eGain Corp (EGAN) 2013 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to your eGain fiscal 2013 fourth-quarter and full-year 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. (Operator Instructions) As a reminder, this conference call is being recorded. I would now like to turn the conference over to Mr. Charles Messman, Vice president of Finance. Sir, 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 2014 fourth quarter and year ended June 30, 2013. Please note this call is being recorded and will be available for replay from the investor relations sections of website at www.eGain.com for seven days following this call. Before I begin, I would like to remind all listeners that all statements in this conference call that involve eGain's forecast, 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 marketing 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 this time of the conference call, are not guaranteed for future results. Rather, they are subject to risks and uncertainties and 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 booking and revenue, our expectations related to our operation, our ability to invest resources to improve our product and continue to innovate, our partnerships, our future markets, and other risk details 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 25, 2012, and eGain's quarterly reports on Form 10-Q. EGain assumes no obligation to update these forward-looking statements. With us today are Ashu Roy, Chairman and Chief Executive Officer, and Eric Smit, Chief Financial Officer of eGain. To begin management discussion, I will now turn the call over to Ashu. Ashu?

Thank you, Charles. Good afternoon, everyone. Thank you for joining us today. First, some financial highlights for the fiscal year. Our revenue for the fourth quarter was up 69% over prior year and up 36% for the fiscal year. Our cloud subscription revenue for the quarter was up 73% over prior year and up 70% for the fiscal year. Starting we ended the years strong with good performance sustained well through the year. Eric will go into more details on the financials. Let me turn on to the business side and provide some color.

If you recall, we identified four broad themes of focus at the start of fiscal 2013. They were cloud leadership, account expansion, distribution build out, and product innovation. So let me start with the cloud. At the start of the year, we saw growing interest in the eGain cloud. In the fourth quarter, for instance, we find that blue-chip clients like Electrolux and L.L. Bean to the eGain cloud. At the same time, certain big verticals of our focus area like financial services are continuing to prefer the on-premise action. At eGain, we want to attract large financial services clients with our top-rated customer engagement solution, regardless of the delivery model. In the long run, we believe in building dominant market share and ensuring plan success, not just focus on cloud versus on-premise delivery arguments which we believe are short-term.

Second, we continue to see our fair share of our large on-premise customers migrating to the eGain cloud as they want to benefit from faster innovation adoption rates and higher levels of customer satisfaction. Moreover, we are the only credible provider in the market who can reliably serve both cloud and on-premise enterprise clients with exactly the same platform and solution capabilities with a single code base. And then, we can help them migrate from one delivery model to the other seamlessly over time as their business evolves. So we see this as a huge advantage in the long run, and we want to not walk away from these large strategic client opportunities, especially in the financial services areas as these clients are starting to activate their buying cycles.

On a related note, we are continuing to invest in the eGain cloud to deliver even higher levels of enhanced security, assured with lots of recovery and high availability, all with industry-leading SLA backed by real credits. Real credits. As I mentioned a couple of calls ago, our solutions are mission-critical for our clients. Unlike traditional CRM tools like FFA, customer engagement platforms are a much-worked utility because they directly impact customer experience and [plan brand].

On the second theme of account expansion as one of the four areas of focus, we have had good early success with our premium account program that we launched in January of this year. We started with about a dozen clients. This program brings together a dedicated cross-functional team as we have mentioned before to ensure business success for our top-tier clients. Based on the early success we have seen both in selling new applications to these clients as well as helping some of them migrate from on-premise deployments to the eGain cloud, we are expanding this program to include nearly 30 clients and will invest accordingly.

On the third theme of the other four strategic themes that I mentioned before earlier, on the third theme of distribution build out, we ramped through a higher ramp in consolidated cycle for the direct sales reps through the fiscal year. At the end of fiscal 2013, we had 40 direct sales reps of which 30 have now been with eGain for more than 12 months, so they are effectively ramped compared to roughly 30 direct sales reps in total of which 15 have been with eGain for more than 12 months at the end of fiscal 2012, which is a year ago. So, that's an important area of continued focused products.

