Charles Messman - VP, Finance Ashu Roy - Chairman and CEO Eric Smit - CFO.

Jeff Van Rhee - Craig-Hallum Michael Huang - Needham & Company Mark Chappell - Benchmark Mike Latimore - Northland Capital Jon Hickman - Ladenburg.

Good day and welcome to the eGain Fiscal 2014 Fourth Quarter and Full Year Financial Results Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Charles Messman, VP of Finance. Please go ahead, sir..

Good morning 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, 2014.

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 this conference call contains forward-looking statements within the meaning of the Safe Harbor provision of the U.S.

Private Securities Litigation Reform Act of 1995. This conference call contains forward-looking statements that involve risk and uncertainties.

These forward-looking statements include among other matters, statements about the Company’s market opportunities, statements pertaining to the Company’s partnership with Cisco, statements referring to our organizational changes, statements referring to the Company’s recent acquisition, statements about the Company’s expected financial results for the fiscal fourth quarter and year ended June 30, 2014 with respect to total revenue, deferred revenue, subscription and support revenue, license revenue and statements regarding our fiscal 2015 guidance including sources of revenue and business mix.

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

The risks and uncertainties refer to include, but are not limited to, risks with our hybrid revenue model and lengthy sales cycles may negatively affect our operating results, uncertainties associated with purchase adjustment that may result when we complete our integration of Exony’s financial results, risk related to our reliance on relatively small number of customers for a substantial portion of our revenue.

Risks associated with the efforts to operate and integrate Exony’s business successfully, our ability to compete successfully and manage growth, our ability to develop and expand strategic and third-party distribution channel, risk associated with new product releases, risk related to international operations, our ability to invest resources to improve our product and 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, 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 expectation and speak only as of the date hereof. The Company assumes no obligation to update these forward-looking statements. With me today are, Ashu Roy, Chairman and Chief Executive Officer; and Eric Smit, Chief Financial Officer of eGain.

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

Ashu?.

Thank you, Charles and good morning everyone. Thank you for joining us today. First, some financial highlights, our revenue for the fourth quarter was 18.9 million, up 5% over prior year. Revenue for the fiscal year came in at 70.3 million, up 19% over the prior year.

Cloud revenue increased 36% over last year and total recurring revenue was up 25% year-over-year. Our Q4 bookings grew 98% sequentially and 5% year-over-year which was a turnaround from the trend of prior three quarters. So, we look forward to building on this momentum as we launch into fiscal ‘15.

Reflecting on fiscal ‘14, it was a year of investment for us. Looking at our product investments, over the past year, we saw a growing interest from clients who access our platform through API, to embed our customer engagement capability more tightly into their business process.

In response, we delivered a full set of knowledge management APIs that are now being used by several clients like LexisNexis and Vodafone. Mobile was another area of product investment for us. All our customer facing capabilities are now mobile ready. We also recently this quarter announced our eGain SDK for mobile apps.

This allows our clients to easily embed our customer facing self-service and assistance capabilities inside their mobile apps. Mobile apps based customer engagement is an emerging area of innovation and our solution will help clients easily differentiate their mobile customer experience.

Finally, in the product category, as part of eGain analytics, we launched eGain one tag capability in early fiscal ‘14 to easily track customer journeys on the web. As a version one capability, eGain one tag attracted a lot of interest.

As we engage with clients, we discovered that while they loved the notion of integrated analytics and engagement tools, they also wanted more than just web journey analysis. What they wanted was omni-channel journey analysis across voice and all the digital channels. As we explored further, we realized that this need was large, growing and unmet.

It seems natural for us as the digital engagement market leader to take the lead given our successful partnership with a voice infrastructure leader like Cisco.

So, as we explored the build versus buy option around this opportunity, we eventually ended up with the recent acquisition of Exony, one that we believe will change the game by taking effort of omni-channel so that our clients can implement omni-channel strategies easily and effectively.

On the cloud front we invested in improving the security and reliability of our cloud offering. Last year we launched the eGain enhanced security network or eGain ESN to service the cloud-based security needs of our largest clients.

