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

Nick Altmann - Northland Capital.

Good day everyone and welcome to the eGain Fiscal 2016 Third Quarter Financial Results Conference Call. Today's call is being recorded. At this time, I would like to turn the conference over to Charles Messman. 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 third quarter ended March 31, 2016. 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 would 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 turn the call over to Ashu. Ashu..

Thank you Charlie, and hello everyone. I’m pleased with the overall performance during the quarter as we continue our transition to the cloud. In the quarter our cloud booking represented 40% of new bookings, this was up from 25% in the fiscal second quarter. Now cloud represented 34% of our year-to-date booking, compared to 17% year-to-date last year.

With our cloud transition well under way, we are now introducing a new metric, that we have been following internally for the past couple of years, and believe will be good indicator of the overall progress we are making with our sales efforts.

This metric is new subscription ACV, which is the annualized value of the new cloud and term license contract, signed during the period. For the quarter, new subscription ACV was $1.9 million up 159% year over year. Later in the Eric will give more details around the metrics.

I’m also pleased with the continued progress and stream lining our operations, in line with our cloud transition and our easy with eGain brand promise. In the quarter, we delivered $2.8 million in cash flow from operations. We expect that our operating cash flow will continue to be positive moving forward.

Turning to our sales team and a quick update, we have several solid customer win during the quarter. A couple of notable one for us a seven figure cloud deals with IRS that’s the Internal Revenue Service for enhancing digital interaction with tax payers, this by-the-way is our first large cloud deal to the Cisco channel, so that’s significant.

Another nice new wind for us, was Do, a large telecom operator in the middle east, they selected eGain knowledge management solutions for their contact senders, this too was incidentally was a win through the Cisco channels, but unlike, IRS this was a perpetual license.

Now looking at the teams and all the adjustments and reorganization on the sales side that we have been going through, just want to give you a quick update on that. As I shared earlier in the year, when Joe Brown took over the leadership of our worldwide sales team in October 25, he started out by rolling the new land and expand sales model.

This framework is now largely in place on a worldwide basis. Notably the newly created CSM team which is the Client Success Management team, which comprises the expand side of the land and expand sales model.

They have now taken over the install based all the install based customers of eGain and that includes both direct customers as well as our channel acquired customers. So the CSM is focused on the install based success and there by attention on expansion.

While this team is in early days, the increased customer contact, the systematic engagement and focused relationship building is yielding much better visibility. We always anticipated that our cloud transition journey will have efficient bumps especially with some longstanding clients who we may not have engaged effectively in a while.

This CSM now I feel good about, because they will proactively manage and they are starting to do that well proactively manage this process with active engagement and compelling offers.

In the last two quarters, we have affected a big change in our sales model, and I’m pleased with the urgency and transparent management that Joe had brought to the organization.

Already the steady improvement in new subscription ACV for the past two quarters combined with our drawing cloud pipeline that gives me confidence in Joe and his operationalization and his team. But that’s good. Looking at marketing we had a very successful digital day in London in March.

Attendance at this event was up 30% over prior year, which by the way was erected for us last year. So in particular what was nice was that we saw good interest in our Try+Buy program.

And that Try+Buy program which was started about nine-months ago is now integral to our new customer acquisition process and it’s good to see that our Try+Buy program is having the kind of interest in the prospect base. So that’s very encouraging.

The highlights for us of course was the customer success story presentation by everything everywhere which is an eGain client and now a part of British Telecom. They highlighted some jaw dropping numbers in customer experience and operational metric improvement, as a result of using our cloud based knowledge platform.

Internally they call it Albert and this is available and being used by 9,000 contact center agents within EE and over 500 retail stores. I'll give you the highlight. They talked about a 37% increase in first call resolution, 37% increase. They attributed a 20% increase in net promoter score to this system and the use of this system using their process.

They talked about a 43% decrease in training time of agent training time as a result of this system. Honestly, we couldn’t have made up a better story if we had tried.

And then Mark Dearnley the Chief Digital and Information Officer of HMRC the UK Tax Service, tax service seems to be a theme for us presented and talked about how the eGain engagement hub is helping to make their digital by default that’s the tagline, digital by default promise a reality.

That was a very good difference and now our team is actively following up to turn the audience interest into sales pipeline. Looking at the partner side, we've continued to do some interesting things there, some couple of noteworthy items.

First of all, we have now signed renewal will of our OEM agreement with Cisco, but alongside the renewal it’s also a new OEM arrangement and so I'll give you the key pointer around that.

The old OEM we had with Cisco was that our simple email and chat solutions were available on the Cisco contact center enterprise platform as an incremental and optional purchase for clients. So they would have to pay additional amount of money to buy the OEM version of eGain chat and email the single versions.

What we have done with the new OEM is taken the same simple email and chat capabilities largely, but not that is going to be embedded as a bundled OEM with every feet of the Cisco contact center enterprise product.

So every agent, phone agent who is going to be using the new version this is some time starting around summer of 2016 is when this is going to be up for general availability. That product will have embedded email and chat simple versions from eGain.

