Good day and welcome to the eGain Fiscal 2016 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 Mr. Todd Kerhli of MKR Group. Please go ahead, sir.

Thank you, operator, and good afternoon everyone, and thank you for joining us today for eGain's fiscal 2016 fourth quarter and full year financial results conference call. Please note that this call is being recorded and will be available for replay on the Investor Relations section of our website at www.egain.com. 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, among other matters, our belief that we are seeing and we'll continue to see the benefits of the Company's transition to a cloud-based business and will continue to see success in implementing a land-and-expand sales model, and that the enterprise market is increasingly preferring our broad and deep customer engagement suite delivered with the security in cloud. 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 the forward-looking statements we made. The risks and uncertainties referred to include but are not limited to our ability to capitalize on customer engagement, the success of our organizational changes, risks that are hybrid revenue model and lengthy sales cycles may negatively impact 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,…

Thank you, Todd. Hello everyone. We have made significant progress this past year with the strategic transition of our business and we are clearly demonstrating movement to the cloud. As you look at our performance for the year, you see that our new subscription ACV for the year grew nicely year over year, and that was about 113% growth year over year. For the quarter, our new subscription ACV was up 76%, and our total subscription ACV for the year was up 19% on a constant currency basis. If you look at our revenue, the top line revenue was impacted by three factors. The perpetual license revenue was down $3.9 million year over year, due to a mix shift towards subscription which is [inaudible]. The PS efficiency benefits, the professional services part, which is something that we've been talking about for some time and that's the idea of driving more automation and simplification in our solutions when we implement them for customers, and we are passing on those automation and simplification benefits to our customers, and that resulted in our PS revenue reducing by $3.2 million through the whole fiscal year. Now, we have been noting the fact along with that that increased efficiencies and better utilization has improved our gross margins on the professional services side going up to 11% for the fiscal year 2016 compared to minus 4% for the prior year. And the last bit which was an impact on the revenue line was the currency impact on total revenue of a little over $2 million, $2.1 million, and that was across all lines of revenue stream, including license and professional services, but roughly half of that or a little more than that can be attributed to the rest of the revenue which is around subscription and…

Thank you, Ashu, and thanks for joining us today. Before I begin my prepared remarks, I'd like to note the numbers I'll be sharing are non-GAAP unless otherwise noted. Included with the press release is a supplemental table that provides a reconciliation of the non-GAAP to GAAP numbers. I'll start by reviewing our ACV and booking metrics for the quarter and fiscal year then go into details of our financial results. Our new subscription ACV for the quarter was $3.4 million, up 76% year over year and 93% in constant currency. For the fiscal year, our new subscription ACV was $7.7 million, up 113% year over year and 124% in constant currency. Our total subscription ACV at the end of the year was $25.4 million, up 10% year over year and 17% in constant currency. And our total subscription and support revenue ACV at the end of the fiscal year was $43.5 million, up 1% year over year and 9% in constant currency. We continue to provide the gross bookings metric, which, remind you, that this is a total contract value number that includes renewals, comparisons against prior periods are not often relevant due to the timing of multiyear renewals and durations of contract signs, which may vary from one to five years. Gross bookings or revenue plus change in deferred for the fourth quarter was $26.9 million, up 26% year over year and up 42% in constant currency. For the fiscal year, bookings were $73.9 million, compared to $78.5 million in fiscal 2015. The foreign currency impact on gross bookings for the year was $5.2 million. Backlog as of June 30, 2016, or deferred revenue plus unbilled and uncollected, was $46.8 million, compared to $42.3 million at the end of the fourth quarter last year. Now turning to our…

