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

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

Good day and welcome to the eGain Fiscal 2015 Third Quarter Financial Results Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Charles Messman, Vice Preside of Finance, please go ahead, sir..

Good afternoon. Thank you for joining us today for eGain’s conference call to discuss results for fiscal 2015 third quarter ended March 31, 2015. Please note this call is being recorded and will be available for replay from the Investor Relations section of our Web site at www.egain.com for seven following days.

Before I begin, I’d like to remind all listeners that this conference call contains forward-looking statements within the meanings 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 for the Company’s integration of Exony; statement about the Company’s financial results for the third quarter of fiscal 2015 ended March 31, 2015, with respect to total revenue; statements regarding deferred revenue, subscription and support revenue, license revenue, and statements regarding our 2015 guidance including sources of revenue and business mix.

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

The risk and uncertainties referred to include but are not limited to, risks that our hybrid revenue model and lengthy sales cycles may negatively affect our operating results; risk related to our reliance on a relatively small number of customers for a substantial portion of our revenue; our ability to successfully integrate Exony; 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; our ability to invest resources to improve products 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 on Form 10-K filed on September 12, 2014 and eGain’s Quarterly Reports on Form 10-Q, which are available at the Securities and Exchange Commission’s Web site at www.sec.gov.

The forward-looking statements are based on current expectations and speaks only as the date hereof. The Company assumes no obligation to update these forward-looking statements.

On today’s call we will mention adjusted EBITDA, and non-GAAP financial measure that is defined as net income adjusted for the impact of purchase accounting adjustments to deferred revenue related to acquisitions, depreciation, amortization, stock-based compensation expense, interest expense, net income tax, amortization of acquired intangibles and acquisition-related expenses.

I should note that non-GAAP results are presented for supplemental informational purposes only and should not be considered as substitute for financial information presented in accordance with generally accepted accounting principles and may be different from non-GAAP measures used by other companies.

We use these non-GAAP measures to compare the Company's performance to that of prior periods for trend analysis, and for budgeting and planning purposes.

We believe that the use of these non-GAAP financial measures provides an additional tool for investors to use evaluating ongoing operating results and trends, and comparing the Company's financial measures with other software companies that present similar non-GAAP financial measures to investors, allowing for greater transparency with key respect to metrics used by management in its financial and operational decision making.

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. I assume you have had a chance to glance through our press release. Let me start by saying that I am quite pleased with our progress this quarter. Our gross bookings are up sequentially this quarter as well as year-over-year.

In fact, our gross bookings have grown sequentially four quarters in a row, the last three under our new sales leadership. On the revenue front, we sequentially grew in the face of about $450,000 of negative ForEx impact from Q2 to Q3 and about $1.2 million of professional services revenue reduction.

You may recall from our last call that this professional services revenue reduction was planned, mostly based on our simplified product suite Version 14 that we launched late last year, our increased focus on best practice delivery and our growing partner leverage, so all-in-all that professional services revenue reduction is something that we anticipated and planned for.

On the bottom-line we made significant strides. As we discussed last quarter the improvement has been the result of the planned PS adjustments, sales and marketing optimization and Exony integration synergies that we got out of that. Based on these we are now on track to deliver 5% adjusted EBITDA margins in Q4.

On the customer front we saw some good success in the quarter. For example, the U.S. Department of Veterans Affairs, one of our premium clients has now expanded their use of eGain Knowledge to more than users across multiple groups. They also deployed eGain Superchat to offer secured chat based service for veterans.

A new deal that we won in the quarter was with a global top-10 insurance provider, they will deploy eGain VIM by the way this is the core Exony product that is now part of the eGain portfolio to help consolidate and manage contract center operations across over 4,000 agents worldwide.

Another one is Navy Federal Credit Union, one of world's largest credit unions they selected our platform in the quarter to deliver proactive member communications to millions of their customers, members that is.

And finally one of the largest UK Government agencies is now deploying eGain integrated with Cisco contact centers to deliver digital services to all citizens. These wins and deployments and the type of clients they are deployed for illustrate the size and scale of clients that we serve as well as our value proposition for them.

