Charles Messman - VP, Finance Ashutosh Roy - Co-Founder, Chairman and CEO Eric Smit - CFO.

Mark W. Schappel - The Benchmark Company.

Good day and welcome to the eGain Fiscal 2015 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, Vice President of Finance of eGain Corporation. Please go ahead, sir..

Good afternoon. Thank you for joining us today for eGain’s conference call to discuss results for our fiscal 2015 fourth quarter and year-ended June 30, 2015. 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 the call.

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, statements about the company’s market opportunities; statements pertaining to the company’s integration of Exony; statements about the company’s financial results for the fourth quarter and year-end fiscal 2015, with respect to total revenues; statements regarding deferred revenue, subscription and support revenue, license revenue, and statements regarding our 2015 guidance, including source of revenue and business mix.

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

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; risks associated with new product releases; risk related to our international operations; our ability to invest resources to improve our 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 website at www.sec.gov.

These forward-looking statements are based on current expectations and speak 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 measures, 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 a 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 in 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 respect to key 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 management discussion, I would now like to turn the call over to Ashu, Ashu?.

Thank you Charlie and good afternoon everyone. As we pre-announced a few weeks ago, our fourth quarter revenue and fiscal 2015 revenue came in below our guidance. This was due to a shortfall in on-premise license revenues. At the same time bookings in the fourth quarter shifted significantly to the cloud.

57% of our new bookings in the fourth quarter were in the cloud compared to 25% in the prior quarter. Overall our annual gross bookings increased 26% year-over-year. Looking back, fiscal 2015 has been a transformative year for eGain. First we launched version 14, a new simplified cloud-ready product suite in November.

Second, we took advantage of the out-of-the-box richness of the new version and organized our services team to rapidly implement cloud-based solutions with best practice guidance. As a result we delivered quicker value by accelerating these services' engagements by up to 40%, especially for cloud accounts.

Third, building on the first two, early in the fourth quarter we introduced eGain Try+Buy, a unique cloud-based guided pilot service designed to minimize risk and fuel innovation. Over the past four months, prospects and clients have enthusiastically opted for Try+Buy, as we guide them to quick value in their digital engagement initiatives.

Based on the progress we've seen on these three fronts, moving forward in fiscal 2016, we intend to only sell cloud solutions to new clients through our direct sales team, a move that puts us firmly on the path to becoming a cloud business.

Not only do we see growing interest among enterprise customers in our cloud solution, our existing on-premise customers are increasingly open to migrating to the eGain Cloud.

In March we launched a promotion to migrate our on-premise customers to the cloud, and as a result of that in the fourth quarter we signed up four customers to move to the cloud with an aggregate cloud ACV of $800,000. And we expect to sign up more as we continue the promotion and target the most valuable of our on-premise customers.

Of the customers we have engaged in this program more than 60% have expressed interest in moving to the eGain Cloud. Now as we focus our business more to the cloud we are also adjusting our overall go-to-market approach. First we are creating a dedicated sales team that will work on fiscal solutions plus opportunities with partners.

This dedicated team will better support partners through longer sales cycles and phased rollouts and thereby improve our bookings predictability through the channel.

Later this month we will roll out new incentives and additional promotions to sell eGain Cloud through this channel, all the while seamlessly integrated with physical deployments on-premise or in the cloud. Second, as we mentioned in our pre-announcement, Joe Brown has joined us as the Head of North America Sales.

He is a veteran of RightNow and other SaaS startups. He is starting to roll out a land and expand sales model in the direct sales team, starting in North America. Central to this model is our Try+Buy program that I mentioned earlier. A few words on this program; it’s simple, unique and effective.

We offer customers a four week no charge guided pilot service in the eGain Cloud with their content and configuration. In exchange we ask one thing, that they put our solution in a live production environment. So this is not a fan box. This is not a typical SaaS free trial.

This is a mutual commitment to quick value around digital engagement and so far we’ve had good success. Of the dozen clients we have engaged through this program over the last four months, at various stages of the sales cycle, we have converted four.

In two cases, of those four, the client selected to go with eGain even before they finished their Try+Buy. Another four continue to be in advanced stages of evaluation and negotiation and the rest did not convert, mainly due to lack of fit or budget constraint. As we scale this program it will help us qualify quicker and win more.

Moving to products we made significant enhancements in fiscal 2015. Specifically in November, as I mentioned earlier, we delivered a simplified cloud ready version of our product. The ability to quickly deploy customers in the eGain Cloud was a critical first step in our journey to becoming a cloud business.

Further we significantly expanded our platform APIs in this release. This expansion of APIs enables us to accelerate our field solution development, so that we can continuously absorb the popular demand field [ph] capabilities into our cloud product.

As a result we are now able to accelerate our services implementations with more out of-the-box capabilities than before. Now in July, on the product front we released a significant enhancement with integrated best-in-class analytics for our digital and knowledge products, all again available through the eGain Cloud.

This release has been then delivered on the first big product promise of our Exony acquisition.