Moving forward, this level of security will be available as part of our premium cloud offering consistent with our strategy to offer more and more out of the box value to cloud clients. We also invested in enhancing the disaster recovery or DR capability of eGain clouds to offer much better service levels in the event of a disaster.

Finally we expanded our compliance and certification around industry standards like PCI and HIPAA. So that was all the product-based investments over the last year. On the sales front, as you all know, AJ Berkeley, who is our new worldwide sales leader, picked up the reins earlier this quarter and he is off to a good start.

We are seeing a heightened focus on building up the direct sales funnel with tight deal qualification and conservative forecasting. Our cooperation is improving across field teams and rep morale is up on the heels of good bookings and better out line visibility. We effectively support the worldwide sales organization.

I have rationalized my direct reports to a smaller set of worldwide functional leaders across marketing, services, support, product and finance. On the partnership side, the progress we made during the year was significant. Thanks to the strong investment we made in signing our Cisco Solutions Plus partnership, it has been growing nicely.

From a standing start to put the trajectory in perspective, we acquired four new logos in the first half of the year for fiscal '14 and 12 new logos in the second half of the year through this channel. Now half of these new wins started out as pilots, so deals under 100K.

But they have the potential to scale based on pilot success, a lot of new wins through the new channel that we began to build last year. Looking at the market and the opportunity, omni-channel engagement is all the rage nowadays.

Business leaders appreciate the importance and value of delivering high quality engagement to their customers, even as reputed organizations like McKenzie and Gartner keep highlighting the transformative value of omni-channels downright. However, most businesses at an operational level continue to struggle mightily with how, behind what.

Making omni-channel engagement easy we believe is an outstanding challenge and a huge opportunity. With this opportunity in mind, we acquired Exony.

Their market-leading solutions enable enterprises and service providers to manage, provision and analyze their complex compact simple assets, starting with voice to enable easy and secure control for business owners.

Combining the Exony management and analytic capabilities with the eGain customer engagement hub, we will provide the industry’s first unified platform for omni-channel engagement across voice and digital channels. All the interaction and feedback from clients about the simplified vision is very encouraging.

We intend to provide a solution where clients can first analyze their omni-channel capabilities, identify gaps and opportunities and then decide what engagement capabilities to deploy, in other words, the how and what of the program will go hand in hand. This is a dramatic inversion of typical enterprise application progress.

Let's start with a leap of faith to deploy large scale applications and later analyze their business impact in a subsequent (target case) [ph]. Looking ahead to fiscal '15, we plan to build on investments of last year. We believe that the market opportunity continues to grow in terms of urgency, importance and value of omni-channel solutions.

This need to address the integrated voice plus digital proposition is emergent and it promises to separate comprehensive solutions from point solutions and partial (tools) [ph]. At eGain, we thrive on disruptive innovation and we intend to seize this opportunity.

Combining with Exony, their team, technology and plan, we will deliver the next generation omni-channel solution that combines voice and digital in a way that clients can easily and confidently implement their innovative strategies.

Before I handover the microphone to Eric Smit, our CFO, to share his views on our financial performance for the quarter and year, I would like to invite all of you to join us at eGain World on November 4th and 5th in San Jose, California, where we will host an analyst and investor day alongside our customer and partner events.

We hope to see many of you at eGain World in San Jose. With that said, Eric..

.

Our total subscription and support revenue ACV at the end of the fourth quarter was 41.9 million, up 5% year-over-year. As we noted on our last call, the ACV for last year included approximately 2.4 million from a customer paying for geo-cloud deployments while they’re upgrading to Version 11.

Excluding the impacts of the second system, the year-over-year increase was approximately 12%. The ACV for our cloud subscription revenue at the end of the fourth quarter was 25.7 million which compares to 26.7 million at the end of the fourth quarter last year and 25.2 million for the third quarter of fiscal 2014.

The ACV for our support revenue at the end of the fourth quarter were 16.2 million which compared to 13.2 million at the end of the fourth quarter last year and 15.4 million for the third quarter of fiscal 2014.