So we are very pleased with that sort of customer success, both from new wins as well as expansion. On the product front, we were granted three patents last quarter in the area of digital collaboration and personal life navigation. These patents help us further protect our IP as we lead the market with our solutions.

In February we launched eGain GPS a first of its kind mobile knowledge app. This solution enables our clients to serve their customers with a re-skinnable knowledge app that can be operated standalone or be embedded in an existing app.

These sorts of innovations help leverage the power of the eGain platform and the knowledge that our clients capture inside it. You may recall we talked about our customer journey analytics data service that we had launched in November last year. This continues to get very good interest from our customers.

We are now working with four clients to develop and refine the service further. We hope to make the service generally available this summer. Note that this service is only available with eGain Cloud. As we have mentioned earlier moving forward most of our product innovations will show up first in our Cloud.

And customer journey analytics is another example of that. Speaking of Cloud based on our new product Version 14 and our enhanced cloud capabilities, we have been pitching a standard migration package a compelling one to our on premise clients to move to the cloud.

What's interesting is that the majority of these clients that we have engaged so far are quite open to the offer. So for last quarter we managed to get a couple of smaller clients signing up for the cloud migration and we expect to see some larger clients signing up in Q4 and then more in fiscal ’16.

Turning to the distribution side with our Cisco SolutionsPlus we have now simplified the eGain cloud pricing that we offer through the channel. So we believe that we should see some meaningful cloud based deals through this channel in early fiscal ’16.

On premise business through Cisco SolutionsPlus continues to be good, notably we saw one seven figure deal, the follow on deal through this channel last quarter and we signed up four new logos through Cisco SolutionsPlus last quarter.

What’s quite encouraging is that we are continuing to attract little bigger partners from the Cisco ecosystem to the eGain proposition. Last month we, that is eGain and Cisco conducted a joint four city marketing road show in the U.S.

It was the two day dedicated affair in each city that was attended overall by over 125 sales and technical sales folks from Cisco sales and Cisco partner sales teams. Including folks from larger partners like IBM Global Services, AT&T and Verizon.

We’re starting to see some of these bigger partners bringing us opportunities and that bodes well for us in the future. On the direct sales front our try and buy program something we talked about briefly last quarter is showing promise. This is helping us shorten sales cycle as we sale additional capabilities in existing accounts.

In the last two months we have initiated over a dozen [indiscernible] all in the [indiscernible], two of these have already converted into addition business for us. The speed and simplicity of this offer is what differentiates us from other competitors and we believe that we will do more of this, attracting more and more customers to our cloud.

Turning to marketing, the eGain World Event in London in February was very successful not only did we doubled our attendance over last year we also had strong presentations for our success delivered on the eGain platform to clients.

One of the client presentations was from Barclays ABSA, [Darren Graetz] from Barclays who Heads up Business Banking customer care in Barclays ABSA, talked about how eGain helped their organization become number one in customer service rankings in their market within 12 months of broad deployment of the capability.

These kinds of transformative business benefits, is what differentiates our client wins and our client successes from others in the market. Another interesting presentation at the event was from Capita one of our eGain partners they discussed how they are partnering with eGain to deliver transformation services in the digital domain to the client.

Overall we’re feeling quite good about our growing bookings momentum. We expect to continue this momentum even as we optimize our investments and realize operating synergies. The programs we have put in place over the last three quarters starting with AJ taking on the worldwide sales leadership role are showing steady results.

Our product and cloud investments are now starting pay-off and thanks to a successful Exony combination and integration. We have now gained strategic advantage in terms of product portfolio as well as distribution and operating leverage.

We intend to continue to stay the course to execute against this plan to realize the full benefits over the next few quarters. With this, let me ask Eric Smit, our Chief Financial Officer to offer his comments.

Eric?.

Thank you, Ashu. And thanks for joining us today. Overall we are pleased with our financial performance this quarter and the progress towards our goal of delivering sustained profitable growth. In what is historically a slower quarter for us, bookings increased sequentially and year-over-year.

As Ashu mentioned revenue was slightly below our expectations due to the addition of $450,000 foreign currency headwinds when compared to last quarter and the reduced PS revenues. But on the positive side our adjusted EBITDA improved significantly as we executed to the plans outlined in our earlier call. Now turning to our financial performance.