With this solution our clients can analyze cross channel journey across digital and voice, spot experienced bottlenecks in real time and in the same breadth adjust operating dials on the eGain digital and knowledge apps to address those gaps, all on the same platform.

This integrated capability is unique to eGain and one that is highly valued by customers. We look forward to showcasing this capability among other innovation through demos, success stories and expert sessions at our upcoming digital summit in Chicago on October 20th this year.

Turning to the market, we continue to see a growing need for agile digital innovation and customer engagement. I was at the Gartner 350 Congress in San Diego yesterday. Most of my conversation with attendees ended up in two buckets. One, we need to get out of the point tool map we have in the digital space.

And two, we need to develop a future-proof knowledge capability to power engagements. And everyone wanted yesterday. Interestingly at the conference, Bill Millar, the Vice President in-charge of Service Innovation portfolio at CompuCom, an eGain client co-presented with me.

I spoke on the challenge of operationalizing digital transformation and customer engagement, and how eGain can help deliver on that. And Bill shared his perspective on the CompuCom journey as they have developed and rolled out a digital service platform using eGain. I want to share with you two quick comments that Bill made during his presentation.

He said and I quote, "It took up longer to get the contracts and paper work done then it did to deploy the first phase of the eGain Solutions." And he also said that in the last six months, they have rolled out 16 BPO clients. Those are CompuCom client on their digital service platform. It was a proud moment for eGain.

Our team delivered on the promise to make it easy with eGain. In closing, we continue to be the company to beat in the digital customer engagement market. And based on the systematic investments and strategic adjustments over the past several quarters, I'm confident that we will grow our business successfully in fiscal 2016 as a cloud business.

With that, let me ask Eric Smit, our Chief Financial Officer to share his comments on our financial performance.

Eric?.

Thank you, Ashu and thanks for joining us today. Before I begin my prepared remarks I would like to note that as Charles stated, the numbers I'll be sharing are non-GAAP unless otherwise noted. I will start by reviewing our ACV and booking metrics, then go into details of our financial results and close with an update on our guidance for fiscal 2016.

First, our total subscription and support revenue ACV at the end of the fourth quarter was $43.2 million compared to $41.9 million at the end of the fourth quarter last year, and $42 million at the end of the third quarter of fiscal 2015.

With our commitments to becoming a cloud business, in addition to the total subscription and support revenue ACV, going forward, we will also provide the cloud ACV number separate from our legacy on-premise support ACV.

So for the end of the fourth quarter, our cloud ACV number was $23.2 million, compared to $25.7 million at the end of the fourth quarter last year, and $21.7 million at the end of the third quarter of fiscal 2015.

Now turning to our bookings, gross bookings or revenue plus change in deferred for the fourth quarter was $21.3 million compared to $15.6 million last quarter and $23.7 million in the fourth quarter last year. For the full fiscal year, our bookings were $78.5 million, up 26% year-over-year.

Gross bookings on a constant currency basis for the quarter were $21.4 million, down 9% from the comparable year-ago quarter, while gross bookings on a constant currency basis for the full year were $83 million, up 36% year-over-year.

Backlog as of June 30, 2015 or total deferred revenue plus unbilled and collected, was $42.3 million compared to $36.3 million at the end of the fourth quarter last year. Backlog on a constant currency basis as of June 30, 2015 was $43.7 million, up from $36.2 million from the same period last year.

Now turning to our revenue, total revenue for the fourth quarter was $17.1 million, a 9% decrease from $18.9 million in the comparable year ago quarter. Total revenue on a constant currency basis was $18 million, a 5% decrease year-over-year. For the full fiscal year total revenue was $76.3 million, an increase of 9% from the same period last year.

Total revenue on a constant currency basis was $78.9 million, an increase of 11% from the same period last year. Our subscription and support revenue for the quarter was $10.1 million compared to $10.2 million in the comparable year ago quarter. Subscription and support revenue on a constant currency basis was $10.6 million or up 4% year-over-year.

For the full fiscal year, total subscription and support revenue was $42.6 million, up 5% from the same period last year. Subscription and support revenue on a constant currency basis was $43.9 million, up 7% from last year.

License revenue from professional sales for the quarter was $2.8 million, a decrease of 48% from the comparable year ago quarter while professional services revenue for the fourth quarter was $4.2 million, up 26% compared to the prior year quarter.

For the full fiscal year, license revenue was $18.4 million, up 24% compared to $14.8 million last year while professional services revenue for the full fiscal year was $15.3 million compared to $15 million last year. Looking at the geographic mix, total revenue in the fourth quarter comprised of 51% domestic and 49% international.

For the full fiscal year, revenue comprised of 48% domestic and 52% international. Now looking at our gross profit and gross margins. Gross profit for the fourth quarter was $11.3 million or a gross margin of 66% compared to a gross profit of $13.3 million or a gross margin of 70% 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 75% compared to 80% in the comparable year ago quarter. Professional services gross margin was 22% for the quarter compared to a negative 8% in the comparable year ago quarter.

