [presence], all on a unified platform to maintain a 360 degree customer view. They have chosen us for this pilot for our comprehensive capabilities, including our unique chat part and co-browsing capability built on our proven platform.

Other providers they evaluated either had the broad suite with average product set or a strong point application, like proactive chat or click-to-call, without the required functional breadth.

At this time we are running a cloud-based pilot off the click-to-collaborate suite. Based on the success, the clients will roll out this capability across multiple contact centers and field team's potentially to 3,000 contacts central agents and field personnel.

Finally, another account, which is an existing account where we expanded our business significantly, is a very large medical prescription services provider in the U.S. We currently help them deliver proactive customer notifications for prescription refills, drug advisory and product promotions using member preferred communication channel.

What they want is an enterprise messaging platform to deliver over a 100 million personalized notifications every year across email, secure messages, SMS and voice, mail all within a guaranteed SLA. They have expanded their commitment with eGain based on successful cloud-based notification services we offer and they continue to migrate more of their siloed notification delivery processes on to the eGain platform.

On the product front, we've been quite active this quarter. We certified Oracle CRM on demand integration with eGain knowledge to address a growing need from our clients, who have existing investment in Oracle CRM on demand to seamlessly access eGain Knowledge.

We've also partnered with WorldManuals, an innovative support content provider for wireless service providers, to deliver a turnkey cloud based multi-lingual Knowledge solution. This one-of-its-kind proposition will help wireless service providers to maintain customer satisfaction while reducing their cost of service, as they rapidly launch ever cooler smart phone devices and value added services on the network.

Also, eGain was inducted in the KM World 2011 Hall of Fame, a recognition that speaks to the innovative and comprehensive knowledge capabilities in the eGain suite.

Finally, we plan to announce some exciting new products in the next couple of months, all leveraging our core platform to expand our value proposition beyond customer service for enterprises.

Turning to partnerships, this has been a big area of focus for us for the last few quarters, as we look to rapidly expand our market reach. Our Cisco partnership continues to do well as the Cisco field, their partners and their customers increasingly experience the capability and quality of the email management and web collaboration products embedded in the Cisco contact center suite for enterprises.

We are also developing complementary relationships with Cisco partners to help them sell the broader eGain proposition to their customers as a value add on top of the core Cisco contact center suite.

For example, recently we signed up NextiraOne in U.K., a Cisco partner, to help us better reach the U.K. contact center market.

To improve our geographic reach, we struck a partnership with Seven Seas Technologies to expand our reach in East Africa. We are also making good progress on our early mid market push through the Cisco partner network. We are currently engaged in a handful of pilot scaled sales and implementation cycles with select Cisco partners and their clients.

Our goal is to refine our value proposition that was based on tight out-of-the box integration with Cisco's contact center, Express Product. We are also taking the opportunity to better understand the channeling enablement requirements and the appropriate delivery and support models.

Over the next couple of quarters we will share more details with you, as we scale and execute our mid-market plan.

On the direct sales front, hiring and ramping new sales reps is job number one for us. As planned, we are actively hiring quota carrying sales reps in North America and EMEA. Our goal is to double our global direct sales capacity by the end of calendar year 2011 compared to where we were at the end of calendar year 2010. We are tracking to that plan.

Of course, ramping up new sales people is a nine-month exercise in our market so the booking results from this hiring push will show mostly in the second half of fiscal 2012.

Finally, our customer health is at an all-time high. Thanks to strong execution by our talented team led by Promod Narang, our Head of Products and Technologies, we have systematically delivered quality products for some time. We know of no other competitor that holds themselves to a published industry-leading quality assurance criteria like we do and our clients are responding positively.

We see more interest in upgrading to our recently launched eGain 10 suite than for any other major release in our history. Accelerating this upgrade cycle with clients obviously provides us significant opportunity to cross sell new applications. In that regard, our upcoming North America Customer Summit on May 23rd and May 24th, 2011 in Las Vegas will provide our clients an excellent forum to learn more about eGain 10 and to hear from our customer partners who have already benefited from improved capability and new applications that are part of eGain 10.

We are looking forward to this Summit. Nothing is more gratifying to us than hearing from our clients about the benefits they have derived from our solutions and, of course, we will continue to actively seek feedback on how we can improve.

I would now 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 exclude 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 our third fiscal quarter were $3.7 million an increase of 96% from the comparable year ago quarter. Of the new bookings for the quarter 45% were from new hosting bookings compared to 31% in the comparable year ago quarter.

Total new hosting and license bookings for the nine months were $17.2 million, an increase of 67% from the same period last year. Of the total new bookings in the first nine months 29% were from new hosting bookings compared to 37% in the same period last year.