In parallel, we expanded our investment in the Cisco partnership to jointly launch the eGain for Cisco S-plus solution in April of this year. This is a solution that is being sold by Cisco and its partners with active eGain sales support. So we are going to be helping Cisco and their partners selling the eGain -- the entire eGain suite to the Cisco install base and their target markets. Early signs and activity levels and pipeline are encouraging, but we don't want to start talking about successes until we see some track record. And so you will hear from us on a quarterly basis as we make progress.

On the final theme of product innovation, we did very well in fiscal 2013. EGain was named the leader in the Gartner Magic Quadrant for web customer service applications for the fifth year in a row, this time receiving top ratings on both completeness of vision and ability to execute. So best on the x- and best on the y-axis. According to Gartner, the eGain Knowledge solution is the best among all the providers evaluated. Gartner further highlighted that eGain would not only provide their highly functional solution for web customer service, but also equally efficient multichannel solution to support commerce and sales-based activities on the web. With growing importance of an integrated sales and service platform with these hard-to-replicate capabilities, we believe we are well differentiated from the rest of the pack.

Further, Info-Tech, another noted and key analyst firm rated our knowledge management solution as number one in product and number one for customer value. Naming us a quote-unquote champion. For those of you that don't know, Info-Tech Research Group does vendor landscape reports that recognize outstanding vendors in the technology marketplace. So to further showcase our top leadership, client success and product innovation, we are expanding our Customer Summit this year to include the larger eGain ecosystem, which will include industry experts, practitioners, partners, and press, in addition to the clients that we always invite. These now rechristened eGain world events will be held in London in October and Las Vegas in November this year.

So that was looking back to 2013. Looking ahead, we see two strengthening market trends. First, customer engagement is becoming an even bigger business priority than before. According to a 2013 PwC survey of US CEOs, nine out of 10 US CEOs say that they are strengthening their customer engagement program this year. Business leaders now realize that their brand depends heavily on differentiated customer experiences. So customer engagement is a new battleground, not traditional CRM. As the leading customer engagement platform, we at eGain have a unique opportunity to grab market share over the next two years.

Second trend we see strengthening is that point tools and checkbox platforms are out. So point tools and checkbox platforms are out. Rich app platforms are in. Businesses after businesses are learning the hard way that lack of (inaudible) implementing point tools to address merging new interaction channels like social and mobile and the next one that comes along is a recipe for disaster. So these clients are now looking to refresh all these point capabilities with a platform-based approach, but one that has rich app [on them]. Note that checkbox platforms that provide toolkits for clients to build a dream app present an equally false choice. While point tools offer short-term gain and medium-term pain, checkbox platforms offer short-term pain that is no less capable of being the short-term because you have to build them out first and medium-term pain because after you painfully build your apps, you realize that you just cannot expect to build best-in-class apps the first time around on the fly as well as operated vendor apps out there. So the solution is rich app platforms. They combine platform capability with rich out-of-the-box application along with opening [APMs].

In fiscal 2014, looking ahead, we will continue to focus on the same four strategic teams that we outlined last year. We believe they are the right areas for us to continue to make progress in. And so, just to repeat them -- it is more cloud leadership, more account expansion, more distribution build out, and more product innovation. Of course, we will rotate tactically in certain areas and the details will evolve, but the four broad areas continue to be the same.

As I said earlier, we are excited about the shape of the market. Our relative position as the best multichannel customer engagement platform gives us the opportunity to become the de facto leader in this booming market. Our distribution focus yielded good results last year and now we want to sustain and be accelerated. And, finally, our innovation pipeline continues to be deep. We look forward to introducing exciting rich applications in fiscal 2014, all organically built on top of our robust platform.

Before I turn the call over to Eric, I do want to briefly comment on and wish Chuck Jepson, our Senior Vice President of Worldwide Sales, a great retirement. As the CEO of Inference back in 2000, Chuck helped orchestrate an effective model of [incense] with eGain. Then in 2010, he came back to eGain to help me and the team build out the worldwide sales and business development capability along with the strong foundation that we now have to accelerate our growth. We want to thank Chuck and wish him the best in the future. Moving forward, we will not be seeking to replace the worldwide sales SVP position but will maintain a flatter sales structure with the VP of Europe and VP of North America reporting directly to me. Now, over to you, Eric.

