eGain Corp (EGAN) 2012 Q1 法說會逐字稿

Good day, ladies and gentlemen, and thank you for your patience. You have joined the eGain first quarter fiscal 2012 financial results conference call. (Operator Instructions). As a reminder, this conference may be recorded. I would now like to turn the call over to your host, Mr. Charles Messman of the MKR Group. Sir, you may begin.

Good afternoon, and thank you for joining us today for eGain's conference call to discuss results for our fiscal 2012 first quarter ended September 30, 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 7 days following this call.

Before I begin the call, I'd like to remind listeners that all statements in this conference call that involve eGain's forecasts, including the above stated guidance, beliefs, projections, expectations including but not limited to our financial performance and guidance, the anticipated growth of our business, market trends, plans to invest in our business, and expectations regarding the market acceptance of our products, are forward-looking statements within the meaning of the Safe Harbor provision 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 conference call are not guarantees of future results. Rather they are subject to certain risks and uncertainties that may cause actual results to differ materially from those set forth in this conference call. These risks include, but are not limited to, the uncertainty of demand for eGain's 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 27, 2011 and eGain's quarterly reports on Form 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, CFO of eGain Communications. To begin management's discussion, I'd now like to turn the call over to Ashu. Ashu?

Thank you, Charles, and good afternoon, everyone. Thanks for joining us today. Overall, we are pleased with our performance this quarter. We showed a healthy growth of 30% in our recurring revenue. The main driver for this was our hosting revenue which was up 38% year over year. We also saw 35% increase in our professional services revenue.

As expected, our license revenue was down compared to the first quarter of fiscal 2011. We knew it would be difficult to match that quarter as it included the largest license deal in the Company's history. That first quarter also enabled us to kick-start investment in sales and marketing, and we have. We are on track now to double our sales capacity in calendar year 2011.

Even though we saw seasonally slow bookings this quarter, our pipeline is building nicely. We see existing clients looking to expand the user interaction channels. Some are considering enterprise level deployments of eGain based on initial success.

We are increasingly getting traction in new accounts due to our comprehensive and best of breed solution footprint. This combination gives prospects the flexibility to start small with a few of our applications and then turn on other capabilities based on success.

Our multichannel sales and service capabilities launched as part of our eGain 10 launch in the spring of this year are also gaining traction. A leading North American online apparel retailer recently went live with our interactive sales capabilities. They chose us because of our ease of use and flexibility. Next year they plan to expand their use of eGain by activating service applications.

Moving forward, we see sales and service interactions melding as businesses respond to consumer demand for consistent personalized experiences across all touch points. Leading this trend, an innovative Europe based internet retailing service provider has recently selected eGain 10 to help gain and sustain the customer experience edge across sales and service interactions.

I'm sure most of you are aware of the recent consolidation in our space where Oracle acquired [APoint] knowledge management provider as well as a mid market customer service player in the last couple of months. This underscores the importance of and demand for our solutions in the enterprise. As a result of this consolidation, we see more opportunity to partner with the rest of the world. Notably other enterprise software vendors and system integrators. We want to arm them with innovative, comprehensive and integrated capability for multichannel interaction management.

Our Cisco partnership continues to develop nicely. We are increasing our investments to enable Cisco and their partners to better sell and support the OEM mail and chat products as part of their overall enterprise contact center solution. We won a premier Telco client in North America last quarter, in partnership with Cisco. The client will implement eGain Chatbot along with Cisco's multichannel platform which includes chat to differentiate the web customer experience while improving chat [reflection].

Enterprise demand for unified contact center capabilities is growing. According to industry sources, more than 50% of all RFPs in the contact center space now ask for non-voice interaction handling capability. On the product front, we are delighted to be rated a Leader by Gartner in the 2011 Web Customer Service Magic Quadrant for the fourth straight year. Johan Jacobs, Gartner's research director, noted in his report that eGain continues to have the most complete offering in the market.

