Ashutosh Roy - Chairman and Chief Executive Officer Eric Smit - Chief Financial Officer Charles Messman - VP of Finance.

Michael Huang - Needham and Company Raghaven Sarathy - Dougherty & Company Michael Latimore - Northland Capital Markets Jon Hickman - Ladenburg Thalmann Jeff Van Rhee - Craig-Hallum Capital Group.

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the eGain Fiscal 2014 Second Quarter Financial Results Conference Call. During today’s presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions.

(Operator Instructions) This conference is being recorded today, Wednesday, February 5, 2014. I would now like to turn the conference over to Charles Messman, Vice President of Finance. Please go ahead, sir..

Good afternoon, ladies and gentlemen, and thank you for joining us today for eGain's conference call to discuss results for our fiscal 2014 second quarter ended December 31, 2013.

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’d like to remind all listeners that this conference call contains forward-looking statements within the meaning of the Safe Harbor provisions of the U.S.

Private Securities Litigation Reform Act of 1995.

These forward-looking statements include, among other matters, statements about the Company's market opportunities, statement about the Company's partnership with Cisco, statement about the Company's expected financial results for the fiscal second quarter ended December 31, 2013 with respect to total revenues, subscription, support revenue, license revenue and statements regarding our fiscal 2014 guidance and ACV metrics including sources of revenue and business mix.

The achievements and success of the matters covered by such forward-looking statements involve risks, uncertainties and assumptions. If any risk or uncertainty materializes or Company's assumptions prove incorrect, the Company's results could differ materially from the results expressed or implied by the forward-looking statements we make.

The risks and uncertainties refer to, but are not limited to, [indiscernible] that our hybrid revenue model and inventory sales cycle may negatively affect our operating results which leads to our reliance in a relatively small number of customers for a substantial portion of our revenue, our ability to compete successfully and manage growth, our ability to develop and expand strategic and third-party distribution channels, risk associated with new product releases, risk related to our international operations, [indiscernible] not just to improve our products but continue to innovate, 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, 2013 and eGain's quarterly report on Form 10-Q, which are available on the Securities and Exchange Commission's website at www.sec.gov.

These forward-looking statements are based on current expectations and speak only as of the day they are. The Company assumes no obligation to update these forward-looking statements. With all that read, I now today am joined by Ashu Roy, Chairman and Chief Executive Officer, and Eric Smit, Chief Financial Officer of eGain.

To begin discussion, I'll now turn the call over to Ashu.

Ashu?.

Thank you, Charles, and good afternoon everyone. Thank you for joining us today. So looking at the headline, total revenue for the second quarter increased 20% year-over-year to $17.7 million. For the first six months of the fiscal year, total revenue increased 31% year-over-year to $33.4 million.

Cloud subscription revenue for the quarter was up 49% over the prior year and up 55% for the first six months compared to the prior year period. Total gross bookings for the quarter were $13.4 million, down 40% compared to the prior year.

However, I should note that the year-over-year comparison reflects the impact of one very large deal in Q2 of last year. Now on to some additional color. Our pipeline continues to be healthy, that's growing nicely. We are seeing larger opportunities than before.

For example, the number of seven-figure opportunities in our pipeline has nearly tripled year-over-year. Also we are seeing more partner leverage, especially due to the developing Cisco SolutionsPlus program which now accounts for nearly 30% of our pipeline. This pipeline growth is quite encouraging.

At the same time, we are disappointed with our quarterly bookings. Three factors contributed to the shortfall. One, we are getting into larger engagements but they are also extending our sales cycle.

Some of these engagements are part of digital transformation projects and IT [led] (ph) service initiatives that have a longer pilot of scale cadence than we planned for. For example, in Q1 we closed a couple of pilot deals through the Cisco SolutionsPlus program.

One of those has now grown into a fiscal 2014 second half opportunity of roughly $0.5 million. Similarly, in the second quarter, we closed four new Cisco SolutionsPlus deals, again all pilots under $100,000 each, but with marquee enterprise names. Now these pilots over time, we will be working on to develop them into larger opportunities.

The second reason, we are continuing to ramp our organizational understanding and ability to work well with partners, especially around our ability to control and forecast deal timing of these deals. Third, in calendar 2013 as we rapidly expanded our direct sales team and engaged new partners, our existing sales management has been stretched in.