Thank you, Ashu. So again, to reiterate our Ashu's points, we are pleased with our results both for the quarter as well as fiscal 2013. For the quarter, total revenue was up 69% over the same quarter last year and for the fiscal year, total revenue increased 36% over fiscal 2012. Our gross margins improved, in particular for our subscription and support revenue, which increased to 83% for the quarter and for the first full year from 77% to the same quarter last year and in fiscal 2012. Our operating margins, excluding depreciation and stock-based comp for the quarter, improved to 15% from a negative 14% last year. For fiscal 2013, our operating margins improved to 6% from a negative 1% in fiscal 2012.

In fiscal 2014, we anticipate our operating margins to be closer to breakeven as we continue investing in the business-to-drive growth. Now, looking at the numbers in more detail, starting with our bookings and backlog, total gross bookings or revenue plus the changes the first for the quarter, was $21.7 million, an increase of 13% of the comparable year ago quarter. Total gross bookings for fiscal 2013 were $74.5 million, an increase of 57% over fiscal 2012. Backlog, as of June 30 of 2013, were totaled deferred plus unbilled and uncollected revenue, increased 54% to $44.5 million from $28.8 million reported last year.

Now, turning to our financial results, total revenue for the fourth quarter was $18 million, up 69% from $10.6 million in the comparable year-ago quarter. For fiscal 2013, total revenue was $58.9 million, up 36% over the fiscal 2012. Looking at the subscription and support revenue, or our recurring revenue, for the quarter, it was $9 million, an increase of 42% on a year-over-year basis. And looking at subscriptions and support revenue in more detail, the cloud subscription revenue for the fourth quarter was $5.6 million, up 73% over the fourth quarter of last year, and support revenue for the fourth quarter was $3.3 million, up 9% over the fourth quarter of last year.

For the fiscal 2013, subscription and support revenue was $32.3 million, an increase of 37% over fiscal 2012. And in addition, for fiscal 2013, the cloud subscription revenue is up 70% and support revenue is up 7% over fiscal 2012. License revenue from potential sales for the quarter were at $4.6 million, an increase of 101% over the comparable year-ago quarter. For fiscal 2013, licensed revenue was $4.9 million, an increase of 16% over fiscal 2012. Professional services revenue for the quarter was $4.4 million, an increase of 116% over the comparable year-ago quarter. For fiscal 2013, PS revenue was $13.8 million, an increase of 58% over fiscal 2012.

Looking at the geographic mix, total fourth-quarter revenue comprised of 65% domestic revenue and 35% from international. For fiscal 2013, total revenue was 61% domestic and 39% international.

Now looking at our gross profit and gross margins, gross profit for the quarter was $13.1 million or a gross margin of 73% compared to a gross profit of $6.7 million, or a gross margin of 63%, in the comparable year-ago quarter. If you look at the breakout of gross margin by revenue type, subscription and support revenue growth margin for the quarter improved to 83% from 77% in the comparable year-ago quarter. Professional services margin was 26% for the fourth quarter, compared to a negative 22% margin in the comparable year-ago quarter. The gross margin for professional services billings was 24% for the quarter compared to a negative 4% in the comparable year-ago quarter.

For fiscal 2013, gross profit was $40.9 million, or a gross margin of 69%, compared to gross profit of $29.9 million or a gross margin of 69% from fiscal 2012. And looking at the breakout for the year, subscription and support revenue gross margin for fiscal 2013 improved to 83% from 77% in fiscal 2012. Professional services margin was 10% for fiscal 2013 compared to 7% for fiscal 2012. The gross margin for professional services billings was 17% for fiscal 2013 compared to 9% for fiscal 2012. Total deferred professional services at the end of the quarter was approximately $3.5 million, up from approximately $1.8 million as of June 30, 2012.

Turning to our operating costs, total operating expenses for the quarter was $11 million compared to $8.9 million in the comparable year-ago quarter. For fiscal 2013, total operating expenses were $39.6 million, up from $32 million in fiscal 2012. Looking at the expenses in more detail, research and development expense increased 26% to $2.2 million for the quarter and up 37% to $8.4 million for fiscal 2013. Sales and marketing expense for the quarter increased 22% to $6.9 million and was up 22% to $24.4 million for fiscal 2013. G&A expense for the quarter increased 28% to $1.9 million and was up 18% to $6.8 million for fiscal 2013.

