Charles Messman - Vice President of Finance and Corporate Development Ashutosh Roy - Chairman, President and Chief Executive Officer Eric Smit - Chief Financial Officer.

Jeff Van Rhee - Craig-Hallum Capital LLC Jim Fitzgerald - Northland Capital Markets Spencer Bogart - Needham & Company, LLC Mark Schappel - The Benchmark Company.

Good day and welcome to the eGain Fiscal 2016 Second Quarter Financial Results Conference Call. Today's call is being recorded. At this time, I'd like to turn the conference over to Charles Messman, Vice President of Finance and Corporate Development. Please go ahead sir..

Good afternoon and thank you for joining us today for eGain's conference call to discuss results for our fiscal 2016 second quarter ended December 31, 2015. Please note the call is being recorded and will be available for replay on the Investor Relation section of our website at www.egain.com for seven days following this call.

Before we begin, I'd like to remind all listeners that this conference call contains forward-looking statements within the meaning of the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995.

These forward-looking statements include our belief that we are seeing and will continue to see benefits of the Company’s organizational changes, including our growing business pipeline, particularly around new cloud business, the Company’s belief that it will finish the fiscal year strongly, and that we can execute our new land and expand strategy among other matters.

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

The risks and uncertainties referred to above include, but are not limited to our ability to capitalize on customer engagement; the success of organizational changes; risks that our hybrid revenue model and lengthy sales cycles may negatively affect our operating results; risks related to our reliance on a relatively small number of customers for a substantial portion of our revenue; our ability to compete successfully and manage growth; our ability to develop and expand strategic and third-party distribution channels; risks associated with new product releases; risks 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 11, 2015, and eGain’s Quarterly Reports on Form 10-Q, which are available on the Securities and Exchange Commission’s website at www.sec.gov.

These forward-looking statements are based on current expectations and speak only as of the 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 impact of purchase accounting adjustments to deferred revenue related to acquisitions, depreciation and 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 represent 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 discussion, I'll now turn the call over to Ashu.

Ashu?.

Thank you Charlie, and good afternoon everyone. I am pleased with our performance this quarter. Gross bookings were up 35% year-over-year. Notable deals include a leading U.S.

financial institution, they selected eGain’s Knowledge Solution in the cloud, a large Cisco SolutionsPlus expansion deal for digital service and a significant expansion with the Veterans Administration for web self-service. We are making steady progress in our journey to the cloud.

31% of our year-to-date new bookings has been in the cloud compared to 13% year-to-date last year. And this trend should continue to improve as our direct sales, land pipeline gets filed with cloud only opportunities. Note that we still continue to sell on-premise license to new logos through our Cisco SolutionsPlus reseller channel.

As we have mentioned before this channel is slowly, but surely moving towards selling cloud with our tactical assistance and nudged by Cisco’s corporate direction towards the cloud.

On the business front, we significantly improved our adjusted EBITDA and cash flow during the quarter by streamlining our operation behind our strategic direction and lining up with our new land and expand sales models. Our year-to-date operating expense is down 16% year-over-year including a 21% year-to-date decrease in sales and marketing costs.

And we are doing this while still improving overall sales performance and growing our pipeline. Most of the efficiency has come from our sharper geographic focus, process simplification and ongoing performance management.

On the sales front, Joe Brown our new Head of Sales has now completed his rollout of land and expand strategy across North America and Europe. Aligning with our transition to the cloud, Joe has focused our direct sales effort in Europe to more cloud friendly markets. UK and select Northern European markets that is moving forward.

We will serve the Southern Europe and dark regions through a small set of trained partners who have been working with us in the past and so should be a smooth transition. A quick update on some of the other initiatives that we have mentioned on recent calls.

First, our Try+Buy program continues to be a weapon of choice for our sales team to showcase our ability to guide clients to quick value. This program continues to help us, shorten sales cycles, and earns us a near incumbency status during the customer selection process.

Second, Nimbus, our on-premise to cloud migration program is moving along well even though we did not close any notable Nimbus deal this quarter mostly due to end of year. Three, in production environments for clients that are in holiday season.