We are addressing the gap quickly, we are actively recruiting a worldwide sales leader to strengthen the management structure, to improve operational effectiveness and to better target more of the opportunities that have global implications. We also recently announced a new EMEA sales leader, Andrew McDonald.

Andrew joined us last year to lead our telco vertical in EMEA. He brings a unique sales background in BPO business and customer experience markets. Based on his strong early performance, we are quite excited to promote him.

Now looking at partnerships, our Cisco SolutionsPlus partnership continues to result in good pipeline growth like I mentioned earlier. Both our field teams are working well together and synchronizing our complementary strengths and client engagement models.

The convergence of voice and digital channels continues to accelerate in the enterprise and that's creating many new opportunities for our joint proposition. As you know, we are at this time only selling on-premise eGain solutions through the Cisco SolutionsPlus partnership.

However, we are now getting close to making the eGain cloud solution available through the Cisco SolutionsPlus channel.

This partnership continues to offer the best integrated proposition to enterprise clients, and supported by our aligned product vision, sustained go-to-market investments and effective field collaboration, I'm very optimistic that this partnership will be a game changer for us in fiscal 2015.

Beyond our Cisco partnership, awareness of eGain continues to grow among our partners. In particular, BPO partners are reaching out to us to help differentiate their value proposition beyond labor arbitrage deficiencies. For example, we have expanded our partnership with IBM BPO business, which as most of you may know has been recently spun off.

Last month we partnered with them to win a deal with a consumer electronics client, a global company, and we are seeing more pipeline building with BPO partners like IBM and others. Stepping back to assess our partner activities, as you know we increased our investment in partnerships in early calendar 2013.

This investment is now starting to show good results. We believe this is an important route to market for our product and we will continue to build on this early success. Looking at the evolving market, the multi-channel or omni-channel, as it is being now called in retail circle, is becoming more mainstream.

It's moving from a nice-to-have to a must-have capability. That sits on top of traditional systems of record like CRM, contact center, content management and e-commerce. Our open platform approach to connect into these traditional data sources and deliver proactive personalized customer journey is becoming increasingly valuable in the market.

And this brings me to recent market consolidation in our space. As many of you know, the KANA's acquisition by Verint, which was announced a month or so ago, we believe in the short term presents us with more opportunities. As a combined company, we'll work through integration challenges and joint roadmap issues.

At the same time, other larger companies like Microsoft and Genesis seem to be buying some point solution products out there to fill some gaps in their go-to-market.

We believe that grafting point solutions onto traditional CRM and contact center platforms does not solve the fundamental problem of providing a connected experience to multichannel customers. It mostly will lead to fractured experiences and a higher cost of ownership for our clients.

In a market that is continuously and rapidly being reshaped by technology consumerization and new engagement models, we believe that a rich scalable engagement platform like eGain with open connectivity to traditional business apps and a credible track record on delivering innovative capabilities is a very exciting proposition with a lot of opportunities.

An example of rapid change in the market and the value of innovation is co-browsing. In the last three months, we have seen a large increase in market interest for our new CoBrowse solution.

Going from what used to be a handful of companies deploying co-browsing until late last year, we are now seeing nearly 20% of our pipeline opportunities that involve CoBrowse as a differentiating requirement where businesses are looking to sell and serve remote customers much more effectively alongside the phone and chat channel.

Disruptive technologies like these will continue to reshape customer engagement models, and innovation of this kind rarely will come from traditional vendors of CRM and contact centers. At eGain, we pride ourselves in this innovation so that our clients can easily deliver differentiated experiences on our platform.

Of course, not all innovation will hit the market bullseye in terms of timing and capability. All the same, we relentlessly aspire to be the best platform of product innovation in the market. This, coupled with our developing partner-enabled distribution models, I believe will drive sustained growth and the customer value.

So to conclude, I'm very excited about our market and where we stand in it. It's accelerating based on our product leadership, our growing partner leverage and competitive market consolidation.

We are actively addressing our short-term challenge of sales organizational ramp and improving our forecasting as we engage larger more strategic opportunities. Being the most agile innovative platform provider of multichannel solutions is a huge [prize] (ph), and I believe we are the best-positioned to seize it.