What is exciting about this is first of all, we do believe that we will get increase in the overall OEM royalties are the results of that which is good.

Second, just of much more deeper and more strategic kind of relationship with Cisco and we are looking at some other areas where we can expand in terms of simplifying and easing the use of the rest of the eGain portfolio like knowledge and analytics in ways that we did not have before, and so we will share of that as we get more details around it.

And the last piece, which is good for us that we as part of this deal also received a $5 million pre-pay in early April, which is not in the March quarter but in April.

And that’s good because as we continue to affect our cloud transitions, we want to make sure that we have enough cash flow so that we can manage this transition effectively, so that’s very nice. On a sort of new partner note but still very early days.

In March at the Enterprise Connect Show in Orlando Florida, we announced an eGain's mapping to Avaya Breeze platform. And this was a presentation that one of our sales leader maybe alongside [indiscernible] ahead of products for Avaya in that key note for a few seconds there obviously there is preference, but that was notable.

What this mapping does is that it allows mobile phone customers, customers who are calling in with mobile phones which is majority of all the callers now into contact centers. While the waiting in the IVR queue they can.

If they want to look for a digital type service by pressing a button on the IVR option and that sends them an SMS text with a URL link and while they keep their position in the queue. They can go click on the URL and check out eGain knowledge in the cloud, which would have been bootstrap with all the information there supplied in the IVR till then.

They can enter more information, they can be guided to the right answer through the eGain help service and then if they like the answer they can just hang up and they are dump and if they don’t they don’t lose their position in the queue.

Very nice simple, but powerful integration of the voice world and the digital world with our knowledge product in the cloud. While the Avaya Breeze platform is new to the market that was the announcement Avaya made in March.

The stability to enable partners like us to integrate with the Avaya contact center platform and their large install base in an open secure manner is very intriguing, so we will continue to develop that and keep you posted. In conclusion, I feel like we are well into our cloud transition, I would say we are nearly half way there is my sense.

Our reorganize sales force is better focused now in this new land and expand model, I shared with you the improvement that I'm starting to see on the expand side as well.

And our partnership with Cisco is defiantly getting stronger mutually, and we are now starting to get some early partner interest like I said with Avaya and some others that we are working on. The idea here is to give us more market reach that’s the one thing that we continue to drive even as we move to the cloud with our solutions.

And lastly, we are very mindful of the fact that as we make this transition and we streamline our business toward the cloud model, we have to make sure that we are maintaining enough of an operating cash flow cushion.

So that we can effectively executive this transition, because we have to factor the inevitable client efficient that we know could be part of this transition process as we work through it over the next year or so. So looking forward to the fourth quarter, which we are in now, I do expect to finish this Cisco strong in terms of new subscription ACV.

And thereby we hope to set ourselves up and even stronger fiscal 2017. So with that, I’ll ask Eric Smit, our Chief Financial Officer to add more color around the finance and operations. Eric..

Thanks Ashu. And thanks for joining the call today. Before I begin my prepaid remarks, I would like to note that the numbers I will 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.

As Ashu mentioned, for this call and going forward we plan to share new subscription ACV numbers. Our new subscription ACV for the quarter was $1.9 million up 159% year-over-year and 160% in constant currency. For the nine-months our new subscription ACV was $4.3 million, up 155% year-over-year and 152% in constant currency.

Turning to our total subscription ACV at the end of the quarter, this was $24.2 million up 4% year-over-year and 13% in constant currency. Our total subscription and supports revenue ACV at the end of the third quarter was $44.7 million, up 6% year-over-year and 8% in constant currency.

We will continue to provide the gross booking metric, but to remind that this is a total contract value number that includes renewals, comparisons against prior period often not that relevant due to the timing of multiyear renewals and duration of contract signed, which in our case vary from typically one to three-years, but sometimes up to five-years.

Gross booking or revenue plus change for the third quarter, was $4.8 million down 18% year over year and 4% in constant currency for the months bookings were $47 million compared to $57.1 million for the same period year ago.

Backlog as if March 31, 2015 or total revenue plus un-built and unconnected was $37.5 million compared to $38.1 million at the end of the third quarter last year. Now turning to our revenue, total revenue for the third quarter was $16.3 million compare to $19.3 million in the compared to year ago quarter.

for the nine-month total revenue was 51.8 million compared to $59.2 million in the year ago quarter, the foreign currency impact on total revenue was a net decrease of $508,000 for the quarter and $1.5 million year to date.

Our subscription and support revenue for the third quarter was $10.3 million compared to $10.9 million in the compare with year ago quarter. For the nine-month subscription and support revenue was $52 million compared to $32.5 million in the same period last year.

License revenue from perpetual sales for the quarter was $3.2 million a decrease of 39% from the comparable year ago quarter, this is consistent with our transitions to the cloud, where we are now only operating perpetual licenses though the Cisco channel and to existing on-premise customers.

Professional services revenue for the third quarter was $2.8 million a decrease of 4% compared to the prior year quarter.

this decrease is consistent with our strategic direction as I’ve stated in previous calls, the improvements to our product has simplified our deployment process resulting in a reduction in timing cost for average implementation project.