Now turning to our bookings, total gross bookings or revenue plus the change in deferred for the fourth quarter was 23.2 million, up from 11.8 million last quarter and 21.7 million in the fourth quarter last year.

Backlog as of June 30, 2014 or total deferred revenue plus unbilled and uncollected revenue was 36.3 million compared to 44.5 million at the end of last fiscal year and 31.5 million at the end of last quarter. Included in this, backlog is approximately 500,000 of bookings from a perpetual license deal with the new government clients.

Due to certain terms in this agreement revenue recognition was deferred and saw certain future deliverables on that. Now turning our financial results, total revenue for the fourth quarter was 18.9 million, up 5% from 18 million in the comparable year ago quarter. For fiscal 2014, total revenue was 70.3 million, an increase of 19.3% from fiscal 2013.

Although slightly below our annual guidance it would have been within the range had we been able to recognize the license revenue associated with the government deal I have just mentioned. Our subscription and support revenue for the fourth was 10.2 million, an increase of 13% over the fourth quarter last year.

Looking at subscription and support revenue in more detail, cloud subscription revenue was 6.2 million, up 10% year-over-year and support revenue was 4 million, up 19% year-over-year. For fiscal 2014, subscription and support revenue was 40.5 million, up 25% compared to 32.3 million for fiscal 2013.

And in addition, for fiscal 2014, cloud subscription revenue was 26 million, up 36% in the same period last year. License revenue from perpetual sales came in for the quarter at 5.4 million, up 17% from the comparable year ago quarter. For fiscal 2014, license revenue was 14.8 million, up 15% compared to 12.9 million for fiscal 2013.

Professional services revenue for the fourth quarter was 3.4 million, a decrease of 24% from the prior year quarter. For fiscal 2014, professional services revenue was 15 million, an increase of 9% on a year-over-year basis.

Looking at the geographic mix of our revenue, total fourth quarter revenue comprised of 59% domestic revenue and 41% from international. For fiscal 2014, total revenue was 55% domestic and 45% international.

Now looking at our gross profit and gross margins, gross profit for the fourth quarter was 12.8 million or a gross margin of 68% compared to a gross profit of 13.1 million or a gross margin of 73% 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 fourth quarter was 77% compared to 83% in the comparable year ago quarter. Professional services margin was a negative 11% for the quarter compared to 26% in the comparable year ago quarter.

For fiscal 2014, gross profit was 46.8 million or gross margin of 67% compared to gross profit of 40.9 million or a gross margin of 69% for fiscal 2013. Subscription and support revenue gross margin was 79% compared to 83% in the prior year. Professional services margin was 1% to breakeven for the year compared to 10% in the prior year.

Turning to our operating costs, total operating expenses for the fourth quarter were 13.5 million compared to 11 million in the comparable year ago quarter. For fiscal 2014, total operating expenses were 50.9 million compared to 39.7 million in the prior year.

GAAP net loss from operations for the quarter was 705,000 or an operating loss of 4% compared to GAAP net income from operations of 2.1 million or an operating margin of 4% in the comparable year ago quarter.

GAAP net loss from operations for fiscal 2014 was 4.1 million or an operating loss of 6% compared to GAAP net income of 1.2 million or an operating margin of 2% in the prior year. Included in the net loss for the quarter was depreciation and amortization of 571,000 compared to 316,000 in the prior year quarter.

Depreciation and amortization for fiscal 2014 was 2.1 million compared to 1.3 million in the prior year. Stock-based compensation expense for the quarter was 317,000 compared to 271,000 in the prior quarter. Stock-based compensation expense for fiscal 2014 was 1.5 million compared to 1.1 million in the prior year.

Net loss for the quarter was 1 million or a loss of $0.04 per share compared to net income of 1.9 million or $0.08 per share on a basic and $0.07 per share on a diluted basis for the comparable year-ago quarter.