Now turning to our financial results, total revenue for the quarter was $8.9 million, an increase of 28% from the comparable year ago quarter. Total revenue for the first nine months was $31.5 million, an increase of 36% from the same period last year.

License revenue for the quarter was $1.7 million, an increase of 21% from the comparable year ago quarter, and license revenue for the first nine months was $11.7 million, a 100% increase from the same period last year.

Recurring revenue for the quarter was $5.2 million, an increase of 22% from the comparable year ago quarter. Recurring revenue for the first nine months was $14.8 million, up 19% from the same period last year.

Professional services revenue for the quarter was $2.1 million, a 59% increase from the comparable year ago quarter, and profitability services revenue for the first nine months was $4.9 million, a 1% increase over the same period last year.

Looking at our gross profit and gross margins, gross profit for the quarter was $6.1 million or a gross margin of 69%, up from $4.6 million or a gross margin of 66% in the comparable year ago quarter.

Gross profit for the first nine months was $23.4 million or a gross margin of 75%, up from $15.8 million or a gross margin of 68% in the same period last year.

Turning to our operating costs, total operating costs and expenses for the quarter were $5.4 million or 61% of total revenue, compared to $4.6 million or 66% of total revenue in the same year ago quarter.

Total operating costs and expenses for the nine months were $16.1 million, or 51% of total revenue, compared to $13.4 million, or 57% of revenue in the same period last year.

Included in the total costs and expenses was stock based compensation expense for the quarter of $54,000 compared to $59,000 in the comparable year ago quarter. Stock based compensation expense for the first nine months was $158,000 compared to $191,000 in the same period last year.

GAAP income from operations for the quarter was $757,000, or an operating margin of 8% compared to a breakeven quarter last year. GAAP income for the first nine months was $7.3 million, an operating margin of 24% compared to $2.5 million or an operating margin of 11% in the same period last year.

Net income for the quarter was $567,000 or $0.03 per share on a basic and $0.02 per share on a diluted basis compared to a net loss of $318,000 or $0.01 per share in the comparable year ago quarter.

Net income for the first nine months was $6.4 million, or $0.29 per share on a basic and $0.27 per share on a diluted basis compared to a net income of $1.5 million or $0.07 per share on a basic and diluted basis in the same period last year.

Now, turning to our balance sheet and cash flow, total cash and cash equivalents were $13.3 million at the end of the quarter, up from $5.7 million at the end of our fiscal year, June 30th, 2010. Cash provided by operations was $7.4 million for the first nine months compared to $4.1 million in the same period last year.

Total net accounts receivable was $4.1 million at the end of the quarter. Day sales outstanding and receivables for the quarter was 42 days compared to 35 days in the comparable year ago quarter. Net deferred revenue was $6.6 million at the end of the quarter and related party debt was $9.6 million at the end of the quarter.

As a reminder, approximately 80% of this related party debt is held by Ashu Roy, our CEO. As this is due to mature in March of 2012, we are looking at several options currently and expect to make an announcement as to our plans during our fourth fiscal quarter.

Total stockholders' equity was $3.9 million at the end of the quarter.

Now, turning to our guidance, we are raising our revenue guidance again for our full fiscal 2011. We now expect a year-over-year increase in total revenue of between 30% and 35%, which is up from our previously provided range of between 25% and 30%.

In addition, we currently expect to be profitable and generate positive cash flows from operations in fiscal 2011 and we still plan to continue to invest a significant portion of this anticipated top-line growth back into growing our distribution capability.

I would now like to hand the call back to Ashu for his closing remarks.

Thank you, Eric. In summary, we are pleased with our quarter and year-to-date performance. We are raising our revenue guidance for the full fiscal year based on growing traction for our market leading customer interaction Hub suite, as enterprises increasingly move away from point solutions.

We are also continuing to increase our direct sales capacity according to plan. And finally, we plan to introduce new products in the fiscal fourth quarter to expand our served markets.

To conclude, I have never been more excited about our prospects. Our strategy and products are resonating well with the enterprise need and we are nicely aligned with market and technology trends. Our proposition is differentiated and it leverages core technology and product IP.

Equally importantly, we have blue chip client proof points and a proven delivery methodology. Now, we have focused heads down on expanding and enabling distribution. We look forward to sharing our progress in the coming quarters on these fronts.

Operator, we'll now turn back to you to open the call for questions.

(Operator Instructions). As there appear to be no questions in queue at this time, I would like to turn the call back over.

Okay thanks, everybody, for listening today. Before concluding I would like to note that on the Investor Relations front later this month eGain will be presenting and meeting with investors at the Security Research Associates Growth Stock Investor Conference on May 24th in San Francisco. We hope to see many of you there.

Thank you again for joining us. This concludes today's call.

Ladies and gentlemen, this does conclude your program. Thank you for your participation. You may disconnect your lines at this time. Have a great day.