Our Nimbus pipeline is growing nicely and we expect to close several deals in the back half of this fiscal year. Our Cisco partnership continues to develop nicely. This quarter 21% of our revenue was attributable to this partnership and we are seeing larger opportunities being added to our Cisco SolutionsPlus pipeline.

For the next 12 months, we are focused working with Cisco on training and enabling more of their sales and partner teams to easily sell and implement the eGain Cloud. As we have mentioned on the last call, we held a very successful Digital Summit in Chicago in October last year.

Yesterday, we announced our Digital Day London event scheduled for March 8.

This event will feature an outstanding roster of eGain customers success stories including one by Mark Dearnley, Chief Digital and Information Officer for HMRC, and Nick Lane, Managing Director for Customer service to Everything Everywhere, which is now part of British Telecom.

In our Innovation Pavilion during the Digital Day, we will showcase eGain Solution such as AI knowledge, digital self-service, omnichannel advisors tools, and customer journey analytics. If you wish to attend the event please get in touch with Charles Messman from eGain. To sum up, we are making good progress in our journey to the cloud.

Our sales team under Joe Brown is rejuvenated and focused. They are successfully walking the talk with our Try+Buy program and our business reengineering effort in line with our cloud journey and the land and expand sales model is showing results with improved productivity, margin and better cash flow.

With that, I will now turn the call over to our CFO, Eric Smit.

Eric?.

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

Our cloud subscription ACV at the end of the quarter was $22.8 million up 4% year-over-year and 6% in constant currency. Cloud ACV this quarter was negatively impacted by one customer reduction of approximately 700,000 ACV.

The reduction was due to a change in business strategy by the customer resulting in the delay in the global rollout of our product. As a result the customer renewed, but at a lower level and we are still actively engaged with this customer.

Our total subscription and support revenue ACV at the end of the second quarter was $43.3 million up 4% year-over-year and 7% in constant currency. Gross bookings or revenue plus change in deferred for the second quarter was $20.3 million up 35% year-over-year and 42% in constant currency.

For the six months bookings were $34.1 million compared to $41.6 million for the same period a year ago. Backlog as of December 31, 2015, or total revenue plus unbilled and uncollected was $41 million compared to $41.7 million at the end of the second quarter last year. Now turning to our revenue.

Total revenue for the second quarter was $19 million compared to $19.1 million in the comparable year ago quarter. For the six months, total revenue was $35.5 million compared to $39.9 million in the year ago quarter. The foreign currency impact on total revenue had a net decrease of [$445,000] for the quarter and $1 million year-to-date.

Our subscription and support revenue for the second quarter was $10.8 million compared to $11 million in the comparable year ago quarter. For the six months subscription and support revenue was $21.7 million up slightly from $21.6 million in the same period last year.

License revenue from perpetual sales for the quarter was $5.1 million, an increase of 40% from the comparable year ago quarter. The increase in license revenue was primarily attributable to two large expansion deals through our partner channel.

Professional services revenue for the second quarter was $3.1 million, the decrease of 28% compared to the prior year quarter. The decrease in PS revenue is consistent with our strategic direction. As previously stated, we have made improvements to our products that has simplified our deployment process.

As a result we have seen a 40% reduction in time and cost for average implementation projects. This is good for both eGain and our customers. We have made adjustments to our PS organization to align with this change, which is evidenced by the 600 basis point margin improvements in the quarter.

For the six months license revenue was $7.5 million, a decrease of 28% compared to $10.4 million for the same period last year, while professional services revenue for the six months were $6.3 million compared to $7.9 million, a decrease of 20% from the same period a year ago. Now looking at our gross profit and gross margins.

Gross profits for the second quarter were $13.6 million or a gross margin 71% compared to a gross profit of $11.5 million or a gross margin of 60% in the comparable year ago quarter.

If you look at the breakout of gross margin by revenue type, subscription and support revenue gross margin for the quarter was 75% compared to 74% in the comparable year ago quarter. Professional services gross margin was 13% for the quarter compared to a negative 7% in the comparable year ago quarter.