For fiscal 2014, net loss was 5.2 million or a loss of $0.21 per share compared to net income of 684,000 or $0.03 per share on a basic and diluted basis for the prior year. Turning to our balance sheet and cash flows, total cash, cash equivalents and restricted cash was 8.8 million at June 30, 2014, compared to 17.2 million at June 30, 2013.

Cash used in operations for fiscal 2014 was 4.7 million compared to cash provided by operations of 10 million for the prior year. Capital equipment purchases in the fourth quarter were approximately 735,000. Total net accounts receivable was 11.2 million at June 30, 2014 compared to 12.3 million at June 30, 2013.

DSOs for the fourth quarter was 53 days compared to 62 days for the comparable year ago quarter. Total deferred revenue which includes both deferred revenue on the balance sheet of 13.7 million and unbilled deferred revenue that remains off balance sheet of 22.6 million or 36.3 million as of June 30, 2014 compared to 44.5 million as of June 30, 2013.

Looking at our debt obligation as of June 30, 2014, we have Comerica Bank debt of 5 million, capital lease obligations of 1 million and no related party debt. Before reviewing our fiscal 2015 guidance, I would like to provide some visibility to our first quarter bookings to date.

I am pleased to see the bookings momentum from last quarter continue into Q1. Even though this is historically a slower quarter we’re on track for another strong bookings quarter. This is due to a combination of new bookings plus renewals. Including in the renewals is a multi-year renewal with a large cloud customer.

As part of this renewal however we agree to reduced their ATV by approximately 3 million. This reduction is due in part to the introduction of new pricing for our premium cloud offering that Ashu referred to earlier. When the customers sign the original cloud agreement, we are providing these services on a customized basis.

The introduction of this new cloud offering and pricing we believe will benefit us over time as more customers are demanding these premium options that include high availability and disaster recovery options as well as the increased service level agreements.

Now turning to our fiscal 2015 guidance, eGain is estimating fiscal 2015 annual total revenue between 90 million and 95 million and annual subscription and support revenue between 44.5 million and 46.5 million.

This is inclusive of revenue from the Exony acquisition, but prior to the impact of any purchase accounting adjustments to deferred revenue related to the acquisition. We expect to provide an update to this guidance on the Q1 conference call that we expect to include the impacts of any purchase accounting adjustments.

With that said, I will now open up the call for questions.

Operator?.

(Operator Instructions). We will take our first question from Jeff Van Rhee with Craig-Hallum..

A couple of initial questions I guess.

One, Ashu, as it relates to the forward guide, what is the bookings growth that’s implicit to get there and a little sense of maybe color around what you -- what at least the early pipeline suggestions are for club versus prim splits?.

So Jeff the first thing is as Eric mentioned, the initial booking momentum for Q1 is looking reasonably good, so that’s one comment just reiterating that.

From a bookings split across, is that something that we want to talk about, Eric?.

Yes. I think that Journey from the direct business, we’re seeing the bookings split still, slanted more towards the license. So I think closer to the 60-40 range license to cloud.

And on the channel side Jeff as we have mentioned before, the Cisco channel we are now -- we have the cloud option available but that’s still been only four months in the SKU list. So we are hoping that starts to make its way through some deal soon. .

Okay.

Bust just get back to the sort of a sense of overall bookings growth, how are you thinking about the forward year? I mean based on the expected splits, what kind of bookings growth are you saying essentially is implicit here to get to the guide?.

I think at this stage, Jeff, we aren’t going to be providing any bookings for our guidance..

Okay.

And then as it relates to AJ coming in and taking the sales leadership position, a couple of things there I mean, I guess out of the gate, what are the key asks there? What are the key things that he is changing or has asked to change? And then secondly maybe just circling back to the pipeline, can you give us a little better quantification of the pipeline momentum and build? It seems like things at Cisco have gotten quite a bit better and have continued to build, but just a little more quantification still seems a little hazy there, any color would be great..

So, I would say three areas that he is focusing on, number one is the push to drive more direct sales funnel building and that’s something that the whole sales and marketing and business development teams are being goaled on to drive direct sales funnel building.