With that, let me ask Eric Smit, our Chief Financial Officer, to provide more details.

Eric?.

Thank you, Ashu, and thanks for joining us today. So just to recap, for the first half of fiscal 2014, total revenue is up 31% and cloud revenue is up 55% over the same period last year.

Looking at our total gross bookings or revenue plus the change in deferred for the quarter, were $13.3 million or a decrease of 40% over the comparable year ago quarter.

As Ashu noted, at last year the second quarter gross bookings were dominated by one multi-million dollar multi-year cloud order, whereas if you compare that to this quarter, we did not have any similar such transactions.

Backlog as of December 31, 2013, or total deferred revenue plus unbilled and uncollected revenue, was $37.7 million compared to $40.5 million reported last year.

Now because we offer a hybrid delivery model, after some consideration we have come to the conclusion that the gross bookings metric alone provides a limited view to our business performance, as it does not provide visibility to the makeup of the bookings between cloud and on-premise, and in addition it does not provide a time-based view of when the recurring revenue bookings are expected to be recognized as revenue.

So to address this point, going forward we plan to disclose the annualized contract value or ACV of our total recurring revenue and we plan to break that down between our cloud and support revenue. This new metric is the annualized contractual obligations at the end of the reporting period.

And we expect that this contractual obligation will convert into revenues generally over the next 12 months, but because of its forward-looking nature, it is subject to change due to any possible cancellations of existing customers and due to the timing of system deployments for new deployments and new bookings.

We believe this metric will provide better visibility to our recurring revenue bookings, separate from the license and professional service revenue bookings that are currently included in the gross bookings number.

Now looking to our total recurring revenue for the second quarter, at the end of the second quarter, the ACV for total recurring revenue was $39.8 million. This compares to $37.2 million at the end of the second quarter last year and $40.8 million at the end of the first quarter of fiscal 2014.

Looking at that in more detail, the ACV for our cloud revenue at the end of the second quarter was $25 million and this compares to $24.4 million at the end of the second quarter last year and $26.5 million at the end of the first quarter of fiscal 2014.

The sequential decrease in ACV for cloud revenue for the quarter was primarily due to an expected reduction from one large customer who had been running two instances of eGain, the eGain version 10 and 11, concurrently.

Going forward, this customer has now transitioned to running on one system and this has resulted in approximately a $2.4 million reduction in the cloud ACV.

When looking at the ACV for our support revenue, at the end of the quarter it was $14.8 million, which compares to $12.8 million at the end of the second quarter of last year and $14.3 million at the end of the first quarter of fiscal 2014.

Now turning to our financial results, total revenue for the second quarter was $17.7 million or up 20% from $14.7 million in the comparable year ago quarter. For the first six months, total revenue was $33.3 million, an increase of 31% on a year-over-year basis.

Our subscription and support revenue for the quarter was $10.2 million, an increase of 51% on a year-over-year basis.

Looking at our subscription and support revenue in more detail, cloud subscription revenue was $6.7 million, up 49% over the second quarter of last year, and support revenue for the second quarter was $33.5 million, up 7% compared to the second quarter of last year.

For the first six months, subscription and support revenue was $19.7 million, up 32% compared to $15 million for the same period last year. For the first six months, cloud revenue was $4.8 million, up 55% from the same period last year.

License revenue from perpetual sales came in for the quarter at $3.1 million, a decrease of 11% from the comparable year ago quarter. For the first six months, license revenue was $6.9 million, up 67% compared to $4.1 million for the same period last year.

Professional services revenue for the quarter was $4.4 million, an increase of 24% on a year-over-year basis. For the first six months ended December 31, 2013, professional services revenue was $6.7 million, an increase of 6% on a year-over-year basis.

The increase in professional services revenue for the quarter was primarily due to a change in estimates in accounting for the professional services for our cloud arrangements.

We have now determined that the professional services for our cloud engagement to have value to our customers on a standalone basis and therefore will be accounted for separately. When accounted for separately, these professional services revenues are recognized as the services are rendered.

Prior to this, our professional services revenue for cloud arrangements were recognized rateably over the remaining contractual period of the estimated life of the customer cloud relationship.

