eGain Corp (EGAN) 2011 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the eGain fourth quarter fiscal 2011 financial results call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session, and instructions will follow at that time. I'd like to turn the call over to your host, Mr. Charles Messman of the MKR Group. You may begin.

Good afternoon, ladies and gentlemen. And thank you for joining us today for eGain's conference call to discuss results for our fiscal 2011 fourth quarter and full-year ended June 30, 2011. 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 7 days following this call.

Before I begin, I'd like to remind all listeners that all statements in this conference call that involve eGain's forecasts, including guidance, beliefs, projections, expectations, including but not limited to our financial performance and guidance, anticipated growth of our business, market trends, plans to invest in our business and expectations regarding the market's acceptance of our products, our 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're subject to risks and uncertainties that may cause actual results to differ materially from those set forth in this call. These risk include, but are not limited to, the uncertainty of demand in eGain's products, including our guidance regarding bookings and revenue, our expectations related to our operation, our ability to invest resources to improve our products and to 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 report on 10-Q. eGain assumes no obligations to update these forward-looking statements.

With me today are Ashu Roy, Chairman and Chief Executive Officer; and Eric Smit, Chief Financial Officer of eGain Communications. To begin management discussion, I'd now like to turn the call over to Ashu. Ashu?

Thanks, Charles, and good afternoon, everyone. And thank you for joining us today. We are very pleased to report our financial results for Q4 and fiscal 2011. We finished off a solid year with a strong Q4 performance, when compared to the same quarter a year ago. Specifically, new hosting and license bookings increased 139% from the comparable year ago quarter. Total revenue increased 89% over the fourth quarter of last year. Income from operations increased significantly to $2.4 million, when compared to a loss of $1.2 million in the fourth quarter of last year.

If we look at the entire fiscal of 2011, we are equally pleased with the results. Our new hosting and licensed bookings, we feel, which is a good metric for the company increased 83% year-over-year. Total revenue increased 47% to $44.1 million. During fiscal 2011, we also drove record operating profits, $9.7 million for the fiscal year. We generated significant cash flow from operations and importantly, began to expand our distribution capability with the expansion of the direct sales force, as well as a significant push to increase our channel partnerships.

So the key driver for all these strong results has been the market trend we continue to see. And that is the need for multi-channel customer interaction solutions that continues to grow. Customer-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 having 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. And the reason is simple. Customer expectations continue to change rapidly, so customer-centric brands must fit 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 of functional (inaudible) and innovative feature depth in the area of customer interaction management.

A testimony of the strength of our solution comes from Gartner from its 2010 Magic Quadrant for customer service. EGain, according to Gartner, continues to be the vendor with the most complete offering in the market. So this technology leadership in a growing market builds up the opportunity to win big. We have an enviable platform that offers both breadth and depth of product capabilities. We have a proven hybrid delivery model that resonates in the enterprise market segment that we focus on. And we have a blue chip client base. And we have an exciting product pipeline ahead of us. So we are accelerating our investment in distribution, both direct and channel. My [field] leadership team comprising, Chuck Jepson, Tom Hresko and Andrew Mennie, is focused on this goal.

Looking at some of our large wins this quarter, all of them were seven-figure deals or better. The first was Cannon, the worldwide leader in digital imaging products. Summarizing their reasons for selecting eGain as a strategic supplier, Cannon USA's general manager of customer support operations noted, "With eGain 10 and its underlying customer interaction help platform, our customer service will be consistent, effective, and efficient across all touch points. Moreover, we can plug in new communication media as customer preferences evolve." We could not say it any better.

Our next big win was US Department of Veterans Affairs, one of the largest and best-run healthcare organizations in the US, with over 300,000 employees and $100 billion-plus operating budget. They chose our Knowledge management suite to help deliver accurate, consistent responses across the contact centers. They were especially impressed by eGain's patented inference engine that powers our easy-to-use and maintain guided help capability. Leveraging our solution, all their agents will be as effective as the best agents, while serving veterans across a mind-boggling range of care and coverage inquiries in a compliant and consistent manner.

Finally, we expanded our business with an additional operating company -- excuse me -- with an additional operating company win in the Vodafone group. As we have mentioned before, Vodafone chose eGain as their strategic e-service solution supplier in the first quarter of fiscal 2011. Based on the successful deployment of the first set of operating companies, we earned the right to serve another large operating company within the Vodaphone family. These are all great wins for us.