As previously stated this margin improvement came, while we saw PS revenues decreased year-over-year. For the six months, gross profit was $24.1 million or a gross margin of 68% compared to a gross profit of $26 million or a gross margin of 65% for the same period last year.

Subscription and support revenue gross margin was 75% down slightly from 76% last year. Professional services gross margin for the six months was 6% compared to a negative 8% in the comparable year ago quarter.

Now turning to our operations, operating costs for the second quarter came in at $12.4 million, a decrease of 12% from $14.1 million in the comparable year ago quarter. For the six months total operating costs were $24 million, a 13% decrease from $27.6 million in the prior year.

Adjusted EBITDA for the quarter was $1 million or $0.04 per share compared to adjusted EBITDA net loss of $2.4 million or a loss of $0.09 per share for the second quarter of fiscal 2015. For the six months adjusted EBITDA was $274,000 or $0.01 per share compared to a loss of $1.5 million or a loss of $0.06 per share in the same period last year.

GAAP net loss for the second quarter was $1.4 million or a loss of $0.05 per share, compared to a net loss of $5.5 million or a loss of $0.20 per share in the comparable year ago quarter.

For the six months net loss was $4.6 million or a loss of $0.17 per share compared to a net loss of $7.1 million or a loss of $0.27 per share on a basic and diluted basis for the same period last year.

Now turning to our balance sheet and cash flows, cash and cash equivalents was $9.8 million as of December 31, 2015 compared to $8.6 million as of June 30, 2015. Cash flow from operations for the quarter was $2.4 million compared to cash used of $1.8 million in the comparable year ago quarter.

As we stated on our first quarter call, our goal is to be cash flow positive from operations this quarter. We made good progress towards achieving that goal and based upon our ongoing reengineering of our business, we are still comfortable with this target for fiscal 2016.

Total net accounts receivable was $10.8 million as of December 31, 2015 compared to $10.7 million at December 31, 2014. DSOs for the second quarter were 51 days unchanged from the comparable year ago quarter.

Total deferred revenue, which includes both deferred revenue on the balance sheet of $12.7 million and unbilled deferred revenue that remains off balance sheet of $28.3 million plus $41 million as of December 31, 2015 compared to $41.7 million at December 31, 2014. In closing, we are pleased with our overall financial performance this quarter.

We are reengineering our business, aligning behind the new sales model in pursuit of our cloud strategy. Most importantly even as we make these adjustments we will continue to drive growth and bookings and are still targeting the 25% increase in Cloud ACV for fiscal 2016. With that said, I will now open the call for questions.

Operator?.

Thank you. [Operator Instructions] We will take our fist question from Jeff Van Rhee from Craig-Hallum..

Great, thanks. Ashu with respect to the sales efforts, can you talk about the sales sort of redirect I know there have been ebbs and flows have really devoting a lot of resources to Cisco and then you were ebbing away.

Can you just talk about what's changed in last three months to six months with respect to the sales specifically where your pointing heads and spending efforts in driving lead gen , and really working on your alignment?.

Yes, sure. Jeff so as we are now with all the changes sort of complete starting with sort of what Joe did in October. As we had talked earlier, but now we have completed the reorganization of the sales team into three buckets. So the top level, we have the land team, which is focused on direct sales new logos.

We have a channel sales team that is focused on helping mostly Cisco and Cisco reseller partners, but also non-Cisco resellers we have few of those but not as well.

So those are the first two land and channel sales and then underneath that is the expand team, which is taking care of all existing customers and up sell and cross sell to existing customers.

So with those three buckets one, two and three, in the first bucket every time we have 14 quota carrying reps, in the second bucket which is channel sales we have nine reps and then in the third bucket, which is expand, we have 12 reps. So you can put all that together, we have 35 sales rep now organized in the way I just described..

And can you just talk to tenure in terms of how that's changed are these mostly folks you had 6 to 12 months ago or is there been significant changes where we’ve got tenure to think about..