So in this quarter, we recognized approximately $1 million of cloud professional services revenue that prior to the change in estimate would have been recognized rateably. Looking at the geographic mix of our revenue, total second quarter revenue comprised 51% domestic revenue and 49% from international.

Now looking at our gross profit and gross margins, gross profit for the quarter was $12 million or a gross margin of 67% compared to a gross profit of $10.5 million or a gross margin of 71% in the comparable year ago quarter.

If you look at the breakout of gross margin by revenue type, subscription and support revenue gross margin for the quarter was 81% compared to 85% in the comparable year ago quarter. Professional services margin was 11% for the second quarter compared to the 14% margin in the comparable year ago quarter.

For the six months ended December 31, 2013, gross profit was $22 million or a gross margin of 66% compared to gross profit of $16.9 million or a gross margin of 66% for the same period last year. Subscription and support revenue gross margin was 80% compared to 83% in the same period last year.

Turning to our operating cost, total operating expenses for the quarter were $12.9 million compared to $9.7 million in the comparable year ago quarter. For the six months ended December 31, 2013, total operating expenses were $24.6 million compared to $18.7 million in the prior year.

Looking at the expenses in more detail, research and development expense for the quarter was $2.4 million, sales and marketing expense for the quarter was $8.6 million and G&A expense for the quarter was $1.9 million. Depreciation and amortization in the second quarter was $463,000 compared to $273,000 in the prior year quarter.

Stock-based compensation expense for the quarter was $394,000 compared to $281,000 in the comparable year ago quarter. GAAP net loss from operations for the quarter was $1.1 million or a negative operating margin of 6% compared to GAAP net income from operations of $813,000 or an operating margin of 6% in the comparable year ago quarter.

GAAP net loss from operations for the six months ended was $2.7 million or an operating loss of 8% compared to GAAP net loss from operations of $1.8 million or an operating loss of 10% in the same period last year.

Net loss for the quarter was $1.2 million or a loss of $0.05 per share compared to net income of $641,000 or $0.03 per share on a basic and $0.02 on a diluted basis for the comparable year ago quarter.

For the six months ended, net loss was $3.2 million or a loss of $0.13 per share compared to a net loss of $2.2 million or a loss of $0.09 per share for the same period last year.

Turning to our balance sheet and cash flow, total cash, cash equivalents and restricted cash was $13.5 million at December 31, 2013 compared to $17.2 million at June 30, 2013. The cash provided by operations for the first six months was $1.2 million compared to cash provided by operations of $9.9 million for the comparable year ago period.

Capital equipment purchases in the second quarter were approximately $555,000. Total net accounts receivable was $9.4 million at December 31, 2013 compared to $12.3 million at June 30, 2013. DSOs for the second quarter were 48 days compared to 51 days for the comparable year ago quarter.

Total deferred revenue, which includes both deferred revenue on the balance sheet of $20 million and unbilled deferred revenues that remains off balance sheet of $17.7 million, was $37.7 million at December 31, 2013 compared to $44.5 million at June 30, 2013.

Looking at our debt obligation as of December 31, 2013, we had [indiscernible] bank debt of $3.3 million and no related [indiscernible]. Now turning to our fiscal 2014 guidance, as we have disclosed on our press release, we are updating our guidance for fiscal 2014.

We are at this time reiterating our guidance for annual total revenue growth of between 20% to 25% and adjusting our guidance for annual cloud revenue growth from between 40% and 45% to between 35% and 40%. With that said, I will now open the call for questions.

Operator?.

(Operator Instructions) Our first question comes from the line of Michael Huang with Needham and Company. Please go ahead..

Just a couple of questions for you.

So first of all, I was wondering do you guys have any other customers that are running dual instances, I mean is that going to be a headwind at all for ACV growth?.

No major customer. This one was somewhat of an unusual one, Michael. It just so happened that they were transitioning from one system to another and they needed to keep both systems going for a period of time..

Okay.

And so just kind of around ACV growth, I mean obviously you had some challenges around or you kind of had the customer that went away there, at least dual instance, but how should we be thinking about cloud ACV growth through the year and kind of into next year? I mean like what's the sustainable growth rate kind of around that given the fact that there are lots of moving parts around that?.