Depreciation in the fourth quarter was $277,000 compared to $306,000 in the prior year quarter. Stock-based compensation expense for the quarter was $271,000 compared to $336,000 in the comparable year-ago quarter. Depreciation for fiscal 2013 was $1.2 million compared to $846,000 in fiscal 2012 and stock-based compensation expense for fiscal 2013 was $1.1 million compared to $856,000 in fiscal 2012.

GAAP net income from operations for the quarter was $2.1 million, or an operating margin of 12%, compared to a net loss from operations of $2.2 million or a negative margin of 20% in the comparable year-ago quarter. GAAP net income from operations for fiscal 2013 was $1.2 million, or an operating margin of 2%, compared to a net loss from operations of $2 million, or a negative margin of 5%, in fiscal 2012.

Net income for the quarter was $1.9 million, or $0.08 per share, on a basic basis and $0.07 per share on a diluted basis compared to an adjusted net loss of $2.9 million, or a loss of $0.12 per share, on a basic and diluted basis for the comparable year-ago quarter. Net income for fiscal 2013 was $684,000, or $0.03 per share, on a basic and diluted basis compared to an adjusted net loss of $3.8 million, or a loss of $0.16 per share, on a basic and diluted basis for fiscal 2012.

Turning to our balance sheet and cash flow, total cash, cash equivalents, and restricted cash was $17.2 million at June 30, 2013, an increase of $6.3 million from $10.9 million at June 30, 2012. Net cash provided by operations for the quarter was approximately $1.2 million, and the net cash provided for operations for fiscal 2013 was $10.2 million compared to adjusted net cash provided by operations of $1 million for fiscal 2012.

Looking at capital equipment and purchases, in the fourth quarter, it was approximately $1.2 million, bringing total purchases to $2.4 million for fiscal 2013 compared to $1.8 million for fiscal 2012. Total net accounts receivable was $12.3 million at June 30, 2013, up from $6.5 million at June 30, 2012.

DSOs for the fourth quarter was 62 days compared to 55 days for the comparable year-ago quarter. Total deferred revenue, which includes both preferred revenue on the balance sheet of $19.7 million and unbilled deferred revenue that remains off-balance sheet of $24.8 million, so equals $44.5 million at June 30, 2013, compared to $28.8 million at June 30, 2012.

Looking at our debt obligations as of June 30, 2013, we had Comerica bank debt of $4.7 million and related party debt of $2.9 million. I would like to note that on July 31, 2013, the company paid off the entire related party debt balance with cash.

Now, turning to our fiscal 2014 guidance, eGain is estimating fiscal 2014 total revenue -- total annual revenue growth to be between 20% and 25% and our annual cloud revenue growth to be between 40% and 45%. These numbers are based on an approximately 60% new cloud and 40% on-premise booking split for fiscal 2014.

Now, before I open up the line for questions, I would just like to take the time to acknowledge the hard work and dedication of the worldwide eGain team. Fiscal 2013 has been a good year for us and we look forward to continuing this positive momentum into fiscal 2014. I will now turn the call over to the operator for questions.

Thank you. (Operator Instructions) Mike Latimore, Northland Securities.

Great. Thank you. Great finish to the year there, everybody. On the quarter itself, you talked about -- I think you said bookings are $21.7 million. What percent of those were cloud related?

So I think on the recurring basis, the number was approximately 60%, was going to be on a recurring basis.

Okay. Got it. And in the quarter itself, were there any verticals that were particularly strong or weak during the quarter?

I think (technical difficulty) mix. What we are seeing is that in the US, the financial services vertical is picking up more interest. And so that is the trend. We will watch that. The other area we are seeing more interest and even some early buying is in the healthcare vertical in the US. I would say those two seem to be deltas compared to where we were, say, six months ago.

And, how many customers, say, migrated from maintenance to cloud during the quarter?

Offhand, I don't think we have that number with us, but I'm not sure if we are disclosing that.