On the product front, we further extended our leadership last year by organically expanding our solution footprint. We leap-frogged the market by launching an easy-to-deploy product suite to optimize interactive sales for business-to-consumer websites. We see a growing market demand, especially in the enterprises for a unified customer interaction platform across both sales and service interactions with customers. And our interactive sales suite is a novel solution to address this need. It helps e-business and marketing teams easily deploy and optimize customer engagement strategies with contextual promotions and proactive multi-channel assistance. Our solution has been selected as a trend-setting product of 2011 by KMWorld magazine for its innovative approach to business-to-consumer sales.

As a result of this expansion of our solution, eGain 10, our current release, is the most comprehensive knowledge-powered platform for multi-channel service and interactive sales available in the market. Beyond this, we continue to pull ahead of the market with exciting new capabilities to help businesses woo, wow and win customers, all available on a unified customer-interaction platform.

Recently, we announced full co-browsing support for iPad, iPhone and Android mobile platforms. This is in addition to our current co-browser support for all modern web-based browsers. Our solution leverages eGain's patent-pending collaboration technology and is a breakthrough in the marketplace. As consumers increasingly cut the cord for computing, communication and collaboration, co-browsing on mobile platforms enables new experiences that can make the difference between success and failure for customer-centric businesses.

Just last week we also extended our interactive sales capabilities to Facebook, so that businesses can use our integrated solution to design proactive and personalized experiences for their customers, both on their website and on Facebook. Our product team and partnership with our leading clients and partners is setting the standards enabling customer experiences delivered efficiently on a robust and scalable platform.

On the partner front, we are continuing to gain traction around our Cisco OEM partnership. Also, our recent move into the mid-market entry for reselling channels through fiscal partners is progressing well. We look to make some announcements in this area in the coming year.

On the direct sales front, we're on track to double our direct sales capacity by the end of calendar year 2011, compared to where we were at the end of calendar year 2010. Of course, ramping up new sales people is a 9-month exercise in the market, so the bookings benefit from this hiring push will show up mostly in the second half of fiscal 2012.

Finally, our customer help remains solid. Our North America customer summit last quarter was a hit. Success stories shared by our customers were the best part of the event. One of our Fortune 500 insurance clients talked about enjoying a 200% improvement in their form-filling rate on their website using eGain's interactive sales capabilities, which include co-browsing, click-to-call and click-to-chat. Thanks to that compelling ROI, they have deployed this capability to over 6,000 service representatives. They are enthusiastic endorsement and rapid solution adoption is priceless for us. We live for these moments.

Needless to say, we feel we have positioned the Company well for growth going forward as we expand our footprint in the market.

I'd now like to ask Eric Smit, our Chief Financial Officer, to discuss in more detail our financial performance for the quarter and the fiscal year. 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, excluding renewals, we received for the purchase of product licenses and hosting services. These contracts aren't cancelable for convenience. We believe this is an important metric, because in our primary target markets are very large business-to-consumer organizations. We find the number of them have not yet embraced the (inaudible) deployment option. So we believe it is important to let these customers decide what deployment offering best fits their business.

As a result, the mix of new license and hosting business may fluctuate from one period to another. And for license transactions, we generally recognize the license up front and the maintenance and support annually, whereas for hosting contracts, these are recognized ratably over the contract term. But looking at it from eGain's perspective, over a longer term, say 3 to 5 years, we believe the gross margin to us is roughly equivalent whether a customer chooses the license or the hosting deployment option. But there is the potential of a mix in the revenue in the short-term if there is a mix between the new license and hosting bookings, if it varies from one period to another. So looking at the total booking number is something that we have in the past and will continue to look at going forward.

Now turning to the bookings for the quarter, total new hosting and license bookings for our fourth fiscal quarter were $6.7 million, an increase of 139% from the comparable year-ago quarter. Of the new bookings for the quarter, 12% were from new hosting bookings, compared to 61% in the comparable year-ago quarter. Total new hosting and license bookings for fiscal 2011 were $23.9 million, an increase of 83% from the prior year. Of the total new bookings for all of fiscal 2011, 24% were from new hosting bookings, compared to 42% in the prior year. So this change in mix to more license than hosting had a positive impact on our revenue for both the quarter and the fiscal year.