Our ACV and bookings metrics for the quarter, our total subscription and support revenue ACV at the end of the quarter was 42 million compared to 40.6 million at the end of the third quarter last year and 41.5 million for the second quarter of fiscal 2015.

Excluding an unfavorable foreign exchange impact of approximately 940,000 the ACV would have been 43 million. Gross bookings or revenue plus change in deferred for the quarter was 15.6 million up 32% year-over-year. For the nine months gross bookings were 57.2 million up 49% year-over-year.

On a constant currency basis gross bookings for the quarter were 17.6 million up 49% from the comparable year ago quarter and for the nine months were 65 million up 72% year-over-year.

Backlog as of March 31, 2015 or total deferred revenue plus unbilled and uncollected that’s off the balance sheet was 38.1 million or 40.3 million on a constant currency basis compared to 31.5 million at the end of the third quarter last year.

Now turning to our revenue, total revenue for the third quarter was 19.2 million, a 7% increase from 8 million in the comparable year ago quarter. Total revenue on a constant currency basis was 20.4 million, an increase of 12% year-over-year.

The foreign exchange impact on a constant currency basis for the three months was $450,000 when compared to last quarter. For the nine months total revenue was 58.8 million, an increase of 15% on a year-over-year basis. Total revenue on constant currency basis was 61 million, an increase of 16% from the same period last year.

Looking at it on a non-GAAP basis, total non-GAAP revenue for the third quarter was 19.3 million, a 7% increase from 18 million in the comparable year ago quarter and for the nine months total non-GAAP revenue was 59.2 million, an increase of 15% from the same period last year.

Our subscription and support revenue for the third quarter was 10.8 million, up 2% from the third quarter last year. Subscription and support revenue on a constant currency basis was 11.5 million or up 7% year-over-year. For the nine months subscription and support revenue was 32.2 million, up 6% compared to 38.3 million for the same period last year.

Subscription and support revenue on a constant currency basis was 33.3 million or up 8% for the same period last year.

The total non-GAAP subscription and support revenue for the quarter was 10.9 million, up 3% from the comparable year ago quarter and for the nine months total non-GAAP subscription and support revenue was 32.5 million, up 7% from the same period last year.

License revenue from professional sales for the quarter was 5.2 million, up 108% from the comparable year ago quarter, while professional services revenue for the third quarter was 3.2 million, down 35% compared to the prior year quarter.

For the nine months license revenue was 15.5 million, up 65% compared to 9.4 million for the same period last year, while professional services revenue for the nine months was 11.1 million compared to 11.6 million, down 5% from the same period a year ago.

Looking at the geographic mix of our revenue, total revenue in the third quarter comprised 48% domestic and 52% from international. For the nine months revenue comprised 51% domestic and 49% international. Now looking at our gross profits and gross margins.

First on the GAAP basis, gross profits for the third quarter were 11.7 million or a gross margin of 61% compared to a gross profit of 12 million or gross margin of 67% in the comparable year ago quarter.

If you look at the gross margin by revenue type, subscription and support revenue gross margin for the third quarter was 72% compared to 79% in the comparable year ago quarter. Professional services gross margin was negative 43% for the quarter compared to a positive 24% in the comparable year ago quarter.

On the non-GAAP basis gross profits for the third quarter were 12.6 million or non-GAAP gross margin of 65% compared to non-GAAP gross profit of 12.5 million compared to non-GAAP gross margin of 70% in the comparable year ago quarter.

Non-GAAP subscription and support revenue gross margin for the third quarter was 76% compared to 80% in the comparable year ago quarter. And non-GAAP professional services gross margin was a negative 28% for the quarter compared to positive 28% in the comparable year ago quarter.

As Ashu mentioned, we have reduce the size of our worldwide professional services team to mention the easy hence lower effort methodology enabled by our new product. At the same time we're investing more and implementing and helping our partners, implement that because we're seeing multiple based on deals.

As a result of these changes, we saw a decrease in our professional services expenditure that we will continue to see probably an additional 10% reduction in Q4, so based upon these changes and the expectations that we see in the PS revenues increasing due to the growing pipeline and recognition of revenue, some recognition that was deferred from the prior period.