I think, Michael, the fact that we've still got this hybrid model where we're seeing demand for the on-premise, if you look at the mix, that element still seems to be fluctuating. So given that fact at this point, I think we're not in a position to provide any specific clarity on that future guidance..

Okay.

So when you were talking about the pipeline and I think you noted a healthy chunk of kind of seven figure deal there, I mean is there any way to characterize whether more of those are on-premise or more of those are cloud or maybe what the split might be?.

So, we made two comments and I think those two comments are quite significant, in the sense that we see the whole Cisco channel at this time is essentially on-premise because that's the only solution that Cisco is selling currently through the SolutionsPlus program.

And the other piece is that the financial vertical that has picked up a lot of interest and is in the pipeline for some sizable opportunities, also is overwhelmingly, not 100% but overwhelmingly, on-premise. So, given that, I'll say that we think it's going to be more on-premise in some ways of the rest of the year if I were to characterize it..

Okay, got you.

And so then kind of on a related question, so as we examine our [indiscernible], the slightly lower cloud revenue subscription, so it's fair to say that that's not due to lengthening sales cycles around Cisco given the fact that Cisco is more around on-premise, but that that's just more driven to kind of a mix shift to on-premise in general?.

That, and also the fact that we have not closed a whole lot of cloud deals in the second quarter and first quarter, and so that's also being reflected. So, I'm just acknowledging that as well..

Okay.

And you would attribute that more to sales management?.

I'd attribute that to sales management to some degree but also to the sales cycle extension on some of the larger deals that we are engaged in, not necessarily through the channel but even directly some of these deals are larger..

Okay, got you..

It's a combination. I wouldn't say it's entirely due to the second point, it's also the first point..

Okay.

And then I guess last question and then I'll turn it over to others, so in terms of the volume of transactions that you saw in the quarter relative to last year or last quarter, anything that you could share with respect to the volume of transactions and just overall sales productivity?.

I think we are seeing much more new opportunities, new meaning new clients, than we did in the last year, many more new clients in the pipeline and also in the deals.

And then sort of going back to your prior question just sort of addressing that as well, you asked about the deals and the sales management around that, when we were providing – and we have provided the guidance for the full year – we made it quite explicit that given the lumpiness and the fact that we were transitioning our business model into these larger deals and plan more partner-oriented engagements, that we were deliberately trying to stay away from quarterly stuff, and I know obviously [indiscernible] is more backend and back-loaded for delivery, but that's really what is also playing out in this year..

Got you. Okay, thanks guys..

Our next question comes from the line of Raghaven Sarathy with Dougherty & Company. Please go ahead..

Actually you talked about four Cisco [indiscernible] deals [indiscernible] last quarter.

Can you give us some sense for what are they piloting, are they piloting knowledge management, [indiscernible], how long are these pilots expected to be and how big these deals can get?.

So I don't have the precise data with me for all four but I would say that most of them are piloting the interaction channel to begin with and not necessarily knowledge. That's one observation.

The second is, just going back to the comment that I made about one of the clients that we had, closed as a pilot in Q1 that is now shaping up to be a nice expansion deal in the second half of the fiscal, is a relevant case in point because they started out with interaction channel pilot and now the expanded deal is around knowledge and self-service..

And then in terms of, can you quantify this say $100,000, how big can that get to?.

I would say north of – if I were to [indiscernible] north of $0.5 million and could be much bigger but that's my current thinking in the medium-term..

And then, probably you mentioned this, so when – so as your product now, the cloud product integrated to work with Cisco contact center product and when would that be on Cisco's site list and what – I mean when you talked about the price line you are seeing, a lot of Cisco intense opportunities, are they skewed towards cloud or on-premise, can you give us some color on that?.

So two questions there, right. So first question, is our product integrated from a cloud standpoint into the Cisco infrastructure? The answer is, the technical work, the joint technical work as complete but Cisco and eGain are working through sort of the launch process and primarily led by Cisco.

So we expect that that should be in the near future but we cannot stand for the date. As you can imagine, it's Cisco that is leading that process, to put it under a skew [indiscernible] but we anticipate that it's going to be in a few months, that's the best I could say, hopefully soon.