Now turning to our financial results, total revenue for the quarter was $12.6 million, an increase of 89% from the comparable year-ago quarter. And total revenue for fiscal 2011 was $44.1 million, an increase of 47% from the prior year. License revenue for the quarter was $5.6 million, an increase of 272% from the comparable year-ago quarter. And licensed revenue for all of fiscal 2011 was $17.4 million, a 135% increase from the prior year.

Recurring revenue for the quarter was $5.2 million, an increase of 27% from the comparable year-ago quarter, and recurring revenue for fiscal 2011 was $20 million, up 21% from the prior year. Professional services revenue for the quarter was $1.8 million, a 69% increase from the comparable year-ago quarter, and professional services revenue for the fiscal 2011 was $6.7 million, a 13% increase from the prior year.

Looking at our gross profits and gross margins, gross profit for the quarter was $9.7 million for a gross margin of 77%, up from $4.3 million, or a gross margin of 65% in the comparable year ago quarter. Gross profit for fiscal 2011 was $33.1 million, or a gross margin of 75%, up from $20.2 million, or a gross margin of 68% in the prior year.

Now turning to our operating costs, total operating costs and expenses for the quarter were $7.3 million, or 58% of total revenue, compared to $5.6 million, or 84% of total revenue in the comparable year-ago quarter. Total operating costs and expenses for fiscal 2011 were $23.5 million, or 53% of total revenue, compared to $18.9 million, or 64% of total revenue in the prior year. Included in the total costs and expenses was stock-based compensation expense for the quarter of $60,000, compared to $53,000 in the comparable year-ago quarter, and stock-based compensation expense for fiscal 2011 of $218,000 compared to $244,000 in the prior year.

GAAP income from operations for the quarter was $2.4 million, or an operating margin of 19%, compared to a loss from operations of $1.2 million in the comparable year-ago quarter. GAAP income from operations for fiscal 2011 was a record $9.7 million, and operating margin of 22%, compared to $1.2 million, or an operating margin of 4% in the prior year.

Net income for the quarter was $2.1 million, or $0.09 per share on a basic and $0.08 on a diluted basis, compared to net loss of $1.7 million, or a loss of $0.07 per share in the comparable year-ago quarter. Net income for fiscal 2011 was $8.5 million, or $0.37 per share on a basic and $0.35 on a diluted basis, compared to a net loss of $127,000 or $0.01 per share in the prior year.

Now turning to our balance sheet and cash flows. Total cash and short term investments were $13.1 million at the end of the year, up from $5.7 million at June 30, 2010. Cash provided by operations was $6.8 million for fiscal 2011, compared to $2.5 million in the same period last year. Total net accounts receivable was $8.2 million at the end of the fiscal year, compared to $3 million at June 30th, 2010. Days sales outstanding and receivables for the quarter was 59 days, compared to 40 days in the comparable year-ago quarter. Net deferred revenue was $5.8 million at the end of the fiscal year, compared to $5.1 million at June 30, 2010.

Looking at our debt obligations, during the quarter, we entered into a new loan and security agreement with Comerica Bank. As part of this agreement, we borrowed $5 million to repay a portion of our related [party] debt. In addition, as part of this new credit facility, we have a $1.5 million revolving line of credit available for working capital purposes. Looking at our related party debt, the balance was $5 million at the end of the quarter, with 100% of this debt now held by Ashu Roy, our CEO. This debt is currently due to mature in March of 2010, and we are continuing to look at several options available to us for this remaining balance.

Total stockholders equity was $6 million at the end of the fiscal year, and this is a significant milestone for us, as it was one of the final barriers for us to list on a national exchange. To that end, we are currently evaluating our listing options and expect to announce something regarding this in the near future.

Now turning to our guidance. For fiscal 2012, we currently expect a year-over-year increase in new hosting and license bookings of between 40% and 50%. And as I stated earlier, we believe this is a very strong metric for the Company. For fiscal 2012, we expect a year-over-year increase in total revenue of between 22% and 27% when compared to the prior year. We also expect to be profitable on an operating basis; however, the planned increase in sales and marketing investment is expected to have the short-term impact of depressing operating margins when compared to fiscal 2011. I would now like to hand the call back to Ashu for his closing remarks.

Thank you, Eric. In summary, we are quite pleased with the positive business momentum we are seeing. With our industry-leading products and proven hybrid delivery model, we plan to capitalize on the continued market trend toward multi-channel customer interaction platforms like we offer by accelerating investment in both direct and channel distribution capabilities this year.

Operator, I will now turn back to you to open up the call to questions.