Okay. Any particular reason for the strength in professional services in the quarter?

Just more new clients, more implementation. And some of these clients have big or digital transformation projects going on and they are using eGain to be aggressive about implementing those strategies. So that is where we are seeing the delta. As you know well, professional services for us is not a moneymaking operation so if that number goes up and down for the right reasons, we are fine with that, as long as the eventual goal of building sort of success around high-margin business in the cloud is where we are focused.

Mike, just to add to that point, with our on-premise customers, there is the revenue recognition for the -- PS happens in the quarter that is delivered, whereas with the cloud customers, it is recognized ratably over the contract terms. So there is an element of timing as well that goes with that.

And, just last question. How was the demand for your super chat offering and maybe, do you have a certain number of deals in the quarter with that product?

Definitely, yes. I think the whole super chat proposition is working better for us now. What we are finding is that -- so for instance, the healthcare vertical in the US -- the whole customer acquisition opportunity around the Affordable Care Act is an area where we have seen good interest for super chat. Where these businesses are figuring out innovative remote models to acquire more new customers.

Great. Thank you.

You are welcome.

Jeff Van Rhee, Craig-Hallum.

Great. Thank you. Very nice quarter. I will echo Mike's comments there. Real nice quarter. A couple of follow-ups. Just on a professional services side, what kind of utilization rates did you have during the quarter? How busy? What the kind of access capacity do you have beyond what you did this quarter?

So again, I don't have the number offhand, but let me address the question behind the question because of the second part of your comment and that is, as you know, we have a model which has services -- professional services team members in three geographies and we're going after a global model, so we have US-based teams. We have the Europe-based teams and we have India-based teams. So we are actively adjusting our hiring and build out to make sure that we are not going to constrain the implementation rollouts for some of our clients. As well as the fact that we are also now working with some of these early partners that we are building out who can provide services bandwidth as and when required.

Okay. In terms of the discussion starter in terms of customers coming in, how would you sort of prioritize the top one, two, or three initial capabilities? I know they are coming for the platform. I get the vision. But what is the most acute pain point right now?

I would say the tip of sphere there are three stories that resonate well. And then let's just say the platform alongside it makes it more differentiated and interesting. But the tip of the sphere arguments will be right now in terms of number of opportunities as you go out for multi-channel service still is number one. So the whole idea that I want to have consistent service capability across all the touch points. The second is knowledge so I want consistent knowledge across all the channels. And the third is this interactive selling of customer acquisition. It doesn't mean that one is less important than the other for us, but it just means that in terms of relative volume today, that would be the order. And, over time, we see the interactive sales start picking up more and more.

Got it. And then, to others, if I could. Just the Cisco relationship -- you touched on it a little bit. Can you expand a little further what has been accomplished thus far, a little more color on where you are, and just how that pipe is filling? And along those same lines, you touched on your goals for 2014 and enhanced distribution was one of them. Obviously, you have laid out your intentions last quarter about aggressively growing the direct sales team. But can you expand on what else you have in mind there in terms of expanding distribution?

Okay. So the first topic, just some color, we jointly have conducted -- one, two, three, four road shows with Cisco where we -- meaning the eGain team and the Cisco team -- are going out and educating and training the Cisco and partner sales communities that are selling in this contact center multichannel marketplace. So we have done that twice in the US and twice internationally. We are jointly addressing the annual Cisco Sales Summit in the US and in Europe next month. We are planning to -- and this is not, the details have not been worked out, but we have committed to jointly marketing our proposition with Cisco and eGain. So, there is a lot of meat behind the enablement and education and training of the sales team. That's first part.

The second part is the pipeline is -- the number of opportunity is large. It is early days. We just announced the go-to market in April, so it is still early. We believe that the next fiscal year, which is the current one we are in, fiscal 2014, for Cisco, is going to be the build out the pipeline is going to be along those sort of 12-month cycle of Cisco's fiscal year, which is essentially -- not exactly, but essentially end of July through end of July. Not end of June through end of June, so it is a one-month target for most typical quarter and fiscal years. So that we see as a pipeline build out and then monetization and conversion on the back half of our fiscal year. So that's on Cisco. We have closed a couple of small deals. We are seeing pilot opportunities coming through quickly. So it is pointing the right way at this point. We just have to see from some quarters of execution to see how big and how quickly that side has become development for our business.