And we are building relentlessly on our product leadership. In August, we announced eGain Cobrowse for tablets and smart phones including Apple iPad, Apple iPhone, and Android devices. Unlike other products in the market, eGain Cobrowse requires no consumer download and eGain clients are seeing up to 200% improvement in online form filling rates when agents help customers using Cobrowsing to augment phone based assistance.

Based on patent pending technology, eGain's Cobrowse is a great example of how we are creating new markets with unique solutions for enterprises who are looking to enhance traditional customer touch points like phone with compelling multichannel experiences.

We also launched eGain Offers for Facebook in August, a solution to personalize fan page experiences in minutes with targeted coupons and proactive help. This enhancement makes it easy for our clients to develop and execute customer engagement campaigns using eGain across all digital touch points.

Finally, we are pleased to be back on NASDAQ. It's a significant milestone for us, one that our team has earned with solid business execution in the face of challenging circumstances. I'm very proud of them. 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 and the fiscal year. Eric?

Thank you, Ashu. As Ashu mentioned, overall we are pleased with our financial performance this quarter and to be back on NASDAQ. Before I walk you through our GAAP financial details, I want to provide you an overview of some of our other business metrics. New bookings are contractual commitments from new hosting bookings and new license and support bookings. And gross bookings are new bookings plus hosting and support renewals and billed professional services. We believe these bookings metrics are important because in our primary target markets of large business to consumer organizations, we find that a number of them have not completely embraced the SaaS option and therefore our hybrid model lets them decide what deployment offering best fits their business.

However, over a five-year client relationship, we believe the total value to eGain is roughly equivalent whether the client chooses the license or SaaS option. At our current business scale, the mix of new license and hosting business may fluctuate significantly from one period to another. This point was highlighted this quarter where we saw a strong increase in new hosting bookings to 31% of total new bookings from only 11% in the same quarter a year ago.

Note that license transactions are generally recognized upfront whereas hosting is recognized ratably over the contract term. Gross bookings for the fiscal first quarter were $8.4 million, a decrease of 34% from the comparable year ago quarter. Total new bookings for our first fiscal quarter were $5.2 million, a decrease of 44% from the comparable year-ago quarter. The decrease in both gross and new bookings were due to the decline in license bookings.

Now turning to our financial results, total revenue for the quarter was $10.4 million, a decrease of 21% from the comparable year-ago quarter. License revenue for the quarter was $2.9 million, a decrease of 61% from the comparable year-ago quarter. The license revenue in the quarter included two major license transactions totaling approximately $2.2 million compared to the one large license transaction of approximately $7 million in the comparable year-ago quarter.

For our recurring revenue, the revenue for the quarter was $5.8 million, an increase of 30% from the comparable year-ago quarter. Looking at the recurring revenue in more detail, hosting revenue was up 38% and support revenue was up 24% from the comparable year-ago quarter. The increase in hosting revenue was primarily due to the expansion within our customer base and new hosting contracts that were entered into in fiscal year 2011.

The increase in maintenance and support revenue was primarily due to the maintenance and support associated with the new license contracts that we entered into in fiscal year 2011.

Professional services revenue for the quarter was $1.7 million, a 35% increase from the comparable year-ago quarter. The increase in PS was primarily due to the increase in demand for our solutions and the completion of PS projects being delivered.

Looking at our gross profits and gross margins, gross profit for the quarter was $7.6 million, or a gross margin of 73%, down from $10.6 million, or a gross margin of 81% in the comparable year-ago quarter. This decline was directly attributable to the large license transaction last year. If you look at the gross margin for each revenue type, recurring revenue gross margin improved to 78% from 72% in the comparable year-ago quarter and the professional services margin improved to 10% from 4% in the comparable year-ago quarter.