We anticipate the non-GAAP PS margins will be close to breakeven in Q4. For the nine months, gross profits was 36.1 million or gross margin of 61% compared to gross profit of 34 million or gross margin of 66% for the same period last year. Subscription and support revenue gross margin was 72% compared to 80% in the same period last year.

Professional services gross margin for the nine months was a negative 23% compared to 4% in the comparable year ago quarter. On a non-GAAP basis gross profit for the nine months was 38.6 million or a non-GAAP gross margin of 65% compared to non-GAAP gross profit of 35.3 million or a non-GAAP gross margin of 69% for the same period last year.

Non-GAAP subscription and support revenue gross margin was 76% compared to 82% in the same period last year. And non-GAAP gross professional services margin was a negative 14% compared to 9% in the comparable year ago period.

Now turning to our operations, we are pleased with the progress in the lining of business to grow the top line while generating operating profits. We started to see the impact of these changes in Q3 and expect to have further impact into Q4.

Total operating cost for the third quarter was 13.8 million compared to 12.7 million in the comparable year ago quarter and 16.3 million last quarter. For the nine months total operating costs were 45.4 million compared to 37.4 million in the prior year.

Looking at the total non-GAAP operating costs for the third quarter that came in a 12.3 million compared to 12.2 million in the comparable year ago quarter. For the nine months total non-GAAP operating costs were 39.9 million compared to 35.9 million in the prior year.

Adjusted EBITDA for the fiscal third quarter was 345,000 compared to adjusted EBITDA of 258,000 in the third quarter of fiscal 2014. For the nine months adjusted EBITDA loss was 1.1 million compared to a loss of 1 million for the same period of last year.

Net loss for the quarter was 2.4 million or a loss of $0.09 per share on a basis and diluted basis compared to a net loss 1 million or $0.04 per share for the comparable year ago quarter.

For the nine months net loss was 9.5 million or a loss of $0.36 per share with a basis and diluted basis compared to a net loss of 4.2 million or a loss of $0.17 per share on a basis and diluted basis for the same period of last year.

Now turning to our balance sheet, cash and cash equivalence and restrictive cash was 10 million as of March 31, 2015 compared to 9.3 million at December 31, 2014 and 8.8 million as of June 30, 2014. Total net accounts receivable was 12.2 million as of March 31, 2015 compared to 11.2 million as of June 30, 2014.

DSO's for the third quarter were 57 days compared to 47 days for the comparable year ago quarter. Total deferred revenue which includes both deferred revenue on the balance sheet of 16 million and unbilled deferred revenues that remain off balance sheet of 22.1 million was 38.1 million as of March 31, 2015 compared to 36.3 million at June 30, 2014.

Now turning to our fiscal 2015 guidance, we're reiterating our guidance for fiscal 2015 annual chargeable revenue to be between 80 million and 85 million and annual subscription and support revenue to be between 32 million and 44 million and we continue to expect the next fiscal 2015 with an adjusted EBITDA run rate of Q4 at least 5%.

We are also providing preliminary fiscal 2016 guidance of total revenue growth between 15% to 20% and adjusted EBITDA of 5%.

With that said, I'll now open call for questions, operator?.

[Operator Instructions] And we'll go first to Michael Huang from Needham..

So first of all, it seems the only space on the low that you shared with us that you had the strong success in the government vertical across geographies and is there something in this vertical that better aligned to the eGain strengthen then maybe in other verticals and maybe you could just trail into those little I mean where do whether cloud wins or on premise and do you see competitively in this?.

Sure, so to your point that the whole government sector has been slow to adopt some of the new capabilities around digital service and knowledge management, at the same time the potential benefits are humongous because as we all know the target market like we go out after where it makes the most sense for these kinds of solutions to be deployed is where you have millions of customers or citizens on the other side so B to C companies.

And in large government organizations the classic examples where you can create very cost effective and very valuable sort of service improvements because of these solutions, so to your point government is at good vertical even if it adopts slower, but as long as we give example in the case of VA we're talking where it sort of treat them as a blend of healthcare and government.

So I think what you see is the fact that they have tens of thousands of contact center agents. They have hundreds of actually over a thousand facilities for medical care and so those become great used cases or our customer engagement solutions. So that was just an instance of that.