For the second point, at this time almost all I would say of the Cisco SolutionsPlus opportunities in our pipeline are on-premise just because Cisco cannot sell the cloud version yet and I expect that some of those on-premise opportunities will return into cloud opportunities [and slight] (ph), some of them once Cisco does announce the cloud version through SolutionsPlus..

And then just one final question on Cisco, so you said in your prepared remarks that you expect Cisco to significantly impact on your business next fiscal year, I thought the only expectation was back half of this year, so wanted to make sure is there any change in expectation from the perspective, so what gives you comfort that you could do those – you can close some more big deals?.

That's a fair question. I do think that it will have impact in this fiscal year, the second half of the fiscal year.

It's not a big one but I think that the scale of growth that we can drive through that channel will become much more evident in fiscal 2015 in how I'm looking at it, because I'm looking at the pilot to scale cycle that seems to be typical in those deals. That's the reason why I'm refining the comment..

Okay. So then a few follow-ups for Eric. So you talked about some catch-up on professional services revenue, about $1 million. I presume that sort of a catch-up, it won't have any ongoing impact in future quarters because of accounting changes.

Is that correct?.

So I think that just from a point of clarification, I know that in the past there's been some confusion around the timing of the revenue recognition of some of the cloud [contracts] (ph). So with this changing estimate now, the PS that we recognize for these cloud deals will be tied generally to win the PS, if delivered.

So going forward, I mean it will always be – there are going to be instances where we may have a customer that requires some type of acceptance. So [as a fact] (ph) that didn't impacted the timing of the revenue recognition but for the most parts we're going to have that lag between when the PS is delivered and built and when it gets recognized.

So I think I just want to I guess reiterate that point. Now, I think certainly if you recall from last quarter, there was an aspect of some catch-up where the number was down. So we certainly had some pickup from that number that came through for the most part in this quarter.

I think we've talked about roughly $0.5 million approximately of business that ended up we weren't able to recognize last quarter. So there is an element of that in that number as well..

So just so that we are clear, so is it reasonable to expect $4 million quarterly billing rate for professional services?.

No, that number included certainly some components, roughly the $0.5 million from the previous quarter that came into this quarter..

Okay. And then final question, so you kept your revenue guidance the same, you ticked down your cloud growth outlook. I presume you're trying to make it up on the license revenue side.

Are we looking at this right way, and again I think Ashu talked about financial services moving towards perpetual license, I just want to get some sense, are we looking at the right way and where do you see comfort that the license certainly will pick up because it's down year-on-year in the second quarter? And then one final question, can you give us the historical data, at least for the last four quarters, last fiscal year ACVs, September, March and June specifically?.

So I think to the first point, you are correct. I think the reason why we did not adjust the total revenue number even though we reduced the cloud was to that point. What we're seeing in the pipeline is certainly by the mix of on-premise deals is ticking high that what we have anticipated when we first gave the guidance at the beginning of the year.

So I think that's the basis for that. And then I think we'll have to come back to you on the ACV numbers for the previous quarters..

Great, thank you..

Our next question comes from the line of Mike Latimore with Northland Capital Markets. Please go ahead..

So just on the ACV for cloud, I think you said it was 26.5 in the first quarter and then 25 in the second quarter, I guess I just wanted to make sure that was right, and then two, that changed mainly because of this one customer going from two systems to one system, so that's the main influence?.

That is correct, that's right..

Okay.

Did the customer do the consolidation sort of at the end of the first quarter or sometimes during the second quarter?.

It is sometimes through the second quarter that it occurred..

Okay, got it.

And then I know you said the number of seven-figure deals were up I think three times, a shift to the age-old [indiscernible] but I guess within that bucket of seven-figure deals, are there a number of cloud deals in there albeit maybe not near-term?.

That's correct, yes..

Okay, got you.

And then how are you generally thinking about the sales headcount, sales hires, I guess can you give a number for where the sales headcount was at the end of the second quarter and what you might do in the second half of the year?.

So, this is an area which we had discussed in the past as well. We are up to about 45 sales reps worldwide and right now we are focusing on improving the whole sales management layer and we will consolidate that ramp we're seeing, and the expectation is that towards the end of this fiscal year, we will start to look at expanding the team again..

And then just on the professional services, what kind of gross margins should we assume the professional services runs at?.

