Good day and welcome to the eGain Fiscal 2019 Third Quarter Financial Results Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Jim Byers, MKR Group. Please go ahead sir.

Thank you, operator, and good afternoon everyone. Welcome to eGain's third quarter fiscal 2019 financial results conference call. On the call today are eGain's Chief Executive Officer, Ashu Roy; and Chief Financial Officer, Eric Smit. Before we begin, I would like to remind everyone that during this conference call, management will make certain forward-looking statements, which convey management's expectations, beliefs, plans and objectives regarding future financial and operational performance. Forward-looking statements are generally preceded by words such as believe, plan, intend, expect, anticipate or similar expressions. Forward-looking statements are protected by safe harbor provisions contained in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to a wide range of risks and uncertainties that could cause actual results to differ in material respects. Information on various factors that could affect eGain's results are detailed in the Company's reports filed in the Securities and Exchange Commission. eGain is making these statements as of today May 8th, 2019, and assumes no obligation to publicly update or revise any of the forward-looking information in this conference call. In addition to GAAP results, we will discuss certain non-GAAP financial measures such as non-GAAP operating income. Our earnings press release can be found on the news release link on the Investor Relations page of eGain's website at www.egain.com. The tables included with the earnings press release include reconciliation of the historical non-GAAP financial measures to the most directly comparable financial measures. A replay of this conference call will also be available in the Investor Relations section of the eGain's website. And now with that said, I'll like to hand over to eGain's CEO, Ashu Roy.

Thank you, Jim. Good afternoon everyone. We performed well in the third quarter with both our top and bottom line ahead of consensus estimates. We saw some continued positive momentum and strong business interest in the quarter, and we also completed a successful equity raise to strengthen our balance sheet. This positions us well to execute on our growth plan moving forward. So let me share some financial highlights for the quarter. Our SaaS revenue grew year-over-year by 31%. Our subscription revenue grew year-over-year by a 15%. Our gross margin in the quarter over 70%, up from 66% in the same quarter last year. We were GAAP profitable for the quarter with net income of $1.4 million compared to a net loss in the same quarter last year, and we generated $3.8 million of cash from operations in the quarter. Turning to business performance. We have healthy bookings in the quarter across new customers, expansion opportunities and renewals. A couple of new customers that I want to mention. One is a, one of the larger retailers, apparel and home retailers in the US, a great brand, and we won this account as a replacement of one of the point solution providers. And what was interesting about it was, we got into this account, the sales cycle was extremely short, because we were introduced to a partner in this case, Cisco, and we deployed this customer in two weeks in an enterprise environment for digital engagement. So that's a great example of partnership with Cisco and eGain displacing a competitor -- point solution competitor for one of the largest retailers in the US. So that's a good one. Another one that I feel good about is, one of the leading payment processing providers in the US. They came to us with…

Thanks Ashu. Before I review our quarterly results, I'd like to remind everyone that we adopted the new revenue recognition accounting standard AFC 606 effective July 1, 2018, the start of our fiscal year. And unless otherwise noted, the results I will discuss today are presented in compliance with AFC 606. A reconciliation of the AFC 606 to 605 results is included in our press release we issue today that is available on our website. Now turning to our financials. As Ashu noted, we saw continued positive momentum during the third quarter. We achieved top and bottom line results that were ahead of Street consensus and generated strong cash flow from operations in the quarter. We are pleased to achieve these results despite Q3 typically being a seasonally slower quarter for us from a business standpoint. Now let's look at the numbers. Total revenue in Q3 was $17 million, up 8% year-over-year. Subscription revenue was $15.3 million, up 15% year-over-year and accounted for 90% of total revenue in Q3, up from 85% in the year ago quarter. Breaking out the revenue components, SaaS revenue was $11.8 million, up 31% year-over-year and accounted for 70% of total revenue in Q3, up from 58% in the year ago quarter. While SaaS revenue was essentially flat sequentially, this was driven by the timing of seasonal SaaS revenue. Recall last quarter we talked about approximately $900,000 in seasonal revenue contributing to our Q2 results. While looking at the details for Q3, we had approximately $500,000 in additional seasonal revenue which we do not expect to repeat in Q4. The point being that quarter-to-quarter we are seeing fluctuations in our SaaS revenue and we will continue to see that at our current scale, and the reason why we focus on providing annual versus quarterly guidance.…

Thank you. [Operator Instructions] The first question will come from Ryan MacDonald with Needham. Please go ahead.

Yes. Good afternoon Ashu and Eric. Thanks for taking my questions. Congrats on the great quarter. I guess, first, talking about the partner channel during the quarter, it sounds like obviously Cisco continues to trend well, but can you talk about, what impact that you're seeing if any from sort of the refresh cycle around the CCE 12 better solution and sort of how -- what benefits that having in the current quarter and also on pipelines as we look forward?

Sure. So the -- as you know, we have two streams of business with our Cisco partnership. One is the OEM stream and the other is the retail stream. The OEM stream are something that does benefit from the CCE refresh quite directly, because we get royalties and revenues as part of the embedded OEM that we have with Cisco. So that's a good thing for us. On the retail side, the momentum continues to be positive. We see good -- now that people are deploying the CCE upgrades, they are seeing the value of the digital channels embedded alongside the voice piece in the Cisco platform which is part of the OEM we just talked about. And also, we're seeing more need for omni-channel analytics as a kind of pull through effect, we are seeing some of that where businesses are looking to do better omni-channel analytics. Analytics is one of the areas where we do really well in the Cisco ecosystem. So we see that as an emerging pipeline impact and those are the two comments I'll make for now.