The other agency that we're talking about is an instance of our partnership through Cisco where this UK agency that you're talking about is a customer that we won two fiscal and a partner of Cisco, so that happens to be, but to your point the government sector is a big market for our solutions just like other B2C verticals..

And it is cloud or it is cloud wins are on tenant?.

So, the government, examples I gave were both on premise. What is interesting is that we are seeing and we are in somewhat seasonal where the U.S. Government in fact U.S. Federal Government Agency where we are bidding a cloud deal based on the improved cloud capabilities that we have. So I’m just trying to answer your question more completely..

And then on that if you can provide specifics here but, can you talk about qualitatively what you saw on the new logo front, there maybe -- if you have to break it out in North America and also internationally or you are happy with your performance there and how they trend it?.

So, overall we are quite happy with the total logo acquisition, the new logo acquisition. We have been focusing on both new logo as well as expansion so that is important for us because as we have mentioned in the past some of the new wins when they come in especially through channel and to be smaller deals.

So we’ve been focusing on both acquiring these new logs as well as the follow-ons. So the example I gave of Cisco SolutionsPlus deal was seven figure deal we got this last quarter was the follow on deal. It was the deal that we had won six months ago as the small deal initially.

So to your point we are quite pleased with the new logo acquisition, we haven’t broken that out geographically or in totality but what is equally encouraging is the fact that we are able to systematically grow some of [indiscernible]..

And then maybe last question from me, as you’re looking at your pipeline and maybe the graphics of that pipeline, what you’re seeing in terms of the mix between cloud versus on-premise opportunities and maybe if you can comment around the opportunity that might be in customer [indiscernible] analytics? Thanks..

Sorry, the last part of your question again, Michael?.

Just kind of opportunity around Exony, like what you [indiscernible]?.

So, I’m quite sure that fiscal ’16 our cloud bookings will as a percentage will grow significantly because of three things that the one I’ve already mentioned, last quarter we talked about the fact that we are doing some things around the channel, particularly around the Cisco channel where we are simplifying the cloud offer making it more attractive so that we can get more cloud plan there because that’s the main area where we not have cloud success in meaningful way so far.

So I believe that’s going to start to have an impact on more cloud business coming through that channel. In the direct channel we are seeing more and more cloud interest in adoption and so in ‘16 we believe that our cloud business in the direct part of our business I believe is going to be more cloud than non-cloud in terms of new bookings.

The partner channels will be slight explore to change and so we have to make sure that we’re guiding them the same work. The third piece is the migration of some of our on-premise lines into the cloud.

We are seeing that quite an interesting area where with our new products and compelling package we’re putting in front of these customers which involves essentially no cost migration from their on-premise environment.

They don’t have to pay any service as long as sign up for a multiyear cloud deal with us and they pay double of what they’re paying in support. So if they’re paying $100 a year in support they would a pay a total of $200 including support to get into our cloud. So that sort of very compelling offer.

We’ve already done a couple of small wins but we think we’ll get some of the bigger ones singing up for this deal this quarter and next as well..

We’ll go next to Jeff Van Rhee from Craig-Hallum..

Ashu, with respect to Exony the expectations during last quarter you’re building to around 10 million for the year, is that still look that’s going to be the right number for Exony for this fiscal year here?.

Jeff, I don’t know if we have broken that down this quarter, have we Eric?.

No, I think from an Exony standpoint as we’ve really combined the business going forward I think this is now something that we’ve now explicitly breaking out. I think the cross sell in the combined teams I think it doesn’t make sense to continue to breakout the Exony business to that level of detail..

Just to add to that Jeff, the sales teams are now fully integrated. So we have very, very small that is an overlay sort of expert group around the products just like we have for some of the other products. But as far direct account management has concerned we have that..

I guess qualitative is it -- has your expectation for the cross sell in the opportunity that you would mentally stride to Exony gene since last quarter.

No, that has not changed.

But what we're seeing, okay so to answer that in a qualitative way, we're seeing that, an example would be large top 10 bank in North America, where we have seen now they were an Exony client and now we've seen our solutions become par than parcel our meaning the total solution, including the classic eGain becoming part of that adoption of the bank.

So, yes, the cross sale is working well..