So I think that this is something that we don't have a specific point of view we're going to provide at this stage..

All right, great. Thank you..

(Operator Instructions) Our next question comes from the line of Jon Hickman with Ladenburg Thalmannbut. Please go ahead..

Could you just elaborate for me, I'd like to follow up on that last question about the sales and marketing growth. I mean you went up about $1 million over last quarter and I knew you were trying to expand your sales and marketing, but I didn't think it was going to jump quite that.

So you talked about you're at a level we're at now and then you'd expand again towards the end of this fiscal year.

Is that what you said?.

That's correct. Let me provide you some specifics. On the first point, Jon, since last quarter, we had the customer events that took place. So I would say that there was some, for probably I would say roughly $0.5 million or thereabout, [indiscernible]..

That makes sense.

So you're at 45 now and you expect to kind of stay there till the end of the year?.

That's my expectation. Yes, that's my expectation and then start to hire again towards the end, so that we can start ramping them for the new fiscal..

Okay. And then you said you promoted Andrew to what, what is the ….

Andrew McDonald, he's now the head of EMEA sales..

Do you mean like worldwide?.

No. So, we still have, we're looking at the worldwide sales force who when that person comes in, Andrew would report to him or her..

Okay, thank you very much. That's it for me.

(Operator Instructions) Our next question comes from the line of Ryan [indiscernible] with Craig-Hallum. Please go ahead..

This is Jeff. Just a couple of questions.

I guess actually just on the sales front, I mean apologies if some of this is repeat, I jumped on a bit late, but can you just take a minute and go through the sales org as it sits now and just how it's aligned, and specifically I'm wondering in terms of resources, what portion of the sales org is pointed at or aligned with driving Cisco versus non-Cisco non-channel business, just if you could clarify, give me a little more clarity in terms of sales org structure?.

Okay. So the way the sales organization is setup is that, let's take North America as an example, and Europe is fairly similar, so we have our direct sales force that is broken into a named account group which is large accounts where we see significant expansion opportunity.

And then we have two different geographic groups, one is east, one is west enterprise, both of them, these are all direct. And then we have the government group which is separate.

On top of this, we have a Cisco overlay team comprising couple of people who are working with the Cisco channel to qualify and source these opportunities early on, and when those opportunities start to become relevant, then they pass it over to the appropriate direct salesperson.

So as it stands today, the direct sales team is also working on Cisco opportunities once they have been qualified for the right level..

So what have you seen in terms of the deal size and deal cycle outside of the Cisco side? Just talk about the non-Cisco deal characteristics, if you will?.

The non-Cisco deals, I'll take two comments. One, we are seeing bigger opportunities in terms of deal sizes, we're seeing more new opportunities, new meaning not just expansion but new clients, and we are seeing more financial services than before. Those are the three things I would say that are different over the last nine months..

Okay.

And then just going back maybe six months, nine months, somewhere maybe [indiscernible] I remember, there seemed to be a little higher conviction in terms of the potential to drive, I don't know if you want to call it an up-sell or cross-sell, but take installed [indiscernible] customers, put them on the cloud and do it in fairly sizable deals, or at least some of the early indications where some of those deals could be fairly sizable, can you just kind of circle back in how you would characterize that now in terms of what you've learned since then, what the variance was or is now versus the original expectations there?.

So, qualitatively I would say that the second half of calendar 2013, we slowed down a little on actual projects getting funded on that transition but we have continued to develop those opportunities.

And so, some of those are in the pipeline for us for the new calendar year now that budgets are being set for sort of these businesses to look at the migration that makes sense for them. So that's why you have seen a drop-off in actual reported results in the second half of calendar 2013..

Got it, okay. Thank you..

There are no further questions in the queue at this time. I'd like to hand the call back over to management for closing remarks..

Okay, I want to thank everyone for joining us today. If you have any further questions or comments, please feel free to give us a call. We look forward to talking to you again on our third quarter conference call and I will also be attending some conferences in March. So if you're there, please stop by and say hello and we'll talk to you then. Thanks..

Thank you. Ladies and gentlemen, this does conclude the eGain fiscal 2014 second quarter financial results conference call. We thank you for your participation, and at this time, you may now disconnect..