eGain Corporation (EGAN) Q3 2012 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen and welcome to the eGain Third Quarter Fiscal 2012 Results Conference Call. [Operator Instructions]. I would now like to turn the call over to Jim Byers of MKR Group.

Thank you, Operator. Good afternoon, ladies and gentlemen, thank you for joining us today for eGain's conference call to discuss results for the fiscal 2012 third quarter ended March 31, 2012. 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 7 days following this call. Before I begin, I would like to remind all listeners that all statements that involve eGain's forecasts, beliefs, projections and expectations, including but not limited to our financial performance and guidance, 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 provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements, which are based on information available to eGain at the time of this call, are not guarantees of future results. Rather, they are subject to risks and uncertainties that may cause actual results to differ materially from those set forth in this release. These risks include, but are not limited to, the uncertainty of demand for eGain 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 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 27th, 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 discussion, I would now like to turn the call over to Ashu.

Thank you, Jim, and good afternoon, everyone. Thank you for joining us today. We are pleased to report a solid quarter for the company. We delivered strong growth in both revenue and new bookings during our third quarter, growth that reflects continued business momentum. During the last 12 months, we have significantly increased our sales and marketing initiatives to address a growing market for our solutions, as consumer-centric enterprises increasingly demand a single platform for multichannel sales and service. We are seeing positive returns from the investments we have made in our sales force, that we doubled in size over the past year. We are also seeing early contribution from our growing strategic distribution partnerships like SAP that are beginning to show strength with steadily-building pipelines. Thanks to a dynamic competitive environment, our sales investments, our distribution partnerships and product leadership, we see a steady uptick in our win rate in large enterprises. For instance, during the quarter we signed a significant new agreement with a Fortune 50 global technology company that represents the first deal through our new relationship with SAP that we just announced back in February. Also, this quarter we entered into a new partnership agreement with Nokia Siemens Network, or NSN, a leading global technology solution provider, for the telecom vertical. This partnership will help us reach telecom operators in emerging markets, even as our solution strengthens NSN’s turnkey solution footprint in areas of multichannel customer service and cell service. Our OEM partnership with Cisco, which targets enterprises, continues to do well, and our mid-market solution, integrated with Cisco's Contact Center Express product, is now successfully deployed at 2 clients in the U.S., with more scheduled to go live this quarter. As you know, these mid-market deals are smaller, typically in the tens of thousands of…

Thank you, Ashu. Before I walk you through our financial results, I want to provide an overview of our bookings metrics. New bookings, comprising new contractual commitments from new hosting, license and support bookings for the quarter, were $7.5 million, an increase of 98% from the comparable year-ago quarter. New bookings for the 9 months ended March 31st, 2012, were $21.1 million, an increase of 12% from the same period last year. Of the total new bookings in the quarter, 63% were from new hosting bookings and 37% from new license and support bookings. This compares to 44% from new hosting bookings and 56% from new license and support bookings in the comparable year-ago quarter. Gross bookings, comprising new bookings plus renewals and billed professional services for the quarter, were $12.6 million, an increase of 27% from the comparable year-ago quarter. New bookings for the 9 months ended March 31st, 2012 were $21.1 million, an increase of 12% from the same period last year. Of the total new bookings for the 9 months ending March 31st, 2012, 44% were from new hosted bookings and 56% from new license and support bookings, compared to 26% from new hosting bookings and 74% from new license and support bookings in the same period last year. Gross bookings for the 9 months ended March 31st, 2012 were $35.1 million, an increase of 3% from the same period last year. Note that the 9-month comparison was adversely impacted by a large license deal that occurred in the first quarter of fiscal 2011. Now turning to our financial results. Total revenue for the quarter was $11.5 million, an increase of 29% from the comparable year-ago quarter. Total revenue for the 9 months ended March 31st, 2012 was $32.7 million, an increase of 4% from the same…

[Operator Instructions]. And our first question come from Jon Hickman from Ladenburg Thalmann.

I was -- I have a few questions. First of all, can you help me, Eric, with what was depreciation in the quarter?

Yes, just a second, John.

Okay. And then, did I hear you right about stock-based compensation, $234,000?

It was actually -- the stock-based comp is $255,000.

$255,000. Okay.

There was a recent grant to Ashu, because you know that Ashu doesn?t receive any cash comp and so the board had approved a recent grant. So that -- that's along with the increase in hiring. And certainly had an impact on that number. And then on the depreciation expense, was around $230,000.

Okay, then as you have increased your headcount in your sales -- in your sales group, last -- this quarter, sales and marketing jumped to like 52% of sales. Could you give us some guidance about where you expect that number to kind of go during the next year or so?

John, this is Ashu. I think a good way to look at it for us, which is what we do internally, is to track it as a percentage of the new bookings that we are driving. And we sort of look at the economic value that we are generating from the new bookings against the sales and marketing investment that we are putting in, which to put it very simply, kind of breaks down into 2 buckets. One is the ramped-up investments and the other is new investments which have not yet ramped up. So as long as we are driving the new investment in sales and marketing at the rate we are doing now, I expect that the percentage of what seems like a total sales and marketing investment of revenue is going to be in that high-40, low-50s kind of range. Once we start to see that new sales and marketing bucket as a percentage of total start to taper off, if it does, and so far in the next year we think that we should and will continue to drive the new sales and marketing investment because we're seeing the returns on the other side. So to answer your question in a summary form, I think that we are probably going to operate in that zone of high-40s, low-50s for the foreseeable future, given the opportunity ahead of us.

So you doubled your sales force over the last like -- in fiscal -- well, I guess, in the calendar year basically.

Yes.

What -- so what?s the thinking about adding headcount from here on?

So we haven?t yet shared the fiscal ’13 plans and thinking, but in the near term, we feel that we?ve hired quite a few people now and we have a good organization and there may be some sort of temporary slowdown as we digest this growth on the sales and marketing side, but over the fiscal year ’13, I do think that we will pick it up again.

Okay. So for the foreseeable future, you?re kind of willing to spend aggressively to drive the top line?

Yes. And if you look at the bookings that we are generating from the amount of sales and marketing we're putting in, we think that it's more than in line with what the market you'll see with other comparable businesses at this stage of the growth and this kind of opportunity.

So could you offer some guidance about when you might see -- you said improvement over the next 2 years in your recurring revenue line, when do you think that will start to show up?

We?ll certainly look into that and think about providing more information in that area. But at this time, Eric, do you think we can do anything with that?

I think that we'll probably maybe when we do sort of the reports for the fiscal year and look to fiscal ?13, I think we?ll be in a better position to update on that.

Okay, and then, could you, Eric, or Ashu, could you give us, as your recurring revenue increases, you said that, I think margins from that side of the business hit 77% this quarter. Is that correct?

That?s correct.

So where can that go? Can you get it into the low-to-mid-80s eventually?

Certainly over time, I think that certainly our expectation is we would expect to achieve comparable margins to other businesses, you know, similar to ours out there in the market at the respected levels.

At this time, I show no further questions. [Operator Instructions]. And there do appear to be no further questions so I will turn the call back over to our presenters.

Okay, thank you, operator. Thank you, everyone, again, for joining us on the call today. We believe this is an exciting time for eGain. We continue to build a world-class organization and should you have any further questions or comments, please feel to give us a call or our Investor Relations a call. We look forward to talking to you on the end of the fiscal ?12 results. Thank 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.