So, I guess just jumping around here than if I look at the guidance '15 to '20, which is obviously well ahead where the street is, given the recent quarters which with actions you're look like their modest organic year-over-year decline, what is it that's driving this big acceleration clearly you've got some conviction here, I know you have a lot of confidence in the Cisco pipeline for sometime that's been slow to develop where the incremental confidence so put something out there that's -- can you just walk me through where you getting that conviction?.

So, I'd say two big things there, Jeff one is that as you've mentioned and others have mentioned and we obviously are operating through this cycle on the direct sales investments and performance that we have started to put together even though it's not where we've wanted to be yet but the trend is looking good in the pipeline is building nicely.

So, that is one part of it. So, the pipeline that we've seen ahead of us is what gives us that additional confidence.

The second bit is the Cisco channel which had good new logo adoption at wins, the follow on sales is where the big deals and the bigger dollars are and that something that we believe will be an important part of our next year's growth as well.

And then finally the migration of existing clients, on premise clients into the cloud business is where we see incremental business opportunities for us next year..

So can you explain on those two, I think you've mentioned the Cisco and kind of the you've got -- we've seen some modest absolute customer adds there but we certainly seen as well as ramp, it's ramping but seemingly comparatively slowly, with the comment that, is there big cross sales, which you've talked about for a while the ability to come and sell something much larger, so the question here from me would be is that have you done enough of track record or enough of an example, sample group I guess it's the right wording to give you that conviction as you can do that systematically and then along lines of the migration of the existing customers to the cloud, what are the economics behind that in terms of an incremental revenue of -- some of these current on maintenance premise deploy how did they get a over to the cloud, what is that mean economically?.

Sure. So on the first one, yes you are right, we have seen new logo wins on the Cisco S plus but we have not seen the level of follow on large sales that we would all want to see but we've starting to see that more and more on the follow on sales in the pipeline and they're moving into the deeper stages of the pipe. So that's one part of it.

The example I gave of the seven figure deal with a follow on that particular client just to give an example not to drop to complex curve through one data point but that one in itself is some as a place where we believe that we will see more business in fiscal '16 as further follow on.

So, these are very large accounts and once it start to expand them the success of the initial deployment combined with their budgetary plans then start to give us more confidence on the Cisco side, so that's one. Second question is at around the migration.

So, like I said the package we've put in front of these customers, if they're paying us a $100 in annual support because they on-premise client that -- if they move to the eGain cloud for the same applications we would migrate them for no charge on the services types, so we'll do that because we have an efficient model to that and the second bit is that instead of a $100 a year, they would be paying us $200 a year.

So an incremental $100 to get the same application in our cloud with all the advantages, you know that. So that kind of the economics and -- by the way they have to sign up for multiyear deals for that..

And then I guess what were on the sale side with respect to the sales organization 7.8 -- non-GAAP expense there this quarter, if I go to the year earlier which was the free period it was like 0.5 million, so close you taking cost out of the structure, can you just talk about what you've done within the sales organization and particularly I'm interested in the headcount sales capacity in sort of structural changes that have taken place there?.

So, answering your last question first. So the in terms of headcount on the quota carrying side with still at 33, ending last quarter. We expect to now start to add some hedges on the quota carrying side starting this quarter and continuing in a more systematic way, so that's one.

Most of the investment, incremental investment moving forward is going to be in the U.S. and that's why we'll be putting more of instrumental investments, then going back to your first point.

Okay bring back to your first point so the reduction of cost has come from three areas, one is we have reduced the absolute headcount in the organization so we used to be north of 40 for the guys sales reps in that timeframe that you comparing us again and we have cut that down that mostly on the underperformance side, but we have decided not to up until now refill those positions because we want to make sure that the pipeline got to a point where it was -- the pipeline growths were leading hiring as opposed to the other way which was the lots of we've gone with earlier and so AJ approaches it's the other way.

So he's been looking at the pipeline and when he's finding those opportunities mostly in the U.S. where we have a pipeline growth as to a point where we can add more than he is looking at EBITDA.

Then the second piece is that we have also taken out in some of the new geographies where we have gone in like Germany for instance and Northern Europe, we have a taken a blend of partner and direct and not just mostly direct, so that's been another change in our or AJ' s sales philosophy.