Turning to our operating costs, total operating costs and expenses for the quarter were $6.6 million compared to $5.7 million in the comparable year-ago quarter, most of the increase coming from our increased investments in sales and marketing. Included in the total costs and expenses was stock-based compensation expense for the quarter of $130,000, compared to $54,000 in the comparable year-ago quarter

GAAP income from operations for the quarter was $990,000, or an operating margin of 9%, compared to an income from operations of $4.9 million or an operating margin of 37% in the comparable year-ago quarter.

Net income for the quarter was $574,000, or $0.02 per share, compared to net income of $4.8 million, or $0.22 per share, in the comparable year-ago quarter.

Turning to our balance sheet and cash flows, I am pleased with our financial condition at the end of the quarter. Total cash and cash equivalents were $15.4 million at the end of the quarter, up from $12.4 million at June 30, 2011. Cash provided by operations was $4.3 million for the quarter compared to cash used in operations of $600,000 in the comparable year-ago quarter.

Total net accounts receivable was $4.7 million at the end of the quarter compared to $8.2 million at June 30, 2011. Days sales outstanding and receivables for the quarter was 41 days, compared to 70 days in the comparable year-ago quarter. Net deferred revenue was $7 million at the end of the quarter compared to $5.8 million at June 30, 2011.

Looking at our debt obligations, our bank debt was $4.6 million at the end of the quarter, compared to $5 million at June 30, 2011, and related party debt was $5.1 million at the end of the quarter compared to $5 million at June 30, 201l.

Now turning to our guidance, as we stated in our press release, we are reiterating our guidance for the year. For fiscal 2012, eGain expects a year-over-year increase in new hosting and license bookings of between 40% and 50%. eGain expects a year-over-year increase in total revenue of between 22% and 27%. And for fiscal 2012, eGain expects to be profitable on an operating basis. However, the planned increase in sales and marketing investment is expected to have a short-term impact on depressing the operating margins when compared to fiscal 2011.

This ends management's presentation. We will now open up the call for questions. Operator?

(Operator Instructions). Jon Hickman, Ladenburg.

Hello. Good afternoon. I have a couple of questions about your operating expenses because they were a little bit lighter than I had anticipated. I was wondering if you could talk about the sales and marketing and your G&A expenses going forward for the next -- I mean, you've been talking about a fairly large increase in your sales force and so I was wondering how that translates going forward. If you could give a little more color there, please.

Yep. So what you see sort of year-over-year quarterly comparison when you look at that, Jon, the sales and marketing expense for September, 2011 quarter was around $3.5 million. And the number -- let me stop -- right, yes, $3.5 million. And the number for this last quarter here was around $4 million. So there are two parts to it. One is that we have been hiring actively on the sales and marketing side and increased our marketing expenditure. But the $3.5 million number from the year-ago quarter in fact had a significantly higher number of commission payments around the big license deal. And so the delta increase is actually a lot more than it looks otherwise. So the increase in sales and marketing expense in fiscal '12 Q1 is more than the delta shows which really shows as about $500,000 only.

So it looks like sales and marketing was about 39% of revenues for this quarter. Would you -- would you think that that percentage would hold for the rest of the year?

I think that number will fluctuate a little up and down. I think that as we increase our bookings, which is what we expect to see, that number will probably move up north and only because of the mix in hosting versus license. So that number could potentially move up north as we go through the year.

It could be higher than 39%?

Yes, and that's sort of in the investment mode.

Okay. Can you talk about how many sales people you actually have on the street right now?

So that one we have tried to answer it through sales capacity, Jon. And the reason is that we have salespeople with different levels of quota, so it becomes difficult to talk about just the number of sales heads. So what we have today is, like we have mentioned in the past, we have plans to increase our direct sales capacity by 100% in calendar 2011 and we are tracking well to that plan. So we have hired up so that by December of this year, we will have doubled our sales capacity from where we were in December of 2010.

Okay. And then a question about RightNow and the Oracle acquisition. So it would seem that for at least a few months that there might be some confusion over there as the company gets integrated into the Oracle platform and there might be some management changes, etc., etc. And the competitive environment for you might get a little better. How do you feel about that statement?