Got it. And then just a follow-up on that. Thanks for the color. With the addition that you mentioned to the executive team and sort of the focus on growth initiatives as we look out into the next fiscal year, can you just talk about -- maybe just generally how you're thinking about sort of balancing growth and profitability as we look into fiscal '20 just given sort of this increased focus on growth initiatives? Thanks.

Sure. So at this point I think a couple of comments I'll make. One, it's very much top of mind for us to accelerate our growth in a justifiable way, which means that we can quite effectively justify the investment we make in increasing that top line growth. So something that we are very mindful of. But what we wanted to do and we continue to want to do is to strengthen our team, because we do need to increase our number of high level initiatives that we will be driving to increase our growth rates. So bringing on the right kind of people who bring an intersection of capabilities and an experience that we want in our kind of verticals that we are looking at to grow in, as well as sort of expertise and intellectual caliber that we think we need to drive growth.

Got it. Thank you very much.

Thank you for your question. The next question will come from Richard Baldry with ROTH Capital. Please go ahead.

Thanks. You're about two months away from the end of the year. So I'm sort of curious with the new equity brought on to bolster the balance sheet. How do you think that changes sort of your growth strategies longer term, maybe in areas of either acquisitions, marketing, hiring, it's a much different position than you've been, say the past two years or so? Thanks.

Sure. So I think to your point, there are essentially three things that the balance sheet strength gives us. One is, implicitly gives us the right sort of derisked provider optics that do help in business. So that happens without us doing much but that's an important one to start with. The second is, just us being able to more confidently roll out our growth investments and to stay with them through the scaling process and do that in a more deliberate and intentional way over a longer period of time. That's something you'll see us do more. So yes we -- and I think Eric mentioned this that on the cost side, we are looking to increase our investments and you'll start to see that starting Q4, which is this current quarter and then of course into fiscal '20. And then the last piece is, new initiatives which could be organic or inorganic and we are looking at both, and that as you know it's a target rich environment right now in the space we are in and we see that there is -- there are several areas where adjacent to our core strength, we could extend not necessarily just for product and capability but also for the ability to acquire new customers in a quicker way in our target market. So those are all things that we are looking at. And as we start to share some of our fiscal '20 plans, it will become more forthcoming.

Great. Thanks.

Eric, do you want to add anything?

No, that's good. I mean, I think at this stage I know it's preliminary but the expectations are not to get into a significant loss situation. So as we ramp up the business, our current view is that we'll continue to be at or above the break even stage on an annual basis, but we'll certainly look to provide more color on that with our Q4 results when we'll come out with our initial guidance for '20.

Great. Thank you.

Thank you for the question. [Operator Instructions] The next question will come from Mark Schappel with Benchmark. Please go ahead.

Hi good afternoon. Thank you for taking my question. Ashu, starting with you, it's my understanding that about 50% of your customers on a customer account basis are still on premise and have yet to migrate to your SaaS offering. I was wondering if you could just trust some of the plans you have in place to encourage the customers to migrate in your SaaS platform. You touched on this a little bit in your prepared remarks as one of you just go a little bit deeper in that?

Sure. So three things I'll mention. One is, we have internally set a goal that by the end of calendar 2020 which is about 18 months or little more than 18 months from now, 20 months from now, we will be -- we plan to be less than 10% of our revenue on the legacy support recurring revenue stream, which is an important market we have laid out. To get to that, we're doing two things. One, we are creating more aggressive offers to these customers, which may not be as commercially profitable for us in terms of uplift, but we think that as we have gone through the migration of the customer we've already migrated to the cloud. We have seen that once customers move to the cloud, they do buy a lot more. And so we are betting on that and we are -- that benefit of added insight, betting on the up, and we are offering more aggressive migration offers to the remaining customers. The second piece that we are driving more aggressively is the gap between our new product as it continues to become more and more capable on the cloud, because we are not doing any development on the legacy -- on premise products anymore that customers are getting to a point where they have to make a choice. But we are not -- yet we haven't brought the hammer down in terms of support and seizing support, but the gap in capabilities continues to grow. So for instance, all the virtual assistant capability that we are talking about with our bot workshop and bot factory offer, those all are available only in the cloud. So there's a lot of that carrot business that we are driving at this point and I think in the course of the next six to nine months we'll probably start to drive the stick element as well, but for now we're driving the carrot parts.

Okay. Thank you. And then in your prepared remarks you mentioned that you brought on a new executive that will help who look to drive growth for the Company in the future. One of the ways at which we were to look in some new verticals as one of you just give us a sneak preview of maybe what some of those verticals that you are currently eyeing?

So given his background which is mostly financial services, I would expect that it's quite likely the first set of capabilities we announce or start to roll out with customers will be in that area, in financial services, which is about 40% of our business today.

Okay. Thank you. That's all from me.

Thank you. [Operator Instructions] I'll now turn it back to eGain management for final remarks.

Okay. Thanks, everybody. I look forward to updating you at when we do our Q4 results, and hopefully get to meet some of you in person at the upcoming investor conferences later this month. Thank you.

Thank you. Ladies and gentlemen, this concludes today's conference. You may now disconnect your lines.