Thank you. (Operator Instructions). Our first question comes from Jon Hickman from Ladenburg. Your line is open.

Hi, Ashu. I was wondering, could you elaborate a little bit on this guidance? Since you're expecting a fairly bigger jump in new bookings and licensing, and not quite -- and about half that in total revenues, does that mean you're expecting more of your business to come from the hosted model?

Yes, you hit right on it. We -- like we said, and Eric mentioned before, we try to be and we work hard to be agnostic, between hosted deployment and on-premise licensed deployment. And last fiscal year, the percentage of new bookings that we got from licensed deployments was close to a little over 75%. And we think that is prudent for us to not expect that high percentage of license bookings share in the new bookings total, and so we are expecting that range will probably be south of that number and hence that variation.

Okay. And then can you tell us how many sales people you have right now?

Sure. The sales people count is something that we are not disclosing partly because we have sales people that have different quota, depending on the target businesses they are going after. So the way we are looking at it is a composite of our total of the sales quota and carrying capacity of the Company. And so what we shared earlier was that our sales capacity, direct sales capacity, at the end of December 2010 is something that we plan to double by December end of 2011, and so that's what we are tracking to.

What's your goal for 2012, as far as percentage growth in that sales capacity?

So what we see is the approach we're taking is given the market environment and everything, we are right now planning on the next six months. And then based on how the market evolves, market meaning the macro economic conditions shape up, we will either continue to grow at that rate, or we'll slow it down or speed it up, depending on the macroeconomic environment at that point, which is the end of December of 2011. So half-way through the year, we'll see where things are. At any event, whatever we do in terms of hiring new sales capacity after December of 2011, is not going to impact fiscal 2012 results in any meaningful way because of the sales cycle and the ramp up needed.

Okay. And then, you might have covered this in your remarks, but if you did, I was wondering if you could elaborate just a little bit more. Which of your --you have a fairly broad product line, and that's you say attracting larger companies. Which -- can you elaborate on which parts of the product line is the most popular right now, or is gaining the most traction among your sales guys?

So, we -- as we mentioned earlier, we launched the new product suite, which we call Interactive Sales Suite. We launched that earlier this calendar year. And so, almost all our current business comes from our service suite, which is where we have been for a very long time. And we increasingly find that the buyers, especially the ones we talked about, really find the platform approach very attractive, and that is even if they are buying 1 or 2 or 3 applications today, they really like the fact that they are partnering with a Company that has all these other capabilities on the multi-channel side and the knowledge side. So I find our sales getting more focused on the suite, as opposed to specific products.

Okay. That's it for me. I'll let someone else ask questions.

Thank you. (Operator Instructions). Our next question comes from Ron [Vee], a private investor. Your line is open.

Hi. In regards to your certifications with SAP and Oracle, I was wondering if you could speak to the traction there. And also with the acquisition of Enquire by Oracle, do you have any comments on that? Thank you.

So our integration certification with SAP, CRM and Oracle is something we did a few months ago. And we announced that a few months ago. We find that that helps us get into the large installed accounts where Oracle (inaudible) are already deployed. With the inquired acquisition by Oracle, once the dust settles with that whole combination, I presume that inquirer knowledge is going to become part of the Oracle CRM portfolio. And so, we expect that we have competed very well against inquirer when they were a standalone company and they had a partnership with Oracle, as well. We competed in these accounts and we were successful in many cases, so I think for companies that are looking for a strong solution for knowledge management and other interaction channel management, we would still be a very interesting option, even after Oracle starts to offer the composite knowledge capability within their CRM portfolio.

The other part which is worth mentioning is that we believe that it will take some time before Oracle actually integrates that solution in a meaningful way, and so there's a window we think of several quarters to perhaps over some years, to continue to deliver the best solution for multi-channel knowledge-powered customer interaction capability to Oracle people install base as well. That's how we see it and SAP, of course, is an area where we still see opportunity.

Have you closed any deals related to the certification?

We are not disclosing that, though we have several that are in exam stages of the pipeline but we have not disclosed any deals that we have closed with them.

Okay. Thank you.

Thank you. (Operator Instructions). I would like to turn it back to management for closing remarks.

Great. Well, thank you, everyone, for your support and for joining on the call. If you have any more questions, please feel free to reach out to us. Our phone number and e-mails are listed in our press release and we certainly look forward to hearing from you. Thank you.

Ladies and gentlemen, thanks for participating in today's program, this concludes the program. You may all disconnect.