Yes, so I’d say that those people probably let me just think about it for a second..

I can ask Eric two question, while you are digging [indiscernible]..

Yes, I think roughly I’d say 20% of those would be new, new has been in the last six months..

Okay.

And Eric I missed that you said something when you are commenting on professional services, you said something dropped by 40%, but I guess I go back and relisten to it, but if you recall what that was in your script?.

So this is the average implementation time and cost so just with the simplification those just taking less time and therefore costing less for an average implementation..

Okay. Obviously, the license deals are unpredictable and you're pushing aggressively to get to the cloud and had sort of left open with not much guidance what to think of or what to expect on the license side. Anymore thoughts here, I mean certainly that license number being up year-over-year.

What is the pipe look like there, what do you have, can you put any bounds around, what would be a disaster and what would be a great performance there or any other way to think about license performance?.

Let us think about it and get back to you.

I don’t think we have any of the answer right now, but Eric do you have thoughts?.

So I think that we’ve got a baseline on the Cisco side. So if we look at last quarter that’s probably a more representative number that we would see from a steady state business..

Last meaning first quarter….

The first quarter of this fiscal year..

Okay, got it. And then in cash flow I think the previous guide had been right cash flow positive for the year, but I was unclear from some of your comments earlier when you are talking about how to think about the next couple of quarters.

Are you thinking we stay positive here in each of the next few quarters from cash from operation standpoint or how do we think about that?.

That’s the plan, yes..

Okay. And last one then for me as it relates to Cisco, obviously the – you’re putting considerable effort over time and there had been a window there where you were giving some quantification of metrics in terms of deals and the pipe deals closed that kind of thing.

Is there any sense that you can give us of is there a steady state acceleration, deceleration any thoughts on how you can help us with what's working through the Cisco relationship?.

I don’t have it handy right now, Jeff sorry, but something we can look into and see if we can provide more color..

Okay. That’s it from me. Thank you..

Thank you..

We’ll go next to Mike Latimore from Northland Capital Markets..

Hi guys. This is Jim Fitzgerald staying in for Mike Latimore.

So just to build on Jeff's questions a little bit on the sales organization since Joe Brown has come in, there been any changes in terms of sales incentives are people more incentivized now under Joe's leadership to sell cloud and say they were prior to his appointment?.

So two comments there Jeff. One is yes, the short answer is that there is greater incentive to sell the cloud now for those who are allowed to sell on-premise as well. In other words, in our direct land team which is the 14 reps we talked about. They are not allowed to sell new logos that are on-premise.

But just know they don’t have a SKU for that, so that’s very clear. Then the Cisco folks who are in the channel sales they are allowed to sell on-premise as well as cloud. And for them as well the bias is toward incentivized, the bias is toward cloud sales.

And finally on the expansion side which is existing customers there is a clear incentive to migrate them over to the cloud in terms of compensation..

Okay, great.

And then within that on that expand team are you guys seeing any large customers that are currently on maintenance why to make the shift to cloud any large opportunities there?.

We have seen, yes. So that’s the pipeline I talked about even though in Q2 we did not close any significant Nimbus deals, Nimbus being back on that on-premise to cloud migration program that we have that we expect that in Q3, Q4 will have some good Nimbus opportunity is closed..

Okay, great.

And then looking at your pipeline and some of the prospects in there, what are these cloud prospects really looking for, are they looking for a full suite, are they looking more for on specific apps, what do you see your pipeline looking for in terms of some of the bigger opportunities?.

So the two biggest areas, the first one is knowledge that’s the number one pull we are seeing. Knowledge as a whole suite of capability not knowledge all the way from self-service through to the contact center so that’s one bucket. And the second bucket is what we call SuperChat which is digital engagement with customers.

So centered around chat but wrapping in proactive engagement using chat, cobrowse, video all those capabilities as one sort of digital suite. Those are the two things we see the most interesting right now..

Perfect. Well, that’s it for me. Thanks guys..

We’ll go next to Spencer Bogart from Needham & Company..

Hey guys, thanks.