Yes.

The second topic, which is how much and how were we planning to expand our distribution. So the first answer would be just the straightforward direct sales team and build out of that and we expect to continue to build that out. Our expectation is that we will be at least 50% up from where we were end of fiscal 2013 we will be at the end of fiscal 2014 in terms of direct sales. And then, on the partner side, we are increasing our investment to build out beyond the fiscal partnership some other large partnerships that we are working on which we haven't really discussed too much. And, hopefully, those become material and will start talking about them in fiscal 2014.

Great. Thank you.

Michael Huang, Needham & Company.

Just a few questions for you guys. So first of all as you look at fiscal 2014 and the guidance that you provided, I wanted to get a sense from you guys like what represents the biggest wildcard? Is it Cisco? Is it some of the work that you been doing with the premier accounts team? Large deal activity? Sales ramp? Could you just help us understand kind of what are the things that could be kind of meaningful drivers that maybe you haven't baked in necessarily to fiscal 2014?

I would say all the four things that you mentioned are very, very important, so I agree with all four. In terms of what we haven't baked in, probably I would say the Cisco stuff because we don't know enough about that right now. That would be my assessment. Eric, what do you think?

I think also the big deal dependence. These are factors that, as we said in previous calls, we're targeting these large enterprises. And with this installed base focus, the timing and the size of these deals is something that is hard for us to model in at the beginning of the year.

Got you, okay. You know in terms of new customers I know that you always don't share with us the metric on how many new logos that your adding, but maybe you could just help us understand kind of directionally how that's trending especially as your -- as you've been able to take your sales team up and your experienced sales team up as well. Should we be expecting to see that drive an increasing number of logos? And maybe like as you kind of think about bookings, like what does it do from bookings standpoint as well?

Right. So yes, you're right that that is a big area of focus for us in terms of new logos of the right kind, acquiring them moving forward, increasing that bucket size. And so, the new sales rep ramp is focusing on that. So, that is an important part because to us the account expansion that we see, which is where we get the big deals, typically will be highly dependent on the number of deals, right type of logos that we acquired in the front-end of the funnel. So absolutely, that land and expand is a key part of potential. So we need to land more new logos and so the direct sales reps, especially as we have kind of sectioned them off into focusing on new accounts and focusing on strategic named accounts, the new account guys or new target account guys are in centered on right kinds of logos and new logos.

Got you. Okay. And then a question for you Eric. So the calculated bookings growth, I guess, was a little bit slower kind of versus last quarter in terms of year-over-year growth. Obviously you had a tough comps, but given kind of the demand dynamic and competitive positioning and sales productivity et cetera, I wanted to understand is there anything else kind of out there besides the tough comp or maybe it's timing on some larger deals with existing customers. Just help us understand kind of what is driving that. And then is that likely to really accelerate through next year? And maybe you could just kind of give us some sense around that. Thanks.

Sure. I think you actually hit the point when you look at that from a comp standpoint definitely in comparison to this relatively the three and four of last year were quite significantly different so I don't -- I wouldn't lead more into it than that. I think the other aspect -- I know that we've talked about and we're looking to evaluate this going forward -- is that this is a gross booking number that -- so certainly in this year, I think looking forward maybe focusing on somewhat of an ATV model so that gets a more representative sense of what the true number is. So, that's you know I think that's a point that we'll be looking to do maybe in future quarters so that gives a better sense as to what the makeup is as opposed to just the gross number where if you have one quarter that has a number of multiple-year deals of versus a single-year deals, optically it may look bad but it may actually may end up being better or even if that makes sense.

Yes it does. Thanks guys. Appreciate it.

Raghavan Sarathy, Dougherty & Company.

Thanks for taking my questions. Just first question is for Ashu. So in the last call you talked about larger BPOs interested in customer engagement on -- I was wondering if you have any update on the this front in terms of the type of opportunities that they are bringing in, the type of opportunities you're seeing, and the progress you are making?

Okay. Is there another part of the question? Or is that the first question?

No. That's the question for you.