For the full fiscal year gross profit was $49.9 million or a gross margin of 65% compared to a gross profit of $48.5 million or a gross margin of 69% for the same period last year. Subscription and support revenue gross margin was 76% compared to 82% last year. Professional services gross margin was a negative 4% compared to 5% last year.

Now turning to our operations, operating cost for the fourth quarter came in at $11.5 million compared to $12.9 million in the comparable year ago quarter. For the full fiscal year, total operating costs were $51.4 million compared to $48.8 million last year.

Adjusted EBITDA loss for the fiscal quarter was $307,000 or a loss of $0.01 per share compared to adjusted EBITDA income of $318,000 for the fourth quarter of fiscal 2014. For the full fiscal year, adjusted EBITDA loss was $1.4 million compared to loss of $702,000 last year.

GAAP net loss for the fourth quarter was $2.9 million or a loss of $0.11 per share on a basic and diluted basis, compared to a net loss of $1 million or a loss of $0.04 per share in the comparable year ago quarter.

For fiscal 2015, GAAP net loss was $12.4 million or a loss of $0.47 per share on a basic and diluted basis compared to a net loss of $5.2 million or a loss of $0.21 per share on a basic and diluted basis last year.

Now turning to our balance sheet, cash and cash equivalents and restricted cash was $9.3 million as of June 30, 2015 compared to $10 million as of March 31, 2015 and $8.8 million as of June 30, 2014. Total net accounts receivable was $13.1 million as of June 30, 2015 compared to $11.2 million as of June 30, 2014.

DSOs for the fourth quarter were 69 years compared to 53 days for the comparable year ago quarter.

Total deferred revenue, which includes deferred revenue on the balance sheet of $15.8 million and unbilled deferred revenue that remains off-balance sheet of $26.5 million was $42.3 million as of June 30, 2015 compared to $36.3 million as of June 30, 2014.

Now turning to our guidance for fiscal 2016; to recap the points made by Ashu, we are excited about this journey to becoming a cloud company. The Enterprise market we sell to is ready to adopt the cloud. Our products are now cloud-ready and with the recent traction with the Try+Buy program we are excited about the new go-to-market.

In addition, we are excited with the early success of our migration of our on-premise customers to the cloud. Throughout fiscal 2015 we saw new cloud bookings increase as a percentage of total new bookings. So this gives us confidence that we can successfully transform to a cloud business.

As we make this transition our focus will be on two things in fiscal 2016, one will be to grow our cloud ACV and at the same time to manage our cash flow from operations. Based upon this the current estimate that we will be providing for fiscal 2016 is for our cloud ACV to grow by 25% over fiscal 2015.

In addition our current plan is to target positive cash flow from operations for fiscal 2016. With that said I will now open up the call for questions.

Operator?.

Thank you. [Operator Instructions]. And at this time we will take our first question from Mark Schappel, Benchmark. Please go ahead..

Hi, good evening. Thanks for taking my question. Eric starting with you, no seasonal revenue guidance going forward, and I know there is some uncertainty as you guys make this migration to the cloud and the migration to more subscription revenue.

Is there really that much uncertainty in the business though that you would suspend revenue guidance for the year?.

Yes, Mark. I think that obviously if you look at our results for Q4 and the expectations that we had set in that quarter and where we ended up we feel that at this time really focusing on the cloud ACV and continue to move the business in that direction is the right thing.

We feel that by, even though we obviously have internal expectations as to what the license business will be for the year, what we would rather not get into is influencing our short-term decision making around guidance that we had set around the expectations on that license business.

So that’s the reason for us at this stage of holding back on our total revenue guidance. Obviously this is something that we will monitor from quarter-to-quarter but for now this is the decision that we have made..

Okay, thanks. And then on the Exony business my recollection was that, that business was pretty much a license model.

Is it fair to assume that, that business is also going to be moving pretty much to a 100% cloud business?.

So Mark, this is Ashu here. So you are right in assuming that when we acquired the business it was 100% licensed.

And so we have made investments on the product side to make it cloud ready, and so what you will see moving forward is for us to provide increasing incentives to migrate our customers to the cloud on the Exony, meaning the analytic product as well and that might take a little longer just because it’s a standing start from where it is today, which is 100% license but the direction is the same for those products as well..

I think in addition to that Mark, as Ashu indicated that the Cisco SPlus channel is near [ph] that we are still telling on the direct business and certainly there is elements of that, that would continue from that side..

Okay great. And then the -- I didn’t catch this number Eric that you gave on the call earlier. It was the foreign exchange impact on total revenue.

Could you repeat that one again?.

Sure. So for the total revenue on a constant currency basis was $78.9 million for the full year versus $76.3 million..

How about for the quarter?.

And for the quarter it was $18 million versus $17.1 million..

Okay, thank you. That’s all from me..

[Operator Instructions]. And it appears we have no further questions in the queue. I will turn the call back over to Mr. Messman for closing remarks..

Thanks again everyone for joining us today. Should you have any further questions or comments please feel free to give us a call and we will look forward to talking to you soon on our first quarter earnings conference. Thanks and have a great day..

And again, this does conclude today's conference call. Thank you all for your participation..