So drilling into the gross bookings number here a little bit the up 35% number included some license, what would cloud bookings be without that license deal?.

So that’s the number that we haven’t been breaking out, sorry..

Okay.

And maybe instead if you are drilling into that bookings growth how much of it was maybe from new customers versus existing?.

So again this is something that we haven’t historically broken out. I think we can – at this point..

Okay.

Above in your comments there was – you had some comments around shortening sales cycles of the trend by, are there any metrics that you can share about maybe how these sales cycles compare in lengths?.

So we are not at a point where we have so much data that we can give you a trend line on it. What we are seeing is that we are able to get more of the undecided sort of engagements they seem to move into selection phase when we can get them into Try+Buy mode.

So that’s – it’s more a – for us right now it’s a qualitative shift that we are watching for and our goal is our historic sales cycles have been in the 12-month range and our goal is to bring that closer to six months to nine months and that’s - but we don't have enough data to point to trend line yet..

Gotcha okay..

I can give you anecdotal that it would not be right and obviously I’ll be biased to give you the examples where we close something in four months..

I hear you.

And not to drill too much into Cisco here, but clearly in the quarter we see the impact that they’re having in the license revenue side, when do you think you might see them start to spin up their efforts around cloud a bit more?.

So we’re working very actively with them. I think it'll take a little time just because it’s a big machine on the other side, the whole sales engine and so my sense is that the significant cloud sales from Cisco channel I expect that more in the early fiscal 2017 timeframe than in fiscal 2016 for us.

There will be some cloud sales from them, but I don’t think it will be a huge shift in the next two quarters for us..

Got it. Thank you..

We’ll go next to Mark Schappel with Benchmark..

Hi good evening. Eric, in your prepared remarks I believe you mentioned that Cloud ACV was unfavorably impacted by a single large customer that or a single customer anyways that changed the deal or changed the deal terms at the eleventh hour.

I was wondering if you could provide some additional details around that particular transaction?.

Sure.

So actually it was initially a three-year deal so we’d this customer in place and so it was coming up for renewal that what it happens in that three-year period is that due to internal changes at the Company, what was originally slated for global rollout this is a large multinational firm that had initially deployed eGain in the number of separate countries around the world and then come to us and signed up for a global deployment.

At the start of that project they had some internal reorganizations that resulted in this global project being put on hold and so they ended up paying us for that entire three-year period for what they had contracted for, but at the time of the renewal when we are working with them up until that time it was clear to us that they hadn’t deployed the level of products that they had originally licensed or purchased with the first deal and therefore it was scale back to reflect really the current usage.

So we’re still actively engaged with the customer and project is not completely dead. I think there is opportunities for this to further expand in the future, but hope you that helps..

Great. Thank you.

And then one final question Ashu, could you just run through a few of the additional details from your strategy shift in Europe that you I believe you mentioned in your prepared remarks?.

Sure. So before we made the changes, we had a direct presence, we have built up some direct presence in France and in Germany. And so our old model was to build some direct capabilities sales capabilities in France and Germany.

As we looked at our cloud strategy and as we are moving more and more into cloud only kind of model, we felt that the cloud both the France and German markets while they are moving towards the cloud, they’re still not as cloud friendly I say the UK and some of the Northern European markets.

And so we decided to focus in Europe, our direct sales attention on to the UK and Northern some of the select Northern European, mostly Scandinavian markets.

So that’s the change and then what we have done with France and Germany is to – we are transitioning that into a partner oriented in-direct model and working with a couple of existing partners any geography who we have had in the past and so that’s the approach we are taking for those two markets..

Thank you..

Sure. End of Q&A.

[Operator Instructions] With no further questions in the queue, I would like to turn the call back over to Charles Messman with any additional or closing remarks..

Well, I thank everyone for joining us today. Should you have any further questions or comments please feel free to give us a call and also want to reiterate that we would love to have you attend our Digital Day in London on March 8 this 2016. And if you have any desire to that please call me. We will talk to you on the next call. Thank you..

This does conclude today’s conference. We thank you for your participation..