And so that’s a much more concerted push rather than looking at it more broadly across to partner, so that’s one. The second thing is from an account management perspective, he has got the whole worldwide key sales team to get more engaged on existing accounts to start to kind of expand and develop some of the existing accounts into bigger deals.

So that’s another concerted program that he has got underway. And the third piece is worldwide much faster decision making around deals and opportunities and escalation and escalation and that's something that we then -- we take that feedback back into tightening up and rationalizing the functional reporting structure to me.

So that those worldwide functional leaders can work in a small team with AJ to provide that speed of response on opportunities and accounts. So, those are three major things that he has been driving.

From a pipeline standpoint, I think the best way to characterize it would be to say that it’s maturing the way we expect it to from an existing accounts, just sort of developing more and more to large deals in those opportunities.

The area that I think we will see more progress in on the pipeline side is some of the early deals that we have won in the last fiscal year like new logos but small accounts. Those are the ones where I see us getting larger deal opportunities in the next 12 months.

So, that’s kind of acquired the customer but now to expand in those accounts is where the big focus is from a pipeline standpoint..

Okay, all right and then last one from me. I guess can you just circle back and say the details around this large customer that has a renewal here in Q1. Can you give us a sense of the scope of this customer? You said the ACV reduction on my note was at 3 million or 4 million, just if you can hit that again with little more detail would be great.

Thanks..

So, I think Jeff maybe the number was 3 million, so again what we stated is that this was one of the early customers that was driving us to effectively come up with this premium program which we are now looking to standardize.

So, the pricing was more of on a one-off basis, so as we went through the renewal with them, we have come up with a more standardized pricing.

I think this is a multiyear booking and so from that perspective we feel good about the visibility that is providing to the revenue but obviously having some impact of course in the ACV number as a result of this renewal..

We will take our next question from Michael Huang with Needham & Company..

Just another question on that large customer [indiscernible].

In terms of the standardized pricing and how it ripples through other renewals, I mean is there a potential for other customer renewals kind of through the balance of the year which might face the same pricing dynamics?.

This one was fairly unique, Michael, but what we expect is that the pricing we have put forward now, the standard pricing that we are putting forward should actually help us upsell the capability to more customers as part of the standard package as opposed to have to do a one-off kind of deal with them..

Can you share with us -- I'm not sure if you provide specifics on the split metric, but can you share with us kind of the volume of new logos that were signed in the quarter and maybe share with us kind of the mix between new and existing customer in-bookings in Q4?.

So we haven’t really broken it down broadly.

You may want to provide some color, Eric?.

Sure. So I think that for this quarter we’re seeing a pretty healthy mix between the new and existing logos. So it’s roughly I would say close to 50-50 splits of new businesses coming from new and existing. I think to Ashu’s point we saw a nice increase on the number of logos coming from the Cisco Solutions Plus sites.

So there is both a combination of mainly new logos with some full on purchases but for the most part there were new logos from the Cisco Solutions Plus angle. .

Yes. For the fiscal year overall we think we had about a little over 50 new logos that we signed up for the whole fiscal year, 50..

And strength here the momentum that -- are you -- do you believe that close to full strength that's kind of the Cisco partnership heading into fiscal ’15 or the Exony acquisition does it all kind of drive some potential to track kind of go to market with Cisco and maybe you could share with us a little bit on kind of what you’ve learned so far on working with Cisco and how that gets applied kind of through fiscal ’15? Thanks..

So as we have mentioned earlier, when we talked about Exony upon the acquisition, their go to market historically has been 100% through the Cisco network, Cisco channel. We believe that, that’s something we want to continue to drive and make sure that we maximize that opportunity.

At the same time there is a -- we think that there is good sort of cross-selling opportunity between Exony customer base and eGain customer base, so that’s a program that is underway now.

And the last piece is that for us to -- and then this is something that we are now working with an enhanced team sort of eGain classic, Exony classic all working together as one team and figuring out ways that we can create this new sort of product capability that then goes to market.

So that’s probably going to be fiscal ’16 business but the early signs in terms of interest from clients and partners is quite encouraging about that sort of voice plus digital engagement capability. .