So in some of these new markets it's blended it back into more of direct and on partner model..

And then last one for me, if you commented on a professional services margins obviously materially negative here as you've messaged the last quarter you were going to go a transition pushing more of that revenue partners and also because there will be less implementation need given the simplicity of these all new products, so with respect to the cost structure still around 4.5 million in costs from the services line this quarter, how do you think about that absolutely dollars in terms of both I guess dollar and margins for that work -- we're going to see that materially shrink if we're pushing this off of the partners and the product that just doesn't have as much service dollars just help me understand what kind of where that line goes revenue wise in terms of what you've embedded in your 16 guide and how you think about margins for that segment?.

I think you've talked about that three more couple that's in Q4 and then ’16..

Sure, I think just given the timing of some of the changes that we've already took place in Q3, we didn't see the full benefits, so we certainly expect to see at least another 10% reductions so getting that number close to certainly below the 4 million range and I think again from an actual revenue standpoint where we ended up in the quarter it's probably the 3.2 I wouldn't say as steady state.

I'd say this is a little lower than we would anticipate to be, so I think both from the increased type line and deals that we'll still be servicing I know I see that the revenue is getting closer to that closer to 4 million and therefore being at a breakeven if we're in that ballpark. And I think looking forward into 16.

We obviously expect to see some modest growth from that but certainly not significant growth. .

What has been the growth in numbers or however else you'd quantify partners that are taking that implementation work if you're passing that off the partners, what is that partner ecosystem look like if you're catching the overflow, how are you preparing them to take and drive that side of the business?.

So that part is continued, its working better now just we enable when stop not just the cloud through enablement. I think we've got actual projects with many of these partners and implementing it.

We have couple of people who are dedicated and our team to just help these partners implement those subjects without necessarily looking to generate eGain revenue from services. And so that part I think is in much better shape now, it's also been timed and just ongoing execution.

So our expectation is that more and more of these larger value-added capabilities the people are looking to add on top of our platform for instance by using our programming APIs in particularly in the areas of knowledge is an area where we see more and more partners taking on that work and doing all that development on top of the APIs and our team focusing more on best practice configuration and solutioning some tasks more and more so that’s kind of our breakdown moving forward..

Last one for me and then just going back to the overall guide, if we look at the growth that you're looking in the forward year, how would you segment -- you don't have to precise but I guess I just two of the one understand where most of that upside is coming, you envisioned the bulk of that incremental revenue coming from the Cisco channel and the upsell of some of these early pilot deal pilot deals into much broader deploys, would you say sort of 80/20 Cisco versus poor direct offerings 50/50 just however precise you will into be give me the sense of where the growth is going to from?.

I think it's my sense as it's going to be 50/50 the growth from our direct business is going to come from the cloud side and the growth from Cisco even though we're guiding more toward the cloud is likely to come more from the on-prem business through the next fiscal and then start to trend into the cloud business after that..

We’ll take our next question from Jon Hickman from Ladenburg..

Hi. All of my questions have been answered. Thank you..

We’ll go next to Mark Chappell from Benchmark..

Just one question on subscription revenue growth, it’s actually been declining consistently here over the last six quarters or so I was just wondering if you can just give a little guidance or a little direction when should that soften and structuring up?.

So, Mark I think as we’ve stated in prior calls the big reason for the decline really came from the couple of large customers, one where they were having duplicate system that go through reduction and then that follows with a large renewal that reduced rate that took place in the Q2 time period so I think as we start to see, so even in this quarter we’re still seeing predominately our booking are coming from on premise sale.

So, but certainly as we look into fiscal ’16 I guess is where we start to see that really reverse I think probably Q4 we still not anticipating the big turnaround at this point but I think again with lot of these initiatives we’re shifting more of the business to the cloud. We’ll start to see that turnaround in ’16. .

Okay. Thank you..

Thank you. That concludes today’s question-and-answer session. I’d like to turn the call back to our moderator for any additional or closing remarks..

I want to thank everyone for joining us today. And if you do have any further questions please feel free to give us a call. We’ll be available. And we look forward to talking to you on our fourth quarter call. Thanks..

This does conclude today’s conference. We thank you for your participation. You may now disconnect..