So yes, so you're right. We did talk about that, and we do see those BPOs bringing in opportunities. We are working closely with a few that I had mentioned the last time where -- what these companies, what these BPO's are doing is creating customer management practices where they want to differentiate their offering from the typical, there are [cheats and seats] kind of model which they have had in the past. So they are waiting for new business around multichannel, so the big thing they are pushing with their clients is multichannel and the whole customer experience around multichannel. So we're working with a small group right now trying to make sure that we can train their sales team and help them qualify with opportunities as well.

So from a revenue perspective, for you, that would be more of a license sale. How would that translate into revenue for the year?

It could be license if it were an on-prem deployment, or it could be eGain cloud if it were a eGain cloud implementation that is just being tapped into by the BPO.

And then a couple of follow-ups for Eric. So I understand that the bookings number could be skewed depending on some multiyear, single-year contracts. But if you look at the bookings, can you give us some color around the mix between new and existing customers in the total bookings in terms of percentages? And then how much of the new bookings is cloud?

Sure. So I think again the total number of $21.7 million, approximately 60% of it was coming from recurring I'd say in -- of that number, roughly $10 million was coming from new license and cloud bookings out of that. And again, close to -- between 55% and 60% of that was coming from new cloud business.

Okay, and then in terms of 2014, obviously license revenue could be a wildcard. But I was wondering, how we should think about license revenue in the context of overall revenue growth.

So, I think at the moment -- you know we're looking at not necessarily providing too much more on this at this stage. I mean I think we'll maybe update that as the year moves along but I think again just given the timing of that this is not something we can maybe provide in any more detail at this point.

Okay. Thank you.

Noel Atkinson.

I just have a couple of questions. So first is that you spoke on the last call about building out a new data center that was supposed to come online in Q1 of 2014. I saw that the cap at your PP&E grew about $900,000 sequentially. Have you guys finished that data center and now do you expect that revenue to come online?

That's correct, yes. So that's part of the increased investment we talked about the cloud side with more disaster recovery and better security and all that, so yes. That is part of it.

And you folks talked last time about it being about $500,000 of quarterly revenue that would come online once the center was finished. So is that sort of still sort of the ballpark number or were you able to add further customers?

You know that's going to be a phased approach so not all those customers would -- were coming online immediately, so I think that will probably happen over the next two quarters.

Okay, good. And my phone was breaking up a little bit. Eric, you gave some guidance on, I believe, the expected split of license and cloud bookings in fiscal 2014. Could you just repeat that please?

Yes. We're looking at 60% cloud. I think 60%/40% is what our initial estimates are.

And then just my last question is, say, over the -- maybe not in the last quarter but maybe like the three quarters before that, you folks have been talking quite heavily about your partnership with the large integrators. So, SAP, IBM, those folks. And so what are you seeing for activity to those partner channels?

We're continuing to work on them, Noel, but at this point the one we see as most attractive in terms of activity as well as pipeline is Cisco. So three quarters ago we probably didn't even talk about Cisco S-plus, which is the whole resale expansion that we have got going with Cisco. Now that we've -- we are where we are with Cisco, we are -- that's sort of taking two-thirds of our partner investment, and the other one third still continues to be on the building out some of the other promising partnerships.

Jon Hickman, Ladenburg.

Could you -- the relationship with Cisco, is that cloud business or on-premise or both or is that up to the customer?

It can be -- both -- both are available through that channel, Jon. So, depending on the customer's preference.

And you are providing the professional services there?

Initially, yes, but we are also training up the Cisco partners, and so they will be doing bulk of that professional services over time.

Okay, two more questions. A year from now could you opine about how many sales guys you might have on the books?

So what we are doing is really going as fast as we can in terms of hiring, ramping, consolidating. My sense is that we will probably be up by 50% or so by the time we end fiscal 2014, 50% of ramped sales reps is what we're shooting for.

So you'll at about 20. And then, people have talked about your professional services in this quarter, and obviously there was a big jump there in revenues. But the margins the gross margins were considerably better than in the past quarters. What happened there?