Thank you. Thank you very much, Eric. Let's look at some of the things that we feel we will be able to accomplish and we're targeting for fiscal 2017. Number one, our new subscription bookings should continue to grow, compared to fiscal 2016, and we think that we will be able to have a majority of our new bookings from subscriptions in fiscal 2017. If you recall, we did 44% of our total booking - new bookings were subscription in fiscal 2016. Looking at revenue, it's likely to be flat year over year in constant currency terms. Three reasons. One, the perpetual license revenue is likely going to be down year over year as we mix shift towards more subscription sales. Our services revenue is likely to be flat because we want to continue to drive automation and pass on the efficiency benefits to customers, and we think that's the right way for us to drive our business and client success. And then finally, the subscription and support revenue is going to be impacted by a significant reduction of about $5 million ACV with one client, and this reduction is going to be effective in January of 2017. So we are going to experience roughly half of that impact in fiscal 2017. And so all these three things put together is going to be a result that we think the revenue will be roughly flat year over year. But equally importantly, we continue to believe that, in this transition period, we must run a positive cash flow business from operations, and that's something we will attempt to do and we believe we will be able to do in fiscal 2017. And the reason we are not setting targets on the profitability or the EBITDA numbers at this time is we just feel that we are at an inflection point in terms of starting to reinvest in our front-end sales and marketing. We feel that we're still refining the sales productivity and the sales model and we want to have the flexibility that we can turn on the gas sometime in - through this fiscal year as we see the productivity level at a point where we are comfortable [inaudible] from thereon. That ends our prepared remarks. I'll open up the line for questions. Operator?

Thank you. [Operator Instructions] We'll take our first question from Jeff Van Rhee with Craig-Hallum.

Great. Thank you. Thanks for taking the question. So, a few questions for you guys. First, I guess, the cloud, in the guidance you just gave for 2017 saying it's going to be over half, obviously fairly aggressive transition to cloud 2015 to 2016. We're now at 44%, so, certainly 50% isn't much of a stretch here. Can you give us a little better sense of where you think that might end up even if it sits within a range? You had been on obviously a very aggressive transition that suggests a little slower transition. Just want to be clear there.

Yeah, that's a good question, Jeff. Thanks. So we believe that we'll be able to get to better numbers than that, Jeff. Because if you look at where we are now selling, all our direct sales is cloud-based except for some, like a handful of existing customers where we're still selling add-ons in the on-prem world. And then the only place where we are looking at the perpetual model still is the fiscal channel. So I think the number is going to be north of that 50% number, and perhaps as we get more clarity through the quarters, we can start to up that guidance.

I mean, would 60 be a shock? I mean, is that reasonable but -- still early but reasonable, or how would you?

It's achievable but that's not the guidance we are putting out right now.

Okay. Professional services in the guide is flat. It's obviously come down considerably and with the heavier license install that obviously pulled a lot more PS with it. So, I guess, with license being expected to be down, and the commentary about the cloud installs just themselves requiring less PS? I'm somewhat surprised I guess that you're looking for that to be flat. I would have thought it would be down as well. So, can you just fill in the gaps there?

That's a good point, yeah. So, two things there. One is, I think the volume of business we are handling is growing in terms of the number of installs and number of customers, number of new logos. That's one countervailing factor. And the other is that we are starting to play with early days so we are not really talking too much about it yet. We're starting to play with the notion of managed services for some of these on-prem customers so that we can wrap a layer of ongoing professional services to make them much more successful.

Okay. You mentioned a few financial services customers you had to migrate. If you move somebody from the premise model to the subscription world, how does the annual maintenance revenue stream for premise customer compared to an annual subscription revenue stream for that same customer roughly?

Okay. Rough number is, if someone was paying us $100 of annual support, they would pay a total of $200 rough every year, which would include that support, et cetera, everything now wrapped into the subscription model.

Yeah, got it. Okay. And then just a couple others. Any color you can provide on understanding the overall bookings number, it has got its flaws, we've now got a new cloud ACV number, we've got an overall cloud ACV number. Within those three metrics, can you give us a little better sense of how you're thinking about those in dollars absolute growth trends? Any incremental color there would be great.

You want to talk about that, Eric?

So, Jeff, maybe if you can elaborate a little bit more on that, just from a, are you talking about absolute dollars terms, is that --?

Yeah, just how you're thinking about, say, cloud ACV growth, you know, as we get to, say, the end of fiscal 2017, you know, versus 2016, or the new cloud bookings numbers. I mean, just a little better semblance of how you're thinking about those two would be helpful.