We have made adjustments to our peers organization to align with this change, as the evidence by our margin improvements, that I’ll get to our later on the call. For the nine-months, license revenue was $10.7 million a decrease of 32% compared to $15.6 million for the same period last year.

Our professional services revenue for the nine-months was $9.1 million compared to $11.1 million a decrease of 17% from the same period a year ago.

Now looking at our gross profit and gross margins, gross profit for the third quarter was $11.1 million a growth margin of 68% compared to a gross profit of $4.6 million or gross margin of 65% in the comparable year ago quarter.

If you look at the break out of gross margin by revenue type, subscription and support revenue gross margin for the quarter, was 74% compared to 76% in the comparable year ago quarter. Professional services gross margins was 12% for the quarter, a significant improvement compared to the negative 28% in the comparable year ago quarter.

For the nine-months gross profits was $35.3 million or a gross margin of 68% compared to a gross profit of $58.6 million or a gross margin of 65% for the same period last year.

subscription and support revenue gross margin was 75% compared to 76% last year, while professional services gross margins for the nine-months was 8% compared to a negative 14% in the comparable year ago period.

Now turning to our operations, operating cost for the third quarter came in at $11.7 million a 5% decrease from $12.3 million in a comparable year ago quarter, for the nine-months total operating cost was $35.8 million a 10% decrease from $39.9 million in the prior year.

Adjusted EBITDA for the quarter was a loss of $280,000 or $0.01 per share compared to adjusted EBITDA of $345,000 or 1% per share profits for the third quarter of fiscal 2015. For the nine-months adjusted EBITDA was break even compared to a loss of $1.1 million or $0.04 per share for the same period last year.

By aligning our business behind in the same model, we've been able to deliver this improvement in our year to date EBITDA even while revenues have declined 12%. GAAP net loss for the third quarter were $3 million or a loss of $0.11 per share compared to a net loss of $2.4 million or a loss of $0.09 per share in the comparable year ago quarter.

For the nine-months net loss $7.6 million or $028 per share compared to a net loss of $9.5 million or $0.36 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 $7.5 million as of March 31, 2016 compared to $9.8 million as of December 31, 2015.

During the quarter, we’ve reached $4.8 million of our bank borrowings and as a result our net sales position improved by $2.5 million in the quarter. Cash flow from operations for the quarter was $2.8 million compared to $994,000 in the comparable year ago quarter.

Total net account receivable was $6.6 million at March 31, 2016 compared to $12.2 million at March 31, 2015. DSOs for the third quarter 37-days compared to 57-days from the comparable year ago quarter.

Total differed revenue which increased both accrued revenue on balance sheets of $14.5 million and un-build differed revenue that remain off balance sheet of $23 million or $37.5 million as of March 31, 2016 compared to $38.1 million at March 31 2015.

Now in summary, as we stated at the beginning of fiscal year, our goal is to be cash flow positive from operations for the year. By streamlining the business aligning behind the new sales model we are still on-track to achieve this goal from fiscal 2016.

Looking at our clouded ACV guidance for 2016, we've made good progress in new bookings as evidence by the growth in our new subscription ACV year-over-year. However, due to attrition levels coming in higher than planned, it is likely that we will fall short of the 25% increase in ACV for fiscal 2016.

As obviously mentioned with the new CSM tem in place, they will be now providing increased visibility to this installed base that we will obviously using in planning purposes as we go forward.

So in closing looking forward Ashu indicated, our progress will be continue to grow our new subscription ACV while streamlining our business operations to ensure that we maintain that sufficient operating cash flow cushion to manage the business as we continues to transition to the cloud.

With that said, I'll now open the call for questions, Operator..

Yes, thank you, [Operator Instructions] and we will take our first question today from Nick Altmann with Northland Capital. Please go ahead..

Hey guys. I know you gave some color on this low bit earlier, but if you could just elaborate, you guys said that you are about halfway through the transitioning into the cloud.

Is there anymore color you can give on that and how that’s been going and perhaps it timeline for the rest of year is for when that might get wrapped up?.

This is Ashu here. So we the way we see it in fiscal 2016 we have which is this fiscal year now we have been only selling on-premise options or perpetual license options through the Cisco channels for new customers and to some large existing clients who have been in the perpetual on-premise mode for some time.

And that we are going to increasingly, the Cisco part we have less control over, but my sense is that by - as we look at fiscal 2017 that’s when the change on the number of cloud opportunities coming through the Cisco channel are going to go up.

And that by the end of fiscal 2017, I do expect that our perpetual license business is going to be quite small enough that on a new booking basis we will essentially be focused on just the subscription ACV, which is where we want to end up.

So that’s how I’m looking at the journey as looking at the mix five quarter then we have substantially completed the transition.

Does that help?.

Yes. Thank you..

[Operator Instructions] It appears there are no other questions. So I would like to turn it back to Charles Messman for any additional or closing remarks..

Want to thank you for joining us today. Should you have any further questions or comments, please feel free to give us a call. Thanks and have great day..

Thank you very much. And that does conclude today’s conference for today..