So I think there were two items. I think there was some component of revenues that was project-based, whether it was maybe some billings that had been done in a previous quarter and the recognition ended up coming in this quarter. And then I think there's also the ramping up of the team. If note in the previous quarter, I think we talked about hiring of additional reps so there was obviously a number of on unramped PS people on board. So as I think seen them come on board then that's obviously driving the improvement in the margin.

So kind of -- I don't know how much guidance you're willing to give here, but on a gross margin basis going forward, it was 73% this quarter. That's kind of an outlier if you look backwards. Can you help us out there at all if you were going to look out for the year?

I would agree that it's somewhat of an outlier. Again, clearly, given the high margin on the on-premise potential licenses, that's -- that has certainly skewed us in this particular quarter. So probably closer to the 69%, 70% range is I think what is what we would expect given the mix that we are modeling.

Okay thank you. That's it for me. Great quarter, guys.

Nathan Schneiderman, ROTH Capital.

Nice job on the quarter and the year. Congratulations. Ashu, in your prepared comments, you referenced new product that you are excited about for 2014. I was hoping you could speak to that, and if there's something that's a brand-new revenue product, as opposed to just an enhancement, maybe if you could elaborate on that as well.

Broadly, it's in the area of sales and service. It's not opening up a completely new target market or, you know, very, very separate sort of SKU, if you will. But the capabilities we believe are going to be very differentiated and exciting. So that's what I can tell you for now. Sorry about that.

And is there a targeted GA date for the new product release?

Not yet. Not yet. But certainly in the year for sure.

Okay. And then I was just curious if you could share with us the number of 10% customers you had in the quarter and if you had some specifically what was the percent and if you can identify the customer or customers.

Unfortunately, I don't have that information available at this point.

Eric, I was just curious with the billed and unbilled backlog, the $45 million, if you could share with us the portion that's current that you expect to recognize over the next 12 months and then how did that compare against the year-ago period?

Unfortunately, Nate, we do not have that readily available at this point. I think maybe we will look to provide that in the future, but don't have that readily available.

Ashu, in your prepared comments, you mentioned competition against vendors that were only offering checkbox platforms. And I was just curious who specifically you're speaking to there and if you can speak broader to changes in the competitive environment that you are seeing.

That was an attempt to speak to the vendors who claim to do everything that you can possibly imagine. So you have some contact center vendors like outside of Cisco, the large ones that seem to claim they can do all the multichannel stuff, they can do all the engagement stuff. Also, on the CRM side you have vendors who claim to do everything so those are the big kind of vendors that I was referring to where -- I'm not sure if I want to get specific. But we do find enough examples where these customers, the clients have deployed these backbone systems, and they have a choice to make whether they go with those same backbone vendors who are claiming to offer them all the richness of application capability or go with a platform like ours that can integrate into that backbone. So that was the discussion that I was referring to.

Is there a set of vendors that you're competing more against then you used to our more successfully against than you were maybe six months to a year ago that you could talk about?

I think Oracle continues to be a vendor we compete with primarily around the right [now piece]. We are seeing more of Salesforce, though not a lot, because of the B2B versus B2C focus difference. And so those two, I guess, are the big ones. Other than that in the sales area, LivePerson continues to be a significant player in the markets. So we see them very often.

Final question for you and I'll drop off. I was just curious about the decision to take 2014 operating margin down to breakeven levels. And what do you see driving that and why are you making that decision as opposed to maintaining -- trying to maintain up margin or improve it? Thanks so much.

Sure. So it's really market share and an opportunity that we think we have because of the competitive environment and our relative solution advantages. We think the market is hot. We think that we have the right solution at the right time, so it's really constrained by our ability to scale our distribution. So we think that running the business at an operating sort of even margin or zero margin is a reasonably good balance between being highly aggressive and maintaining some discipline on the business as well.

Thank you. I'm showing no further questions at this time.

Again, I want to thank everyone for joining us today. Should you have any further questions or comments, please feel free to give us a call. I also wanted to let you know will be attending the upcoming Craig-Hallum conference in New York on September 26. So if you're in town, please stop by. We'll look forward to talking with you on our first quarter conference call. Thanks now.

Ladies and gentlemen, thank you for participating in today's conference. This concludes our program. You may all disconnect and have a wonderful day.