So I think at the moment, I think to Ashu's point, the -- if you look at the current levels of investment that we have in sales and marketing, we're striving towards, at this stage, increasing the productivity to a level, to a point where we start increasing the investment maybe towards the second half of the year. So to that extent, you know, again we expect this number to grow, but at this point aren't looking to provide a specific number to what that is, because part of that's going to be a function of how much do we look to invest in this business to maybe accelerate that growth in the back half of the year.

Okay. Then just one last one to follow on to that, sales capacity. Where are you in headcount now, how many of those are, say, better than two years of tenure and how are you budgeting for 2017?

So we ended up the -- so we have, and I'm giving you rough numbers right now because there is flux going on, but we have roughly 30 quota-carrying reps right now. That number is somewhat fluctuating between 30 and 32. And our goal is to, as Eric said, get the productivity working well and then to scale from there. So that's kind of where we are now. My expectation is that the first two quarters of fiscal 2017, we'll probably maintain the current level of the run rate of Q4 sales and marketing, is where we leap for the first two quarters, and then we think that we would have the opportunity to scale and invest more on sales and marketing in the third and fourth quarters.

And just within those, what percent of those 30 reps now have a couple years of tenure?

Roughly 50% now.

Okay. Okay, I'll let somebody else jump on. Thank you.

Okay. Thanks.

[Operator Instructions] We'll hear next from Mark Schappel with Benchmark.

Hi, good evening. Thanks for taking my question. Ash, starting with you. In your prepared remarks I believe you mentioned that you expect a $5 million reduction in ACV in January from a certain customer. Just wondering if you could just go into a little more detail on that.

Sure. So this is a customer who is choosing to go the other route, in other words, go from cloud back to on-premise. We don't have any other customer who's gone back in the last several years but this is a big customer that we work with. And they'll still continue to use our products on premise, but we will be giving up on the cloud part of the business. And they'll also be reducing the level of use that they have of our products when they go back into the on-premise model.

Okay, thank you. That's helpful. And then if I recall correctly, about a year or so ago, I think turnover in the sales force, let's just say, was above average or much higher than normal. I was wondering if you could just speak to the stability of the sales force that you've seen in the last, you know, quarter or two and maybe some of the changes that you're making there.

Sure. So a couple of things I'll comment. One is that I think the reorganization took some tme to settle down and I think we are at least through the first wave of change and organization is in place in terms of the new direct channel and expand teams. That part is good. I do believe that we will and you will continue to look at performance-based changes. But at this time we feel that this level of performance is sort of much better than the way we were six months ago and this is our target for the next six months. So I guess what I'm saying is that we will continue to have some change in the sales organization over the next six to nine months.

Right. And then one last question here, on last quarter's call I believe you mentioned -- or spent some time going through the relatively new Avaya partnership. And I know it's early days, but I was wondering if you've seen any traction yet there, or maybe [inaudible]?

We are working on it, we're excited about it, but we don't have results to share yet. But it's an area that we see as an opportunity but we don't have results to share.

Great. Thank you. That's all for me.

[Operator Instructions] We will take our next question from Jon Hickman with Ladenburg.

Hi. Can you hear me okay? You made a comment about you felt your halfway through your transition to the cloud. Can you tell me like what are you basing that on? Is it customer percentage or revenue percentage or what?

My way of looking at it is, once we get to that 80% of our bookings coming from cloud, I would say that the business would substantially operate like a cloud business. And that's how I'm thinking of the milestone.

Okay. Okay. So I have another question with you about the $5 million. Is that going to all hit in the January quarter?

No. It -- so, roughly, so for the fiscal year, it's going to be half of that, because it's -- the reduction will take effect in January, middle of January, and therefore the 1.25, roughly 1.25 million in Q3 and 1.25 million in Q4.

Okay. Thank you. That's it for me.

Sure.

[Operator Instructions] It appears there are no further questions at this time. I will turn the call now back to the eGain management for closing remarks.

Thank you all for listening in to our end-of-year conference call, and we look forward to updating you. Just as a reminder, we are hosting our North America Digital Day in Chicago on October 11. Details are on our website, egain.com. We would love to have you all come in and see what we have to talk about in terms of new innovation and customer successes and a great opportunity to learn about what we're doing with clients and how businesses are using our solutions. So I hope to see some of you at that event. Thank you.

This does conclude today's conference. We thank you for your participation. You may now disconnect.