We agree with that. We think that it will take some time for the two companies, for Oracle to integrate RightNow. And then they have the additional challenge of trying to figure out what knowledge management engine they're going to use across the four acquisitions they have made in the last year starting from APG through InQuira, Endeca, and now RightNow. So I think there is going to be a lot of confusion in that process in the short term and yet we think that we will get some benefits, like other players in the market will as well.

And then you mentioned partners. These are people that might compete with Oracle and therefore they wouldn't want to maybe do business with them and they might be more willing to do business with you? Is that what you're after there?

That's exactly right. Yep. So we're sort of looking at the normal Oracle universe.

And then my last question, you mentioned a statistic about the Cobrowse, when agents use Cobrowse to help web visitors fill out forms. What was the statistic about how much their success rate was?

Right. So the statistic is, and I will give it to you a different way. So this is something we have seen in one of our large clients that have deployed eGain Cobrowse. That they had -- before using Cobrowse, they had a success rate of one out of four online forms being filled on the website once the customer started filling out the form. And for those customers where the business is able to engage them through a phone call in the Cobrowse session, that number goes up to three out of four. So it's a 200% increase from one out of four to three out of four.

Okay. Thank you. I appreciate that. I'll get back in queue.

Neal Herman, Ticonderoga Securities.

Good afternoon. A couple of questions. First question, you're talking about 40% to 50% growth in bookings over the course of the next year. Can you kind of give us a sense as to how you expect your hosting revenue as a percentage of bookings to grow? I know it was 31% this past quarter, I assume you expect it to grow as a percentage as well over the course of the year. What are your goals exiting the year?

So, Neal, our -- this is something we have always kind of positioned that we give the option to the customers. Given that we are selling in the enterprises where customers still prefer to have that choice, we try not to set goals for our sales team and try not to create differential incentives for our sales team to try to push one versus the other way of deployment. So it's hard for us to say what we will end up at in terms of our hosting revenue and the growth rate. What we try to focus on is the bookings which could be either hosted or licensed and that is where we are guiding to the 40% to 50% bookings growth for the year.

Gotcha. As end customers tend to accept software as a service, would I be correct in assuming that you would probably expect that part of the business to grow a bit faster than your new licensing business?

That's a fair assumption, yep.

And then secondly, since Oracle's announcement, have you seen any significant changes in the competitive environment? Or from any other players? And if you could talk a little bit about the opportunities that you see with some of the third party I guess consulting vendors perhaps with the announcement. Are they starting to get more aggressive in terms of speaking with you?

Yes. that's what we indicated that there is more interest in the market to partner with us and those interest sources are mostly from the large vendors who are competing with Oracle. And we see this as an opportunity for us to be, kind of be arms provider in the multichannel space to these large vendors and some SIs as well. So we are engaged in some discussions and as we make meaningful sort of progress, we will update everyone on it.

Great. Then the last question is with the growth in your sales force, I assume that you're seeing a huge number of leads that obviously you want to be able to follow up on those leads. Is that the primary driver?

Yes. We think that we are really still very subscale in our sales, in our direct sales reach. And we think even after we have gone through the sort of investment in direct sales and marketing, we will still be touching a very small fraction of the enterprises that can use products of our proposition. So we think that it's going to be a combined effort both in terms of direct sales investment which we are doing and pushing into more partner models. Like we have done with Cisco, we think there are other opportunities in the market that we can enable some of these bigger players with our capability as well.

Thank you very much.

(Operator Instructions). As there are no further questions in queue, I'd like to turn it back to our speakers for any closing remarks.

Okay, well thanks, everybody, for joining us today. We believe this is a very exciting time for eGain as we continue to build a world class organization. Should you have any further questions or comments, please feel [free] to give us a call or call our investor relations firm. I look forward to talking to you and updating you on our fiscal second quarter call. Thank you.

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