We will take our next question from Mark Chappell with Benchmark..

Eric starting with you, with respect to the cloud revenue growth, I believe it was up about 10% year-over-year in the quarter I think that’s what you stated.

Going forward, what can we expect on a more normalized basis in the coming fiscal year?.

So I think one item that we are looking at is sort of combining the subscription and supports to include the maintenance stream when we are looking at the recurring revenue I think the given the fact that we’ve got the VS Plus again to date has been primarily on the license side.

So I think that’s the reason why we provided the guidance in the blended range of between 10% to 15% for fiscal '15..

Okay.

And then I know you don’t give guidance on this front but with respect to how you expect to run the business on a cash flow basis, is it fair to assume that you are looking to break -- run the business on a cash flow breakeven basis each quarter next year?.

So I think certainly from an annual basis, that’s where we will be targeting in that range, I think there are some quarters where just from a timing standpoint there may be some fluctuations but definitely on an annual basis that would be the target. .

Okay. And then finally I believe the share count is going to bounce around next quarter through the acquisition.

Can you give us some help on how to model that?.

I think it is approximately an additional 1.5 million..

We will take our next question from Mike Latimore with Northland Capital..

I just wanted to clarify that you are still assuming Exony contributes about 15 million for the year, is that right?.

So we didn’t break out that number, so I think we’ve provided a combined number. I think obviously we will continue to work through the details, but at this moment that’s a combined number, that we'll be providing..

And then Eric, you mentioned your combined SaaS and support going forward, do you mean you are going to combine that from a forecast standpoint or are you going to combine that from a reporting standpoint as well? Are we going to be able to see the SaaS or the cloud definitely on a reported basis going forward?.

So I think our preference at the moment is to look at in on a combined basis. I think as the business expands where I think we are looking at a term-based licensing as an option as well where we do the on-premise. So I think for us the metric of the recurring revenue we believe over time is going to become more relevant than just the cloud component..

And then the bookings momentum that you referenced in the first quarter, is that a common on organic basis or does that include acquired bookings as well?.

So ultimately they will be a component of the combined bookings but obviously for us most of the visibility we've had to-date has been from eGain..

And then the Cisco, the new logo coming from Cisco, I think you said ‘14 into the second half of the year maybe do you know how many of those are -- where Cisco sells into a brand new customer versus Cisco selling your product back into their base of installed customers?.

I think the number we said was 12 but hard to say off the top, I know quite a few of those are net new for Cisco as well but I couldn’t give you a quick number of the top..

We will take our next question from Jon Hickman with Ladenburg..

Hi.

Ashu, could you explain or give us a little more color on exactly what happened to give you such a big increase in the quarter in the bookings?.

Yes, it’s a combination, Jon, organic -- the new bookings as well as the renewals, the strong renewal bookings as well as new bookings..

Okay.

And then so just give us a little more clarity on this large renewal for the first quarter, what you are saying is that the company is giving you a good lift in bookings for the quarter but overall during the multiyear life of the contract it’s going to be 3 million lower than it was before that we are selling that?.

That is correct..

Okay and then let’s see I think most of my other questions have been asked and answered.

So, just to maybe play a few more words in your mouth, since you are saying that the bookings for the Q1 here are trending as in Q4, does that mean you expect bookings in the $20 plus million range for the quarter, should I draw that in, is it safe to draw that inference?.

I don’t think we would be comfortable providing a specific number I think at this point..

And we have no further questions at this time. I will turn the conference back over to today’s speakers for any additional or closing remarks..

I want to thank everybody for joining us today. Should you have any further questions give us a call. We also have some upcoming events that we hope to see you at.

We are presenting at the Craig-Hallum Conference in New York on September 18th and also wanted to chat about our Analyst and Investor Day that Ashu mentioned at eGain World that’s scheduled for November 4th and 5th. We will be saying our details here very soon. So, look forward to seeing you and thanks for joining us..

That does conclude today’s conference. We appreciate your participation. You may now disconnect..