eGain Corporation (EGAN) Q2 2012 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the eGain second quarter fiscal 2012 financial results conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. (Operator instructions). I would now like to turn the call over to Charles Messman of BMKR Group.

Good afternoon, ladies and gentlemen, and thank you for joining us today for eGain’s conference call to discuss results for the fiscal 2012 second quarter ended December 31, 2011. Please note, this call is being recorded and will be available to replay form the Investor Relations section of our website at www.egain.com for seven days following this call. Before I begin, I’d like to remind all listeners that all statements in this release and call that involve eGain’s forecasts including, above-stated guidance, beliefs, projections, expectations, including but not limited to our financial performance and guidance, the anticipated growth of our business, market trends, plans to invest in our business and expectations regarding the market acceptance of our products are forward-looking statements within the meaning of the Safe Harbor Provision of the Private Security Litigation Reform Act of 1995. These forward-looking statements, which are based on information available to eGain at the time of this release and call are not guarantees of future results. Rather, they are subject to risk and uncertainties that may cause actual results to differ materially from those set forth from this release and call. These risks include, but are not limited to, the uncertainty and demand for eGain’s products including our guidance regarding bookings and revenue, our expectations related to our operations, our ability to invest resources to improve our products and continue to innovate, our partnerships, our future markets and other risk-related details from time to time and engaged filings with the Securities and Exchange Commission including eGain’s annual report on Form 10-K, filed on September 27, 2011 and eGain’s quarterly reports on Form 10-Q. eGain assumes no obligation to update these forward-looking statements. With me today are Ashu Roy, Chairman and Chief Executive Officer and Eric Smit, CFO of eGain Communications. To begin management’s discussions, I’d now like to turn the call over to Ashu Roy. Ashu?

Thank you, Charles. Good afternoon, everyone. Thank you for joining us today. We are pleased with our new bookings this quarter, it’s up about 44% from the same quarter a year ago. Consistent with our fiscal 2012 booking growth plan, our pipeline is building nicely. As you may recall, we ramped up our sales and marketing investment in calendar 2011. Now we are starting to see some early benefit from it. We continue to systematically invest in our distribution capabilities to capitalize on the substantial market opportunity ahead, especially, in light of the recent market consolidation we all saw happen in late 2011. An exciting trend we are seeing is the increasing demand for enterprise customers for our hosted solutions compared to our on-premise solutions. As you know, we have always been economically indifferent to deployment options. This trend towards more hosting business, however, will depress revenue growth in the short term, even as it results in better and more predictable revenue growth in the medium term. I also want to update everyone on our new relationship with SAP that we signed in January of this year. We are excited about this partnership where we will enhance the SAP CRM application suite with eGain software for customer interaction and knowledge management. SAP and eGain share a vision of delivering radical improvement in business performance powered by software innovation. Our teams are now actively engaged on product integration and go-to market initiatives. We believe that our integrated solutions will redefine CRM in a multichannel world. While the relationship is new, we are optimistic about this potential and we look forward to providing updates in the coming quarters. I also want to point out that this is a revenue share partnership between eGain and SAP, so all the customers that we sign…

Thank you, Ashu. Before I walk you through our GAAP financial details, I want to provide you a quick overview of some of the other business metrics. New bookings, or new contractual commitments for new license and recurring bookings, and in the recurring bookings we include new hosting bookings and new support bookings. The other metric that I’ll be using is gross bookings and gross bookings are a combination of new bookings plus renewals from hosting and support customers as well as build professional services. We believe these are important metrics because in our primary target markets of large business-to-consumer organizations, we find that a number of them have not completely embraced the SaaS hosted option and therefore our hybrid model let’s them decide what deployment offer fits them best. As Ashu mentioned, we are seeing a trend towards more hosted business. In fiscal 2011, the license hosted splits were 76/24 and in the first six months, we saw that mix move to 62/38 license hosting respectively. And looking ahead, we expect the trend towards even more hosting deals in the second half of fiscal 2012. Based upon this trend, we now estimate that our bookings mix for fiscal 2012 will be approximately 45% license and 55% hosting. Now turning to our bookings for the quarter, new bookings for fiscal second quarter were 8.4 million, an increase of 24% from the comparable year ago quarter. New bookings for the six months ended December 31, 2011 were 13.6 million, a decrease of 10% from the same period last year. Note that the six-month comparison was adversely impacted by this very large license deal in the first quarter of fiscal 2011. Of the total new bookings in the fiscal second quarter, 46% were from new recurring bookings and 54% were from new…

(Operator instructions). And it looks like we do have one question from Jon Hickman.

I was wondering, can you talk about the license sale that was deferred, the $1.3 million. Is that…

Sure. Again, there were actually two different transactions in this particular quarter where just from revenue recognition standpoint. In one instance there was just some paperwork that wasn’t completed by the end of the quarter and it was the second purchase order that we received in January, so we were expecting to recognize that portion in this quarter. The second transaction was a budgetary requirement where the customer was looking for extended payment terms for the second portion and so when we get that follow-on purchase order in the fourth quarter, we’ll be recognizing that portion. So we received the contractual commitment but there was still some of the payment obligations weren’t quite fixed yet.

And then can you - I missed your comments, Eric. Did you generate cash in the quarter?

We did not generate cash in the quarter. Again, on the year-to-date basis, we’ve generated 1.3 million. So the cash was down in the quarter, again, from the time difference standpoint primarily due to renewals for the maintenance and support and hosting contracts.

Could you talk about this look into the future of more hosting deals? This is quite a difference - I mean, it’s quite different from your earlier predictions of what the license versus hosting revenues would be. And do you see that like - is that going to be the future? Are we going to get to maybe 25% license and 75% hosted?

Good question, Jon. This is Ashu here. We have already said that we want to provide that choice to our customers and as we are watching the performance through the last two quarters, where we have seen a shift as we shared the data, and when we look at the pipeline, at least for the next six months, we see more hosting opportunities than license. But there’s also a level of, you know, choice that customers seem to like to have, especially in the larger enterprises, like there’s one account that we are working on in the pipeline where the customer just in the last two weeks or so has finally decided to go hosted for that. The whole decision and discussion process was around the license deployment, but when their IT organization looked at the timeframe that they needed to launch the initial implementation, they said, well, we cannot meet the timeline eGain can you help us? And so I think having that flexibility gives us a lot of - I would say an advantage in servicing these larger accounts. It’s hard for us to predict very confidentially. All we can say is what we see in the pipeline, but what we would like to do and make sure we do is keep you all apprised of any changes and anything that becomes more hosting oriented, obviously helps us in the future and so that’s something we just want to be transparent on.

At this time, I show no further questions. (Operator instructions). And there do appear to be no further questions. I would like to know turn the conference back over to you. Ladies and Gentlemen that does conclude the conference for today. Again, thank you for your participation. You may all disconnect. Have a good day.